<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 5, 1996
REGISTRATION NO. 33-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
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
(201) 606-2810
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
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
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. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
===========================================================================================================
PROPOSED PROPOSED
TITLE OF EACH CLASS MAXIMUM MAXIMUM
OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
TO BE REGISTERED REGISTERED(1) PER UNIT(2) OFFERING PRICE(2) REGISTRATION FEE
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value )
$.01 per share.................. ) $100,000,000 $34,483
- ---------------------------------- )
Preferred Share Purchase )
Rights(3)....................... )
- -----------------------------------------------------------------------------------------------------------
Total............................. $100,000,000 $34,483
===========================================================================================================
</TABLE>
(1) Includes shares to be sold pursuant to the overallotment option
granted to the U.S. Underwriters.
(2) Estimated solely for purposes of determining the registration fee pursuant
to Rule 457(o) promulgated under the Securities Act of 1933.
(3) Rights initially will trade together with the Common Stock. The value
attributable to the Rights, if any, is reflected in the market price of the
Common Stock.
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
- ------ ------------------------------------------
<S> <C> <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 February 5, 1996
Shares
LUCENT TECHNOLOGIES [LOGO]
COMMON STOCK
------------------------
OF THE SHARES OF COMMON STOCK BEING OFFERED, SHARES ARE BEING
OFFERED INITIALLY IN THE UNITED STATES AND CANADA BY THE U.S. UNDERWRITERS
AND 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. 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 $ AND $ 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 % ( % 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."
------------------------
APPLICATION HAS BEEN MADE TO LIST THE COMMON STOCK ON THE NEW YORK STOCK
EXCHANGE UNDER THE SYMBOL " ."
------------------------
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
$ .
(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
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 same-day funds.
------------------------
Joint Global Coordinators
MORGAN STANLEY & CO. GOLDMAN, SACHS & CO.
Incorporated
------------------------
MORGAN STANLEY & CO. GOLDMAN, SACHS & CO.
Incorporated
MERRILL LYNCH & CO.
, 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........................... 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....................... 23
Business.............................. 33
Management............................ 50
Arrangements Between the Company and
AT&T................................ 65
Principal Stockholder................. 77
Description of Capital Stock.......... 78
Shares Eligible for Future Sale....... 84
Underwriting.......................... 86
Legal Matters......................... 88
Experts............................... 89
Available Information................. 89
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.
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 are based on the
assumption that the U.S. Underwriters do not exercise their overallotment
option.
------------------------
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"),
one of the world's foremost industrial research and development organizations.
The Company's revenues of $21.4 billion 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).
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 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 applications, including digital
signal processors ("DSPs") for digital cellular telephones and standard-cell
application specific integrated circuits ("ASICs"). At December 31, 1995, the
Company's DSPs were included in more than half of the world's digital cellular
telephones.
3
<PAGE> 7
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. For the nine months ended
September 30, 1995, the Company sold 31% of the corded telephones, 28% of the
cordless telephones and 34% 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
Company intends to continue to utilize its expertise in digital switching,
digital transmission, optical technologies and telecommunications networking
software to provide these systems.
4
<PAGE> 8
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 % of
the outstanding shares of common stock, par value $.01 per share (the "Common
Stock"), of the Company ( % if the U.S. Underwriters exercise their
overallotment option in full). The Company, AT&T and, in certain cases, NCR
Corporation ("NCR") 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.............................. shares
International Offering..................... shares
Total Offerings......................... shares(1)
Common Stock to be outstanding
immediately after the Offerings............ shares(1)(2)
Common Stock to be held by AT&T
immediately after the Offerings............ shares(1)
Use of Proceeds.............................. The net proceeds to the Company from the
Offerings are estimated to be approximately
$ million ($ million if the U.S.
Underwriters exercise their overallotment
option in full). Such proceeds will be used
to repay approximately $ million of
indebtedness outstanding under the Working
Capital Facility (as defined herein) and 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 $ 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 (which is
equivalent to an annual dividend of
approximately $.12 per share of common stock
of AT&T ("AT&T Common Stock") outstanding at
the Closing Date). 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..................................
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 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,
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."
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 statement of operations data for each of
the two years ended December 31, 1992 and the consolidated balance sheet data at
December 31, 1993, 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
-------- -------- -------- -------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
(IN MILLIONS)
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................................ (1,116) 854 666 302 (1,529)
Cumulative effects of accounting
changes................................ -- -- (4,208) -- --
Net income (loss)(1)...................... (853) 523 (3,750) 194 (975)
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Total assets.............................. $ 19,722 $ 17,340 $ 17,109 $ 14,466 $ 13,855
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 balance sheet data at December
31, 1995 for the Company give effect to (i) the Offerings, assuming an initial
public offering price of $ 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 and (iii) 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 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 balance sheet data was prepared assuming that the Offerings and the
Related Transactions had occurred on December 31, 1995.
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.
For unaudited pro forma statement of operations purposes no adjustments are
required except to reflect the number of shares of Common Stock to be
outstanding after the Offerings. On a pro forma basis, net loss per share for
the year ended December 31, 1995 would be $ based on shares of
Common Stock outstanding.
<TABLE>
<CAPTION>
AT DECEMBER 31, 1995
--------------------------------------
ADJUSTMENTS PRO FORMA
HISTORICAL (UNAUDITED) (UNAUDITED)
---------- ----------- -----------
(IN MILLIONS)
<S> <C> <C> <C>
BALANCE SHEET DATA
Total assets................................................ $ 19,722 $ 1,400 $ 21,122
Working capital............................................. (384) 1,400 1,016
Total debt.................................................. 4,014 -- 4,014
Stockholders' equity........................................ 1,434 900 2,334
</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 % of the
outstanding shares of Common Stock ( % 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."
SHARES ELIGIBLE FOR FUTURE SALE
The planned Distribution would involve the distribution of an aggregate of
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
9
<PAGE> 13
competitors into the Company's markets, the Company's future revenues and net
income could be materially adversely affected. See "Business."
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. Legislation passed by the United States
Congress, and currently awaiting signature by the President (the
"Telecommunications Legislation"), contains provisions that would permit the
RBOCs, subject to satisfying certain conditions, to manufacture
telecommunications equipment. It is possible that, assuming the
Telecommunications Legislation is enacted, 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.
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 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
associated with these sites. It is often difficult to estimate the future impact
of environmental matters, including potential liabilities. Although the Company
believes that its reserves are adequate, there can be no assurance that the
amount of capital
10
<PAGE> 14
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.
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. Although the Company believes that it has direct
intellectual property rights or rights under cross-licensing arrangements
covering substantially all of its material technologies, given the technological
complexity of its systems and products, 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. 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. 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 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.
11
<PAGE> 15
SEASONALITY; OUTLOOK FOR FIRST QUARTER 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 1996, the Company
expects that its net income for the first quarter will show a loss and that such
loss may be greater than that for the equivalent period in 1995.
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 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
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.
12
<PAGE> 16
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). The Company intends to file, prior to the Closing Date, a shelf
registration statement to register the offering of up to $ 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 Company has
not yet been assigned a senior debt rating by any nationally-recognized
statistical rating organization. The historical financial statements of the
Company reflect an interest rate applicable to short-term debt of AT&T. The
Company expects that it will incur long-term debt as well as short-term debt,
and 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 projects may
require financing in amounts ranging from modest sums to over a billion dollars.
The ability of the Company to arrange or provide financing, 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
13
<PAGE> 17
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 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 Company intends to file an application to list the Common
Stock 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."
14
<PAGE> 18
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, one of the world's foremost industrial research and
development organizations.
The Company's revenues of $21.4 billion 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).
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.
BACKGROUND OF THE SEPARATION AND DISTRIBUTION
The Company is a wholly owned subsidiary of AT&T. 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 % of the outstanding shares of Common Stock ( %
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 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
15
<PAGE> 19
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. 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. 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 redeploy internationally certain sales
support 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.
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
16
<PAGE> 20
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, the Company has
entered into an agreement to acquire, subject to specified conditions, certain
telecommunications assets of certain of Philips Electronics N.V.'s ("Philips")
subsidiaries, primarily in France and Germany (the "Philips Businesses"). 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 $ million ($ 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 $ 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
$ million of indebtedness under the Working Capital Facility and for general
corporate purposes.
DIVIDEND POLICY
It is anticipated that, following the Offerings, the Company initially will
declare and pay cash dividends at the quarterly rate of $ 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 (which is
equivalent to an annual dividend of approximately $.12 per share of AT&T Common
Stock outstanding at the Closing Date). 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."
17
<PAGE> 21
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. To the extent certain transfers will not be accomplished until
after the Offerings or the Distribution, the Company and AT&T have agreed on the
timing and terms of such transfers. 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. 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
February 1, 1996, with Chemical Bank, as Agent (the "Initial Working Capital
Facility"), pursuant to which the Company may borrow up to $1,000 million,
subject to the terms and conditions thereof. Prior to the Offerings, the Company
expects to enter into a credit agreement pursuant to which the Company may
borrow up to $3,000 million, subject to the terms and conditions thereof, which
would replace the Initial Working Capital Facility (the "Working Capital
Facility"). The Company expects to repay all or a portion of the amounts drawn
under the Working Capital Facility with a portion of the proceeds of the
Offerings. In addition, prior to the Closing Date, AT&T intends to issue 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. 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. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Overview." The Commercial Paper Program will be
supported by a back-up credit facility with third-party financial institutions.
In deciding upon the initial capitalization of the Company, a number of
factors were considered, including the Company's pro forma debt to capital
ratio, the Company's prospective financing requirements, the Company's desired
credit rating, the Company's working capital and capital expenditure
requirements and the Company's need to procure bid and performance bonds, to
arrange or provide customer financing, to
18
<PAGE> 22
engage in hedging transactions and to attain required self-insurance levels. 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."
19
<PAGE> 23
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 $ 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 3,842
-------- ------- -
Total short-term debt................................... $ 3,891 $ 3,891
======== ========
LONG-TERM DEBT (INCLUDING CAPITAL LEASES)......................... $ 123 $ 123
STOCKHOLDER'S EQUITY.............................................. 1,434 2,334
-------- ------- -
TOTAL CAPITALIZATION.............................................. $ 1,557 $ 2,457
======== ========
</TABLE>
20
<PAGE> 24
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 statement of operations data for each of
the two years ended December 31, 1992 and the consolidated balance sheet data at
December 31, 1993, 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
-------- -------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
(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.............................. (1,116) 854 666 302 (1,529)
Cumulative effects of accounting
changes.............................. -- -- (4,208) -- --
Net income (loss)(1).................... (853) 523 (3,750) 194 (975)
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- ----------- ----------- -----------
(UNAUDITED)(UNAUDITED) (UNAUDITED)
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Total assets............................ $ 19,722 $ 17,340 $ 17,109 $ 14,466 $ 13,855
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).
21
<PAGE> 25
PRO FORMA CONDENSED FINANCIAL STATEMENTS
The unaudited pro forma condensed balance sheet at December 31, 1995, set
forth below, has been prepared assuming that the Offerings and the Related
Transactions occurred on such date. 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 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.
For unaudited pro forma statement of operations purposes, no adjustments
are required except to reflect the number of shares of Common Stock outstanding
after the Offerings. On a pro forma basis net loss per share for the year ended
December 31, 1995 would be $ based on shares of Common Stock
outstanding.
<TABLE>
<CAPTION>
AT DECEMBER 31, 1995
---------------------------------------------
ADJUSTMENTS PRO FORMA
HISTORICAL (UNAUDITED) (UNAUDITED)
---------- -------------- -----------
(IN MILLIONS)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents............................... $ 448 $ 3,400(1)(2) $ 3,848
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 1,400 12,079
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 $ 1,400 $21,122
======= =========== =========
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(4)........................... 3,842 3,842
Debt maturing within one year........................... 49 49
Other current liabilities............................... 2,690 2,690
---------- -----------
Total current liabilities............................. 11,063 11,063
Postretirement and postemployment benefit liabilities... 5,569 5,569
Long-term debt.......................................... 123 123
Other liabilities....................................... 1,533 500(2) 2,033
---------- -------------- -----------
Total liabilities..................................... 18,288 500 18,788
Total stockholders' equity.............................. 1,434 900(1)(3) 2,334
---------- -------------- -----------
Total liabilities and stockholders' equity.... $ 19,722 $ 1,400 $21,122
======= =========== =========
</TABLE>
- ---------------
(1) Reflects the sale of shares in the Offerings assuming a purchase
price of $ per share (the mid-point of the range set forth on the
cover page of this Prospectus). As set forth under "Use of Proceeds," the
Company expects to use the proceeds of the Offerings to repay approximately
$ million of indebtedness under the Working Capital Facility and
for general corporate purposes.
(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) See "Certain Transactions in Connection with the Offerings."
22
<PAGE> 26
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. To the extent certain transfers cannot be accomplished until
after the Offerings or the Distribution, the Company and AT&T have agreed on the
timing and terms of such transfers. 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 % of the outstanding shares of Common Stock ( %
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 AT&T's average commercial paper rates. In the future,
the Company expects to have a combination of long-term and short-term debt and,
accordingly, expects that interest expenses will be higher than those
historically reflected. 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
23
<PAGE> 27
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.
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.
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 and redeploy
internationally certain sales support functions for international customers that
were previously performed in the United States.
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
24
<PAGE> 28
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 has entered into an agreement to acquire,
subject to specified conditions, certain telecommunications assets of the
Philips Businesses. 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.
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.
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)................. (18) 163 17 (1,015)(2) (853)(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)................. (29) 90 53 409 523
</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
25
<PAGE> 29
deployment and purchasing plans, tend particularly to depress Company revenues
during the first and third quarters.
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 83.7% (before restructuring and other charges) and
78.2% 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.
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 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.
26
<PAGE> 30
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>
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 1995 1994 1993
------------- ----- ----- -----
(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 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, reflecting the Company's emphasis on the
sale
27
<PAGE> 31
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 sales of the
Company's interconnect products business which the Company plans to sell.
Revenues from consumer product sales (including 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.
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 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 $280 million, an increase of $80 million or
40% compared with 1994. The increase was due primarily to higher average debt
levels and higher interest rates in 1995 compared with 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 23.6% in 1995 decreased from 38.8% 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 $853 million, reflecting $2,801
million ($1,847 million after taxes) of restructuring and other charges.
Excluding the charges, net income was $994 million, an increase of $471 million,
or 90.1%, compared to 1994.
28
<PAGE> 32
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 approximately
38% 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 total sales to network operators. Sales in the United
States increased 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 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 11.1% 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 closing of
29
<PAGE> 33
a hand-held tablet communication device business and higher losses on foreign
currency. See Note 4 of Notes to Consolidated Financial Statements.
Interest expense of $200 million in 1994 was approximately the same as in
1993, due primarily to lower interest rates on higher average borrowings in 1994
compared to 1993.
The effective income tax rate was 38.8% in 1994, compared with 31.3% 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 $4,273 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
$65 million, or 14.2% 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
associated with these sites. The Company has accrued for such liabilities when
it is probable that such liability will be incurred and the amount of such costs
can be reasonably estimated. However, it is often difficult to estimate the
future impact of environmental matters, including potential liabilities.
Although the Company believes that its reserves are adequate, there can be no
assurance that the amount of capital expenditures and other expenses 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 the
Company's results of operations.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company generated (used) cash flow from operations of $492 million,
$1,620 million and $(1,240) million for the years ended 1995, 1994 and 1993,
respectively. The decline in cash flow provided by operations
30
<PAGE> 34
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 $710 million,
$(782) million, and $2,482 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.
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 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
have 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
63.2%. 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
%.
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.
31
<PAGE> 35
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 Initial Working
Capital Facility, pursuant to which the Company may borrow up to $1,000 million,
subject to the terms and conditions thereof. Prior to the Closing Date, the
Company expects to replace the Initial Working Capital Facility with the Working
Capital Facility, pursuant to which the Company would be able to borrow up to
$3,000 million. The Company expects to repay approximately $ million of the
amounts drawn under the Working Capital Facility with a portion of the proceeds
of the Offerings. Borrowings under the Initial Working Capital Facility will
bear interest at rates based from time to time on (i) the London interbank
offered rate plus 0.15% or, in certain cases plus or minus such spread as may be
agreed to between the Company and the lender, (ii) the rate for certificates of
deposits of major United States money center banks plus 0.275%, (iii) a fixed
competitive bid rate or (iv) a floating rate equal to the higher of the agents'
prime lending rate and the overnight Federal Funds rate as chosen by the
Company.
In addition, AT&T will issue approximately $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 supported by a back-up credit facility with third-party financial
institutions. 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. 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 "Use of Proceeds" and "Pro
Forma Condensed Financial Statements."
The Company believes that the proceeds of the Offerings, as well as the
Working Capital Facility, cash flow from operating 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 intends
to file, prior to the Closing Date, a shelf registration statement to register
the offering of up to $ of long-term debt. 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 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.
32
<PAGE> 36
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, one of the world's foremost industrial research and
development organizations.
The Company's revenues of $21.4 billion 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).
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.
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
33
<PAGE> 37
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 United States Congress has passed the Telecommunications
Legislation, currently awaiting signature by the President, which, subject to
certain conditions, would permit local and long distance telecommunications
companies, cable television companies and electric utility companies to compete
with each other to provide local and long distance telephony and video services.
The Company believes that the Telecommunications Legislation (assuming it is
enacted), 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.
Economic Factors
The Company expects network operators and business enterprises in general
to pursue growth opportunities through acquisition and investment around the
world. Multinational enterprises are demanding telecommunications systems and
services in foreign locations similar to those to which they are accustomed in
their home market. To attract these businesses and their investments, countries
are under pressure to upgrade their
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communications infrastructure. In developing countries there is greater demand
from citizens for an increase in teledensity (the number of telephones per
capita) following increases in their standard of living.
Network operators around the world are under increased pressure to increase
revenues and operating margins. As a result, they are demanding new networking
systems and software which permit them to satisfy end-user demands and reduce
operating expenses through the automation of previously labor intensive
activities or other increases in the efficiency of their networks.
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.
The Company intends to pursue the above strategies through a strong
management emphasis on the rapid commercialization of customer-focused
technological innovations. See "The Company -- Strategic Reorganization." 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.
Wireless Networks
Wireless communications is a fast growing segment of the global
telecommunications market with the number of global subscribers increasing from
16 million in 1991 to 53 million in 1994. From 1993 to 1995, the Company's sales
of wireless infrastructure systems grew as a percent of total revenues from 6.1%
to 10.3%. New and upgraded digital wireless networks are being deployed by
network operators to meet the mobility needs of end-users, to expand their
networks into areas unserved by traditional telephony services and to provide a
wireless alternative to traditional wireline network access. In addition,
businesses are deploying wireless telecommunications systems and data networks
to improve the flexibility and connectivity of their office designs.
An important element of the Company's strategy is to provide network
operators and businesses with complete, flexible wireless networks which will
complement, and, in the case of network operators, compete over time with
wireline networks. As a result, the Company's networks are designed to
interoperate with existing local networks and to be upgraded with new software,
thereby enabling network operators to offer new services or to change standards
as end-user demand dictates. To accomplish this, the Company's wireless
infrastructure systems, which utilize the 5ESS(R)-2000 switch (the "5ESS
switch"), are compatible with the following air interface standards: advanced
mobile telephone service ("AMPS"), the analog standard which is currently the
leading standard in North America; global systems for mobile communications
("GSM"), the pan-European digital standard; cellular digital packet data
("CDPD"), a leading standard for data transmission in North America; and the
emerging digital standards code division multiple access ("CDMA") and time
division multiple access ("TDMA"). The Company believes that its implementation
of CDMA technology provides superior digital voice quality, greater capacity
utilization and allows for lower power handsets than other wireless
technologies. The Company currently is deploying what will be the first national
CDMA network in the United States and one of the world's largest AMPS networks
in Korea. The Company has recently entered the GSM market with the pending
acquisition of the Philips Businesses and with the award
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from the Ministry of Post and Telecommunications of Saudi Arabia to build an
infrastructure system based on the GSM standard which, when completed, will be
one of the world's largest GSM-based networks.
For business customers, the Company's strategy is to respond to its
customers' needs for mobility by offering wireless voice and data communication
networks within a building or campus. The Company has sought to accomplish this
by applying its radio frequency expertise to traditional PBX and local area
networking ("LAN") applications. For example, the Company was the first to offer
enhanced PBX and key system products which will support both traditional and
cordless handsets. Further, the Company recently announced its FREEWORKS(TM)
family of wireless business systems which includes a cellular PBX.
The Company believes that enhancements to wireless communications will
continue to be generated by microelectronic advances and software innovations.
The Company will seek to remain in the forefront of these technologies by
building upon its Bell Labs expertise through continued research and development
investments in DSPs and networking software.
Multifunctional Systems
Network operators are demanding networks that allow them to expand the
breadth of their service offerings, and businesses are demanding networks which
allow them to integrate voice and data communications within and between their
facilities.
The Company intends to utilize its expertise in digital switching, digital
transmission and optical technologies to continue to enable network operators
and businesses to deploy multifunctional networks which simultaneously can
support any combination of voice, data and video communications through various
combinations of copper, coaxial, wireless and fiber transmission media. An
important element of the Company's strategy is to seek to remain in the
forefront of these innovations by continuing its investments in critical
software and microelectronic technologies. The Company is also seeking to
capitalize on the convergence of voice and data networks with the 5E10 software
release, the introduction of its wide area network GLOBEVIEW(R)-2000, an ATM
switch for network operators, and its recently introduced MultiMedia
Communications eXchange ("MMCX") for business customers, which integrates PBX
and LAN capabilities.
Networking Software
As part of its strategy the Company seeks to continue to build upon its
software expertise as networks become more software intensive. Networking
software is used to create, provision and manage services and to support the
efficient, cost-effective operation of networks. Networking software is also
used by network operators and businesses to offer new services which will
differentiate them in the marketplace and which will automate labor intensive
service management and provisioning tasks. 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's intelligent network and application
software enables network operators to offer a broad array of enhanced and
differentiated services such as toll free calling (800 service in the United
States) and call waiting. In addition, the Company is a leader in operation
support systems for telephone networks with systems like its Advanced System for
Operations Support ("ASOS"), which is one of the first systems to enable network
operators to manage the work flow, planning, surveillance, provisioning and
continuous testing of their multifunctional networks. Further, the Company
intends to continue to develop customized business applications like call
centers, which permit the routing and administration of a large volume of
incoming calls and the integration with business databases of customer and
product information.
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
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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 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.
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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 pending acquisition of the
Philips Businesses, the Company has agreed to acquire, subject to certain
conditions, Philips' SDH transmission product line. This acquisition is intended
to broaden the Company's SDH product catalog.
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 leading
domestic and international network operators.
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 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 highest
capacity ATM switches offered for use in public networks. More than 100
GLOBEVIEW-2000 Broadband Systems are currently installed at more than 25
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,
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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 pending acquisition of the Philips
Businesses and in furtherance of its goal to enhance its international
operations in this area, the Company has agreed, subject to certain conditions,
to acquire Philips' GSM research, design, development, manufacturing, marketing
and sales capabilities. The Company is deploying what will be the first national
CDMA network 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 pending acquisition of the
Philips Businesses, the Company has agreed, subject to certain conditions, to
acquire 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.
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.
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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."
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.
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
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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 the 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 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
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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.
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.
- ---------------
* Lotus Notes is a registered trademark of Lotus Development Corporation; VERSIT
is a trademark of the consortium's founders.
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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. At December
31, 1995, the Company's DSPs were included in more than half of the world's
digital cellular telephones.
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 U.S. manufacturer
to be awarded the Deming Prize for quality for its electronic power systems
business.
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
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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 relations
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.
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. For the nine months
ended September 30, 1995, the Company sold 31% of the
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<PAGE> 48
corded telephones, 28% of the cordless telephones and 34% 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 5 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 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
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<PAGE> 49
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. All of the operations of Bell Labs which support
the businesses of the Company, and basic research capability, which together
comprise approximately 75% of the total resources of Bell Labs, will be a part
of the Company. The remaining approximately 25% of the resources of Bell Labs
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; 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 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.
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,
- ---------------
* UNIX is a registered trademark licensed exclusively by Novell, Inc.
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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 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.
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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. 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.
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, 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 balance sheet, statement of income and cash flows.
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
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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 associated with these sites. It is
often difficult to estimate the future impact of environmental matters,
including potential liabilities. 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.
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 seeks a total of $4,184,304 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. 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. 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 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 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 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) 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
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.
These sites were located in two countries.
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 concerning the individuals who, prior to the Closing Date, are
expected to serve as directors of the Company. Seven additional directors who
are officers but not directors of AT&T are also to be elected to the Company
Board prior to the Closing Date. 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 who 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
Curtis R. Artis.................... 48 Senior Vice President, Human Resources
John E. Berndt..................... 55 President, Multimedia Ventures &
Technologies
Gerald J. Butters.................. 52 President, North American Region, Network
Systems
Joseph S. Colson, Jr............... 48 President, AT&T Affiliates, 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>
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 AT&T Board since 1981 but will
resign from the AT&T Board effective as of the Closing Date. Mr. Schacht is a
director of Cummins Engine Company, Inc. ("Cummins"), a position he has held
since 1977, and also 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 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 199 .
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
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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 199 .
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
as of the Closing Date. She has been Chairman and Chief Executive Officer of
Hills & Company (international consultants) since 1993. 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 199 .
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 as of 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 199 .
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 as of 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 199 .
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 as of 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 199 .
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. Berndt became President, Multimedia Ventures and Technologies of the
Company effective February 1, 1996. Since February of 1995, Mr. Berndt has held
the position of President, Multimedia Ventures and Technologies; AT&T Multimedia
Products Group. Mr. Berndt held the position of President, New Business
Development; AT&T Multimedia Products Group from August 1993 to February 1995.
Prior to that time, Mr. Berndt was President, Business Services; AT&T
Communications Services Group, a position he held from November 1991.
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 Business, Network Systems of the Company
effective February 1, 1996. Since April 1993, Mr. Colson has held the position
of President, AT&T Affiliates for the AT&T
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<PAGE> 55
Network Systems Group. From July 1990 to April 1993, Mr. Colson was the
Switching Systems Vice President, United States.
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.
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 Consumer Products Group.
Prior to that time, Mr. Firouztash was Chief Executive Officer -- Americas
Region of Control Data Corp., a position he held from January 1991 to January
1992, and Chief Executive Officer -- Western Europe Region of Control Data
Corp., 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
August 1992 to May 1993, Ms. Russo was Vice President, National Sales and
Service of AT&T Global Communications Systems. Prior to that time, Ms. Russo
held the position of Vice President, National Sales and Service for AT&T
Business Communications Systems. From
52
<PAGE> 56
August 1990 to January 1992, Ms. Russo held the position of Vice President,
National Sales of AT&T Business Communications Services.
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.
It is expected that effective as of the Distribution, the seven directors
who are officers but not directors of AT&T will resign from the Company Board.
Prior to the Distribution, the Nominating 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.
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 three committees: an Audit and Finance
Committee, a Benefits and Compensation Committee and a Nominating Committee.
Each of Ms. Hills, Mr. Lewis, Mr. Perkins and Mr. Thomas will serve on each of
the three 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. will serve as chair of the Audit and Finance
Committee.
The Benefits and Compensation Committee administers management incentive
compensation plans, including the 1996 LTIP, and makes recommendations to the
Company Board with respect to the compensation of directors and officers of the
Company. The Benefits and Compensation Committee also supervises the Company's
employee benefit plans. The Benefits and Compensation Committee will consist of
Non-Employee Directors. It is expected that following the Distribution, the
Benefits and Compensation Committee will be reconstituted as the Executive,
Benefits 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, Benefits and Compensation Committee meetings where
compensation or benefit matters are discussed. will serve as
chair of the Executive, Benefits and Compensation Committee.
53
<PAGE> 57
The duties of the Nominating Committee will be to recommend to the full
Company Board nominees for election as directors of the Company. The Nominating
Committee will consist of Non-Employee Directors. will serve
as chair of the Nominating Committee.
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 each of the annual retainer, and 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 the remainder of their
compensation to a deferred compensation account (the "Account"). Directors may
elect to defer all or part of the receipt of such compensation 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"). 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%.
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 age 70
and is payable for life. Except as set forth in this paragraph, the Company does
not have a retirement plan for Non-Employee Directors.
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 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 , 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.
54
<PAGE> 58
<TABLE>
<CAPTION>
NUMBER OF
SHARES
BENEFICIALLY DEFERRAL
NAME OWNED(1) PLANS(2) TOTAL
- ---------------------------------------------------------- ------------ --------- ---------
<S> <C> <C> <C>
Henry P. Schacht..........................................
Richard A. McGinn......................................... (3)
Carla A. Hills............................................
Drew Lewis................................................
Donald S. Perkins......................................... (4)
Franklin A. Thomas........................................
Directors and Executive Officers as a Group (
persons)................................................ (5)
</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) Reflects share units representing AT&T Common Stock held in elective
deferred compensation accounts.
(3) Includes beneficial ownership of the following number of shares of AT&T
Common Stock which may be acquired within 60 days pursuant to stock options
awarded under employee incentive compensation plans of AT&T: Mr.
Schacht - ; Mr. McGinn - ; - ;
- ; - ; and all directors and
executive officers as a group - .
(4) Mr. Perkins as an investment company trustee also has shared voting and
investment power over shares of AT&T Common Stock.
(5) Includes beneficial ownership of shares of AT&T Common Stock which
may be acquired within 60 days pursuant to stock options awarded under
employee incentive compensation plans as well as shares over
which they have sole or shared voting and investment power as trustees.
Options to purchase Common Stock 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 January 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
------------------------------------------------------------------------------------------------------------------
ALL
OTHER RESTRICTED OTHER
ANNUAL STOCK LTIP COMPEN-
NAME AND SALARY BONUS COMPEN- AWARD(S) OPTIONS/ PAYOUTS SATION(5)
PRINCIPAL POSITION(1) YEAR ($) ($) SATION(3)($) ($) SARS(#) ($)(4) ($)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Henry B. Schacht(6) 1995
Chairman of the Board and 1994
Chief Executive Officer 1993
Richard A. McGinn 1995
President and Chief 1994
Operating Officer 1993
1995
1994
1993
1995
1994
1993
1995
1994
1993
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
55
<PAGE> 59
- ---------------
(1) Includes Chief Executive Officer and the four other most highly compensated
executive officers.
(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, or 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) Includes distribution in 1995 to Mr. McGinn, , and
of performance shares whose three-year performance period ended
December 31, 1994.
(5) In 1995, includes (a) AT&T contributions to savings plans (Mr. McGinn:
$ , : $ , : $ and : $ ), (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: $ , : $ , : $
and : $ )), and (c) payments equal to lost AT&T savings match
caused by IRS limitations (Mr. McGinn: $ , : $ , :
$ and : $ ).
(6) Mr. Schacht became Chief Executive Officer of the Company on February 1,
1996. 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 ("SARs") 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") during 1995.
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
(#) ($)
SHARES ACQUIRED VALUE REALIZED ------------------------- -------------------------
NAME(1) ON EXERCISE(#) ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- -------------------------- --------------- -------------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Henry B. Schacht..........
Richard A. McGinn.........
</TABLE>
- ---------------
(1) Includes Chief Executive Officer and the four other most highly compensated
executive officers.
LONG-TERM INCENTIVE PLANS -- AWARDS IN 1995
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS
OF PERFORMANCE SHARES
PERFORMANCE UNDER NON-STOCK PRICE
NUMBER OF PERIOD UNTIL BASED PLAN
PERFORMANCE MATURATION TARGET
NAME(1) SHARES OR PAYOUT (#)
- ------------------------------------------------- ----------- ------------ ------------------------
<S> <C> <C> <C>
Henry B. Schacht.................................
Richard A. McGinn................................
</TABLE>
- ---------------
(1) Includes Chief Executive Officer and the four other most highly compensated
executive officers.
56
<PAGE> 60
OPTION GRANTS IN 1995
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------------------
NUMBER OF
SHARES GRANT
UNDERLYING % OF TOTAL DATE
OPTIONS OPTIONS EXERCISE PRESENT
GRANTED GRANTED TO PRICE EXPIRATION VALUE(2)
NAME(1) # EMPLOYEES(2) ($/SH) DATE ($)(3)
- ----------------------------------------- ---------- ------------ -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Henry B. Schacht.........................
Richard A. McGinn........................
</TABLE>
- ---------------
(1) Includes Chief Executive Officer and the four other most highly compensated
executive officers.
(2) Percent of total options granted based on total options granted to AT&T
employees.
(3) In accordance with rules of the Securities and Exchange Commission (the
"Commission"), the Black-Scholes option pricing model was chosen to estimate
the grant date present value of the options set forth in this table. The use
of this model should not be construed as an endorsement of its accuracy for
valuing options. All stock option valuation models, including the
Black-Scholes model, require a prediction about the future movement of the
stock price. The real value of the options in this table depends upon the
actual performance of the 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. Schacht, Mr. McGinn, , and . 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 as an operating expense.
Prior to the Distribution, 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.
Schacht, Mr. McGinn, , and and other senior
managers will be computed based primarily on 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
57
<PAGE> 61
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, 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
58
<PAGE> 62
future pension plan amendments could cause the regular accrued pension benefit
to exceed the fixed AMF benefit. Pensions resulting from the AMF will be payable
under the Company Non-Qualified Plan.
Prior to the Distribution, certain of the Company's employees also will be
participants in AT&T's Mid-Career Pension Pension (the "AT&T Mid-Career Pension
Plan"). Effective at the time of the Distribution, the Company will adopt a
mid-career pension pension (the "Company Mid-Career Pension Plan") that will
replicate, in all material respects, the AT&T Mid-Career Pension Plan.
Participants will be given full credit under the Company Mid-Career Pension Plan
for service and compensation under the AT&T Mid-Career Pension Plan. The Company
Mid-Career Pension Plan, will cover senior managers (including Mr. Schacht) and
certain other management employees who are hired at age 35 or over. For
specified managers retiring with at least five years in level, the Company
Mid-Career Pension Plan will provide additional pension credits equal to the
difference between age 35 and their maximum possible years of service attainable
at age 65, but not to exceed actual net credited service, at approximately
one-half the rate in the Company Management Pension Plan.
Senior managers (including Mr. Schacht) are also covered by a supplemental
pension plan (the "Company Long Term Disability and Survivor Protection Plan")
which provides for a minimum pension of 15% of the sum of final base salary rate
plus the final actual annual bonus. All other Company pension plans are offsets
to this minimum pension.
Pension amounts under any of the Company Management Pension Plan formula,
the Company Non-Qualified Plan, the Company Mid-Career Pension Plan or the
Company Long Term Disability and Survivor Protection Plan are not subject to
reductions for social security benefits or other offset amounts. If Mr. Schacht
continues in the position given above and retires at the normal retirement age
of 65, he would receive a pension payable under the Company Management Pension
Plan formula, the Company Non-Qualified Plan, the Company Mid-Career Pension
Plan and the Company Long Term Disability and Survivor Protection Plan (as
successors to the corresponding AT&T plans). For Mr. McGinn, ,
and , the estimated annual pension amounts payable under
the Company Management Pension Plan formula and the Company Non-Qualified Plan
would be $ , $ , $ and $ , respectively.
Amounts shown are straight-life annuity amounts not reduced by a joint and
survivorship provision which is available to the officers named.
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 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. The following summarizes Mr. Schacht's compensation arrangement with the
Company for 1995 and 1996: .
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 Executive, Benefits and Compensation
Committee of the Company Board. In order to ensure that compensation paid
pursuant to the 1996 LTIP can qualify as "performance-based compensation" not
subject to the limitation on
59
<PAGE> 63
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 persons as of , 1996) are expected to
receive in substitution therefor, following consummation of the Distribution,
Awards under the 1996 LTIP (the "Substitute Awards").
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% 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; and provided, further; that no more
than 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 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
shares 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, or other change in corporate structure
affecting the shares of Common Stock, such adjustment will be made in the
aggregate number and class of shares which may be delivered under the 1996 LTIP,
in the individual limit described above, in the number, class and option price
of shares of Common Stock subject to outstanding Options thereunder, and in the
value of, or number or class of shares of Common Stock subject to, Awards as may
be determined to be appropriate by the Executive, Benefits and Compensation
Committee, in its sole discretion, provided that the number of shares of Common
Stock subject to any Award will always be a whole number.
Executive, Benefits and Compensation Committee
The Executive, Benefits and 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 Executive, Benefits and 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
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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 Executive, Benefits and Compensation Committee deems
necessary or desirable for administration of the 1996 LTIP.
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 stock
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, the purchase price per share of Common Stock purchasable
under an Option will be determined by the Executive, Benefits and 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 Executive, Benefits and 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 Executive, Benefits and Compensation
Committee at or subsequent to grant. Unless otherwise determined by the
Executive, Benefits and 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 Executive, Benefits and
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 Executive, Benefits and Compensation
Committee may specify in the applicable Award agreement.
In accordance with rules and procedures established by the Executive,
Benefits and 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 Executive, Benefits and Compensation
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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 Executive, Benefits and
Compensation Committee may impose such conditions or restrictions on the
exercise of any SAR as it may deem appropriate.
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 Executive, Benefits and
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 Executive, Benefits and 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 Executive, Benefits and 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 Executive, Benefits
and 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 Executive, Benefits and Compensation
Committee may determine. Subject to the provisions of the 1996 LTIP, the
Executive, Benefits and 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) subject to 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 such a purchase right will be purchased for such
consideration as the Executive, Benefits and Compensation Committee may, in its
sole discretion, determine, which (other than in the case of Substitute 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.
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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 Executive, Benefits and 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 Executive, Benefits and
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 upon any Change in Control (as defined in the
1996 LTIP), unless the Executive, Benefits and Compensation Committee provides
otherwise at the time of grant: (i) each Option will become fully vested and
exercisable; (ii) each Restricted Stock Award will become fully vested and
transferrable; (iii) each Performance Award will be considered earned and
payable in full; (iv) all deferral limitations will lapse; and (v) each Option
holder generally will have the right to surrender his or her Option, within 60
days after the Change in Control, for a cash payment equal to the difference
between the Change in Control Price (as defined in the 1996 LTIP) and the
exercise price of such Option, multiplied by the number of shares subject to
such Option.
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 Executive, Benefits and 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 Executive, Benefits and Compensation Committee
may also substitute new Awards for previously granted Awards, including, without
limitation, previously granted Options having higher Option prices.
The Executive, Benefits and 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.
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 Executive, Benefits and 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 Executive, Benefits and
Compensation Committee, in its sole discretion, and the Benefits and
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 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
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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
In addition to the transactions and other matters referred to in the
"Arrangements Between the Company and AT&T," 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. Such transactions include certain
financing activities, including sales of lease receivables, with AT&T Capital
Corporation, a majority-owned subsidiary of AT&T. For a summary of such
transactions, see Note 12 of Notes to Consolidated Financial Statements included
elsewhere in this Prospectus.
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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 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."
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.
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
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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 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
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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
the applicable 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 AT&T Exclusive Contingent
Liability or Related Exclusive Contingent Liabilities) or 13% of the Excess
Portion (in the case of any NCR Exclusive 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.
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
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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 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 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
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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.
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
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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 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
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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 companies 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 Company purchasing the new hardware or licensing
the new software.
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 that
commitment is not fulfilled by December 31, 1998, certain interest will be
payable determined by reference to the amount of the shortfall. 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.
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,
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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 funding benefits
under 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 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.
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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.
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 , 1996, there were approximately million shares
of AT&T Common Stock subject to options for AT&T Common Stock and approximately
million shares of AT&T Common Stock represented by other AT&T Stock Awards
in each case held by Company Employees.
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
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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 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
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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 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
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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 over
a three-year term at specified tariffs. 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 by December
31, 1998.
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 %
( % 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 shares of preferred stock, par value $1.00 per share
(the "Preferred Stock"), and shares of Common Stock. Immediately
following the Offerings, approximately shares of Common Stock 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, 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 60th calendar day nor earlier than the close of business on the 90th
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 90th calendar day prior to such
annual meeting and not later than the close of business on the later of the 60th
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 70 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 90th
calendar day prior to such special meeting and not later than the close of
business on the later of the 60th 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 $.01 per share (the
"Junior Preferred Shares"), of the Company at a price of $ (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 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 (or of a share of a class or series of
the Preferred Stock having equivalent rights, preferences and privileges), 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 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
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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.
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
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
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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.
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
will be the transfer agent and registrar for the Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Of the shares of Common Stock to be outstanding as of the Closing
Date ( shares if the U.S. Underwriters exercise their overallotment
option in full) the shares of Common Stock sold in the Offerings (
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
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to (i) offer, 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 (ii) enter into any swap or other agreement
that transfers, in whole or in part, the economic consequences of ownership of
the Common Stock, whether any such transaction described in clause (i) or (ii)
above is to be settled by delivery of Common Stock or other securities, in cash
or otherwise for a period of 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.
85
<PAGE> 89
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.............
Subtotal....................................................
----------
International Underwriters:
Morgan Stanley & Co. International Limited.....................
Goldman Sachs International....................................
Merrill Lynch International Limited............................
Subtotal....................................................
----------
Total..................................................
==========
</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 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
86
<PAGE> 90
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 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.
Application has been made to have the Common Stock approved for quotation
on the NYSE under the symbol " ".
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 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
87
<PAGE> 91
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 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 of an option or warrant or the
conversion of a security outstanding on the date of this Prospectus; and (iii)
any shares of Common Stock issued pursuant to existing employee benefit plans of
the Company (including in connection with any Substitute Awards). In addition,
except 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 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.
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.
88
<PAGE> 92
EXPERTS
The audited financial statements and financial statement schedules included
in this Prospectus and in the Registration Statement of which this Prospectus
forms a part have been audited by Coopers & Lybrand L.L.P., independent
auditors, as indicated in their report with respect thereto and are included
herein in reliance upon the authority of said 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.
89
<PAGE> 93
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
Schedule of Valuation and Qualifying Accounts......................................... S-1
</TABLE>
F-1
<PAGE> 94
REPORT OF INDEPENDENT AUDITORS
To the Stockholder of Lucent Technologies Inc.:
We have audited the consolidated financial statements and the financial
statement schedule of Lucent Technologies Inc. and subsidiaries (the "Company")
listed in the index on page F-1 of this 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> 95
LUCENT TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-------------------------------
1995(1) 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 $215 in 1995, $133 in 1994, and
$115 in 1993 to AT&T) (Note 7).............................. 280 200 196
------- ------- -------
INCOME (LOSS) BEFORE INCOME TAXES AND CUMULATIVE EFFECTS OF
ACCOUNTING CHANGES.......................................... (1,116) 854 666
Provision (benefit) for income taxes (Note 6)................. (263) 331 208
------- ------- -------
INCOME (LOSS) BEFORE CUMULATIVE EFFECTS OF ACCOUNTING
CHANGES..................................................... (853) 523 458
Cumulative effects of accounting changes, net of taxes (Note
3).......................................................... -- -- (4,208)
------- ------- -------
NET INCOME (LOSS)............................................. $ (853) $ 523 $(3,750)
======= ======= =======
UNAUDITED PRO FORMA NET INCOME (LOSS) PER COMMON SHARE (Note
1).......................................................... $ $ $
======= ======= =======
</TABLE>
The notes on pages F-7 through F-23 are an integral part of the consolidated
financial statements.
- ---------------
(1) 1995 includes pre-tax charge 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-3
<PAGE> 96
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
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> 97
LUCENT TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-------------------------
1995 1994 1993
------ ------ -------
IN MILLIONS
<S> <C> <C> <C>
Balance -- Beginning of Year........................................ $2,476 $2,580 $ 3,098
Net income (loss)................................................. (853) 523 (3,750)
Transfers from (to) AT&T (Note 12)................................ (125) (729) 3,216
Foreign currency translation...................................... (64) 102 16
------ ------ -------
Balance -- End of Year.............................................. $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> 98
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)............................................. $ (853) $ 523 $(3,750)
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) decrease in other operating assets and
liabilities.............................................. (241) (564) (1,656)
------- ------- -------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES........... 492 1,620 (1,240)
------- ------- -------
INVESTING ACTIVITIES
Capital expenditures.......................................... (1,277) (878) (577)
Proceeds from sale or disposal of property, plant and
equipment................................................... 118 15 38
Net (increase) decrease in investments........................ (86) 252 (45)
(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)
Increase (decrease) in debt sharing amount.................... 881 53 (624)
Transfers from (to) AT&T...................................... (125) (729) 3,216
Decrease in short-term borrowings -- net...................... -- (84) (1)
------- ------- -------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES........... 710 (782) 2,482
------- ------- -------
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 $281, $204 and $306 during 1995, 1994 and 1993,
respectively. Income taxes paid were $315, $8 and $109, 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> 99
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 business 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 stockholder's equity
represent the net income of the Company plus net cash transfers to or from AT&T.
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 using AT&T's average commercial paper 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.
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.
F-7
<PAGE> 100
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. BACKGROUND AND BASIS OF PRESENTATION -- (CONTINUED)
EARNINGS (LOSS) PER COMMON SHARE
Historical earnings per share have not been presented because they would
not be meaningful. The Company has 1,000 shares of Common Stock outstanding, all
of which are owned by AT&T. Pro forma earnings (loss) per common share is
calculated based on earnings after giving effect to the sale of shares
of Common Stock in the Offerings, divided by the number of shares of Common
Stock to be outstanding after the Offerings. (Because the offering price and
number of shares of Common Stock to be sold under the Offerings have not yet
been determined, unaudited pro forma earnings (loss) per share have not been
presented. These determinations will be made prior to the effective date of this
Prospectus and unaudited pro forma earnings (loss) per share will be furnished
by amendment and reflected in the definitive Prospectus.)
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.
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
F-8
<PAGE> 101
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
technological feasibility has been established. These capitalized costs 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.
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
F-9
<PAGE> 102
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
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.
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. 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 operating income by $139 and net income
by $84. This change in accounting does not affect cash flows.
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.
F-10
<PAGE> 103
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. CHANGES IN ACCOUNTING PRINCIPLES -- (CONTINUED)
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. 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.
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>
F-11
<PAGE> 104
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. SUPPLEMENTARY FINANCIAL INFORMATION -- (CONTINUED)
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 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 for nearly 22,000 employees, comprised of about 11,000
management and 11,000 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
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. Of the total combined charges, $1,788 will result in payment of cash in
the future. Approximately $1,013 of the charge related to noncash items. There
were no restructuring charges in 1994. The 1993 restructuring charges of $56
were fully utilized at December 31, 1995.
F-12
<PAGE> 105
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...... $ (391) $ 299 $ 233
State and local income taxes, net of federal income tax
effect...................................................... (56) 27 26
Amortization of intangibles................................... 29 12 6
Foreign rate differential..................................... 66 (64) (17)
Taxes on repatriated and other 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.......................... $ (263) $ 331 $ 208
======= ======= =======
Effective income tax rate..................................... 23.6% 38.8% 31.3%
</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.................................................. $(1,231) $475 $452
Foreign........................................................ 115 379 214
------- ---- ----
$(1,116) $854 $666
======= ==== ====
PROVISION (BENEFIT) FOR INCOME TAXES
CURRENT
Federal........................................................ $ 205 $(96) $ 59
State and local................................................ 44 (34) 8
Foreign........................................................ 141 123 77
------- ---- ----
390 (7) 144
------- ---- ----
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........................... $ (263) $331 $208
======= ==== ====
</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-13
<PAGE> 106
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.
Such earnings may be repatriated only when it is advantageous to do so, at which
time applicable taxes would be provided for on the amount of the earnings
remitted. It is not practicable to determine the amount of applicable taxes.
7. DEBT SHARING AGREEMENT
The amounts of debt and interest expense included in the Company's
financial statements have been determined under the provisions of a debt sharing
agreement with AT&T. The amount of debt and related interest shared by the
Company reflect the cost of financing the Company's assets and operations. The
agreement is effective from January 1, 1991 through December 31, 1995. The
amount of debt shared by the Company in each of those years represents
approximately 55% of the Company's total expected capital structure. Interest on
this debt is based on the average commercial paper rates incurred by AT&T in
each of
F-14
<PAGE> 107
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. DEBT SHARING AGREEMENT -- (CONTINUED)
the years. The rates were 6.2%, 4.5% and 4.4% for 1995, 1994 and 1993,
respectively, and interest amounted to $215, $133 and $115 for each of the
respective years.
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. 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.
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.
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 based
on methods and assumptions that have been agreed to by both companies. For
purposes of preparing these financial statements, estimates were made, as of
December 31, 1995, of the assets and
F-15
<PAGE> 108
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. POSTRETIREMENT BENEFITS -- (CONTINUED)
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.
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.
F-16
<PAGE> 109
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. SEGMENT INFORMATION -- (CONTINUED)
<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) $ 1,697 $ 1,097
Other geographic areas............................................ (67) (5) (242)
Corporate, eliminations and nonoperating.......................... (370) (838) (189)
------- ------- -------
Income (loss) before income taxes................................. $(1,116) $ 854 $ 666
======= ======= =======
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
adversely affect the Company's operating results. The Company does not have a
concentration of available sources of supply 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
F-17
<PAGE> 110
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. FINANCIAL INSTRUMENTS -- (CONTINUED)
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.
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
F-18
<PAGE> 111
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. FINANCIAL INSTRUMENTS -- (CONTINUED)
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 hedge firmly committed or forecasted purchases
and sales. These transactions are generally expected to occur in less than one
year. Gains and losses are deferred in other current assets and liabilities for
firmly committed sales and purchases. 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 hedge 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>
<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..................................... $ 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>
F-19
<PAGE> 112
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. FINANCIAL INSTRUMENTS -- (CONTINUED)
<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.
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, 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 leases land, buildings and equipment through contracts that
expire in various years, through 2025. 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>
F-20
<PAGE> 113
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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, 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 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,
F-21
<PAGE> 114
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. SUBSEQUENT EVENTS -- (CONTINUED)
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.
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. 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.
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 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.
F-22
<PAGE> 115
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. SUBSEQUENT EVENTS -- (CONTINUED)
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 million shares of
AT&T common stock subject to options, SARs, performance shares and other stock
awards held by Company employees.
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)........................... (18) 163 17 (1,015) (853)
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)........................... (29) 90 53 409 523
</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-23
<PAGE> 116
[Alternate Cover Page for International Prospectus]
PROSPECTUS (Subject to Completion)
Issued February 5, 1996
Shares
LUCENT TECHNOLOGIES [LOGO]
COMMON STOCK
------------------------
OF THE SHARES OF COMMON STOCK BEING OFFERED, SHARES ARE BEING
OFFERED INITIALLY OUTSIDE THE UNITED STATES AND CANADA BY THE INTERNATIONAL
UNDERWRITERS AND 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. 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 $ AND $ 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 % ( % 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."
------------------------
APPLICATION HAS BEEN MADE TO LIST THE COMMON STOCK ON THE NEW YORK STOCK
EXCHANGE UNDER THE SYMBOL " ."
------------------------
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
$ .
(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
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 same-day funds.
------------------------
Joint Global Coordinators
MORGAN STANLEY & CO. GOLDMAN, SACHS & CO.
Incorporated
------------------------
MORGAN STANLEY & CO. GOLDMAN SACHS INTERNATIONAL
International
MERRILL LYNCH INTERNATIONAL LIMITED
, 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> 117
[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........................... 16
Use of Proceeds....................... 19
Dividend Policy....................... 19
Certain Transactions in Connection
with the Offerings.................. 20
Capitalization........................ 22
Selected Financial Data............... 23
Pro Forma Condensed Financial
Statements.......................... 24
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 26
Business.............................. 35
Management............................ 54
Arrangements Between the Company and
AT&T................................ 70
Principal Stockholder................. 85
Description of Capital Stock.......... 86
Shares Eligible for Future Sale....... 92
Certain United States Tax Consequences
to Non-United States Holders........ 93
Underwriting.......................... 95
Legal Matters......................... 98
Experts............................... 98
Available Information................. 98
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, their respective subsidiaries, and other companies, as
indicated.
------------------------
I-2
<PAGE> 118
[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
I-3
<PAGE> 119
[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.
I-4
<PAGE> 120
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............................................ $ 34,483
NASD registration fee........................................... 10,500
New York Stock Exchange listing fee............................. *
Blue Sky fees and expenses...................................... *
Accounting fees and expenses.................................... *
Legal fees and expenses......................................... *
Printing and engraving expenses................................. *
Miscellaneous fees and expenses................................. *
--------
Total................................................. $ *
</TABLE>
- ---------------
* To be provided by amendment.
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
provisions of the DGCL. Such rights are not exclusive of any other right which
any person may have or
II-1
<PAGE> 121
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
- ------ ------------------------------------------------------------------------------------
<S> <C>
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.*
5.1 Opinions 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.
10.2 Employee Benefits Agreement by and between AT&T and the Company, dated as of
February 1, 1996.*
10.3 General Purchase Agreement by and between AT&T and the Company, dated as of February
1, 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.
</TABLE>
II-2
<PAGE> 122
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ ------------------------------------------------------------------------------------
<S> <C>
10.6 Tax Sharing Agreement by and among the Company, AT&T and NCR, dated as of February
1, 1996.
11.1 Statement re: Computation of Per Share Earnings.*
21.1 Subsidiaries of the Company.*
23.1 Consent of Coopers & Lybrand L.L.P.
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.
</TABLE>
- ---------------
* To be filed by amendment.
(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.
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-3
<PAGE> 123
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this 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 5th day of February, 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 February 5, 1996
- ---------------------------------------------
Henry B. Schacht
/s/ DONALD K. PETERSON Chief Financial Officer and February 5, 1996
- --------------------------------------------- Chief Accounting Officer
Donald K. Peterson
/s/ PAMELA F. CRAVEN Director February 5, 1996
- ---------------------------------------------
Pamela F. Craven
/s/ MAUREEN B. TART Director February 5, 1996
- ---------------------------------------------
Maureen B. Tart
/s/ MARILYN J. WASSER Director February 5, 1996
- ---------------------------------------------
Marilyn J. Wasser
</TABLE>
II-4
<PAGE> 124
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.................. 591 136 0 133 594
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.................. 523 164 0 96 591
Year 1993
Allowance for Doubtful
Accounts.................. 139 67 (2) 61 143
Reserves related to business
restructuring and facility
consolidation............. 233 56 (53) 31 205
Deferred tax asset valuation
allowance................. 84 39 0 0 123
Inventory valuation
reserves.................. 484 153 0 114 523
</TABLE>
S-1
<PAGE> 125
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ ------------------------------------------------------------------------------------
<S> <C>
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.*
5.1 Opinions 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.
10.2 Employee Benefits Agreement by and between AT&T and the Company, dated as of
February 1, 1996.*
10.3 General Purchase Agreement by and between AT&T and the Company, dated as of February
1, 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.
11.1 Statement re: Computation of Per Share Earnings.*
21.1 Subsidiaries of the Company.*
23.1 Consent of Coopers & Lybrand L.L.P.
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.
</TABLE>
- ---------------
* To be filed by amendment.
<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:
ARTICLE II
REGISTERED AGENT
The address of the Corporation's registered office in the State of Delaware is
________________. The name of the Corporation's registered agent at such address
is ____________.
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 [_______] shares of
capital stock, of which [______] shares shall be shares of Common Stock, $.01
par value ("Common Stock"), and [_______] 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;
2
<PAGE> 3
(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 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
3
<PAGE> 4
any other person, whether or not the Corporation shall have notice thereof,
except as expressly provided by applicable law.
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, 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
4
<PAGE> 5
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 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; provided, however, that prior to the Trigger Date, 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.
5
<PAGE> 6
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, 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.
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.
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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 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
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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 be 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 make 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 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
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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 ______________ has caused this Restated Certificate of
Incorporation to be signed by its _____________________ and attested by its
_______________ this _____ day of ______ 1996.
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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
_________________________.
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 60th calendar day nor earlier than
the close of business on the 90th 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 90th
calendar day prior to such annual meeting and not later than the close of
business on the later of the 60th 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 70 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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(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 90th calendar day
prior to such special meeting and not later than the close of business on the
later of the 60th 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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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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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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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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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.
18
<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
19
<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.
20
<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.
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
21
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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.
22
<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
<PAGE> 2
TABLE OF CONTENTS
ARTICLE I DEFINITIONS
<TABLE>
<S> <C> <C>
1.1. Action.............................................. 2
1.2. Affiliate........................................... 2
1.3. Agent............................................... 2
1.4. Agreement........................................... 2
1.5. American Ridge...................................... 2
1.6. Ancillary Agreements................................ 2
1.7. Applicable Deadline................................. 2
1.8. Arbitration Act..................................... 2
1.9. Arbitration Demand Date............................. 2
1.10. Arbitration Demand Notice........................... 2
1.11. Assets.............................................. 2
1.12. AT&T................................................ 4
1.13. AT&T Common Stock................................... 4
1.14. AT&T CP Rate........................................ 4
1.15. AT&T General Purchase Agreement..................... 4
1.16. AT&T Group.......................................... 4
1.17. AT&T Indemnitees.................................... 4
1.18. AT&T Laboratories................................... 4
1.19. AT&T Services Business.............................. 4
1.20. AT&T Services Group................................. 4
1.21. AT&T Ventures....................................... 4
1.22. ATTI................................................ 4
1.23. Brand License Agreement............................. 5
1.24. Change of Control................................... 5
1.25. Closing............................................. 5
1.26. Closing Date........................................ 5
1.27. Code................................................ 5
1.28. Commission.......................................... 5
1.29. Consents............................................ 5
1.30. Contingent Claim Committee, Contingent Gain and
Contingent Liabilities.............................. 5
1.31. CPR................................................. 5
1.32. Delayed Transfer Assets............................. 5
1.33. Delayed Transfer Liabilities........................ 5
1.34. Determination Request............................... 5
1.35. Distribution........................................ 6
1.36. Distribution Date................................... 6
1.37. Effective IPO Date.................................. 6
1.38. Effective Time...................................... 6
1.39. Employee Benefits Agreement......................... 6
1.40. Environmental Law................................... 6
1.41. Environmental Liabilities........................... 6
1.42. Escalation Notice................................... 6
1.43. Excess Portion...................................... 6
1.44. Exchange Act........................................ 6
1.45. Excluded Assets..................................... 6
1.46. Excluded Liabilities................................ 6
</TABLE>
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<TABLE>
<S> <C> <C>
1.47. Exclusive AT&T Contingent Gain, Exclusive AT&T Con-
tingent Liability, Exclusive Lucent Contingent Gain,
Exclusive Lucent Contingent Liability, Exclusive NCR
Contingent Gain, Exclusive NCR Contingent Liability
and Exclusive Contingent Liability.................. 7
1.48. Financing Facility.................................. 7
1.49. Governmental Approvals.............................. 7
1.50. Governmental Authority.............................. 7
1.51. Group............................................... 7
1.52. Identified Bell Labs Services....................... 7
1.53. Indemnifying Party.................................. 7
1.54. Indemnitee.......................................... 7
1.55. Indemnity Payment................................... 7
1.56. Information......................................... 8
1.57. Insurance Policies.................................. 8
1.58. Insurance Proceeds.................................. 8
1.59. Interim Services and Systems Replication
Agreement........................................... 8
1.60. IPO................................................. 8
1.61. IPO Registration Statement.......................... 8
1.62. Liabilities......................................... 8
1.63. Lucent.............................................. 9
1.64. Lucent Assets....................................... 9
1.65. Lucent Balance Sheet................................ 9
1.66. Lucent Bell Laboratories............................ 9
1.67. Lucent Business..................................... 10
1.68. Lucent Common Stock................................. 10
1.69. Lucent Contracts.................................... 10
1.70. Lucent Group........................................ 11
1.71. Lucent Indemnitees.................................. 11
1.72. Lucent Liabilities.................................. 11
1.73. Lucent OFL's........................................ 11
1.74. NCR................................................. 9
1.75. NCR Business........................................ 9
1.76. NCR Common Stock.................................... 9
1.77. NCR Covered Liabilities............................. 9
1.78. NCR Distribution.................................... 9
1.79. NCR Group........................................... 9
1.80. NCR Indemnitees..................................... 9
1.81. NCR Volume Purchase Agreement....................... 9
1.82. NYSE................................................ 11
1.83. Nassau Metals Liabilities........................... 11
1.84. Non-Lucent Assets................................... 11
1.85. Non-U.S. Plan....................................... 11
1.86. OFL's............................................... 11
1.87. Other Discontinued Operations....................... 12
1.88. Patent Assignments.................................. 12
1.89. Patent Defensive Protection Agreements.............. 12
1.90. Patent Joint Ownership Agreement.................... 12
1.91. Patent License Agreement............................ 12
1.92. Person.............................................. 12
1.93. Prime Rate.......................................... 12
</TABLE>
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<TABLE>
<S> <C> <C>
1.94. Prospectus.......................................... 12
1.95. RBOC................................................ 12
1.96. RBOC Agreements..................................... 13
1.97. RBOC Liability...................................... 13
1.98. RBOC Plan........................................... 13
1.99. Record Date......................................... 13
1.100. Related Exclusive Contingent Liabilities............ 13
1.101. Retained Receivables................................ 13
1.102. Ridge Lucent Policies............................... 13
1.103. Securities Act...................................... 13
1.104. Security Interest................................... 13
1.105. Separation.......................................... 14
1.106. Shared AT&T Percentage, Shared NCR Percentage,
Shared Lucent Percentage, Shared Percentage, Shared
Contingent Gain and Shared Contingent Liability..... 14
1.107. Submarine Systems................................... 14
1.108. Subsidiary.......................................... 14
1.109. Tax Sharing Agreement............................... 14
1.110. Taxes............................................... 14
1.111. Technology Access and Development Project
Agreement........................................... 14
1.112. Technology Assignment and Joint Ownership
Agreement........................................... 14
1.113. Technology License Agreement........................ 14
1.114. Telecommunications Service.......................... 14
1.115. Third Party Claim................................... 14
1.116. Trade Dress Assignment.............................. 14
1.117. Trademark and Service Mark Assignment............... 15
1.118. Underwriters 15
1.119. Underwriting Agreement.............................. 15
1.120. Value............................................... 15
1.121. VTNS Agreement...................................... 15
1.122. Working Capital Facility............................ 15
ARTICLE II THE SEPARATION
2.1. Transfer of Assets and Assumption of Liabilities.... 15
2.2. Lucent Assets....................................... 16
2.3. Lucent Liabilities.................................. 17
2.4. Termination of Agreements........................... 18
2.5. Documents Relating to Transfer of Real Property
Interests and Tangible Property Located Thereon..... 19
2.6. Documents Relating to Other Transfers of Assets and
Assumption of Liabilities........................... 21
2.7. Other Ancillary Agreements.......................... 21
2.8. The Non-U.S. Plan................................... 22
2.9. AT&T Ventures; Lucent Foundation.................... 22
2.10. Disclaimer of Representations and Warranties........ 22
</TABLE>
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<TABLE>
<S> <C> <C>
2.11. Financing Arrangements.............................. 23
2.12. Governmental Approvals and Consents................. 23
2.13. Novation of Assumed Lucent Liabilities.............. 24
2.14. Novation of Assumed Liabilities other than Lucent
Liabilities......................................... 25
2.15. Third Party Patent License Agreements............... 25
2.16. Certain Termination Rights.......................... 27
ARTICLE III THE IPO AND ACTIONS PENDING THE IPO
3.1. Transactions Prior to the IPO....................... 29
3.2. Proceeds of the IPO................................. 29
3.3. Conditions Precedent to Consummation of the IPO..... 29
ARTICLE IV THE DISTRIBUTION
4.1. The Distribution.................................... 30
4.2. Actions Prior to the Distribution................... 31
4.3. Conditions to Distribution.......................... 31
4.4. Fractional Shares................................... 32
4.5. The Lucent Board of Directors....................... 32
ARTICLE V MUTUAL RELEASES; INDEMNIFICATION
5.1. Release of Pre-Closing Claims....................... 33
5.2. Indemnification by Lucent........................... 35
5.3. Indemnification by AT&T and by NCR.................. 35
5.4. Indemnification Obligations Net of Insurance
Proceeds and Other Amounts.......................... 36
5.5. Procedures for Indemnification of Third Party
Claims.............................................. 37
5.6. Additional Matters.................................. 38
5.7. Remedies Cumulative................................. 39
5.8. Survival of Indemnities............................. 39
5.9. RBOC Agreement Procedures........................... 39
5.10. Alleged Infringement or Misappropriation............ 40
ARTICLE VI CONTINGENT GAINS AND CONTINGENT LIABILITIES
6.1. Definitions Relating to Contingent Gains and
Contingent Liabilities.............................. 42
6.2. Contingent Gains.................................... 45
6.3. Exclusive Contingent Liabilities.................... 46
6.4. Shared Contingent Liabilities....................... 48
6.5. Payments............................................ 48
6.6. Procedures to Determine Status of Contingent
Liability or Contingent Gain........................ 48
6.7. Certain Case Allocation Matters..................... 49
</TABLE>
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<TABLE>
<S> <C> <C>
ARTICLE VII INTERIM OPERATIONS AND CERTAIN OTHER MATTERS
7.1. Insurance Matters................................... 50
7.2. Collection of Accounts Receivable................... 51
7.3. Operating Financial Liabilities..................... 55
7.4. Certain Business Matters............................ 55
7.5. Late Payments....................................... 56
7.6. Transitional Bell Labs Services..................... 56
ARTICLE VIII EXCHANGE OF INFORMATION; CONFIDENTIALITY
8.1. Agreement for Exchange of Information; Archives..... 56
8.2. Ownership of Information............................ 57
8.3. Compensation for Providing Information.............. 57
8.4. Record Retention.................................... 57
8.5. Limitation of Liability............................. 57
8.6. Other Agreements Providing for Exchange of
Information......................................... 57
8.7. Production of Witnesses; Records; Cooperation....... 57
8.8. Confidentiality..................................... 58
8.9. Protective Arrangements............................. 59
ARTICLE IX ARBITRATION; DISPUTE RESOLUTION
9.1. Agreement to Arbitrate.............................. 59
9.2. Escalation.......................................... 60
9.3. Demand for Arbitration.............................. 60
9.4. Arbitrators......................................... 61
9.5. Hearings............................................ 61
9.6. Discovery and Certain Other Matters................. 62
9.7. Certain Additional Matters.......................... 63
9.8. Limited Court Actions............................... 63
9.9. Continuity of Service and Performance............... 64
9.10. Law Governing Arbitration Procedures................ 64
ARTICLE X FURTHER ASSURANCES AND ADDITIONAL COVENANTS
10.1. Further Assurances.................................. 64
10.2. Qualification as Tax-Free Distribution.............. 66
ARTICLE XI TERMINATION
11.1. Termination by Mutual Consent....................... 66
11.2. Other Termination................................... 66
11.3. Effect of Termination............................... 66
ARTICLE XII MISCELLANEOUS
12.1. Counterparts; Entire Agreement; Corporate Power..... 66
</TABLE>
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<TABLE>
<S> <C> <C>
12.2. Governing Law....................................... 68
12.3. Assignability....................................... 68
12.4. Third Party Beneficiaries........................... 68
12.5. Notices............................................. 68
12.6. Severability........................................ 69
12.7. Force Majeure....................................... 69
12.8. Publicity........................................... 69
12.9. Expenses............................................ 69
12.10. Headings............................................ 69
12.11. Survival of Covenants............................... 69
12.12. Waivers of Default.................................. 69
12.13. Specific Performance................................ 70
12.14. Amendments.......................................... 70
12.15. Interpretation...................................... 70
Signatures...................................................... 71
</TABLE>
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SEPARATION AND DISTRIBUTION AGREEMENT
THIS SEPARATION AND DISTRIBUTION AGREEMENT, dated as of February 1, 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> 9
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, 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.
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;
<PAGE> 10
(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;
<PAGE> 11
(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, 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.
<PAGE> 12
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.
<PAGE> 13
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, 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).
<PAGE> 14
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).
<PAGE> 15
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,
<PAGE> 16
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 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.
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;
<PAGE> 17
(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 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 an 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.
<PAGE> 18
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 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;
<PAGE> 19
(d) surety bonds (excluding surety for workers' compensation
self-insurance);
(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 either
(i) 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) or
(ii) listed or described on Schedule 1.87.
1.88. PATENT ASSIGNMENTS means the six Patent Assignments, substantially in
the forms attached hereto as Schedule 1.88, to be executed and delivered by AT&T
to Lucent, NCR to AT&T, AT&T to NCR, Lucent to NCR, and Lucent to AT&T, on or
prior to the Closing Date.
1.89. PATENT DEFENSIVE PROTECTION AGREEMENTS means the two Defensive
Protection Agreements, substantially in the forms attached hereto as Schedule
1.89, to be executed and delivered between AT&T and Lucent, and between Lucent
and NCR, respectively, on or prior to the Closing Date.
1.90. PATENT JOINT OWNERSHIP AGREEMENT means the Patent Joint Ownership
Agreement, substantially in the form attached hereto as Schedule 1.90, to be
executed and delivered between AT&T and Lucent on or prior to the Closing Date.
1.91. PATENT LICENSE AGREEMENT means the Patent License Agreement,
substantially in the form attached hereto as Schedule 1.91, to be executed and
delivered by AT&T, Lucent and NCR on or prior to the Closing Date.
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
<PAGE> 20
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.
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.
<PAGE> 21
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.
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, 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, substantially in the form
attached hereto as Schedule 1.112, by and between AT&T and Lucent, and by and
among AT&T, Lucent and NCR, respectively, to be executed and delivered on or
prior to the Closing Date.
1.113. TECHNOLOGY LICENSE AGREEMENT means the Technology License Agreement,
substantially in the form attached hereto as Schedule 1.113, by and among AT&T,
Lucent and NCR to be executed and delivered on or prior to the Closing Date.
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.
<PAGE> 22
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.
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.
<PAGE> 23
(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):
(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 an Lucent Asset. No
Asset shall be deemed to be an 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 an Lucent Asset
<PAGE> 24
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;
(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
<PAGE> 25
(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;
(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
<PAGE> 26
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 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), including the representations, warranties and product
support agreements, arrangements, commitments or understandings to be
set forth on such Schedule relating to products, services or materials
previously furnished by the Lucent Business to the AT&T Services
Business; (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
<PAGE> 27
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) 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 subsublessor,
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),
<PAGE> 28
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 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) After the date hereof and on or prior to the Closing Date, the parties
shall execute and deliver each of the following Ancillary Agreements
to which it is a party:
(i) the Patent Assignments;
(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.
The parties acknowledge that the forms of the foregoing agreements attached
hereto as Schedules reflect the allocation of patents and other intellectual
property pursuant to a process conducted prior to the date hereof, and that such
agreements will be further supplemented prior to their execution to reflect a
continuation of such process for new patent applications and other intellectual
property that were not considered in the allocation process conducted prior to
the date hereof. In addition, the parties will determine no later than February
15, 1996 the appropriate amount and terms of the payments to be made pursuant to
the Patent Defensive Protection Agreements.
<PAGE> 29
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).
(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 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
<PAGE> 30
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.
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, Lucent shall pay (or
reimburse AT&T for) all expenses 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
<PAGE> 31
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).
(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
<PAGE> 32
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 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
<PAGE> 33
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 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
<PAGE> 34
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).
(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
<PAGE> 35
(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 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.
<PAGE> 36
ARTICLE III
THE IPO AND ACTIONS PENDING THE IPO
3.1. TRANSACTIONS PRIOR TO THE IPO. (a) Subject to the conditions specified
in Section 3.6, 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.
(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
<PAGE> 37
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.
(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.
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
<PAGE> 38
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.
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.
<PAGE> 39
(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
(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 to which a
fractional share shall be allocable 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.
<PAGE> 40
ARTICLE V
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 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;
<PAGE> 41
(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
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
<PAGE> 42
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;
(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
<PAGE> 43
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 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
<PAGE> 44
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 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 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
<PAGE> 45
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 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
<PAGE> 46
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 the 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.
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
<PAGE> 47
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.
(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
<PAGE> 48
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 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.
<PAGE> 49
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 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
<PAGE> 50
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.
(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.
(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:
<PAGE> 51
(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 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.
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:
<PAGE> 52
(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%.
(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,
<PAGE> 53
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 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
<PAGE> 54
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
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
<PAGE> 55
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 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 inhouse 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) As of the Closing Date, and with respect to Actions not set forth on
Schedules 6.1(e), 6.1(f), 6.1(g) or 6.1(n), AT&T, Lucent and NCR will form the
Contingent Claim Committee for the purpose of resolving any disagreement among
the parties as to whether:
(i) any claim or right is a Contingent Gain;
<PAGE> 56
(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 of a disagreement described in Section 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 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 existing as of the
Closing Date, as 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 6.1(n) to determine whether any matter set forth therein will
be reassigned as an Exclusive Contingent Liability.
6.7. CERTAIN CASE ALLOCATION MATTERS. 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
<PAGE> 57
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 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).
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 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
<PAGE> 58
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 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 S&T 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
<PAGE> 59
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 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).
<PAGE> 60
(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 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.
<PAGE> 61
(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 Group other than any Liabilities that are fully
discharged and satisfied by Lucent simultaneously with such prepayment
or early termination.
<PAGE> 62
(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 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%.
<PAGE> 63
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
attorneyclient 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.
(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
<PAGE> 64
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 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
<PAGE> 65
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
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
<PAGE> 66
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 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
<PAGE> 67
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.
(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
<PAGE> 68
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 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 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
<PAGE> 69
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 arbitration will not be conducted
under the auspices of the CPR and the fee schedule of the 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 proprietary rights and rights of privilege of the parties, and
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) 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 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).
<PAGE> 70
(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) 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. 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
<PAGE> 71
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).
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 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.
<PAGE> 72
(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 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.
<PAGE> 73
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.
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.
<PAGE> 74
(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 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
<PAGE> 75
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.
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:
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.
<PAGE> 76
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.
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
<PAGE> 77
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 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.
<PAGE> 78
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:
<PAGE> 1
EXHIBIT 10.3
GENERAL PURCHASE AGREEMENT
BETWEEN
AT&T CORP.
AND
LUCENT TECHNOLOGIES INC.
<PAGE> 2
GENERAL PURCHASE AGREEMENT
Table of Contents
<TABLE>
<S> <C>
PART I -- COMMON TERMS AND CONDITIONS........................................................ 1
ARTICLE I -- DEFINITIONS..................................................................... 1
1.1 Acceptance................................................................. 1
1.2 Acceptance Date............................................................ 2
1.3 Acceptance Test............................................................ 2
1.4 Acceptance Test Period..................................................... 2
1.5 Action..................................................................... 2
1.6 Active Licensed Software Product........................................... 2
1.7 Additional Work............................................................ 2
1.8 Affiliate.................................................................. 2
1.9 Agreement.................................................................. 2
1.10 Agreement Documents........................................................ 2
1.11 Application for Payment.................................................... 2
1.12 Applicable Deadline........................................................ 3
1.13 Application Software....................................................... 3
1.14 AR......................................................................... 3
1.15 Arbitration Act............................................................ 3
1.16 Arbitration Demand Date.................................................... 3
1.17 Arbitration Demand Notice.................................................. 3
1.18 ARM........................................................................ 3
1.19 AT&T....................................................................... 3
1.20 AT&T EH&S Practices........................................................ 3
1.21 Beneficial Occupancy....................................................... 3
1.22 Bill of Materials.......................................................... 3
1.23 Call Receipt............................................................... 3
1.24 Change Order............................................................... 4
1.25 Completion Date............................................................ 4
1.26 Completion Schedule........................................................ 4
1.27 Consultation Support....................................................... 4
1.28 Construction Delay......................................................... 4
1.29 CPR........................................................................ 4
1.30 Customer Software.......................................................... 4
1.31 Customer Connectivity...................................................... 4
1.32 Demobilization............................................................. 4
1.33 Designated Processor....................................................... 4
</TABLE>
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<TABLE>
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1.34 Differing Site Conditions.................................................. 4
1.35 Discontinued Availability.................................................. 4
1.36 Drawings................................................................... 5
1.37 Effective Date............................................................. 5
1.38 Engineer................................................................... 5
1.39 Enhancements............................................................... 5
1.40 Export..................................................................... 5
1.41 Field Order................................................................ 5
1.42 Final Acceptance........................................................... 5
1.43 Firmware................................................................... 5
1.44 First Field Application.................................................... 5
1.45 Fit........................................................................ 5
1.46 Force Majeure.............................................................. 6
1.47 Form....................................................................... 6
1.48 Function................................................................... 6
1.49 Governmental Authority..................................................... 6
1.50 Hardware Deployment........................................................ 6
1.51 Information................................................................ 6
1.52 Initial Response Time...................................................... 6
1.53 Installation Complete Date................................................. 6
1.54 Intellectual Property Agreements........................................... 6
1.55 Licensed Materials......................................................... 6
1.56 Lump Sum Price............................................................. 7
1.57 Major Holidays............................................................. 7
1.58 Make Ready Coordination.................................................... 7
1.59 Mature Software Product.................................................... 7
1.60 Management Notification.................................................... 7
1.61 Method of Procedure........................................................ 7
1.62 Modifications.............................................................. 7
1.63 NCR........................................................................ 8
1.64 New Software Product....................................................... 8
1.65 NS-Lucent.................................................................. 8
1.66 Object Code................................................................ 8
1.67 On-Site Assistance......................................................... 8
1.68 On-Site Work Force.......................................................... 8
1.69 Order...................................................................... 8
1.70 Ordering Company........................................................... 8
1.71 Ordering Company's Information............................................. 8
1.72 Ordering Company Notification Bulletins.................................... 9
1.73 Ordering Company Representative............................................ 9
1.74 Others..................................................................... 9
</TABLE>
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<TABLE>
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1.75 Performance Metrics........................................................ 9
1.76 Price...................................................................... 9
1.77 Problem Management......................................................... 9
1.78 Problem Resolution......................................................... 9
1.79 Product.................................................................... 9
1.80 Proposal................................................................... 9
1.81 Related Documentation...................................................... 9
1.82 Remobilization............................................................. 10
1.83 Resolve.................................................................... 10
1.84 Resolve Time............................................................... 10
1.85 Respond.................................................................... 10
1.86 Restore.................................................................... 10
1.87 Scope of Work.............................................................. 10
1.88 Service.................................................................... 10
1.89 Service Performance Reports................................................ 11
1.90 Service Restoration Time................................................... 11
1.91 Severity Level............................................................. 11
1.92 Severity Level One......................................................... 11
1.93 Severity Level Two......................................................... 11
1.94 Severity Level Three....................................................... 11
1.95 Severity Level Four........................................................ 11
1.96 Site....................................................................... 11
1.97 Software................................................................... 11
1.98 Software Product........................................................... 11
1.99 Software Product Defect.................................................... 12
1.100 Software Product Updates................................................... 12
1.101 Source Code................................................................ 12
1.102 Special Conditions......................................................... 12
1.103 Specifications............................................................. 12
1.104 Specifications or Standards................................................ 12
1.105 Start Date................................................................. 12
1.106 Subcontractor.............................................................. 12
1.107 Supplemental Agreement..................................................... 12
1.108 Supplementary Specifications............................................... 13
1.109 Supplier................................................................... 13
1.110 Supplier's Information..................................................... 13
1.111 Supplier's Manufactured Product............................................ 13
1.112 Support Services........................................................... 13
1.113 System..................................................................... 13
1.114 Unit Adjusting Price....................................................... 13
1.115 Unit Price................................................................. 13
1.116 United States.............................................................. 13
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<TABLE>
<S> <C>
1.117 Use...................................................................... 13
1.118 Vendor Item.............................................................. 14
1.119 Warranty Period.......................................................... 14
1.120 Work..................................................................... 14
1.121 Work Order............................................................... 14
ARTICLE IA -- NATURE OF AGREEMENT............................................................ 14
1A.1 Purpose and Scope of this Agreement...................................... 14
1A.2 Statement of Aspirations................................................. 15
1A.3 Volume of Commitment..................................................... 15
1A.4 Governing Terms.......................................................... 16
1A.5 Term of Agreement........................................................ 17
1A.6 Transition Period........................................................ 18
1A.7 Purchases by AT&T's Affiliates........................................... 18
1A.8 Additional Technology Rights............................................. 18
ARTICLE II -- ORDERING AND DELIVERY.......................................................... 19
2.1 Orders................................................................... 19
2.2 Order Acceptance......................................................... 20
2.3 Changes in Ordering Company's Orders..................................... 20
2.4 Changes in Products by Supplier.......................................... 20
2.5 Order Cancellation and Holds............................................. 21
2.6 Shipping, Packing and Delivery........................................... 22
2.7 Title and Risk of Loss................................................... 23
ARTICLE III -- PRICES AND PAYMENTS........................................................... 23
3.1 Prices................................................................... 23
3.2 Invoices and Terms of Payment............................................ 24
3.3 Taxes.................................................................... 26
ARTICLE IV -- INTELLECTUAL PROPERTY RIGHTS................................................... 27
4.1 Use of Information....................................................... 27
4.2 Infringement and Misappropriations....................................... 28
4.3 No Patent Licenses....................................................... 29
4.4 Trademarks............................................................... 29
4.5 Proprietary Notice....................................................... 30
ARTICLE V -- RISK MANAGEMENT................................................................. 30
5.1 Ordering Companies' Remedies............................................. 30
5.2 Supplier Performance..................................................... 32
5.3 Insurance................................................................ 32
</TABLE>
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<PAGE> 6
<TABLE>
<S> <C>
ARTICLE VA -- ARBITRATION; DISPUTE RESOLUTION................................................ 33
5A.1 Agreement to Arbitrate..................................................... 33
5A.2 Escalation................................................................. 33
5A.3 Demand for Arbitration..................................................... 34
5A.4 Arbitrators................................................................ 35
5A.5 Hearings................................................................... 35
5A.6 Discovery and Certain Other Matters........................................ 36
5A.7 Certain Additional Matters................................................. 37
5A.8 Limited Court Actions...................................................... 38
5A.9 Continuity of Service and Performance...................................... 39
5A.10 Law Governing Arbitration Procedures....................................... 39
ARTICLE VI -- MISCELLANEOUS.................................................................. 39
6.1 Export Control............................................................. 39
6.2 Publication of Agreement................................................... 39
6.3 Notices.................................................................... 39
6.4 Ordering Company's Responsibility.......................................... 40
6.5 Supplier's Responsibility.................................................. 40
6.6 Each Party's Responsibility................................................ 41
6.7 Assurance of Supply........................................................ 41
6.8 Publicity.................................................................. 41
6.9 Right of Access/Permits and Approvals...................................... 42
6.10 Force Majeure.............................................................. 42
6.11 Independent Contractor..................................................... 42
6.12 Releases Void.............................................................. 43
6.13 Survival of Obligations.................................................... 43
6.14 Government Contract Provisions............................................. 43
6.15 Quality System Audit....................................................... 43
6.16 ISO 9000................................................................... 44
6.17 Utilization of Minority- and Women-Owned Business Enterprises.............. 44
6.18 Assignability.............................................................. 45
6.19 Governing Law.............................................................. 45
6.20 Compliance with Law........................................................ 45
6.21 Record Retention........................................................... 45
6.22 Non-Waivers................................................................ 46
6.23 Third Party Beneficiaries.................................................. 46
6.24 Severability............................................................... 46
6.25 Headings................................................................... 46
6.26 Counterparts............................................................... 46
6.27 Amendments................................................................. 46
6.28 Interpretation............................................................. 47
6.29 Entire Agreement........................................................... 47
</TABLE>
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<PAGE> 7
<TABLE>
<S> <C>
ARTICLE VII -- PURPOSE AND ORGANIZATION OF PART II........................................... 47
7.1 Purposes and Scopes of Part II........................................... 47
7.2 Organization of Part II.................................................. 47
ARTICLE VIII -- PURCHASE OF PRODUCTS......................................................... 48
8.1 General.................................................................. 48
8.2 Product Warranty......................................................... 48
8.3 Continuing Product Support - Parts and Services.......................... 51
8.4 Technical Support of Products............................................ 52
8.5 Documentation............................................................ 53
8.6 Specification............................................................ 53
8.7 Equipment Testing........................................................ 54
8.8 Environmental/Reliability Testing........................................ 54
8.9 Failure Mode Analysis of Failed Components............................... 54
8.10 Floor Plan Data Sheets................................................... 55
8.11 Monthly Order and Shipment Reports....................................... 55
8.12 Radiation Assistance..................................................... 55
8.13 Marking.................................................................. 55
8.14 Periodic Product Qualification Reviews................................... 55
8.15 Maintenance/Post Warranty................................................ 56
8.16 Planning Information for Orders for Commercially Available Products...... 56
ARTICLE IX -- SOFTWARE....................................................................... 57
9.1 General.................................................................. 57
9.2 License.................................................................. 57
9.3 Software................................................................. 58
9.4 Access to Source Code.................................................... 58
9.5 Restrictions and Confidentiality......................................... 58
9.6 Installation of Software................................................. 59
9.7 Optional Software Features............................................... 59
9.8 Centralized Maintenance.................................................. 59
9.9 Enhancements............................................................. 60
9.10 Intellectual Property Rights............................................. 60
9.11 Training and Technical Services.......................................... 60
9.12 Modifications............................................................ 60
9.13 Redesignation or Transfer of Designated Site or Computer................. 61
9.14 Software Acceptance...................................................... 61
9.15 Software Warranty........................................................ 62
9.16 Cancellation of License.................................................. 64
9.17 Related Documentation.................................................... 64
9.18 Additional Rights in Licensed Material................................... 64
</TABLE>
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<TABLE>
<S> <C>
9.19 Software Maintenance Service............................................. 65
9.20 Notification of Discontinued Availability of Software.................... 65
ARTICLE X -- ENGINEERING, INSTALLATION, MAINTENANCE AND
OTHER MISCELLANEOUS SERVICES................................................... 66
10.1 General.................................................................. 66
10.2 Warranty of Services Other Than Maintenance Services..................... 66
A. ENGINEERING SERVICES................................................................ 67
10.3 Ordering................................................................. 67
10.4 Standards for Engineering Services....................................... 67
10.5 Standards for Central Office Record Services............................. 67
10.6 Engineering Intellectual Property........................................ 67
B. INSTALLATION SERVICES............................................................... 67
10.7 Conditions of Installation and Other Services Performed on
Ordering Company's Site................................................. 67
10.8 Acceptance of Installation............................................... 72
C. MAINTENANCE SERVICES................................................................ 73
10.9 General Service Description.............................................. 73
10.10 Eligibility for Maintenance Service...................................... 77
10.11 Orders for Maintenance Service........................................... 77
10.12 Prices................................................................... 77
10.13 Periods of Maintenance Service........................................... 77
10.14 Maintenance Service Exclusions........................................... 77
10.15 Ordering Company Responsibilities........................................ 79
10.16 Maintenance of Relocated Software........................................ 81
10.17 Software Product Update Services......................................... 81
10.18 Maintenance Services Warranty............................................ 82
D. MISCELLANEOUS SERVICES ........................................................ 83
10.19 Training................................................................. 83
10.20 Installation/Cutover Assistance.......................................... 83
ARTICLE XI -- OUTSIDE PLANT SERVICES......................................................... 83
11.1 Purpose and Scope of This Article........................................ 83
11.2 Work; Supplier Materials; Permits; Railroads; Security................... 83
</TABLE>
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<TABLE>
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11.3 Ordering Company Furnished Materials..................................... 84
11.4 Ordering Company Obligations............................................. 85
11.5 Work Order; Changes...................................................... 86
11.6 Plant Protection; Underground Facilities................................. 86
11.7 Protection of Public and Public Property................................. 87
11.8 Local Conditions; Differing Site Conditions.............................. 87
11.9 Outside Plant Services Scheduling........................................ 88
11.10 Inspection and Correction of Defects; Acceptance......................... 88
11.11 Supervision; Control of Work............................................. 89
11.12 Warranty................................................................. 89
11.13 Safety; Emergency........................................................ 90
11.14 Engineer's Drawings and Specifications................................... 91
11.15 Reference Standards ................................................. 91
11.16 Records.................................................................. 91
11.17 Unfavorable Construction Conditions...................................... 92
11.18 Archaeological Sites; Environmental Protection........................... 92
11.19 Reporting Defects........................................................ 93
11.20 Construction Delay....................................................... 94
11.21 Notice of Labor Disputes................................................. 95
11.22 Performance and Payment Bond............................................. 95
11.23 Application for Payment; Terms of Payment................................ 96
11.24 Liens .................................................................. 96
ARTICLE XII -- CONSULTING SERVICES........................................................... 96
12.1 General.................................................................. 96
12.2 Statement of Work........................................................ 96
12.3 Ownership of Information................................................. 97
12.4 Equipment Supplier....................................................... 97
12.5 Ordering Company's Responsibility........................................ 97
12.6 Warranty................................................................. 98
</TABLE>
viii
<PAGE> 10
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 and AT&T wish to establish the fundamental terms and
conditions pursuant to which AT&T shall order, and Lucent 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.
1
<PAGE> 11
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 pro forma completed work
summary with supporting documentation from Supplier to Ordering Company.
2
<PAGE> 12
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.
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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
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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); or 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).
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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
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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 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.
1.57 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
1.58 MAKE READY COORDINATION as referred to in Article 10 means
additional assistance offered by Supplier for compensation at agreed upon rates.
1.59 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.
1.60 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.
1.61 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.
1.62 MODIFICATIONS as referred to in Article 9 means Ordering
Company additions to, deletions from or mergers of Software with one or more
programs owned or licensed by Ordering Company that results in an updated or
otherwise modified software.
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1.63 NCR means NCR Corporation (formerly named AT&T Global
Information Solutions Company), a Maryland corporation.
1.64 NEW SOFTWARE PRODUCT as referred to in Article 10 means an
Application Software Product initially licensed to Ordering Company after
execution of this Agreement.
1.65 Lucent means Lucent Technologies Inc., a Delaware corporation.
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.
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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
effect 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 diagrams, program descriptions, and
Specifications. No Source Code versions of Software are included in Related
Documentation.
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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.
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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.
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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.
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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.
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.
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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.
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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 Global Business Communications
Systems business unit. Part 3, to be negotiated and executed not later than
March 31, 1996, shall set forth the additional terms and conditions which
govern Supplier's provision of Products, Licensed Materials and Services
provided by Supplier's Global Business Communications System Unit.
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 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 may assist AT&T in
this manner;
(b) The parties recognize that Lucent's pricing of
Products, Licensed Materials and Services must balance two fundamental
requirements: AT&T's requirement for the lowest possible operating costs and
Lucent'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
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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
($3,000,000,000) 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. Exhibit 1A-1 lists the Services, identified thus far,
intended for coverage under this clause and also the Services covered under
other Supplemental Agreements or commercial agreements. Services to be excluded
include, but are not limited to, real estate and motor vehicles. The parties
agree to use their best efforts to formalize the Services listed in Exhibit 1A-1
in a commercially reasonable manner (including pricing) that is consistent with
the terms and conditions contained herein no later than March 31, 1996. 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, Supplier and
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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
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Company or Supplier under any then existing Order or Supplemental Agreement
issued under this Agreement.
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.
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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) 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
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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.
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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
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(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.
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(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
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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
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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 timely payment of the
undisputed portion(s) of any invoice containing a disputed portion.
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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.
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(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
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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
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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.
(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
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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.
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
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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:
(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 GBCS 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
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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 Pricing Agreement. With respect to Network
Outages caused solely by Supplier in connection with GBCS 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
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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 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.
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
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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.
(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.
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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 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 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
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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 arbitration will not be conducted under the auspices
of the CPR and 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 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 proprietary rights and rights of
privilege of the parties, and 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
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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 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
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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. 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 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).
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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 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
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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.
(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
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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 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 GBCS 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
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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 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
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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 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
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(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 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.
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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.
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 matters, 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.
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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 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.
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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.
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:
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(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.
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
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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:
(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:
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(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.
(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
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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.
(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
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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 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
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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 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,
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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 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
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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
time frame 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.
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.
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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.
(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,
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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.
(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.
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(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.
(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,
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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
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
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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.
(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
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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 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
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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.
(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
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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 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 database errors. Moreover, no warranty is made
that Software will run uninterrupted or error free.
(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
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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
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,
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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 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
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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 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.
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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 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
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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.
(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.
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(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 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.
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(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.
(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
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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
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.
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(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.
(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
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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 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.
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(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.
(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, database 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
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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.
(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.
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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 10.2(c)(ii)(E) above. 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 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>
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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 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;
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(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;
(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;
(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
database. However, if corruption is the result of, or caused by another of
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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.
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:
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(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 database contents,
and console printouts as required by Supplier.
(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.
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(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 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 8-1. 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
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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.
(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 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
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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 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.
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(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.
(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:
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(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 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
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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.
(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.
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(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 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
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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 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.
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(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.
(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
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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 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
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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 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
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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 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
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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 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
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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.
(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;
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(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.
(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
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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.
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.
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(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.
(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.
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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.
98
<PAGE> 108
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 _______________________________
99
<PAGE> 1
EXHIBIT 10.4
INTERIM SERVICES AND SYSTEMS REPLICATION AGREEMENT
by and among
AT&T CORP.,
LUCENT TECHNOLOGIES INC.
and
NCR CORPORATION
<PAGE> 2
INTERIM SERVICES AND SYSTEMS REPLICATION AGREEMENT
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.1 Additional Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 Corporate Support Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 Data Processing Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.4 Expiration Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.5 Impracticable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.6 Initial Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.7 Providing Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.8 Receiving Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.9 Representative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.10 Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.11 System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.12 System Error. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.13 Systems Replication and Transfer Services . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.14 Telecommunications Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.15 Termination Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE II SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.1 Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(a) Initial Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(i) Data Processing Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(ii) Telecommunications Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(iii) Corporate Support Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(iv) Systems Replication and Transfer Services . . . . . . . . . . . . . . . . . . . . . 3
(b) Final Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(c) Additional Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(d) Services Performed by Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.2 Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.3 Charges and Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(a) Charges for Initial Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(b) Charges for Additional Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(c) Payment Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
(d) Performance under Ancillary Agreements . . . . . . . . . . . . . . . . . . . . . . . . . 6
(e) Error Correction; True-ups; Accounting . . . . . . . . . . . . . . . . . . . . . . . . . 6
(f) Pricing Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C>
2.4 General Obligations; Standard of Care . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
(a) Performance Metrics: Providing Company . . . . . . . . . . . . . . . . . . . . . . . . 7
(b) Performance Metrics: Receiving Company . . . . . . . . . . . . . . . . . . . . . . . . 7
(c) Transitional Nature of Services; Changes . . . . . . . . . . . . . . . . . . . . . . . . 7
(d) Responsibility for Errors; Delays . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
(e) Good Faith Cooperation; Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
(f) Alternatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.5 Certain Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(a) Service Boundaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(b) Impracticability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(c) Additional Resources. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(d) No Sale, Transfer, Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.6 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(a) Information Subject to Other Obligations . . . . . . . . . . . . . . . . . . . . . . . . 9
(b) All Information Confidential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(c) Internal Use; Title; Copies, Return . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.7 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
(a) Receiving Company Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
(b) Providing Company Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
(c) Termination of Less than All Services . . . . . . . . . . . . . . . . . . . . . . . . . 11
(d) User IDs, Passwords . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.8 Disclaimer of Warranties, Limitation of Liability and Indemnification . . . . . . . . . . . 11
(a) Disclaimer of Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
(b) Limitation of Liability; Indemnification of Receiving Company . . . . . . . . . . . . . 11
(c) Limitation of Liability; Indemnification of Providing Company . . . . . . . . . . . . . 11
(d) Subrogation of Rights vis-a-vis Third Party Contractors . . . . . . . . . . . . . . . . 12
2.9 Representative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE III MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.1 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.2 Laws and Governmental Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.3 Relationship of Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.4 Incorporation of Provisions of the Separation and Distribution Agreement . . . . . . . . . . 13
3.5 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.6 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.7 Modification and Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.8 Inconsistency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
</TABLE>
-ii-
<PAGE> 4
INTERIM SERVICES AND SYSTEMS REPLICATION AGREEMENT
THIS INTERIM SERVICES AND SYSTEMS REPLICATION AGREEMENT, dated
as of February 1, 1996 (the "Effective Date"), is by and among AT&T Corp., a New
York corporation ("AT&T"), Lucent Technologies Inc., a Delaware corporation
("Lucent"), and NCR Corporation, a Maryland corporation ("NCR"). 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;
WHEREAS, in order to effectuate 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"), which provides,
among other things, subject to the terms and conditions thereof, 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, in order to ensure an orderly transition under the
Separation and Distribution Agreement it will be necessary for one or more of
the parties to provide to one or both of the other parties the Services
described herein for a transitional period.
NOW, THEREFORE, in consideration of the premises and for other
good and valid consideration, the receipt and adequacy of which are hereby
acknowledged, the parties, intending to be legally bound, agree as follows:
<PAGE> 5
ARTICLE I
DEFINITIONS
For the purpose of this Agreement the following terms shall
have the following meanings:
1.1 ADDITIONAL SERVICES shall have the meaning set forth
in subsection 2.1(c).
1.2 CORPORATE SUPPORT SERVICES shall mean the Services
described in the Exhibits set forth in subsection 2.1(a)(iii).
1.3 DATA PROCESSING SERVICES shall mean the Services
described in the Exhibits set forth in Subsection 2.1(a)(i).
1.4 EXPIRATION DATE shall have the meaning set forth in
Section 2.2.
1.5 IMPRACTICABLE (and words of similar import) shall
have the meaning set forth in subsection 2.5(b).
1.6 INITIAL SERVICES shall have the meaning set forth in
subsection 2.1(a).
1.7 PROVIDING COMPANY shall mean, with respect to any
particular Service, the entity or entities identified on the applicable Exhibit
as the party to provide such Service.
1.8 RECEIVING COMPANY shall mean, with respect to any
particular Service, the entity or entities identified on the applicable Exhibit
as the party to receive such Service.
1.9 REPRESENTATIVE of any party shall mean a managerial
level employee appointed by such party to have the responsibilities and
authority set forth in Section 2.9.
1.10 SERVICE shall have the meaning set forth in
subsection 2.1(c).
1.11 SYSTEM shall mean the software, hardware, data store
or maintenance and support components or portions of such components of a set
of information technology assets identified in an Exhibit hereto.
1.12 SYSTEM ERROR shall have the meaning set forth in
subsection 2.4(d)(iii).
1.13 SYSTEMS REPLICATION AND TRANSFER SERVICES shall mean
the Services described in the Exhibits set forth in subsection 2.1(a)(iv).
1.14 TELECOMMUNICATIONS SERVICES shall mean the Services
described in the Exhibits set forth in subsection 2.1(a)(ii).
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<PAGE> 6
1.15 TERMINATION DATE shall have the meaning set forth in
Section 2.2.
ARTICLE II
SERVICES
2.1 SERVICES.
(a) INITIAL SERVICES. Except as otherwise provided
herein, for the term determined pursuant to Section 2.2 hereof, Providing
Company shall provide or cause to be provided to Receiving Company, in each
case as identified in the Exhibits attached hereto or subsequently agreed to
prior to the Closing Date in accordance with the procedures set forth herein,
the following "Initial Services":
(i) DATA PROCESSING SERVICES described in
Exhibits DP-1 through DP-8;
(ii) TELECOMMUNICATIONS SERVICES described in
Exhibits TC-1 through TC-15;
(iii) CORPORATE SUPPORT SERVICES described in
Exhibits 001(CFO) through CS-050(CFO), CS-201(HR) through CS-264(HR);
CS-301(GPO) through CS-332(GPO), CS-401(GRE) through CS-440(GRE), CS-501(L&GA)
through CS-524(L&GA), CS-601(PR) through CS-606 (PR), CS-701 (E&S) through
CS-714(E&S), CS-801(BL) through CS-823(BL) and CS-901(GEN) through CS-905(GEN),
as more fully identified in the list preceding each series of Exhibits hereto;
and
(iv) SYSTEMS REPLICATION AND TRANSFER SERVICES
described in Exhibits SR-001(CFO) through SR-182(CFO), SR-201(HR) through
SR-236(HR), SR-301(GPO) through SR-324(GPO), SR-401(GRE) through SR-423(GRE),
SR-501(L&GA) through SR-559(L&GA), SR-701(E&S) through SR-717(E&S) and
SR-801(BL) through SR-809(BL).
(b) FINAL EXHIBITS. The parties have made good faith
efforts as of the date hereof to identify each Initial Service and complete the
content of each Exhibit pertaining to the Initial Services. To the extent an
Exhibit has not been prepared for an Initial Service or an Exhibit is otherwise
incomplete as of the date hereof, the parties shall use good faith efforts to
prepare or complete Exhibits by the Closing Date. Any Services reflected on
any such additional or amended Exhibit shall be deemed an "Initial Service" as
if set forth on such Exhibit as of the date hereof.
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<PAGE> 7
(c) ADDITIONAL SERVICES.
(i) From time to time after the Closing Date, the
parties may identify additional services that one party will provide to one or
both of the other parties in accordance with the terms of this Agreement (the
"Additional Services" and, together with the Initial Services, the "Services").
The parties shall create an Exhibit for each Additional Service setting forth
the identities of the Providing Company and the Receiving Company, a
description of the Service, the time period during which the Service will be
provided, the charge, if any, for the Service and any other terms applicable
thereto and obtain the approval of each party's Representative. Except as set
forth in subsection 2.1(c)(ii), the parties may, but shall not be required to,
agree on Additional Services during the term of this Agreement.
(ii) Except as set forth in the next sentence, the
Providing Company shall be obligated to perform, at charges established
pursuant to subsection 2.3(b), any Additional Service that: (A) was provided
by the Providing Company immediately prior to the Closing Date and that
Receiving Company reasonably believes was inadvertently or unintentionally
omitted from the list of Initial Services or (B) is essential to effectuate an
orderly transition under the Separation and Distribution Agreement unless such
performance would significantly disrupt Providing Company's operations or
materially increase the scope of its responsibility under this Agreement. If
Providing Company reasonably believes the performance of Additional Services
required under subparagraphs (A) or (B) would significantly disrupt its
operations or materially increase the scope of its responsibility under this
Agreement, the Providing Company and Receiving Company shall negotiate in good
faith to establish terms under which Providing Company can provide such
Additional Services, but the Providing Company shall not be obligated to
provide such Additional Services if, following good faith negotiation, it is
unable to reach agreement on such terms.
(d) SERVICES PERFORMED BY OTHERS. At its option,
Providing Company may cause any Service it is required to provide hereunder to
be provided by another member of its Group or by any other Person that is
providing, or may from time to time provide, the same or similar services for
the Providing Company. The Providing Company shall remain responsible, in
accordance with the terms of this Agreement, for performance of any Service it
causes to be so provided.
2.2 TERM. The term of this Agreement shall commence on
the Effective Date and shall remain in effect through December 31, 1998
("Expiration Date"), unless earlier terminated under Section 2.7 ("Termination
Date"). This Agreement may be extended by the parties in writing either in
whole or with respect to one or more of the Services, provided, however, that
such extension shall only apply to the Service for which the Agreement was
extended. The parties shall be deemed to have extended this Agreement
respecting a specific Service if the Exhibit for such Service specifies a
completion date beyond the aforementioned Expiration Date. The parties may
agree on an earlier expiration date respecting a specific Service by specifying
such date on the Exhibit for that Service. Services shall be provided up to
and including the date set forth in the applicable Exhibit, subject to earlier
termination as provided herein, with the understanding that Services scheduled
to expire on September 30, 1996 shall
- 4 -
<PAGE> 8
expire on the later of September 30, 1996 and the Distribution Date unless the
parties otherwise agree with respect to a specific Service.
2.3 CHARGES AND PAYMENT.
(a) CHARGES FOR INITIAL SERVICES. Receiving Company
shall pay Providing Company the charges, if any, set forth on the Exhibit for
each of the Services listed therein as adjusted, from time to time, in
accordance with the process and procedures established under subsection 2.3(e)
hereof. Wherever practical, charges shall be based on actual incurred costs,
not budgeted or estimated costs. The parties also intend for charges to be
easy to administer and justify and, therefore, they hereby acknowledge it may
be counterproductive to try to recover every cost, charge or expense
particularly those that are insignificant or de minimis. The parties shall use
good faith efforts to discuss any situation in which the actual charge for a
Service is reasonably expected to exceed the estimated charge, if any, set
forth on an Exhibit for a particular Service, provided, however, that the
incurrence of charges in excess of any such estimate shall not justify stopping
the provision of, or payment for, Services under this Agreement.
(i) In the case of Data Processing Services,
Telecommunications Services or Common Support Services, except as otherwise set
forth in an Exhibit for a specific Service, the parties intend for these
charges to allow Providing Company to recover the fully allocated direct costs
of providing such Services plus all out-of-pocket, third party costs, charges
or expenses, but without any profit. Where the number of employees assigned by
each party to jointly support an Initial Service is in proportion to the
parties' historical or expected use of such Initial Service, and each party is
responsible for the costs and expenses of its employees so assigned, recovery
may be limited to other direct costs, such as data processing and software
license fees.
(ii) In the case of Systems Replication and
Transfer Services, except as otherwise set forth in an Exhibit for a specific
Service, the parties intend that costs and expenses associated with isolating,
separating or replicating a System be borne by the parties in proportion to
their usage of the System prior to the Effective Date. The parties shall
determine the appropriate proportion of each party for each Systems Replication
and Transfer Service prior to the Closing Date. Where the number of employees
assigned by each party to jointly replicate or transfer a System is in
proportion to the parties' historical or expected use of such System, and each
party is responsible for the costs of its employees so assigned, recovery may
be limited to other direct costs such as third party contractor fees or
extraordinary data processing or networking costs. For purposes of the
foregoing, the parties acknowledge that, unless otherwise agreed in writing,
the costs of buying new hardware or obtaining new software licenses shall be
the responsibility of the party purchasing such hardware or licensing such
software.
(b) CHARGES FOR ADDITIONAL SERVICES. Receiving Company
shall pay Providing Company the charges, if any, set forth on each Exhibit
hereafter created for each of the Additional Services listed therein. Except
for Systems Replication and Transfer Services
- 5 -
<PAGE> 9
required by Section 2.1(c)(ii), costs and expenses associated with System
Replication and Transfer Additional Services shall be borne by the party
requesting such Additional Services. Charges, if any, for other Additional
Services, including those required by Section 2.1(c)(ii), shall be determined
according to methods in use prior to the Closing Date or such other method as
may be mutually agreed that ensures that Providing Company recovers costs and
expenses, but without any profit, in accordance with subsection 2.3(a).
Notwithstanding the foregoing, however, the agreement of a party to provide or
receive any Additional Service that is not required pursuant to subsection
2.1(c)(ii) at any given rate or charge shall be at the sole discretion of such
party.
(c) PAYMENT TERMS. Providing Company shall bill
Receiving Company monthly for all charges pursuant to this Agreement. Such
bills shall be accompanied by reasonable documentation or other reasonable
explanation supporting such charges. Receiving Company shall pay Providing
Company for all Services provided hereunder within thirty (30) days after
receipt of an invoice therefor. Late payments shall bear interest at the Prime
Rate plus two percent (2%) per annum.
(d) PERFORMANCE UNDER ANCILLARY AGREEMENTS.
Notwithstanding anything to the contrary contained herein, Receiving Company
shall not be charged under this Agreement for any Services that are
specifically required to be performed under the Separation and Distribution
Agreement or any other Ancillary Agreement and any such other Services shall be
performed and charged for in accordance with the terms of the Separation and
Distribution Agreement or such other Ancillary Agreement.
(e) ERROR CORRECTION; TRUE-UPS; ACCOUNTING. Before the
Closing Date, the parties shall agree on a process and procedure for conducting
internal audits and making adjustments to charges as a result of the movement
of employees and functions between parties, the discovery of errors or
omissions in charges, as well as a true-up of amounts owed. The parties shall
set forth the agreed upon process and procedure in Exhibit 1 hereto. In no
event shall such processes and procedures extend beyond one (1) year after
completion of a Service.
(f) PRICING ADJUSTMENTS. In the event of a tax audit
adjustment relating to the pricing of any or all Services provided pursuant to
this Agreement in which it is determined by a taxing authority that any of the
charges, individually or in combination, did not result in an arm's-length
payment, as determined under internationally accepted arm's-length standards,
then the parties, including a Providing Company subcontractor or a member of
the Providing Company's Group providing or receiving Services hereunder, may
agree to make corresponding adjustments to the charges in question for such
period to the extent necessary to achieve arm's-length pricing. Any adjustment
made pursuant to this subsection 2.3(f) shall be reflected in the parties'
official books and records, and the resulting overpayment or underpayment shall
create an obligation to be paid in the manner specified in subsection 2.3(c).
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<PAGE> 10
2.4 GENERAL OBLIGATIONS; STANDARD OF CARE.
(a) PERFORMANCE METRICS: PROVIDING COMPANY. Subject to
subsection 2.5(c), the Providing Company shall maintain sufficient resources to
perform its obligations hereunder. Specific performance metrics for the
Providing Company may be set forth in Exhibits. Where none is set forth for
Data Processing Services, Telecommunications Services and Common Support
Services, the Providing Company shall use reasonable efforts to provide
Services in accordance with the policies, procedures and practices in effect
before the date hereof and shall exercise the same care and skill as it
exercises in performing similar services for itself. Where none is set forth
for System Replication and Transfer Services, the Providing Company will use
reasonable efforts to replicate and transfer each System so that it has
substantially the same functionality for Receiving Company as it did
immediately before the date hereof taking into account changes reasonably
expected and customary in a new operating environment.
(b) PERFORMANCE METRICS: RECEIVING COMPANY. Specific
performance metrics for the Receiving Company may be set forth in Exhibits.
Where none is set forth, the Receiving Company shall use reasonable efforts, in
connection with receiving Services, to follow the policies, procedures and
practices in effect before the date hereof including providing information and
documentation sufficient for Providing Company to perform the Services as they
were performed before the date hereof and making available, as reasonably
requested by the Providing Company, sufficient resources and timely decisions,
approvals and acceptances in order that Providing Company may accomplish its
obligations hereunder in a timely manner.
(c) TRANSITIONAL NATURE OF SERVICES; CHANGES. The
parties acknowledge the transitional nature of the Services and that Providing
Company may make changes from time to time in the manner of performing the
Services if Providing Company is making similar changes in performing similar
services for members of its own Group and if Providing Company furnishes to
Receiving Company substantially the same notice Providing Company shall provide
members of its own Group respecting such changes. Notwithstanding the
foregoing, between the date hereof and January 1, 1997, Providing Company will
not make any material change to Systems affecting Receiving Company without
first providing thirty (30) days prior written notice and obtaining Receiving
Company's prior written consent, which consent shall not be unreasonably
withheld or delayed.
(d) RESPONSIBILITY FOR ERRORS; DELAYS. Providing
Company's sole responsibility to Receiving Company:
(i) for errors or omissions in Data Processing
Services, Telecommunications Services and Common Support Services, shall be to
furnish correct information, payment and/or adjustment in the Services, at no
additional cost or expense to Receiving Company; provided, Receiving Company
must promptly advise Providing Company of any such error or omission of which
it becomes aware after having used reasonable efforts to detect any such errors
or omissions in accordance with the standard of care set forth in subsection
2.4(b);
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<PAGE> 11
(ii) for failure to deliver any Data Processing
Service, Telecommunications Service or Common Support Service because of
Impracticability, shall be to use reasonable efforts, subject to subsection
2.5(c), to make the Services available and/or to resume performing the Services
as promptly as reasonably practicable;
(iii) for an error, bug, fault or deficiency in a
replicated or transferred System (a "System Error") that did not exist in the
System immediately before the Closing Date, shall be to use reasonable efforts,
subject to subsection 2.5(c) and taking into account the importance of the
affected System to the Receiving Company's business operations, to cooperate
with Receiving Company to correct such System Error at no additional cost or
expense to Receiving Company (such correction may take the form of new or
revised software or an appropriate work-around); provided, Receiving Company
must advise Providing Company of any such System Error within sixty (60) days
after completion of the activities set forth in (A) the Exhibit for the System
containing a System Error or (B) the Exhibit for any feeder System that caused
the System Error, whichever is later;
(iv) for failure to complete any of the Systems
Replication or Transfer Services because of Impracticability, shall be to use
reasonable efforts, subject to subsection 2.5(c), to make the Systems available
to Receiving Company from a Providing Company facility until Providing Company
can resume replication or transfer activities or until the parties devise an
appropriate alternative approach pursuant to subsection 2.4(f).
(e) GOOD FAITH COOPERATION; CONSENTS. The parties will
use good faith efforts to cooperate with each other in all matters relating to
the provision and receipt of Services. Such cooperation shall include
exchanging information, providing electronic access to Systems used in
connection with Services, performing true-ups and adjustments and obtaining all
consents, licenses, sublicenses or approvals necessary to permit each party to
perform its obligations hereunder. The costs of obtaining such consents,
licenses, sublicenses or approvals shall be allocated in accordance with
Section 2.3(a). The parties will maintain documentation supporting the
information contained in the Exhibits and cooperate with each other in making
such information available as needed in the event of a tax audit, whether in
the United States or any other country.
(f) ALTERNATIVES. If Providing Company reasonably
believes it is unable to provide any Service because of a failure to obtain
necessary consents, licenses, sublicenses or approvals pursuant to subsection
2.4(e) or because of Impracticability, the parties shall cooperate to determine
the best alternative approach. Until such alternative approach is found or the
problem otherwise resolved to the satisfaction of the parties, the Providing
Party shall use reasonable efforts, subject to Section 2.5(b) and Section
2.5(c), to continue providing the Service or, in the case of Systems, to
support the function to which the System relates or permit Receiving Party to
have access to the System so Receiving Party can support the function itself.
To the extent an agreed upon alternative approach requires payment above and
beyond that which is included in the Providing Company's charge for the Service
in question, the parties shall share equally in making any such payment unless
they otherwise agree in writing.
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<PAGE> 12
2.5 CERTAIN LIMITATIONS.
(a) SERVICE BOUNDARIES. Except as provided in an Exhibit
for a specific Service: (i) Providing Company shall be required to provide the
Services only to the extent and only at the locations such Services are being
provided by Providing Company for the members of the Receiving Company's Group
immediately prior to the Effective Date; and (ii) the Services will be
available only for purposes of conducting the business of the Receiving Company
substantially in the manner it was conducted prior to the Effective Date.
(b) IMPRACTICABILITY. Providing Company shall not be
required to provide any Service to the extent the performance of such Service
becomes "Impracticable" as a result of a cause or causes outside the reasonable
control of Providing Company including unfeasible technological requirements,
or to the extent the performance of such Services would require Providing
Company to violate any applicable laws, rules or regulations or would result in
the breach of any software license or other applicable contract.
(c) ADDITIONAL RESOURCES. Except as provided in an
Exhibit for a specific Service, in providing the Services, Providing Company
shall not be obligated to: (i) hire any additional employees; (ii) maintain the
employment of any specific employee; (iii) purchase, lease or license any
additional equipment or software; or (iv) pay any costs related to the transfer
or conversion of Receiving Company's data to Receiving Company or any alternate
supplier of Services.
(d) NO SALE, TRANSFER, ASSIGNMENT. Receiving Company may
not sell, transfer, assign or otherwise use the Services provided hereunder, in
whole or in part, for the benefit of any Person other than a member of the
Receiving Company's Group.
2.6 CONFIDENTIALITY.
(a) INFORMATION SUBJECT TO OTHER OBLIGATIONS. Providing
Company and Receiving Company agree that all Information regarding the
Services, including, but not limited to, price, costs, methods of operation,
and software, shall be maintained in confidence and shall be subject to Article
VIII, relating to preservation and exchange of information and protection of
Proprietary Information, of the Separation and Distribution Agreement.
(b) ALL INFORMATION CONFIDENTIAL. Providing Company's
Systems used to perform the Services provided hereunder are confidential and
proprietary to Providing Company or third parties. Receiving Company shall
treat these Systems and all related procedures and documentation as
confidential and proprietary to Providing Company or its third party vendors.
(c) INTERNAL USE; TITLE, COPIES, RETURN. Subject to
Article IV of the Technology Assignment and Joint Ownership Agreement, between
AT&T and Lucent,
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<PAGE> 13
relating to ownership of copyrights, and Article II of the Technology License
Agreement, relating to ownership of and rights to use technology, Receiving
Company agrees that:
(i) all Systems, procedures and related materials
provided to Receiving Company are for Receiving Company's internal use only and
only as related to the Services or any of the underlying Systems used to
provide the Services;
(ii) title to all Systems used in performing the
Services provided hereunder shall remain in Providing Company or its third
party vendors;
(iii) Receiving Company shall not copy, modify,
reverse engineer, decompile or in any way alter Systems without Providing
Company's express written consent;
(iv) Upon the termination of any of the Services,
Receiving Company shall return to Providing Company, as soon as practicable,
any equipment or other property of Providing Company relating to the Services
which is owned or leased by it and is or was in Receiving Company's possession
or control.
2.7 TERMINATION.
(a) RECEIVING COMPANY TERMINATION. Receiving Party may
terminate this Agreement either with respect to all, or with respect to any one
or more, of the Data Processing Services, Telecommunications Services or Common
Support Services provided hereunder at any time and from time to time, for any
reason or no reason, by giving written notice to the Providing Party at least
ninety (90) days prior to the date of such termination. Receiving Company may
immediately terminate this Agreement either with respect to all, or with
respect to any one or more, of the Systems Replication and Transfer Services
provided hereunder at any time and from time to time, for any reason or no
reason, by giving written notice to the Providing Party. In the case of
termination by Receiving Company of a Systems Replication and Transfer Service,
Receiving Company shall compensate Providing Party for the costs, in accordance
with subsection 2.3(a)(ii), incurred by Providing Party in performing such
Service up to the date on which Providing Party receives written notice of
Receiving Party's termination.
(b) PROVIDING COMPANY TERMINATION. Except where a longer
term is set forth in an Exhibit for any particular Service, Providing Company
may terminate this Agreement either with respect to all, or with respect to any
one or more, of the Services provided hereunder at any time after January 1,
1997, for any reason or no reason, by giving written notice to the Receiving
Party at least ninety (90) days prior to the date of such termination. If
Providing Company terminates this Agreement under this subsection 2.7(b), it
will have a continuing obligation to transfer to the Receiving Company all
Information of Receiving Company, including but not limited to data stores for
Systems, in an agreed upon format and at mutual equal expense.
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<PAGE> 14
(c) TERMINATION OF LESS THAN ALL SERVICES. In the event
of any termination with respect to one or more, but less than all, Services,
this Agreement shall continue in full force and effect with respect to any
Services not terminated hereby.
(d) USER IDS, PASSWORDS. The parties shall use good
faith efforts at the termination or expiration of this Agreement or any
specific Exhibit hereto, to ensure that all user IDs and passwords are canceled
and, subject to Section 2.5(c), that any data pertaining solely to the other
parties are deleted or removed from Systems.
2.8 DISCLAIMER OF WARRANTIES, LIMITATION OF LIABILITY AND
INDEMNIFICATION.
(a) DISCLAIMER OF WARRANTIES. PROVIDING COMPANY
DISCLAIMS ALL WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO,
THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE,
WITH RESPECT TO THE SERVICES. PROVIDING COMPANY MAKES NO REPRESENTATIONS OR
WARRANTIES AS TO THE QUALITY, SUITABILITY OR ADEQUACY OF THE SERVICES FOR ANY
PURPOSE OR USE.
(b) LIMITATION OF LIABILITY; INDEMNIFICATION OF RECEIVING
COMPANY. Providing Company shall have no Liability to Receiving Company with
respect to its furnishing any of the Services hereunder except for Liabilities
arising out of the willful misconduct occurring after the Closing Date of
Providing Company or any member of the Providing Company's Group. Providing
Company will indemnify, defend and hold harmless Receiving Company Indemnitees
in respect of all Liabilities related to, arising from, asserted against or
associated with such willful misconduct. Such indemnification obligation shall
be a Liability of the Providing Company for purposes of the Separation and
Distribution Agreement and the provisions of Article V with respect to
indemnification shall govern with respect thereto. In no event shall Providing
Company or any member of the Providing Company's Group have any Liability for
any incidental, indirect, special or consequential damages, whether or not
caused by or resulting from negligence or breach of obligations hereunder and
whether or not informed of the possibility of the existence of such damages.
(c) LIMITATION OF LIABILITY; INDEMNIFICATION OF PROVIDING
COMPANY. Receiving Company shall indemnify and hold harmless the Providing
Company's Indemnitees in respect of all Liabilities related to, arising from,
asserted against or associated with Providing Company's furnishing or failing
to furnish the Services provided for in this Agreement, other than Liabilities
arising out of the willful misconduct following the Closing Date of Providing
Company or any member of the Providing Company's Group. The provisions of this
indemnity shall apply only to losses which relate directly to the provision of
Services. Such indemnification obligation shall be a Liability of the
Receiving Company for purposes of the Separation and Distribution Agreement and
the provisions of Article V with respect to indemnification shall govern with
respect thereto. In no event shall Receiving Company or any member of the
Receiving Company's Group have any Liability for any incidental, indirect,
special or consequential damages, whether or not caused by or resulting from
negligence or
- 11 -
<PAGE> 15
breach of obligations hereunder and whether or not informed of the possibility
of the existence of such damages.
(d) SUBROGATION OF RIGHTS VIS-A-VIS THIRD PARTY
CONTRACTORS. In the event any Liability arises from the performance of
Services hereunder by a third party contractor, the Receiving Company shall be
subrogated to such rights, if any, as the Providing Company may have against
such third party contractor with respect to the Services provided by such third
party contractor to or on behalf of the Receiving Company.
2.9 REPRESENTATIVE. The parties shall each appoint a
Representative to facilitate communications and performance under this
Agreement. Each party may treat an act of a Representative of another party as
being authorized by such other party without inquiring behind such act or
ascertaining whether such Representative had authority to so act. The initial
Representatives are named on Exhibit 2. Each party shall have the right at any
time and from time to time to replace any of its Representatives by giving
notice in writing to the other party setting forth the name of (i) each
Representative to be replaced and (ii) the replacement, and certifying that the
replacement Representative is authorized to act for the party giving the notice
in all matters relating to this Agreement. Each Representative is hereby
authorized by the party he or she represents to approve the establishment of
new or modifications to existing Exhibits for Initial Services before or after
the Closing Date and the addition of new Exhibits for Additional Services after
the Closing Date.
ARTICLE III
MISCELLANEOUS
3.1 TAXES. Receiving Company shall bear all taxes,
duties and other similar charges (and any related interest and penalties),
imposed as a result of its receipt of Services under this Agreement, including
any tax which Receiving Company is required to withhold or deduct from payments
to Providing Company, except (a) any tax allowable as a credit against the U.S.
Federal income tax of the Providing Company, and (b) any net income tax imposed
upon Providing Company by the country of its incorporation or any governmental
entity within its country of incorporation. To assist Providing Company in
obtaining the credit identified in subsection (b) of this Section 3.1,
Receiving Company shall furnish Providing Company with such evidence as may be
required by the relevant taxing authorities to establish that any such tax has
been paid.
3.2 LAWS AND GOVERNMENTAL REGULATIONS. Receiving Company
shall be responsible for (i) compliance with all laws and governmental
regulations affecting its business and (ii) any use Receiving Company may make
of the Services to assist it in complying with such laws and governmental
regulations. While Providing Company shall not have any responsibility for
Receiving Company's compliance with the laws and regulations referred to above,
Providing Company agrees to use reasonable efforts, subject to subsection
2.5(c), to cause the Services to be designed in such manner that such Services
shall be able to assist Receiving
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<PAGE> 16
Company in complying with applicable legal and regulatory responsibilities.
The Providing Company's charge, if any, for such Service may reflect its
efforts under this Section 3.2. In no event, however, shall Receiving Company
rely solely on its use of the Services in complying with any laws and
governmental regulations.
3.3 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 of independent contractor nor be deemed to
vest any rights, interest or claims in any third parties.
3.4 INCORPORATION OF PROVISIONS OF THE SEPARATION AND
DISTRIBUTION AGREEMENT.
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 they are fully
set forth herein (references in paragraphs (a) through (d) below to "Article"
shall mean Articles 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):
(a) Article V, relating to mutual releases and
indemnification, including procedures;
(b) Article VIII, relating to preservation and
exchange of information and protection of proprietary information;
(c) Article IX, relating to arbitration and
dispute resolution; and
(d) Article XII, miscellaneous provisions.
3.5 EXPENSES. Except as expressly set forth herein
(including in the Exhibits hereto) or in the Separation and Distribution
Agreement or another Ancillary Agreement, whether or not the IPO or the
Distribution is consummated, all legal and other costs and expenses incurred in
connection with this Agreement will be paid by AT&T (in the case of costs or
expenses incurred by AT&T or any other member of the AT&T Services Group),
NS-MPG (in the case of costs or expenses incurred by NS-MPG or any other member
of the NS-MPG Group) or NCR (in the case of costs or expenses incurred by NCR
or any other member of the NCR Group).
3.6 REFERENCES. All reference to Sections, Articles,
Exhibits or Schedules contained herein mean Sections, Articles, Exhibits or
Schedules of or to this Agreement, as the case may be, unless otherwise stated.
When a reference is made in this Agreement to a "party"
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<PAGE> 17
or "parties", such reference shall be to a party or parties to this Agreement
unless otherwise indicated. Whenever the words "include", "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation". The use of the singular herein shall be deemed
to be or include the plural (and vice versa) whenever appropriate. The use of
the words "hereof", "herein", "hereunder", and words of similar import shall
refer to this entire Agreement, and not to any particular article, section,
subsection, clause, paragraph or other subdivision of this Agreement, unless
the context clearly indicates otherwise. The word "or" shall not be exclusive;
"may not" is prohibitive and not permissive.
3.7 MODIFICATION AND AMENDMENT. Except for modifications
to Exhibits, which may be made by Representatives pursuant to Section 2.9
hereof, this Agreement may not be modified or amended, or any provision waived,
except in the manner set forth in the Separation and Distribution Agreement.
3.8 INCONSISTENCY. In the event of any inconsistency
between the terms of this Agreement and any of the Exhibits hereto, the terms
of this Agreement, other than charges, shall control.
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<PAGE> 18
IN WITNESS WHEREOF, the parties have executed this Interim
Services and Systems Replication Agreement as of the date first above written.
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 10.5
LICENSE AGREEMENT
BETWEEN
AT&T CORP.
AND
LUCENT TECHNOLOGIES INC.
<PAGE> 2
LICENSE AGREEMENT
Table of Contents
<TABLE>
<S> <C> <C>
ARTICLE I. DEFINITIONS 2
1.1 Authorized Dealers 2
1.2 Closing Date 2
1.3 Compound Marks 2
1.4 Control Specifications 2
1.5 Corporate Identification Mark 2
1.6 CP 2
1.7 CP/GBCS Products 2
1.8 Existing Authorized Dealers 2
1.9 GBCS 3
1.10 License Agreement 3
1.11 Leased Products 3
1.12 Licensee 3
1.13 Licensed Marks 3
1.14 Licensor 3
1.15 Licensed Territory 3
1.16 Licensed Trade Dress 3
1.17 Maintenance Contracts 3
1.18 Mark 3
1.19 ME 3
1.20 NS 3
1.21 Lucent Products 4
1.22 New Authorized Dealers 4
1.23 New Lease Customers 4
1.24 New Maintenance Contract Customers 4
1.25 Phone Center Stores 4
1.26 Products 4
1.27 Telecommunications Service 4
1.28 Transition Brand 4
1.29 Transition Compound Mark 4
1.30 WorldWorx Marks 4
1.31 WorldWorx Products 4
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE II. LICENSE GRANT 5
2.1 Lucent Products 5
2.2 CP/GBCS Products 5
(a) Initial Period 5
(b) Transition Period 6
(c) WorldWorx 6
2.3 Leased Products, Maintenance Contracts 6
(a) Leased Products 6
(b) Maintenance Contracts 6
(c) Disposition of Leased Products 7
(d) Extensions 7
2.4 Phone Center Stores 7
2.5 Marketing of Telecommunications Services 8
2.6 Compound Marks 8
2.7 Limitations on Grant 9
2.8 No Use in Licensee's Name 9
2.9 No Other Marks To Be Used 9
2.10 Modification of Licensed Marks and Licensed Trade Dress 9
ARTICLE III. AGREEMENT PERSONAL 9
3.1 Personal Nature of Agreement 9
3.2 Sublicensing/Assignment 10
3.3 Authorized Dealers 10
ARTICLE IV. LICENSES TO OTHERS AND OWNERSHIP 11
4.1 Exclusive Licensee 11
4.2 Retention of Rights 11
4.3 Licensee as Preferred Supplier 12
4.4 Joint Ventures of Licensee 12
ARTICLE V. LICENSED TERRITORY 13
ARTICLE VI. QUALITY CONTROL 13
6.1 General 13
6.2 Control Specifications 14
6.3 Customer Care Provisions 14
6.4 Changes to Marketing Specifications 15
6.5 Quality Control Reviews; Right of Inspection 15
</TABLE>
- ii -
<PAGE> 4
<TABLE>
<CAPTION>
<S> <C> <C>
6.6 Sponsorship 15
6.7 Discontinuation 15
6.8 Refurbished Product 16
6.9 Costs 16
ARTICLE VII. REMEDIES FOR NONCOMPLIANCE WITH 16
CONTROL SPECIFICATIONS
7.1 Initial Cure Period 16
7.2 Second Cure Period 16
7.3 Final Cure Period 16
7.4 Arbitration 16
7.5 Potential Injury to Persons or Property 17
ARTICLE VIII. PROTECTION OF LICENSED SERVICE 17
MARKS AND LICENSED TRADE DRESS
8.1 Ownership and Rights 17
8.2 Similar Marks 17
8.3 Infringement 18
8.4 Compliance With Laws 18
ARTICLE IX. TERMINATION 18
9.1 Breach by Licensee 18
9.2 Termination Obligations 20
ARTICLE X. INDEMNITIES 20
ARTICLE XI. NOTICES 21
ARTICLE XII. COMPLIANCE WITH LAW 22
12.1 General 22
12.2 Governmental Licenses, Permits and Approvals 22
ARTICLE XIII. INCORPORATION OF PROVISIONS OF 22
THE SEPARATION AND DISTRIBUTION AGREEMENT
</TABLE>
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<PAGE> 5
LICENSE AGREEMENT
THIS LICENSE AGREEMENT, dated and effective as of February 1, 1996, is
by and between AT&T Corp. ("AT&T"), and Lucent Technologies Inc. ("Lucent").
Capitalized terms used herein and not otherwise defined shall have the
respective meanings assigned to them in Article I hereof or as provided in the
Separation and Distribution Agreement.
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 order to effectuate the foregoing, AT&T, Lucent and NCR
Corporation have entered into a Separation and Distribution Agreement, which
provides, among other things, subject to the terms and conditions thereof, for
the separation of the Lucent Assets and the Lucent Liabilities, the IPO, the
Distribution and the execution and delivery of certain other agreements in order
to facilitate and provide for the foregoing;
WHEREAS, this License Agreement is to allow Lucent's business units to
create consumer awareness that they are the successors to AT&T's former business
units and to minimize customer confusion that might otherwise arise as a result
of the Separation and immediate loss of use of the AT&T name, marks, and trade
dress.
NOW, THEREFORE, the parties, intending to be legally bound, agree as
follows:
<PAGE> 6
ARTICLE I
DEFINITIONS
For the purpose of this License Agreement, the following terms shall have
the following meanings:
1.1 AUTHORIZED DEALERS means Existing Authorized Dealers and New Authorized
Dealers, as defined herein.
1.2 CLOSING DATE means the first time at which any shares of Lucent Common
Stock are sold pursuant to the IPO in accordance with the terms of the
Underwriting Agreement.
1.3 COMPOUND MARKS means any mark that consists of the mark AT&T immediately
followed by another mark, which is in use or applied for on the date of this
Agreement; the entire set of Compound Marks is set forth in Schedule A hereto.
1.4 CONTROL SPECIFICATIONS means standards of quality (including performance
parameters) applicable to the fabrication, performance, design, use, provision,
and support of a Product under the Licensed Marks or Licensed Trade Dress, as
set forth or referenced in Schedule B, and the standards applicable to the
marketing, advertising, and promotion of a Product under the Licensed Marks or
Trade Dress, as set forth or referenced in Schedules C and M.
1.5 CORPORATE IDENTIFICATION MARK means the Licensee's house mark and
related trade dress used to identify and distinguish Licensee from other
persons, as identified in Schedule D hereto.
1.6 CP means the Consumer Products business unit of Licensee.
1.7 CP/GBCS PRODUCTS means any product described in Schedule E hereto which
is being manufactured or marketed by or for Licensee as of the date of this
License Agreement, and upgrades, modifications and improvements thereto which do
not fundamentally change their nature and functionality. CP/GBCS Products shall
also include maintenance (whether diagnostic, preventive, remedial, warranty or
non-warranty), support and similar services associated with CP/GBCS Products and
products functionally equivalent thereto.
1.8 EXISTING AUTHORIZED DEALERS means any distributor, dealer or other agent
of Licensee authorized as of the date of this License Agreement to market,
advertise, sell, lease, rent, service or otherwise offer a CP/GBCS Product.
Existing Authorized Dealers shall be listed on Schedule R hereto.
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<PAGE> 7
1.9 GBCS means the Global Business Communications Systems business unit of
Licensee.
1.10 LICENSE AGREEMENT means this License Agreement, including all of the
Schedules, Exhibits and Appendices hereto.
1.11 LEASED PRODUCTS means any CP/GBCS Product described in Schedule F
hereto that is commercially available for lease or rental from Licensee as of
the Closing Date.
1.12 LICENSEE means Lucent, each Subsidiary of Lucent, and each other Person
that is an Affiliate of Lucent, in each case as of the Closing Date, but only
for so long as such Person is an Affiliate or Subsidiary of Lucent.
1.13 LICENSED MARKS means the marks AT&T and AT&T and globe design as
identified in Schedule G hereto (and as such marks may be modified or
supplemented as contemplated by Article II hereof), and the WorldWorx Marks
identified in Schedule H hereto (as applicable).
1.14 LICENSOR means AT&T and each other Person (other than Licensee) that is
an Affiliate of AT&T.
1.15 LICENSED TERRITORY has the meaning set forth in Article V hereof.
1.16 LICENSED TRADE DRESS means the general image or appearance of the
marketing of Products under the Licensed Marks including the colors, designs,
configurations, publication formats and the like as set forth in Schedule I
hereto, and such other trade dress as may be added thereto or substituted
therefor in accordance with this License Agreement.
1.17 MAINTENANCE CONTRACTS means agreements pursuant to which Licensee
provides repair and maintenance services (whether preventive, diagnostic,
remedial, warranty or non-warranty) in connection with CP/GBCS Products and
products functionally equivalent thereto.
1.18 MARK means any word, name, symbol or device, or any combination
thereof, used or intended to be used by a Person to identify and distinguish the
products or services of that Person from the products or services of others and
to indicate the source of such goods or services, even if that source is
unknown.
1.19 ME means the Microelectronics business unit of Licensee.
1.20 NS means the Network Systems business unit of Licensee.
- 3 -
<PAGE> 8
1.21 LUCENT PRODUCTS means products (other than CP/GBCS Products)
manufactured or marketed by Licensee, and maintenance (whether preventive,
diagnostic, remedial, warranty or non-warranty), support and similar services
associated with Lucent Products and products functionally equivalent thereto.
1.22 NEW AUTHORIZED DEALERS means any distributor, dealer or other agent (i)
which as of the date of this License Agreement is not authorized to market,
advertise, sell, lease, rent, service or otherwise offer a CP/GBCS Product, but
which is so authorized thereafter, and (ii) which satisfies the Authorized
Dealer profile set forth in Schedule J hereto. New Authorized Dealers shall be
listed on Schedule R hereto.
1.23 NEW LEASE CUSTOMERS means customers who as of twelve (12) months after
the Closing Date are not parties to any agreement for the lease or rental of
Leased Products.
1.24 NEW MAINTENANCE CONTRACT CUSTOMERS means customers who as of twelve
(12) months after the Closing Date are not parties to any Maintenance Contract.
1.25 PHONE CENTER STORES means those retail outlets operated by CP under the
name "AT&T Phone Center Stores" as of the Closing Date.
1.26 PRODUCTS means Lucent Products and CP/GBCS Products.
1.27 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).
1.28 TRANSITION BRAND means the Licensed Marks and Licensed Trade Dress used
in combination with Licensee's Corporate Identification Mark as identified on
Schedule K hereto (and as such Transition Brand may be modified or supplemented
in accordance with this License Agreement).
1.29 TRANSITION COMPOUND MARK means a mark that consists of the Transition
Brand immediately followed by a mark that was once a part of a Compound Mark;
the entire set of possible Transition Compound Marks is set forth in Schedule A
hereto.
1.30 WORLDWORX MARKS means the marks identified in Schedule H hereto.
1.31 WORLDWORX PRODUCTS means the products identified in Schedule H hereto.
- 4 -
<PAGE> 9
ARTICLE II
LICENSE GRANT
2.1 LUCENT PRODUCTS. (a) Subject to the terms and conditions of this License
Agreement, Licensor grants Licensee a royalty free, personal, non-transferable,
non-sublicensable, non-exclusive license to use the Licensed Marks and Licensed
Trade Dress in connection with the manufacture, marketing, promotion,
distribution and sale of Lucent Products commencing on the date of this License
Agreement and ending on the earlier of the Distribution Date or six (6) months
after the Closing Date. The license granted herein shall also include the right
to use up to the earlier of the Distribution Date or six (6) months after the
Closing Date the Licensed Marks and Licensed Trade Dress in the corporate name
of any of Licensee's Affiliates.
(b) Licensee may not affix the Licensed Marks and Licensed Trade Dress
to Lucent Products manufactured after the period described in Paragraph (a)
above; provided, however, that Lucent Products, packaging, instructions and
promotional material with the Licensed Marks and Licensed Trade Dress in
inventory on the last date of the period described in Paragraph (a) above may be
marketed, distributed, promoted and sold after that date until the inventory of
such Lucent Products is depleted, subject to other applicable terms and
conditions of this License Agreement.
2.2 CP/GBCS PRODUCTS.
(a) INITIAL PERIOD. (i) Subject to the terms and conditions of this
License Agreement, Licensor grants Licensee a royalty free, personal,
non-transferable, non-sublicensable, non-exclusive license to use the Licensed
Marks and Licensed Trade Dress in connection with the manufacture, marketing,
promotion, distribution and sale of CP/ GBCS Products commencing on the date of
this License Agreement and ending twelve (12) months after the Closing Date. The
license granted herein shall also include the right to use up to the earlier of
the Distribution Date or six (6) months after the Closing Date the Licensed
Marks and Licensed Trade Dress in the name of any Affiliate of Licensee that
manufactures, sells or offers CP/GBCS Products.
(ii) Licensee may not affix the Licensed Marks and Licensed Trade Dress
to CP/ GBCS Products manufactured more than nine (9) months after the Closing
Date; provided, however, CP/ GBCS Products, packaging, instructions and
promotional material with the Licensed Marks and Licensed Trade Dress in
inventory as of nine (9) months after the Closing Date may be marketed,
distributed, promoted and sold after that date and until the inventory of such
CP/GBCS Products is depleted, subject to other applicable terms and conditions
of this License Agreement.
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(b) TRANSITION PERIOD. (i) Subject to the terms and conditions of this
License Agreement, and to the guidelines governing use of the Transition Brand
attached as Schedule M hereto, Licensor grants Licensee a royalty free,
personal, non-transferable, non-sublicensable, non-exclusive license to use the
Transition Brand in connection with the manufacture, marketing, promotion,
distribution and sale of CP/GBCS Products commencing on the date of this License
Agreement and ending four (4) years after the Closing Date; provided, however,
that the license to use the Transition Brand in connection with wireless
handsets shall expire twelve (12) months after the Closing Date.
(ii) CP/GBCS Products, packaging, instructions and
promotional material with the Transition Brand in inventory as of four (4) years
after the Closing Date may be marketed, distributed, promoted and sold after
that date and until the inventory of such CB/GBCS Products is depleted, subject
to other applicable terms and conditions of this License Agreement.
(c) WORLDWORX. Subject to the terms and conditions of this License
Agreement, Licensor grants Licensee a royalty free, personal, non-transferable,
non-sublicensable, non-exclusive license to use and affix the Worldworx Marks in
connection with the manufacture, marketing, promotion, distribution and sale of
the Worldworx Products commencing on the date of this License Agreement and
ending forty-eight (48) months after the Closing Date. Worldworx Products,
packaging, instructions and promotional material bearing the Worldworx Marks in
inventory as of the last day of the license period set forth in this paragraph
(c) may be marketed, distributed, promoted and sold after that date until the
inventory of such Worldworx Products is depleted.
2.3 LEASED PRODUCTS, MAINTENANCE CONTRACTS. Notwithstanding the provisions
of Section 2.2 above, the following terms and conditions shall apply to Leased
Products and Maintenance Contracts:
(a) LEASED PRODUCTS. Subject to the terms and conditions of this
License Agreement, Licensor grants Licensee a royalty free, personal,
non-transferable, non-sublicensable, non-exclusive license to affix the Licensed
Marks and Licensed Trade Dress (alone or in the Transition Brand) on Leased
Products, and to use the Licensed Marks and Licensed Trade Dress (alone or in
the Transition Brand) in connection with the marketing, promotion, leasing,
rental, billing, and maintenance of Leased Products, commencing on the date of
this License Agreement and ending sixty-six (66) months after the Closing Date,
provided, however, that the license to use the Licensed Marks and Licensed Trade
Dress (alone or in the Transition Brand) in connection with any marketing
campaign or promotion targeted to New Lease Customers shall expire twelve (12)
months after the Closing Date.
(b) MAINTENANCE CONTRACTS. Subject to the terms and conditions of
this License Agreement, Licensor grants Licensee a royalty-free, personal,
non-transferable, non-
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sublicensable, non-exclusive license to use the Licensed Marks and Licensed
Trade Dress (alone or in the Transition Brand) in connection with the marketing
and promotion of and billing under Maintenance Contracts, commencing on the date
of this License Agreement and ending sixty-six (66) months after the Closing
Date, provided, however, that the license to use the Licensed Marks and Licensed
Trade Dress(alone or in the Transition Brand) in connection with any marketing
campaign or promotion directed to New Maintenance Contract Customers shall
expire twelve (12) months after the Closing Date.
(c) DISPOSITION OF LEASED PRODUCTS. Any Leased Product returned to
Licensee within the 66-month license period set forth in Paragraph (a) above
that is not re-leased or destroyed, and any Leased Product that is leased, sold,
or otherwise transferred by Licensee after the termination of the license period
set forth in Paragraph (a) above, shall have the Licensed Marks and Licensed
Trade Dress removed from the product, and from all product packaging,
instruction and warranty materials (or otherwise made nonvisible).
(d) EXTENSIONS. If Licensee is interested in licensing the
Licensed Marks and Licensed Trade Dress for Leased Products and Maintenance
Contracts beyond the 66-month license period set forth in Paragraphs (a) and (b)
above, Licensee shall notify Licensor no later than six (6) months prior to the
expiration of such period. Upon such notification, Licensor and Licensee agree
to negotiate in good faith whether to extend the license granted in this License
Agreement with respect to Leased Products and Maintenance Contracts and, if so,
the terms and conditions of such an extension, including a commercially
reasonable royalty for the use of the Licensed Marks and Licensed Trade Dress.
Notwithstanding the foregoing, neither Licensor nor Licensee shall have any
obligation to enter into such extension.
2.4 PHONE CENTER STORES. (a) In addition to the rights granted under Section
2.2 hereof, and subject to the terms and conditions of this License Agreement,
Licensor grants Licensee a royalty free, personal, non-transferable,
non-sublicensable, non-exclusive license to use the Licensed Marks and Licensed
Trade Dress (alone or in the Transition Brand) in advertising of and signage at
Phone Center Stores commencing on the date of this License Agreement and ending
eighteen (18) months after the Closing Date.
(b) The rights granted under Paragraph (a) above in connection with
advertising of and signage at Phone Center Stores shall be contingent upon
compliance by Licensee with the operating and customer service standards set
forth or referenced in Schedule N hereto.
(c) Except to the extent required by presubscription rules, other
governmental laws or regulations, or a non-terminable contract with a provider
of Telecommunications Services other than Licensor that is in effect as of the
date of this License Agreement, or as otherwise expressly set forth below,
Licensee shall not market or permit others to market Telecommunication Services
not provided by Licensor at any facility (including Phone Center
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<PAGE> 12
Stores) where Licensee is using the Licensed Marks, Licensed Trade Dress or the
Transition Brand. Notwithstanding the provisions of this Paragraph or Section
2.5 hereof, Licensee may offer and sell, or permit others to offer and sell,
wireless Telecommunications Service provided by a party other than Licensor at
any Phone Center Store at which Licensor's wireless Telecommunications Service
was not available as of the date of this License Agreement, for up to six (6)
months after Licensor's wireless Telecommunications Service is made available by
Licensor on commercially reasonable terms to be offered through such Store. Any
wireless Telecommunications Service provided by a Person other than Licensor
that is offered or sold through a Phone Center Store must be clearly identified
as that of another Person.
(d) Within the period of the license granted under Paragraph (a) above,
should Licensee receive or solicit from a third party an offer to purchase or
otherwise acquire a Phone Center Store, Licensee shall notify and provide
Licensor a "Right of First Refusal" to acquire or assume the lease for such
store on the same terms offered by or quoted to the third party; provided,
however, that such Right of First Refusal shall only apply to the disposition of
Phone Center Stores on a property-by-property basis and not on a bulk or
multi-property basis.
2.5 MARKETING OF TELECOMMUNICATIONS SERVICES. Unless Licensee obtains the
express written consent of Licensor pursuant to a request delivered in
accordance with the Notice provisions of Article XI below, or unless otherwise
specifically permitted by another Section hereof, neither Licensee nor any
Authorized Dealer shall sell, provide, offer or otherwise market any
Telecommunications Service provided by any Person other than Licensor during any
period in which it is using the Licensed Marks, Licensed Trade Dress or the
Transition Brand. The violation of this Section by Licensee or an Authorized
Dealer shall be deemed a Significant Breach for the purposes of Article IX
hereof; provided, however, that nothing in this License Agreement is intended to
restrict the ability of Licensee or an Authorized Dealer, consistent with prior
practices in effect on or before the date of this License Agreement, from
serving as a bona fide agent for its customers in connection with the ordering,
scheduling and installation of Telecommunications Services provided by a Person
other than Licensor, nor shall the performance of such actions be deemed to be
the marketing or provision of Telecommunications Services.
2.6 COMPOUND MARKS. To the extent that Licensee is using a Compound Mark as
of the date of this License Agreement, it may continue to use the Licensed Marks
and Licensed Trade Dress in the Compound Mark during the Initial Periods
hereunder applicable to the Product with respect to which such Compound Mark is
used. During the Transition Period hereunder (if applicable), Licensee shall, if
it desires to continue to use a Compound Mark, use the Transition Brand in lieu
of the Licensed Marks and Licensed Trade Dress to create a Transition Compound
Mark. At the end of the Transition Period hereunder, Licensee shall cease all
use of the Licensed Marks and Licensed Trade Dress in the Transition Compound
Mark, subject to the inventory depletion rules relating to the Transition
Period.
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2.7 LIMITATIONS ON GRANT. The Licensed Marks and Licensed Trade Dress may
not be used by Licensee in connection with any product or service except as
expressly set forth in this License Agreement.
2.8 NO USE IN LICENSEE'S NAME. Except as set forth in Section 4.4(b),
Licensee shall cease using the Licensed Marks and Licensed Trade Dress in
Licensee's corporate, partnership, doing business as, or fictitious name on or
before the earlier of the Distribution Date or six (6) months after the Closing
Date, provided, however, that Licensee may use the Licensed Marks (a) in the
name of its Phone Center Stores for the period set forth in Section 2.4(a)
above, and (b) to do business under the name "AT&T Lease Services" and "AT&T
Consumer Lease Services" in connection with Leased Products for the period set
forth in Section 2.3(a) above.
2.9 NO OTHER MARKS TO BE USED. Licensee shall not use any other name, mark,
indication of origin or trade dress of Licensor in connection with the
manufacture, marketing, promotion, distribution, sale or lease of any product or
service without Licensor's express written consent.
2.10 MODIFICATION OF LICENSED MARKS AND LICENSED TRADE DRESS. If Licensor
modifies or replaces the Licensed Marks or Licensed Trade Dress as used in any
substantial portion of Licensor's business, and if Licensor requests Licensee to
adopt and use the modified or replaced Licensed Marks and Licensed Trade Dress,
Licensee shall within sixty (60) days adopt and use such modified or replaced
Licensed Marks or Licensed Trade Dress and such modified or replaced Licensed
Marks or Licensed Trade Dress shall be considered the Licensed Marks and
Licensed Trade Dress as defined in this License Agreement; provided, however,
that Licensee may exhaust its inventory bearing the original Licensed Marks and
Licensed Trade Dress.
ARTICLE III
AGREEMENT PERSONAL
3.1 PERSONAL NATURE OF AGREEMENT. In recognition of the goodwill contributed
to the Licensed Marks and Licensed Trade Dress by Licensee prior to the
Separation, and the unique nature of Licensee (including without limitation, the
quality of the products and services that it provides, its reputation, and its
goodwill among its customers), the parties agree that the rights, obligations
and benefits of this License Agreement shall be personal to Licensee, and
Licensor shall not be required to accept performance from, or render performance
to an entity other than Licensee. Pursuant to 11 U.S.C. Section 365 (c) (1) (A)
(as it may be amended from time to time, and including any successor to such
provision), in the event of the bankruptcy of Licensee, this License Agreement
may not be assigned or assumed by Licensee, or any successor, and Licensor shall
be excused from rendering performance to, or accepting performance from Licensee
or any successor.
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<PAGE> 14
3.2 SUBLICENSING/ASSIGNMENT. Except as expressly provided herein with
respect to Authorized Dealers, Licensee may not sublicense or assign the rights
and obligations of this License Agreement without Licensor's express written
consent.
3.3 AUTHORIZED DEALERS. (a) Subject to the terms and conditions of this
License Agreement, including all applicable Control Specifications, Authorized
Dealers may use the Licensed Marks and Licensed Trade Dress in accordance with
the grant set forth in Section 2.2. Subject to the terms and conditions of this
License Agreement, including all applicable Control Specifications, Authorized
Dealers may use the Licensed Marks and Licensed Trade Dress (alone or in the
Transition Brand) in connection with the marketing, leasing, rental, billing and
maintenance of Leased Products in accordance with the grant set forth in Section
2.3(a). Licensee shall take all appropriate steps to restrain any Authorized
Dealer from violating the terms and conditions of this License Agreement,
including but not limited to termination of Licensee's agreement with any such
Authorized Dealer, or commencement of legal action against any such Authorized
Dealer.
(b) Notwithstanding the provisions of Paragraph (a) above, absent the
express written consent of Licensor in response to notice provided by Licensee
in accordance with the provisions of Article XI hereof, no Authorized Dealer may
use the Licensed Marks, Licensed Trade Dress, or Transition Brand if such
Authorized Dealer sells, offers, provides or otherwise markets
Telecommunications Services provided by any Person other than Licensor, except
that:
(i) An Existing Authorized Dealer listed on Schedule R of this License
Agreement may continue to use the Licensed Marks, Licensed Trade Dress or
Transition Brand in connection with the grants set forth in Sections 2.2, 2.3
and 3.3, notwithstanding the fact that such Existing Authorized Dealer sells,
offers, provides or otherwise markets Telecommunications Services provided by a
Person other than Licensor so long as such Existing Authorized Dealer does not
materially alter the nature of its arrangement (in place as of the Closing Date)
in selling or marketing such Telecommunications Services.
Licensee undertakes to provide Licensor within ten (10) business
days of the execution of this License Agreement a list of Existing Authorized
Dealers to appear on Schedule R. Licensor shall have twenty (20) business days
to approve or disapprove of the dealers that are to appear on Schedule R.
Schedule R may be further amended by mutual agreement of Licensor and Licensee
until the Closing Date.
(ii) If an Existing Authorized Dealer is not approved by Licensor:
((a)) where Licensee's contract with the Existing Authorized
Dealer is terminable and the Existing Authorized Dealer's
use of the Licensed Marks, Licensed Trade Dress and
Transition Brand is not
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a contractual commitment, then Licensee shall
terminate the Existing Authorized Dealer's rights to use the
Licensed Marks, Licensed Trade Dress and Transition Brand
within twelve (12) months from the Closing Date but shall
terminate such rights immediately if the Dealer materially
alters its relationship with a Person that provides or
markets Telecommunications Services other than Licensor; or
((b)) where Licensee's contract with an Existing Authorized Dealer
is not terminable or the Existing Authorized Dealer's use of
the Licensed Marks, Licensed Trade Dress or Transition Brand
is a contractual commitment, then the Existing Authorized
Dealer may continue to use the Licensed Marks, Licensed
Trade Dress and Transition Brand until the expiration of
such contractual right.
3.3 (c) Licensee may submit a written request, at any time (in accordance
with the notice provisions of Article XI below) for Licensor's consent to add an
Existing Authorized Dealer to Schedule R that was inadvertently omitted from
Schedule R or to add a New Authorized Dealer to Schedule R. Licensor shall have
twenty (20) days to approve or disapprove of the proposed Authorized Dealer or
New Authorized Dealer; provided, however, Licensor shall have ten (10) days to
approve or disapprove New Authorized Dealers who will be employed as service
agents of Licensee solely in connection with Leased Products. A New Authorized
Dealer shall satisfy the guidelines attached as Schedule J hereto, shall not
materially alter the nature of its arrangement, if any, in place as of the date
of approval in selling or marketing Telecommunications Services provided by a
Person other than Licensor, and is subject to the terms and conditions of this
License Agreement.
ARTICLE IV
LICENSES TO OTHERS AND OWNERSHIP
4.1 EXCLUSIVE LICENSEE. Licensor agrees that it will not license the
Licensed Marks and Licensed Trade Dress to third parties (other than Affiliates
of Licensor) for use in connection with products or services which compete with
CP/GBCS Products until twelve (12) months after the Closing Date.
4.2 RETENTION OF RIGHTS. Except as otherwise expressly provided in this
License Agreement, Licensor shall retain all rights in and to the Licensed Marks
and the Licensed Trade Dress, including without limitation:
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<PAGE> 16
(a) All rights of ownership in and to the Licensed Marks and Licensed
Trade Dress;
(b) The right to use (including the right of Licensor's Affiliates to
use) the Licensed Marks and Licensed Trade Dress, either alone or in combination
with other marks, in connection with the marketing, offer or provision of any
product or service, including any product or service which competes with
Products; and
(c) The right to license others to use the Licensed Marks and Trade
Dress, subject to Section 4.1 above.
4.3 LICENSEE AS PREFERRED SUPPLIER. Commencing on the date of this License
Agreement and ending on September 30, 1999, Licensor agrees not to solicit or
consider a bid from a third party to supply to Licensor for sale under the
Licensed Marks and Licensed Trade Dress any product or service that competes
with a CP/GBCS Product, without first soliciting and considering a reasonably
prompt bid from Licensee. This Section shall not be construed to require
Licensor to purchase any Product from Licensee (which purchases shall be at the
sole discretion of Licensor), or to disclose the identity of or terms of any bid
by any third party, and shall not confer any rights upon Licensee other than
those expressly set forth herein.
4.4 JOINT VENTURES OF LICENSEE. (a) The parties recognize that Licensee is a
party to certain joint ventures which have heretofore been authorized by written
agreement to use the Licensed Marks and Licensed Trade Dress. Licensee
nevertheless agrees that (i) any use of the Licensed Marks in the corporate name
of any joint venture should not continue beyond the earlier of the Distribution
Date or (6) months after the Closing Date, (ii) any use of the Licensed Marks
and Licensed Trade Dress by such joint ventures in the manufacturing, sale,
provision, distribution or marketing of any product or service should not
continue beyond twelve (12) months after the Closing Date, and (iii) any use of
the Transition Brand by such joint ventures in the manufacturing, sale,
provision, distribution or marketing of any product or service should not
continue beyond forty-eight (48) months from the Closing Date. Accordingly,
except as provided in paragraph (b) below, to the extent permitted by Licensee's
existing agreement with a joint venture or joint venture partner, Licensee shall
withdraw any authority granted to the joint venture to use the Licensed Marks,
Licensed Trade Dress and Transition Brand beyond the periods set forth above in
this Section. In those cases where Licensee's existing agreement with a joint
venture does not permit Licensee to withdraw such authority, Licensee shall use
commercially reasonable efforts to cause any joint venture to which it is a
party to cease using the Licensed Marks, Licensed Trade Dress and Transition
Brand beyond such periods.
(b) Notwithstanding the provisions of (a) (i) above, the parties agree
that the China joint ventures listed in Schedule O may continue to use the
Licensed Marks in their corporate names up to January 1, 1999.
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(c) Nothing in this Section 4.4 is intended to expand the scope of the
grant contained in Article II of this License Agreement. Accordingly, absent a
prior written agreement in effect as of the date of this License Agreement, use
of the Licensed Marks and Licensed Trade Dress by Affiliates of Licensee
(including such joint ventures that are Affiliates of Licensee) shall be
governed by the grants in Section 2.1 for Lucent Products, and by Sections 2.2
and 3.3 (if applicable) for CP/GBCS Products, subject to the other terms and
conditions of this License Agreement.
ARTICLE V
LICENSED TERRITORY
5.1 The Licensed Territory for the licenses granted in Article II of this
License Agreement shall include the world, but such licenses do not authorize
the marketing, offering or sale of CP/GBCS Products under the Licensed Marks,
Licensed Trade Dress or Transition Brand in any country in which no CP/GBCS
Products were being marketed, offered or sold as of the date of this License
Agreement, except:
(a) If a contract with an Existing Authorized Dealer grants such
Existing Authorized Dealer rights to commence marketing a CP/GBCS Product in a
new country, then that new country shall be included in the Licensed Territory
with respect to that particular CP/GBCS Product; and
(b) Licensee may use the Licensed Marks, Licensed Trade Dress and
Transition Brand subject to the terms and conditions of this License Agreement,
in countries where as of the date hereof it had developed bona-fide, good faith
plans to commence marketing a CP/GBCS Product, which countries are identified in
Schedule Q hereto. Schedule Q shall in all events be completed to the mutual
satisfaction of Licensor and Licensee no later than February 15, 1996.
ARTICLE VI
QUALITY CONTROL
6.1 GENERAL. Licensee acknowledges that the Products covered by this
License Agreement must continue to be of sufficiently high quality as to provide
maximum enhancement to and protection of the Licensed Marks and Licensed Trade
Dress and the good will they symbolize. Licensee further acknowledges that the
maintenance of high quality Products is of the essence of this License Agreement
and that it will utilize only marketing materials which do not disparage or
place in disrepute Licensor, its businesses or its business reputation, or
adversely affect or detract from Licensor's good will.
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6.2 CONTROL SPECIFICATIONS. (a) Licensee shall use the Licensed Marks,
Licensed Trade Dress and Transition Brand only in connection with the
manufacture, marketing, distribution, promotion, sale and lease of CP/GBCS
Products that meet the Control Specifications. The Control Specifications shall
consist of Technical Performance, Customer Service, and Customer Satisfaction
Specifications attached or referenced in Schedule B hereto or provided to and
accepted by Licensor pursuant to Paragraph (c) below, and the Marketing
Specifications referenced in Schedules C and M hereto. Control Specifications
shall be treated as proprietary information and shall be subject to the
confidentiality provisions of Article VIII of the Separation and Distribution
Agreement.
(b) Licensee has made good faith efforts to complete the content of
Schedule B pertaining to Control Specifications. To the extent that Schedule B
is incomplete, Licensee shall use good faith efforts to complete its content by
the Closing Date. Schedule B shall in all events be completed to the mutual
satisfaction of Licensor and Licensee no later than the Distribution Date.
(c) Should Licensee desire to offer, sell or otherwise market under the
Licensed Marks or Licensed Trade Dress (alone or in the Transition Brand) a new
or modified version of a CP/GBCS Product, Licensee shall provide at least sixty
(60) days prior written notice to Licensor. Such notice shall include proposed
control specifications (if existing Control Specifications are inapplicable or
superseded), and shall also be sufficient to apprise Licensor of the differences
between the proposed product and the closest existing CP/GBCS Product, including
additional or different features and functions. Licensor shall then have thirty
(30) days to notify Licensee of objections to any use of the Licensed Marks or
Licensed Trade Dress with the proposed product. Licensee shall not offer, sell
or otherwise market such proposed product under the Licensed Marks or Licensed
Trade Dress (alone or in the Transition Brand) if Licensor reasonably objects
within such thirty (30) day period.
(d) Licensee shall not offer any CP/GBCS Product under the Licensed
Marks and Licensed Trade Dress (alone or in the Transition Brand) unless it
meets each of the relevant Control Specifications. Licensee shall not provide to
any third party any product which does not meet the Control Specifications
without first obliterating the Licensed Marks.
6.3 CUSTOMER CARE PROVISIONS. The parties recognize that customer
complaints, inquiries, requests, orders, returns and similar communications
regarding the products or services of one of them may be directed by customers
or otherwise transmitted to the other. The parties agree jointly to develop by
the Closing Date and comply with written policies and procedures for handling
such communications, in order to ensure that customer communications are
addressed expeditiously regardless of the initial recipient, and in a manner
that makes the Separation transparent as to customers.
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6.4 CHANGES TO MARKETING SPECIFICATIONS. The Marketing Specifications
referenced in Schedules C and M hereto may be reasonably amended, modified or
supplemented from time to time by Licensor upon giving Licensee sixty (60) days'
prior written notice. Following any such amendment, modification or supplement
to the Marketing Specifications, Licensee and all Authorized Dealers shall
comply with such amendments, modifications or supplements.
6.5 QUALITY CONTROL REVIEWS; RIGHT OF INSPECTION. Licensor shall have the
right to designate from time to time, one or more Quality Control
Representatives, who shall have the right from time to time but at least once
per calendar quarter, upon fifteen (15) days' notice to Licensee, to conduct
during regular business hours an inspection, test, survey and review of
Licensee's facilities and the facilities of Licensee's Authorized Dealers, if
any, and otherwise to determine compliance with the applicable Control
Specifications. At Licensor's request, Licensee agrees to furnish or make
available for inspection to the Quality Control Representatives: (i) samples of
any CP/GBCS Product that is marketed or provided under the Licensed Marks,
Licensed Trade Dress or the Transition Brand for inspections, surveys, tests and
reviews to assure conformance with the applicable Control Specifications; (ii)
performance data in its control relating to the conformance of CP/GBCS Products
with the applicable Control Specifications; and (iii) samples of marketing
materials, product packaging, instruction and warranty materials that use the
Licensed Marks, Licensed Trade Dress or Transition Brand. Any such data provided
to Licensor shall be treated as proprietary information subject to the
confidentiality provisions of Article VIII of the Separation and Distribution
Agreement. Licensor may independently conduct continuous customer satisfaction
surveys to determine if Licensee and its Authorized Dealers are meeting the
Control Specifications. Licensee shall cooperate with Licensor fully in the
distribution of such surveys. Licensor shall, at the request of Licensee,
provide Licensee with copies of customer surveys used by Licensor to determine
if Licensee is meeting the Control Specifications. If Licensee learns that it or
any of its Authorized Dealers is not complying with any Control Specifications,
it shall notify Licensor and the provisions of Article VII (and of Section
3.3(a) in the case of Authorized Dealers) shall apply to such noncompliance.
6.6 SPONSORSHIP. Licensee shall not use the Licensed Marks or Licensed Trade
Dress (alone or in the Transition Brand) to sponsor, endorse, or claim
affiliation with any event, meeting, charitable endeavor or any other
undertaking without obtaining the express written permission of Licensor. Any
breach of this provision shall be deemed a Significant Breach by Licensee.
6.7 DISCONTINUATION. If Licensee discontinues the retail provision of a
CP/GBCS Product that has been sold under the Licensed Marks, Licensed Trade
Dress or Transition Brand, Licensee shall comply with an "End of Life" plan that
satisfies the requirements of Schedule P hereto. Licensee shall consult with
Licensor prior to finalizing any End of Life Plan required by this Section, and
submit an advance copy of such plan to Licensor.
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6.8 REFURBISHED PRODUCT. Licensee shall not sell, convey, assign its
interest in or otherwise transfer to any refurbisher or reconditioner any
Product bearing the Licensed Marks, Licensed Trade Dress or Transition Brand,
without first obliterating the Licensed Marks, Licensed Trade Dress or
Transition Brand and any other reference to Licensor from all products,
packaging, instruction and warranty materials provided to such refurbisher or
reconditioner.
6.9 COSTS. All reasonable costs associated with monitoring compliance with
and enforcing these quality control provisions, and with administering this
License Agreement, shall be borne by Licensee. Licensor shall provide to
Licensee a quarterly invoice itemizing with reasonable specificity the costs
incurred during the prior quarter, which shall be due and payable by Licensee
within thirty (30) days of receipt.
ARTICLE VII
REMEDIES FOR NONCOMPLIANCE WITH CONTROL SPECIFICATIONS
7.1 INITIAL CURE PERIOD. If Licensor becomes aware that Licensee or any
Authorized Dealer is not complying with any Control Specifications, Licensor
shall notify Licensee in writing, setting forth, in reasonable detail, a written
description of the noncompliance and any suggestions for curing such
noncompliance. Licensee shall then have twenty (20) days after receipt of such
notice (the "Initial Cure Period") to correct or submit to Licensor a written
plan to correct such noncompliance.
7.2 SECOND CURE PERIOD. If noncompliance with the Control Specifications
continues beyond the Initial Cure Period, Licensee and Licensor shall each
promptly appoint a representative to negotiate in good faith actions that may be
necessary to correct such noncompliance. The parties shall have twenty-five (25)
days following the expiration of the Initial Cure Period (the "Second Cure
Period") to agree on corrective actions.
7.3 FINAL CURE PERIOD. If the noncompliance with the Technical Performance,
Customer Service, Customer Satisfaction or Marketing Control Specifications
continues beyond the Second Cure Period, Licensee shall either: (i) cease
offering CP/GBCS Products under the Licensed Marks and the Licensed Trade Dress
until it can comply with the Control Specifications; or (ii) be deemed to be in
Significant Breach of this License Agreement.
7.4 ARBITRATION. In the event any dispute regarding compliance with Control
Specifications continues beyond the Initial and Second Cure Periods described
above, then either Licensor or Licensee may deliver to the other party an
Arbitration Demand Notice or pursue any other rights or remedies expressly
contemplated hereby, notwithstanding its failure to deliver an Escalation
Notice. Any such arbitration shall be conducted in accordance with Article IX of
the Separation and Distribution Agreement.
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7.5 POTENTIAL INJURY TO PERSONS OR PROPERTY. Notwithstanding the foregoing,
in the event that Licensor reasonably determines that any noncompliance creates
a material threat of personal injury or injury to property of any third party,
upon written notice thereof by Licensor to Licensee, Licensee shall either cease
offering CP/GBCS Products under the Licensed Marks, Licensed Trade Dress and the
Transition Brand until it can comply with the Control Specifications, or be
deemed to be in Significant Breach of this License Agreement.
ARTICLE VIII
PROTECTION OF LICENSED SERVICE MARKS AND LICENSED TRADE DRESS
8.1 OWNERSHIP AND RIGHTS. Licensee admits the validity of, and agrees not to
challenge the ownership or validity of, the Licensed Marks and the Licensed
Trade Dress. Licensee shall not disparage, dilute or adversely affect the
validity of the Licensed Marks or the Licensed Trade Dress. Licensee agrees that
any and all goodwill and other rights that may be acquired by the use of the
Licensed Marks and the Licensed Trade Dress by Licensee shall inure to the sole
benefit of Licensor. Licensee will not grant or attempt to grant a security
interest in the Licensed Marks or the Licensed Trade Dress, or this License
Agreement, or to record any such security interest in the United States Patent
and Trademark Office or elsewhere, against any trademark application or
registration belonging to Licensor. Licensee agrees to execute all documents
reasonably requested by Licensor to effect further registration of, maintenance
and renewal of the Licensed Service Marks, and recordal of the license
relationship between Licensor and Licensee and recordal of Licensee as a
Registered User. For purposes of this License Agreement, Licensee shall be
considered a "related company" under the U.S. Trademark Act, 15 U.S.C. Section
1051 et seq.
8.2 SIMILAR MARKS. Licensee further agrees not to register in any
country any Mark resembling or confusingly similar to the Licensed Marks or the
Licensed Trade Dress, and not to use the Licensed Marks or the Licensed Trade
Dress or any part thereof as part of its corporate name (except as otherwise
expressly permitted hereunder), nor use any Mark confusingly similar, deceptive
or misleading with respect to the Licensed Marks or the Licensed Trade Dress.
Licensee further agrees not to use or register in any country any Mark similar
to the Licensed Marks or the Licensed Trade Dress, or which dilutes the Licensed
Marks or the Licensed Trade Dress. If any application for registration is, or
has been, filed in any country by Licensee which relates to any Mark which, in
the sole opinion of Licensor, is confusingly similar, deceptive or misleading
with respect to the Licensed Marks or the Licensed Trade Dress, or which dilutes
the Licensed Marks or the Licensed Trade Dress, Licensee shall, at Licensor's
sole discretion, immediately abandon any such application or registration or
assign it to Licensor. Licensee shall attempt to register or own only its
portion of the Transition Brand. If Licensee uses any Mark which, in the sole
opinion of Licensor, is confusingly similar, deceptive or misleading with
respect to the Licensed Marks or the Licensed Trade Dress, or which dilutes the
Licensed Marks or the Licensed Trade Dress, or if Licensee uses the Licensed
Marks or the Licensed Trade Dress
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<PAGE> 22
in connection with any product, or in connection with any service not
specifically authorized hereunder, Licensee shall, immediately upon receiving a
written request from Licensor, permanently cease such use.
8.3 INFRINGEMENT. In the event that Licensee learns of any infringement or
threatened infringement of the Licensed Marks or the Licensed Trade Dress, or
any unfair competition, passing-off or dilution with respect to the Licensed
Marks or the Licensed Trade Dress, or any third party alleges or claims that
either the Licensed Marks or the Licensed Trade Dress are liable to cause
deception or confusion to the public, or is liable to dilute or infringe any
right of such third party, Licensee shall immediately notify Licensor or its
authorized representative giving particulars thereof, and Licensee shall provide
necessary information and assistance to Licensor or its authorized
representatives in the event that Licensor decides that proceedings should be
commenced or defended. Licensor shall have exclusive control of any litigation,
opposition, cancellation or related legal proceedings. The decision whether to
bring, defend, maintain or settle any such proceedings shall be at the exclusive
option and expense of Licensor, and all recoveries shall belong exclusively to
Licensor. Licensee will not initiate any such litigation, opposition,
cancellation or related legal proceedings in its own name, but, at Licensor's
request, agrees to be joined as a party in any action taken by Licensor to
enforce its rights in the Licensed Marks, the Licensed Trade Dress, or the
Transition Brand. Nothing in this License Agreement shall require or be deemed
to require Licensor to enforce the Licensed Marks or the Licensed Trade Dress
against others.
8.4 COMPLIANCE WITH LAWS. In the performance of this License Agreement,
Licensee shall comply with all applicable laws and regulations, including those
laws and regulations particularly pertaining to the proper use and designation
of Marks in the Licensed Territory. Should Licensee be or become aware of any
applicable laws or regulations which are inconsistent with the provisions of
this License Agreement, Licensee shall promptly notify Licensor of such
inconsistency. In such event, Licensor may, at its option, either waive the
performance of such inconsistent provisions, or negotiate with Licensee to make
changes in such provisions to comply with applicable laws and regulations.
ARTICLE IX
TERMINATION
9.1 BREACH BY LICENSEE. Licensor may terminate this License Agreement at any
time in the event of a Significant Breach by Licensee. A "Significant Breach by
Licensee" shall mean any event expressly specified in this License Agreement to
be a "Significant Breach," and any of the following (after exhaustion of any
cure periods set forth in Article VII hereof to the extent such cure periods are
applicable):
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<PAGE> 23
(a) Licensee's or any Authorized Dealer's use of any Mark
(including the Licensed Marks, Licensed Trade Dress or Transition Brand)
contrary to the provisions of this License Agreement, provided, however, that
use of any Mark contrary to this License Agreement by a particular Authorized
Dealer shall be grounds for termination only as to that particular Authorized
Dealer; further provided that a pattern of violations of any provision of this
License Agreement, including Section 2.5, by a number of Licensee's Authorized
Dealers shall be grounds for termination as to either all Authorized Dealers, or
Licensee and all Authorized Dealers, at the option of Licensor;
(b) Licensee's or any Authorized Dealer's use of a Licensed Mark
or Licensed Trade Dress in connection with any marketing materials, or the
offering, marketing or provision of any CP/GBCS Product, which fail to meet the
standards set forth in the Control Specifications; provided, however, that (i)
the failure of a particular product to comply with the Control Specifications
shall be grounds for termination only as to that product; further provided that
continued use of the Licensed Marks or Licensed Trade Dress by Licensee in
connection with such product shall be grounds for termination of the License
Agreement as to all Products, and (ii) except as otherwise provided in Paragraph
(a) above, the failure of an Authorized Dealer to satisfy the standards set
forth in the Control Specifications shall be grounds for termination only as to
that particular Authorized Dealer;
(c) Licensee's refusing or neglecting a request by Licensor for
access to Licensee's facilities or marketing materials;
(d) Licensee's licensing, assigning, transferring, disposing of or
relinquishing (or purporting to license, assign, transfer, dispose of or
relinquish) any of the rights granted in this License Agreement to others;
(e) Licensee's failure to take all appropriate steps to restrain
any Authorized Dealer from violating the terms and conditions of this License
Agreement;
(f) The occurrence of a Change of Control of Licensee, or of an
Affiliate of Licensee; provided, however, that a Change of Control of an
Affiliate of Licensee shall be grounds for termination of this License Agreement
only as to that Affiliate and Persons controlled by that Affiliate;
(g) Licensee's receipt of any license, right or permission to
market, or the marketing by Licensee of, any product or service under any name,
mark, indication of origin or trade dress of any Person that competes with
Licensor in the provision of Telecommunications Services; provided, however,
that Licensee may contract manufacture products for any Person (including any
Person that competes with Licensor in the provision of Telecommunications
Services) which do not bear the Licensed Marks and Licensed Trade Dress, so long
as such Person makes no reference in any promotional, marketing information or
other material to
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<PAGE> 24
Licensor or Licensee's relationship to Licensor. Such contract manufacturing
shall not constitute a significant or other breach of this License Agreement;
(h) The bankruptcy or insolvency of Licensee or an Affiliate of
Licensee; provided, however, that the bankruptcy or insolvency of an Affiliate
of Licensee shall be grounds for termination of this License Agreement only as
to that Affiliate;
(i) Licensee's failure to obtain Licensor's permission to sponsor
any undertaking as provided in Section 6.6 of this License Agreement;
(j) Licensee's failure to remove the Licensed Trade Marks and
Licensed Trade Dress as provided in Sections 2.3(c) or 6.8 of this License
Agreement;
(k) Licensee's failure to develop, provide to Licensor an advance
copy of or comply with an End of Life Plan, as required by Section 6.7 of this
License Agreement.
9.2 TERMINATION OBLIGATIONS. In the event Licensor terminates this License
Agreement pursuant to this Article:
(a) Licensee and all Authorized Dealers (or such of the foregoing
as to which this License Agreement is terminated) shall immediately cease all
use of the Licensed Marks and Licensed Trade Dress upon notice of termination,
except that Licensor, in its sole discretion, may require Licensee to continue
use of the Licensed Marks and Licensed Trade Dress for a period of up to two (2)
months as directed by Licensor; provided, however, that nothing herein shall be
construed to prohibit Licensee from making truthful statements of fact regarding
its past affiliation with Licensor, so long as such statements are not likely to
cause confusion, mistakes or deception.
(b) Licensee and all Authorized Dealers (or such of the foregoing
as to which this License Agreement is terminated) shall have no further rights
under this License Agreement.
ARTICLE X
INDEMNITIES
10.1 Except as provided in Section 10.2 below, Licensee shall defend,
indemnify and hold Licensor, its Affiliates and authorized representatives, and
each other AT&T Indemnitee, harmless against all claims, suits, proceedings,
costs, damages and judgments incurred, claimed or sustained by third parties,
whether for personal injury or otherwise, arising from or in connection with
Licensee's or any Authorized Dealer's marketing, sale, lease or use of Products
bearing the Licensed Marks or Licensed Trade Dress (alone or in the Transition
Brand) after the date of this License Agreement, and shall indemnify Licensor
and each AT&T Indemnitee for all
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<PAGE> 25
damages, losses, costs and expenses (including reasonable attorneys' fees) due
to such use, sale, lease or marketing and also for any improper or unauthorized
use of the Licensed Marks or Licensed Trade Dress by Licensee or its Authorized
Dealers.
10.2 Licensee shall notify Licensor, in writing, in the event that any third
party claims, by suit, proceeding, action or otherwise, that Licensee's use of
the Licensed Marks and Licensed Trade Dress (alone or in the Transition Brand)
in connection with Products as provided in this License Agreement constitutes or
amounts to a trademark, service mark or trade dress infringement, unfair
competition or dilution, and, at Licensor's option, Licensee may be directed to
tender the defense of such claims to Licensor.
ARTICLE XI
NOTICES
All notices or other communications under this License Agreement shall
be in writing and shall be deemed to be duly given when (a) delivered in person,
or (b) sent by telecopy, telegram or telex, or (c) deposited in the United
States mail or private express mail, postage prepaid, addressed as follows:
(i) If to Licensee:
Richard J. Rawson, Esq.
Senior Vice President and General Counsel
Lucent Technologies Inc.
475 South Street
Morristown, New Jersey 07960
Tel: 201-606-2810
Fax: 201-606-3276
with a copy to:
Rosemary A. Ryan, Esq.
Trademark and Copyright Counsel
Lucent Technologies Inc.
131 Morristown Road
Basking Ridge, New Jersey 07922
Tel: 908-204-8413
Fax: 908-204-8537
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<PAGE> 26
(ii) If to Licensor:
AT&T Corp.
295 North Maple Avenue
Basking Ridge, New Jersey 07920
Attn: General Counsel
with a copy to:
Frank L. Politano, Esq.
Trademark and Copyright Counsel
AT&T Corp.
131 Morristown Road
Basking Ridge, New Jersey 07922
Tel: 908-204-8416
Fax: 908-204-8537
Either party may, by notice to the other party, change the address to which such
notices are to be given.
ARTICLE XII
COMPLIANCE WITH LAW
12.1 GENERAL. Nothing in this License Agreement shall be construed to
prevent Licensor or Licensee from complying fully with all applicable laws and
regulations, whether now or hereafter in effect.
12.2 GOVERNMENTAL LICENSES, PERMITS AND APPROVALS. Licensee, at its expense,
shall be responsible for obtaining and maintaining all licenses, permits and
approvals which are required by all Governmental Authorities with respect to
this License Agreement, and to comply with any requirements of such Governmental
Authorities for the registration or recording of this License Agreement.
Licensee shall furnish to Licensor written evidence from such Governmental
Authorities of any such licenses, permits, clearances, authorizations,
approvals, registration or recording.
ARTICLE XIII
INCORPORATION OF PROVISIONS OF THE SEPARATION AND DISTRIBUTION
AGREEMENT
13.1 The following provisions of the Separation and Distribution Agreement
are hereby incorporated herein by reference, and unless otherwise expressly
specified herein, such
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<PAGE> 27
provisions shall apply as if they are fully set forth herein (references in
paragraphs (a) through (d) below to "Article" shall mean Articles of the
Separation and Distribution Agreement):
(a) Article V (relating to mutual releases and indemnification,
including procedures);
(b) Article VIII (relating to preservation and exchange of information,
and protection of proprietary information);
(c) Article IX (relating to arbitration and dispute resolution); and
(d) Article XII (miscellaneous provisions, except as otherwise
specified herein).
IN WITNESS WHEREOF, the parties have caused this License Agreement
to be executed by their duly authorized representatives.
AT&T CORP. LUCENT TECHNOLOGIES INC.
BY: /s/ BY: /s/
------------------------------- --------------------------------
NAME: NAME:
TITLE: TITLE:
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<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
TABLE OF CONTENTS
ARTICLE I DEFINITIONS
<TABLE>
<S> <C>
1.1 ADJUSTMENT................................................... 1
1.2. AGREEMENT.................................................... 1
1.3. AT&T TAX ADJUSTMENT.......................................... 2
1.4. AT&T TAX BENEFIT............................................. 2
1.5. CONSOLIDATION................................................ 2
1.6. CONSOLIDATED RETURN.......................................... 2
1.7. CONTROLLING PARTY............................................ 2
1.8. CORRELATIVE ADJUSTMENT....................................... 2
1.9. DISPUTED ADJUSTMENT.......................................... 3
1.10. FINAL DETERMINATION.......................................... 3
1.11. INDEPENDENT THIRD PARTY...................................... 3
1.12. INDEMNIFIED PARTY............................................ 4
1.13. INDEMNIFYING PARTY........................................... 4
1.14. INITIAL DETERMINATION........................................ 4
1.15. INTERESTED PARTY............................................. 4
1.16. INTERESTED PARTY NOTICE...................................... 4
1.17. NCR TAX ADJUSTMENT........................................... 4
1.18. NCR TAX BENEFIT.............................................. 4
1.19. LUCENT TAX ADJUSTMENT........................................ 5
1.20. LUCENT TAX BENEFIT........................................... 5
1.21. NON-LINE OF BUSINESS ADJUSTMENT.............................. 5
1.22. RESTRUCTURING ADJUSTMENT..................................... 5
1.23. RETURN....................................................... 5
1.24. SEPARATE RETURN.............................................. 6
1.25. SEPARATION AGREEMENT......................................... 6
1.26. SIGNIFICANT OBLIGATION....................................... 6
1.27. TAX.......................................................... 6
1.28. TAX ADJUSTMENTS.............................................. 6
1.29. TAX BENEFITS................................................. 6
1.30. TAX CONTEST.................................................. 6
1.31. TAXING AUTHORITY............................................. 7
1.32. ULTIMATE DETERMINATION....................................... 7
</TABLE>
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ARTICLE II TAX ADJUSTMENTS/BENEFITS
<TABLE>
<S> <C>
2.1. IN GENERAL.................................................... 7
2.2. TAX ADJUSTMENTS AND BENEFITS.................................. 8
2.3. RESTRUCTURING ADJUSTMENTS..................................... 9
2.4. NON-LINE OF BUSINESS ADJUSTMENTS............................. 11
ARTICLE III TAX CONTESTS
3.1. NOTIFICATION OF TAX CONTESTS................................. 14
3.2. TAX CONTEST SETTLEMENT RIGHTS................................ 14
3.3. TAX CONTEST PARTICIPATION.................................... 15
3.4. TAX CONTEST WAIVER........................................... 16
3.5. TAX CONTEST DISPUTE RESOLUTION............................... 17
ARTICLE IV PROCEDURE AND PAYMENT
4.1. PROCEDURE.................................................... 20
4.2. PAYMENT...................................................... 21
4.3. INTEREST..................................................... 21
ARTICLE V OTHER TAX MATTERS
5.1. TAX POLICIES AND PROCEDURES DURING CONSOLIDATION ............ 22
5.2. COOPERATION.................................................. 23
5.3. FILING OF RETURNS............................................ 23
ARTICLE VI MISCELLANEOUS
6.1. GOVERNING LAW................................................ 24
6.2. AFFILIATES................................................... 24
6.3. INCORPORATION OF SEPARATION AGREEMENT PROVISIONS ............ 24
6.4. NOTICES...................................................... 24
6.5. CONFLICTING OR INCONSISTENT PROVISIONS....................... 25
6.6. DURATION..................................................... 25
6.7. AMENDMENT.................................................... 25
6.8. TAX ALLOCATION AGREEMENTS.................................... 26
</TABLE>
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<PAGE> 4
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.
<PAGE> 5
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 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,
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<PAGE> 6
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 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.
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<PAGE> 7
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.
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. 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 any Adjustment
comprising a Restructuring Adjustment shall not be considered in determining the
amount of any NCR Tax Adjustment.
1.18. 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.
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<PAGE> 8
1.19. 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.
1.20. 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.
1.21. 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
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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.
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.
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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.
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
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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 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
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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.
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
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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 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);
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(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.
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
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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 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
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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:
(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
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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 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
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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 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
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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 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
-16-
<PAGE> 20
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 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
-17-
<PAGE> 21
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 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
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<PAGE> 22
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 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.
-19-
<PAGE> 23
(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 Interested
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.
(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
-20-
<PAGE> 24
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 clause (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 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.
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
-21-
<PAGE> 25
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.
ARTICLE V
OTHER TAX MATTERS
5.1. TAX POLICIES AND PROCEDURES DURING CONSOLIDATION. It is
understood and agreed that during Consolidation:
(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,
-22-
<PAGE> 26
(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 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.
-23-
<PAGE> 27
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.
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.
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<PAGE> 28
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:
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:
-25-
<PAGE> 29
(a) The parties 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.
(b) The parties acknowledge that the provisions of this
Agreement may not fully reflect all of their respective concerns with respect to
state and local Taxes. Consequently, the parties will cooperate in determining
whether to amend or supplement this Agreement no later than February 29, 1996.
To the extent no such amendment or supplement is executed on or prior to
February 29, 1996, the provisions of this Agreement shall remain in full force
and effect.
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.
-26-
<PAGE> 30
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:
-27-
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the inclusion in this registration statement on Form S-1 (File No.
X-XXXX) 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. We also consent to the reference
to our firm under the caption "Experts."
Coopers & Lybrand L.L.P.
New York, New York
February 5, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet of Lucent Technologies Inc. at December 31, 1995 and
the Consolidated Statement of Operations for the year ended December 31, 1995
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 448
<SECURITIES> 0
<RECEIVABLES> 5,602
<ALLOWANCES> 248
<INVENTORY> 3,222
<CURRENT-ASSETS> 10,679
<PP&E> 11,037
<DEPRECIATION> 6,699
<TOTAL-ASSETS> 19,722
<CURRENT-LIABILITIES> 11,063
<BONDS> 172
0
0
<COMMON> 0
<OTHER-SE> 1,434
<TOTAL-LIABILITY-AND-EQUITY> 19,722
<SALES> 21,413
<TOTAL-REVENUES> 21,413
<CGS> 12,945
<TOTAL-COSTS> 22,413
<OTHER-EXPENSES> 280
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,116)
<INCOME-TAX> (263)
<INCOME-CONTINUING> (1,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (853)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<PAGE> 1
Exhibit 99.1
CONSENT OF DIRECTOR NOMINEE
I hereby consent to being named as a nominee to the Board of Directors
of NS-MPG Inc., a Delaware corporation (which will change its name prior to
filing), in its Registration Statement on Form S-1 to be filed with the
Securities and Exchange Commission.
January 29, 1996 Signed: /s/ Carla A. Hills
------------------
Carla A. Hills
<PAGE> 1
Exhibit 99.2
CONSENT OF DIRECTOR NOMINEE
I hereby consent to being named as a nominee to the Board of Directors
of NS-MPG Inc., a Delaware corporation (which will change its name prior to
filing), in its Registration Statement on Form S-1 to be filed with the
Securities and Exchange Commission.
January 30, 1996 Signed: /s/ Drew Lewis
--------------
Drew Lewis
<PAGE> 1
Exhibit 99.3
CONSENT OF DIRECTOR NOMINEE
I hereby consent to being named as a nominee to the Board of Directors
of NS-MPG Inc., a Delaware corporation (which will change its name prior to
filing), in its Registration Statement on Form S-1 to be filed with the
Securities and Exchange Commission.
February 5, 1996 Signed: /s/ Richard A. McGinn
---------------------
Richard A. McGinn
<PAGE> 1
Exhibit 99.4
CONSENT OF DIRECTOR NOMINEE
I hereby consent to being named as a nominee to the Board of Directors
of NS-MPG Inc., a Delaware corporation (which will change its name prior to
filing), in its Registration Statement on Form S-1 to be filed with the
Securities and Exchange Commission.
January 29, 1996 Signed: /s/ Donald S. Perkins
---------------------
Donald S. Perkins
<PAGE> 1
Exhibit 99.5
CONSENT OF DIRECTOR NOMINEE
I hereby consent to being named as a nominee to the Board of Directors
of NS-MPG Inc., a Delaware corporation (which will change its name prior to
filing), in its Registration Statement on Form S-1 to be filed with the
Securities and Exchange Commission.
February 5, 1996 Signed: /s/ Henry B. Schacht
---------------------
Henry B. Schacht
<PAGE> 1
Exhibit 99.6
CONSENT OF DIRECTOR NOMINEE
I hereby consent to being named as a nominee to the Board of Directors
of NS-MPG Inc., a Delaware corporation (which will change its name prior to
filing), in its Registration Statement on Form S-1 to be filed with the
Securities and Exchange Commission.
January 29, 1996 Signed: /s/ Franklin A. Thomas
----------------------
Franklin A. Thomas
