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AS FILED ELECTRONICALLY WITH THE SEC ON 12/30/96.
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
( ) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For The Fiscal Year Ended ______________________
OR
(X) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For The Transition Period From January 1, 1996 to September 30, 1996
Commission File Number 001-11639
LUCENT TECHNOLOGIES INC.
A DELAWARE I.R.S. EMPLOYER
CORPORATION NO. 22-3408857
600 Mountain Avenue, Murray Hill, New Jersey 07974
Telephone Number 908-582-8500
Securities registered pursuant to Section 12(b) of the Act: See attached
SCHEDULE A.
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes....x.... No........
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. ( )
At November 30, 1996, the aggregate market value of the voting stock held by
non-affiliates was approximately $32,650,000,000.
At November 30, 1996, 637,131,272 common shares were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the registrant's annual report to security holders for
the fiscal year (transition period) ended September 30, 1996 (Part II)
(2) Portions of the registrant's definitive proxy statement dated
December 30, 1996, issued in connection with the annual meeting of shareholders
(Part III)
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SCHEDULE A
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Name of each exchange on
Title of each class which registered
<S> <C>
Common Stock New York Stock Exchange
(Par Value $.01 Per Share)
6.90% Notes due July 15, 2001 New York Stock Exchange
7.25% Notes due July 15, 2006 New York Stock Exchange
</TABLE>
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TABLE OF CONTENTS
PART I
<TABLE>
<CAPTION>
Item Description Page
<S> <C> <C>
1. Business ........................................................ 1
2. Properties ...................................................... 18
3. Legal Proceedings ............................................... 18
4. Submission of Matters to a Vote of Security-Holders ............. 19
PART II
Description
5. Market for Registrant's Common Equity and Related Stockholder
Matters ....................................................... 20
6. Selected Financial Data ......................................... 20
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations ......................................... 20
8. Financial Statements and Supplementary Data ..................... 20
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure ...................................... 20
PART III
Description
10. Directors and Executive Officers of the Registrant .............. 20
11. Executive Compensation .......................................... 20
12. Security Ownership of Certain Beneficial Owners and Management .. 20
13. Certain Relationships and Related Transactions .................. 20
</TABLE>
PART IV
Description
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. 20
See page 19 for "Executive Officers of the Registrant."
This Report contains trademarks, service marks and registered marks of the
Company and its subsidiaries, and other companies, as indicated.
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PART I
ITEM 1. BUSINESS.
GENERAL
Lucent Technologies Inc. ("Lucent" or 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 (telephone number
908-582-8500). Prior to February 1, 1996, AT&T Corp. ("AT&T") conducted the
Company's business through various divisions and subsidiaries.
The Company was formed following the announcement in September 1995 by AT&T
of its intention to create a separate company comprised of the AT&T systems and
technology businesses and operations. On February 1, 1996, AT&T began
executing its decision to separate the Company into a stand-alone company (the
"Separation") by transferring assets and liabilities to the Company. On April
10, 1996 the Company issued 112,037,037 shares of its Common Stock in an
Initial Public Offering ("IPO"), and on September 30, 1996, AT&T distributed
all of its shares in the Company to AT&T shareholders of record as of September
17, 1996. As used herein, references to the "Company" or "Lucent" include the
historical operating results and activities of the business and operations
which comprise the Company as of the date hereof.
On July 17, 1996, the Company's Board of Directors voted to change the
Company's fiscal year from a calendar year to a year beginning October 1st and
ending September 30th. Accordingly, unless the context otherwise requires,
references herein to the "year 1996," "fiscal 1996," "this year," "1996," or
similar terms mean the nine-month period January 1, 1996 through September 30,
1996.
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 most of the world's
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. The Company's
research and development activities are conducted through Bell Laboratories
("Bell Labs"), which consists of approximately three-quarters of the total
resources of AT&T's former Bell Laboratories division, one of the world's
foremost industrial research and development organizations.
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 supplies 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
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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. The Company's primary switching products are the 5ESS(R)
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 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.
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.
World standards for transmission systems have undergone rapid technological
change 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.
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. 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,
which extends 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, 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 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 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
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routing system that mitigates network congestion through efficient call routing
and completion.
The Company's A-I-NET(R) intelligent network products enable network
operators to offer new services that can be created, deployed or managed by
themselves, the Company, or third parties. Services created with A-I-NET
products include toll free calling (800 and 888 service in the United States),
call forwarding, call waiting, voice dialing and messaging.
The Company has 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, such as its high
capacity Asynchronous Transfer Mode ("ATM") switching product, the
GLOBEVIEW(R)-2000 Broadband System.
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 also supplies 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.
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 wireless systems are in operation in nine of the top ten
United States Metropolitan Statistical Areas. The Company's primary wireless
system is the AUTOPLEX(R) System 1000 product family, which includes the high
capacity Series II base station. 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.
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(TM) Wireless Local Loop system,
which utilizes CDMA technology. Also, as part of the acquisition of the
manufacturing and other operations of certain subsidiaries of Philips
Electronics NV (the "Philips Businesses"), the Company acquired Philips' fixed
wireless system, which is based on the DECT (digital enhanced cordless
telephone) standard. All three systems enable network operators to expand
their networks in markets where traditional wireline systems are not cost
justified, and to provide telephone services as an alternative to traditional
network operators.
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, including local, long distance and international
telecommunications companies and cable television companies. 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 "Outlook -- 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.
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 "Outlook -- Multi-Year Contracts" and "-- Seasonality."
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.
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 U.S. and foreign markets, and in some cases the
Company furnishes or guarantees financing for customers. As a result, the
Company works with its customers to structure and place financing packages.
See "Outlook -- 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.
Competition
The Company believes that its key competitive factors are its broad product
line, large installed base, relationship with key customers, technological
expertise and new product development capabilities. The Company's primary
competitors in the market for telecommunications systems 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 1995, the Company and these four
competitors collectively accounted for about 34% of the world's public network
systems sales, of which the Company's sales of systems for network operators
accounted for 9%.
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In addition, in all of the Company's product areas other than switching, the
Company faces significant competition from other 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, competition in the markets
includes hundreds of smaller competitors.
BUSINESS COMMUNICATIONS SYSTEMS
The Company designs, develops, manufactures and services communications
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. In addition, the Company has begun to participate in the emerging
multi-media products business. 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 wired and wireless communications systems,
including the DEFINITY(R) family of products for large customers and the 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 enables communication throughout the work place
with full freedom of movement.
The Company's messaging and response systems store and forward voice, data
and images and conduct initial call processing, which integrates PBX and
computer functions. In addition, the Company is a technological leader in the
development of speech recognition algorithms, which have been incorporated into
both public and private call processing applications, such as operator
services. The Company's principal systems include the INTUITY(TM) AUDIX(R) and
DEFINITY AUDIX voice messaging systems for use with the Company's or a
competitor's PBX; INTUITY CONVERSANT(R), 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's call center systems integrate 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 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.
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.
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In addition, the Company's SYSTIMAX(R) structured wiring system for business
customers provides broadband multifunctional LAN interconnections within a
building or campus. These systems are comprised of fiber optic and copper
cable and associated apparatus.
The Company offers a wide range of professional service options, including
call center design, network engineering, training, remote diagnostics 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's remote diagnostics and repair capability 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 and services to large and small businesses
and government agencies through a large, direct sales force and through a
network of agents, dealers and distributors. In the United States, the Company
effects these sales primarily through the direct sales force, while sales
elsewhere occur primarily through the efforts 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 believes that the premises-based communications market may be
transforming from distinct voice and data networks to 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 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. In 1996
the Company acquired Agile Networks, a provider of intelligent data switching
products.
Competition
The Company considers its working relationships with its customers and
knowledge of their individual business needs to be important competitive
factors. 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 1995 these competitors accounted for
approximately 52% of the sales of business communications systems globally,
with the Company accounting for approximately 11%. 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.
- -------------------
* Lotus Notes is a registered trademark of Lotus Development Corporation;
VERSIT is a trademark of the consortium's founders.
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MICROELECTRONICS PRODUCTS
The Company designs, manufactures and sells 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 offers products in several IC product areas critical to communications
applications, including digital signal processors ("DSPs") for digital cellular
phones and standard-cell application specific integrated circuits ("ASICs").
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 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 designs, develops and manufactures optoelectronic products which
convert electricity to light (emitters) and light to electricity (detectors),
thereby facilitating optical transmission of information. These products
include semiconductor lasers, photodetectors, integrated transmitters and
receivers, and advanced-technology erbium-doped fiber amplifiers. The Company
provides these products worldwide to manufacturers serving the
telecommunications, cable television and network computing markets.
Optoelectronic products extend the transmission capacity of fiber to meet the
requirements of such applications as video-on-demand, interactive video,
teleconferencing, image transmission and remote database searching. The
Company markets a number of advanced products, including critical
optoelectronic components that support telecommunication transmission;
long-wavelength optical data modules for data networking; and analog lasers for
use in cable television fiber optic transmission. The Company believes that
its optoelectronic products have higher photonics reliability than those of its
competitors due to their low field failure rate and the Company's evaluation
methodologies in manufacturing that allow the detection and elimination of
early failures.
In December 1996, the Company sold its operations for the design and
manufacture of printed circuit boards and backplanes.
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
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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 fiscal 1996, 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 considers its technological leadership, product leadership, and
relationships with key customers to be important competitive factors. 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.
Products
The Company has a broad selection of telephone products for the consumer
market. Cordless telephones are a significant portion of the Company's
consumer product line. The Company offers Cordless telephones based on the
traditional 46/49 frequency, as well as the 900 MHz bandwidth. The latest
introduction is the 9510 Digital Spread Spectrum model with the clearest sound
and longest range of any telephone in the Company's product line. 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 participates in the full spectrum of corded telephones including
basic, designer and feature telephones. The Company's TRIMLINE(R) telephone
continues to be the highest volume telephone in the industry.
The Company plans to offer a line of cellular and PCS phones which conform to
both of the North American Digital Standards (TDMA and CDMA). The Company's
product development efforts are focused on the creation of a high quality,
flexible and cost effective architecture for these products in order to meet
the rapidly evolving needs of customers.
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. The Company expects that up to 70 percent of its
product line in 1997 will be new or redesigned products. In addition, the
Company has undertaken a program to increase the percentage of the products
designed and manufactured in its own facilities. 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 "Separation Agreements
- -- 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
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Wal-Mart Stores, Inc., Sears, Roebuck and Co., Circuit City Stores, Inc., Best
Buy Co., Inc. and Service Merchandise Company. In 1996, as previously
announced, the Company closed all of its Phone Center stores as part of its
reorganization efforts. The Company also offers consumers a rental option for
selected products, and currently serves over three and one-half million rental
customers. Recently, the Company's practices have been challenged in
connection with rental of products.
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
about 68% of market sales in 1995, of which the Company accounted for 31%. In
wireless terminal products, the Company's principal competitors are Motorola
and Nokia which, together with the Company, accounted for over 65% of market
sales in 1995, of which the Company accounted for 7%.
OTHER SYSTEMS AND PRODUCTS
The Company designs, develops and manufactures advanced technology systems
which support the United States federal government's need for specially
designed integrated systems for military and civilian use. The Company offers
a full range of products on a direct funding basis from the United States
government. These systems focus on undersea sensor systems, information
processing and secure communications. The funded research has generated
commercial by-products in lightwave transmission equipment, wireless
communications systems and multifunctional compression algorithms.
The Company in 1996 sold its subsidiary, Paradyne, which designed and
manufactured modems and other data communications equipment.
BELL LABORATORIES
The Company has been and will continue to be supported by the technological
expertise provided by Bell Labs, one of the world's foremost industrial
research and development organizations. Bell Labs consists of all of the
operations of AT&T's former Bell Laboratories division which support the
businesses of the Company, and basic research capability, which together
comprise approximately three quarters of the total resources of AT&T's former
Bell Laboratories division. Bell Labs has made significant discoveries and
advances in communications science and technology, software design and
engineering, and networking. These contributions include the invention of the
transistor and the design and development of ICs and many types of lasers.
Areas of Bell Labs research and development work in recent years include:
networking software; lightwave transmission, which offers greater transmission
capacity than other transmission systems; electronic switching technology,
which enables rapid call processing, increased reliability and reduced network
costs; and microelectronics components, which bring the latest advantages of
very large scale integration to the full range of products offered by the
Company.
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. For example, its 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, is a leader in
the development of digital signal processing, and has developed a number of
innovative algorithms for high-quality speech and audio. These innovations
have contributed to the Company's implementation of speech processing
applications which include text-to-
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speech synthesis, speech recognition and automatic translation of speech from
one language to another.
Bell Labs also has led in the development of software-based networking
technologies that support the Company's systems and products. Recently, it has
developed systems for digital cellular, PCS, mobile computing and wireless
LANs, and its research in ATM led to the Company's offering of the first large
ATM switch in 1993.
Similarly, Bell Labs' advances extend to the microlasers used in today's
broadband multifunctional transmission systems, and to today's optical
amplifiers and TRUEWAVE(R) fiber. Current photonic research includes work on
passive optical networks, photonic switching and quantum wire lasers.
BACKLOG
The Company's backlog, calculated as the aggregate of the sales price
of orders received from customers less revenue recognized, was approximately
$12,100 million and $7,500 million on September 30, 1996 and December 31, 1995,
respectively (approximately 3% and 4% of which, respectively, represented
backlog of orders from AT&T). Approximately $6,200 million of orders included
in the September 30, 1996 backlog are scheduled for delivery after September
30, 1997. 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.
About $6,700 million of the amount at September 30, 1996 is under large,
multi-year contracts of which about $5,000 million is scheduled for delivery
after September 30, 1997 and is included in the $6,200 million referred to
above. Approximately $4,000 million at September 30, 1996 and $3,400 million
at December 31, 1995 are under large, long-term contracts with the Ministry of
Post and Telecommunications of Saudi Arabia which require annual appropriations
of the Saudi Arabian government.
SOURCES AND AVAILABILITY OF MATERIALS
The Company makes significant purchases of electronic components, copper,
silicon, precious metals, aluminum, and other materials and components from
many domestic and foreign sources. The Company has been able to obtain
sufficient materials and components from sources around the world to meet its
needs. The Company also develops and maintains alternative sources for
essential materials and components. Occasionally, special inventories of
components are maintained to minimize the effects of shortages. The Company
does not have a concentration of sources of supply of materials, labor or
services that, if suddenly eliminated, could severely impact its operations.
PATENTS AND TRADEMARKS
From January 1, 1996 to September 30, 1996, the Company was issued 552
patents in the United States and 1,497 in foreign countries. The Company owns
approximately 8,200 patents in the United States and 14,000 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 Corporation ("NCR"). See
"Separation Agreements -- 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 until April 10, 1997
or in combination with the Company's name until April 10, 2000. In addition,
certain leased products or maintenance contracts may be marketed under the
"AT&T" name until October 10, 2001. See "Separation Agreements -- Brand
License and Related Matters."
The Company considers its many trademarks to be valuable assets. Most of
its trademarks are registered throughout the world.
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OUTLOOK
Forward Looking Statements
This Outlook section and other sections of this Form 10-K report contain
forward-looking statements that are based on current expectations, estimates
and projections about the industries in which the Company operates,
management's beliefs and assumptions made by management. Words such as
"expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates,"
variations of such words and similar expressions are intended to identify such
forward-looking statements. These statements are not guarantees of future
performance and involve certain risks, uncertainties and assumptions ("Future
Factors") which are difficult to predict. Therefore, actual outcomes and
results may differ materially from what is expressed or forecasted in such
forward-looking statements. The Company undertakes no obligation to update
publicly any forward-looking statements, whether as a result of new
information, future events or otherwise.
Future Factors include increasing price and product/services competition by
foreign and domestic competitors, including new entrants; rapid technological
developments and changes; the ability to continue to introduce competitive new
products and services on a timely, cost effective basis; the mix of
products/services; the achievement of lower costs and expenses; domestic and
foreign governmental and public policy changes which may affect the level of
new investments and purchases made by customers; changes in environmental and
other domestic and foreign governmental regulations; protection and validity of
patent and other intellectual property rights; reliance on large customers;
technological, implementation and cost/financial risks in increasing use of
large, multi-year contracts; the cyclical nature of the Company's business; the
outcome of pending and future litigation and governmental proceedings and
continued availability of financing, financial instruments and financial
resources in the amounts, at the times and on the terms required to support the
Company's future business. These are representative of the Future Factors that
could affect the outcome of the forward-looking statements. In addition, such
statements could be affected by general industry and market conditions and
growth rates, general domestic and international economic conditions including
interest rate and currency exchange rate fluctuations and other Future Factors.
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.
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. 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.
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
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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 nine months
ended September 30, 1996 and years ended December 31, 1995 and 1994 was $1,970
million (12.4%), $2,119 million (9.9%) and $2,137 million (10.8%),
respectively.
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
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 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 performance and acceptance criteria which can also cause revenue
recognition delays and contract termination, as well as financing from the
Company. Certain multi-year contracts may involve 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 several significant contracts for the sale of infrastructure
systems to network operators which extend over a multi-year period, and expects
to enter into similar contracts in the future, with the uncertainties discussed
above. One of the Company's multi-year contracts is with Pacific Bell for the
provision of a broadband network based on hybrid fiber-coaxial cable
technology. In July 1996, the Company and Pacific Bell agreed to modify the
terms of the contract so as to resolve issues and potential claims which may
have arisen due to implementation difficulties and cost overruns under the
contract. The Company's financial statements include reserves to reflect these
contract modifications. The Company will continue to assess the adequacy of
these reserves.
Seasonality
The Company's sales are highly seasonal with revenue and net income
historically concentrated in the fourth quarter of the calendar year. Many of
the Company's large customers have historically delayed a disproportionate
percentage of their capital expenditures until the fourth quarter of the
calendar year. 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 of the calendar year. 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 of the calendar year. Additionally, sales of
consumer products are generally stronger in the fourth quarter, corresponding
to holiday buying.
The growing competitive pressures among network operators, along with the
increase in software revenues, have resulted in an increasing trend toward
seasonality. Consequently, the Company's results of operations for the first
three quarters of each calendar year historically have, in the aggregate, been
significantly less profitable than the fourth quarter. The Company has
reported net losses in the first quarter of
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each calendar year. The change in the Company's fiscal year to the year ending
September 30th will place the historically most profitable quarter as the first
fiscal quarter.
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 "Separation Agreements -- Brand
License and Related Matters."
Future Capital Requirements
The Company's working capital requirements and cash flow provided by (or
used in) 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.
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. In this regard, the Company entered into a credit agreement in
October 1996 to provide Sprint Spectrum LP long-term financing of $1,800
million for purchasing equipment and services for its PCS network. Payment of
quarterly interest on each borrowing may be deferred at the borrower's option
for up to two years. (See Note 14 of Notes to Consolidated Financial
Statements for a summary of other terms.) The Company is currently discussing
with financial institutions potential alternatives to sell loans it may make
under the credit agreement, which will depend, among other things, on the
market conditions and requirements at the time. The Company has committed to,
and is proposing, to provide financing where appropriate for its business, in
addition to the Sprint Spectrum LP credit agreement. The ability of the
Company to arrange or provide financing for network operators will depend on a
number of factors, including the Company's capital structure and level of
available credit.
The Company believes that its credit facilities, 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. The Company has a shelf registration statement to
register the possible offering from time to time of up to $2,000 million of
long-term debt at September 30, 1996. 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, and 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, there can be no
assurance that the Company will be successful in this regard.
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.
- -------------------
* SPRINT SPECTRUM is a service mark of Sprint Communications Company, L.P.
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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.
Intellectual Property
The Company relies on patent, trademark, trade secret and copyright laws
both to protect its proprietary technology and to protect the Company against
claims from others. The Company believes that it has direct intellectual
property rights or rights under cross-licensing arrangements covering
substantially all of its material technologies. Given the technological
complexity of the Company's systems and products, however, there can be no
assurance that claims of infringement will not be asserted against the Company
or against the Company's customers in connection with their use of the
Company's systems and products, nor can there be any assurance as to the
outcome of any such claims. The Company was assigned ownership of the
substantial majority of AT&T's patents in connection with the Separation.
Pursuant to the patent license agreement entered into among the Company, AT&T
and NCR, the Company has been given rights, subject to specified limitations,
to pass through to its customers certain rights under approximately 400 patents
retained by AT&T. There can be no assurance that the Company's customers and
potential customers will be satisfied with the pass-through rights available to
them under the patents retained by AT&T or with any indemnification commitments
the Company may be willing to provide in connection therewith. See "Separation
Agreements -- Patent Licenses and Related Matters" and "-- Technology Licenses
and Related Matters."
OPERATING REVENUE, RESEARCH AND DEVELOPMENT EXPENSE AND FOREIGN AND DOMESTIC
OPERATIONS
For information about the consolidated operating revenues contributed by the
Company's major classes of products and services, consolidated research and
development expenses, and foreign and domestic operations, see revenue tables
and discussion on pages 41 through 44, Consolidated Statements of Income on
page 49 and Note 8 thereto on pages 60 and 61 of the Company's annual report
to security holders for the fiscal year ended September 30, 1996. Such
information is incorporated herein by reference pursuant to General Instruction
G(2).
EMPLOYEE RELATIONS
At September 30, 1996, the Company employed approximately 124,000 persons,
of whom 79% were located in the United States. Of these domestic employees,
46% are represented by unions, primarily the Communications Workers of
America and the International Brotherhood of Electrical Workers ("IBEW"). The
Company's labor agreements with these unions expire on May 30, 1998. Such
unions have made claims against AT&T on behalf of the Company's employees they
represent for severance pay as a result of the Distribution and related
transactions. The procedure under the labor contracts that these unions have
initiated is for the unions to file grievances to be followed by arbitration
under the contracts if the matter is not resolved. The IBEW claims are pending
decision following hearings in an arbitration proceeding. Under the Separation
and Distribution Agreement among AT&T, the Company and NCR dated as of February
1, 1996, and amended and restated as of March 29, 1996, the Company assumed
responsibility for liabilities for severance pay which might result from such
claims, subject to sharing arrangements under such Agreement. The Company has
continued to honor its labor agreements with these unions. Although these
claims could be material, if upheld, the Company believes that such claims are
without merit and intends to defend against the claims vigorously.
ENVIRONMENTAL MATTERS
The Company's current and historical manufacturing and research operations
are subject to a wide range of environmental protection laws in the United
States and other countries. In the United States, these laws often require
parties to fund remedial action regardless of fault. The Company has remedial
and investigatory activities underway at 46 current and former facilities. In
addition, the Company was named a successor to AT&T as a potentially
responsible party ("PRP") at numerous "Superfund" sites pursuant to the
Comprehensive Environmental Response, Compensation and Liability Act of 1980
("CERCLA") or comparable state statutes. Under the terms of the Separation
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and Distribution Agreement, the Company is responsible for all liabilities
primarily resulting from or related to the operation of the Company's Business
as conducted at any time prior to, on or after the Separation including related
businesses discontinued or disposed of prior to the Separation, and the
Company's assets including, without limitation, those associated with these
sites. In addition, under the Separation and Distribution Agreement, the
Company is required to pay a portion of contingent liabilities paid out in
excess of certain amounts by AT&T and NCR, including environmental liabilities.
It is often difficult to estimate the future impact of environmental
matters, including potential liabilities. The Company records an environmental
reserve when it is probable that a liability has been incurred and the amount
of the liability is reasonably estimable. This practice is followed whether
the claims are asserted or unasserted. Management expects that the amounts
reserved for will be paid out over the period of remediation for the applicable
site which ranges from 5 to 30 years. Reserves for estimated losses from
environmental remediation are, depending on the site, based primarily upon
internal or third party environmental studies, and estimates as to the number,
participation level and financial viability of any other PRPs, the extent of
the contamination and the nature of required remedial actions. Accruals are
adjusted as further information develops or circumstances change. The amounts
provided for in the Company's consolidated financial statements in respect of
environmental reserves are the gross undiscounted amount of such reserves,
without deductions for insurance or third party indemnity claims. In those
cases where insurance carriers or third party indemnitors have agreed to pay
any amounts and management believes that collectibility of such amounts is
probable, the amounts are reflected as receivables in the financial statements.
Although the Company believes that its reserves are adequate, there can be no
assurance that the amount of capital expenditures and other expenses which will
be required relating to remedial actions and compliance with applicable
environmental laws, will not exceed the amounts reflected in the Company's
reserves or will not have a material adverse effect on the financial condition
of the Company or the Company's results of operations or cash flows. Any
amounts of environmental costs that may be incurred in excess of those provided
for at September 30, 1996 cannot be determined.
On July 31, 1991, the United States Environmental Protection Agency Region
III issued a complaint pursuant to Section 3008a of the Resource Conservation
and Recovery Act of 1976 alleging violations of various waste management
regulations at the Company's Richmond Works in Richmond, Virginia. The
complaint alleges violations relating to training, solder dross management, the
facility's waste analysis plan and the handling of gold ion exchange resins.
The complaint seeks a total of $4.2 million in penalties. The Company is
contesting both liability and the penalties.
In addition, on July 31, 1991, the United States Environmental Protection
Agency filed a civil complaint in the U.S. District Court for the Southern
District of Illinois against AT&T (with respect to the Company's businesses)
and nine other parties seeking enforcement of its CERCLA Section 106 cleanup
order, issued in November 1990 for the NL Granite City Superfund site in
Granite, Illinois. This complaint seeks past costs, civil penalties of $25,000
per day and treble damages related to certain United States costs. The Company
is contesting liability.
During 1994, AT&T Nassau Metals Corporation ("Nassau"), a wholly owned
subsidiary of the Company, and the New York State Department of Environmental
Conservation (the "NYSDEC") were engaged in negotiations over a study and
cleanup of the Nassau plant located on Richmond Valley Road in Staten Island,
New York. During these negotiations, in June 1994, NYSDEC presented Nassau
with a draft consent order which included not only provisions for site
investigation and remediation but also a provision for payment of a $3.5
million penalty for alleged violations of hazardous waste management
regulations. NYSDEC claims that Nassau improperly engaged in landfilling and
storing of lead dust. No formal proceeding has been commenced by NYSDEC.
Negotiations and discussions regarding the matter are continuing.
SEPARATION AGREEMENTS
For the purposes of governing certain of the relationships between the
Company and AT&T (including NCR) following the Separation and the Distribution,
the Company, AT&T and NCR entered into the Separation and Distribution
Agreement and the Ancillary Agreements to which they are parties (collectively,
the "Separation Agreements"). The Ancillary Agreements include the Interim
Services and Systems Replication Agreement;
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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 Separation Agreements, including certain of the
Agreements summarized below, have been filed as exhibits to this Form 10-K.
Reference is made to such exhibits for the full text of the provisions of those
Agreements, and the agreement summaries below are qualified in their entirety
by reference to the full text of such Agreements. Capitalized terms used in
this section and not otherwise defined in this Form 10-K 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") or other
Separation Agreement.
Separation And Distribution Agreement
Under the Separation and Distribution Agreement, the Company assumed or
agreed to assume, and agreed to perform and fulfill, all the "Lucent
Liabilities" (as defined in such Agreement) in accordance with their respective
terms. Without limitation, the Lucent Liabilities generally include all
liabilities and contingent liabilities relating to Lucent's present and former
business and operations, and contingent liabilities otherwise assigned to
Lucent; contingent liabilities related to AT&T's discontinued computer
operations (other than those of NCR) were assigned to the Company. The
Separation and Distribution Agreement provides for the sharing of contingent
liabilities not allocated to one of the parties in specified proportions, and
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.
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.
Employee Benefits Agreement
AT&T and the Company entered into 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 assumed and agreed to pay, perform, fulfill and discharge, in
accordance with their respective terms, all Liabilities (as defined) to, or
relating to, former employees of AT&T or its affiliates 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 (as
defined) or who otherwise are assigned to the Company for purposes of
allocating employee benefit obligations (including all retirees of Bell Labs).
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Brand License And Related Matters
The Company and AT&T entered into the Brand License Agreement pursuant to
which the Company has 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 April 10, 1996. 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 until April 10, 1997. 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 until October 10, 2001. 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.
Neither the Company nor any of its authorized dealers is permitted to,
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. 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.
Patent Licenses And Related Matters
The Company, AT&T and NCR executed and delivered assignments and other
agreements, including a patent license agreement, related to patents then owned
or controlled by AT&T and its subsidiaries. The patent assignments divided
ownership of patents, patent applications and foreign counterparts among the
Company, AT&T and NCR, with the substantial portion of those then 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 are jointly
owned with either AT&T or NCR. Certain of the patents that the Company jointly
owns with AT&T are subject to a joint ownership agreement under which each of
the Company and AT&T has full ownership rights in the patents. The other
patents that the Company jointly owns with AT&T, and the patents that the
Company jointly owns with NCR, are subject to defensive protection agreements
with AT&T and NCR, respectively, under which the Company holds most ownership
rights in the patents exclusively. Under these defensive protection
agreements, AT&T or NCR, as the case may be, has the ability, subject to
specified restrictions, to assert infringement claims under the patents against
companies that assert patent infringement claims against them, and has 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 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.
Technology Licenses And Related Matters
The Company, AT&T and NCR executed and delivered assignments and other
agreements, including the Technology License Agreement, related to technology
then 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 divide ownership of
17
<PAGE> 21
technology among the Company, AT&T and NCR, with the Company and AT&T owning
technology that was developed by or for, or purchased by, the Company's
business or AT&T's services business, respectively, and NCR owning technology
that was developed by or for, or purchased by, NCR. Technology that is not
covered by any of these categories is 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 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 April 10, 1996, except for specified
portions of each company's technology as to which use by the other companies is
restricted or prohibited.
ITEM 2. PROPERTIES.
At September 30, 1996, the Company operated 58 manufacturing and repair
sites, of which 23 were located in the United States, occupying in excess of
20.0 million square feet, of which approximately 1.1 million square feet were
leased. The remaining 35 sites were located in 19 countries.
At September 30, 1996, the Company operated 109 warehouse sites, of which 82
were located in the United States, occupying in excess of 3.0 million square
feet, substantially all of which were leased. The remaining 27 sites were
located in 16 countries.
At September 30, 1996, the Company operated 882 office sites
(administration, sales, field service), of which 677 were located in the United
States, occupying in excess of 19.0 million square feet, substantially all of
which were leased. The remaining 205 sites were located in 47 countries.
At September 30, 1996, the Company operated additional sites in 15 cities,
of which 14 were located in the United States, with significant research and
development activities, occupying in excess of 9.0 million square feet, of
which approximately 1.4 million square feet were leased.
The Company believes its plants and facilities are suitable and adequate,
and have sufficient productive capacity, to meet its current needs.
ITEM 3. 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. (Also see Item 1. "Business --
Separation Agreements -- Separation and Distribution Agreement" regarding the
assumption by the Company of certain liabilities and contingent liabilities.)
All 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 September 30, 1996. While these matters could
affect operating results of any one quarter when resolved in future periods
and, while there can be no assurance with respect thereto, it is management's
opinion that after final disposition, any monetary liability or financial
impact to the Company beyond that provided in the consolidated balance sheet at
September 30, 1996 would not be material to the Company's annual consolidated
financial statements.
On February 14, 1996, Bell Atlantic Corporation and DSC Communications
Corporation filed a complaint against AT&T and the Company in the United States
District Court for the Eastern District of Texas. The complaint alleges, among
other things, that AT&T or the Company has monopolized or attempted to
monopolize alleged markets for communications transmission equipment, related
software and caller identification services. The complaint seeks injunctive
relief and damages, after trebling, in excess of $3,500 million. AT&T and the
Company do not believe that the complaint has merit and intend to defend the
lawsuit vigorously. This matter has been set for trial in March 1997.
See also the discussion in Item 1. "Business -- Employee Relations" and "--
Environmental Matters" for additional legal proceedings, and environmental
matters and proceedings.
18
<PAGE> 22
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
No matter was submitted to a vote of security holders in the final quarter
of the fiscal year covered by this report.
Executive Officers of the Registrant
(as of December 1, 1996)
<TABLE>
<CAPTION>
Became
Lucent
Executive
Officer
On
Name Age
---- ---
<S> <C> <C> <C>
Henry B. Schacht*. . . . . . 62. . .Chairman of the Board and. . . . . . . . .2-96
Chief Executive Officer
Richard A. McGinn* . . . . . 50. . .President and Chief. . . . . . . . . . . .2-96
Operating Officer
Curtis R. Artis. . . . . . . 48. . .Senior Vice President, . . . . . . . . . .2-96
Human Resources
Gerald J. Butters. . . . . . 53. . .President, North American. . . . . . . . .2-96
Region, Network Systems
Joseph S. Colson, Jr.. . . . 49. . .President, AT&T Customer . . . . . . . . .2-96
Business Unit, Network Systems
Curtis J. Crawford . . . . . 49. . .President, Microelectronics. . . . . . . .2-96
Carleton S. Fiorina. . . . . 42. . .President, Consumer Products . . . . . . .2-96
William T. O'Shea. . . . . . 49. . .President, International,. . . . . . . . .2-96
Network Systems
Donald K. Peterson . . . . . 47. . .Executive Vice President and . . . . . . .2-96
Chief Financial Officer
Richard J. Rawson. . . . . . 44. . .Senior Vice President, . . . . . . . . . .2-96
General Counsel and Secretary
Patricia F. Russo(1) . . . . 44. . .Executive Vice President and . . . . . . .2-96
Chief Staff Officer
Daniel C. Stanzione. . . . . 51. . .President, Network Systems;. . . . . . . .2-96
President, Bell Laboratories
</TABLE>
- ---------------
* Member of the Board of Directors.
(1) Also, continuing as President, Business Communications Systems, for an
interim period.
All of the above executive officers have held high level managerial
positions with the Company and prior thereto with AT&T or its affiliates for
more than the past five years, except in the case of Messrs. Schacht, Butters
and Peterson since February 1, 1996, January 15, 1994 and September 1, 1995,
respectively. Mr. Schacht was Chief Executive Officer (1973-1994) and Chairman
of the Board (1977-1995) of Cummins Engine Company, Inc., a manufacturer of
diesel engines, and a member of the AT&T Board of Directors (1981-1996). Prior
to joining AT&T, Mr. Butters was President of Northern Telecom, Inc., a
telecommunications company, from January 1993 to January 1994 and prior thereto
was Executive Vice President, Sales and Service, from February 1992 to January
1993 and Executive Vice President, Public Networks, from January 1991 to
February 1992, both of Northern Telecom, Inc. Mr. Peterson held various senior
executive positions at Northern Telecom, Inc. which included President of Nortel
19
<PAGE> 23
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).
Officers are not elected for a fixed term of office but hold office until
their successors have been elected.
PART II
Items 5. through 8.
The information required by these items is included in pages 38 through 68
of the Company's annual report to security holders for the fiscal year ended
September 30, 1996. The referenced pages of the Company's annual report to
security holders have been filed as Exhibit 13 to this document. Such
information is incorporated herein by reference, pursuant to General
Instruction G(2). As of November 30, 1996, there were approximately 1,900,000
shareholders of record.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None
PART III
Items 10. through 13.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
Directors and officers to file reports of holdings and transactions in the
Company's Common Shares with the Securities and Exchange Commission ("SEC") and
the New York Stock Exchange. Based on Company records and other information,
the Company believes that all SEC filing requirements applicable to its
Directors and officers with respect to the Company's fiscal year ending
September 30, 1996 were complied with except one filing by Curtland E. Fields,
a former Director of the Company, who inadvertently filed late because he did
not receive timely information about his Section 16 responsibilities when he
was named by AT&T to replace another AT&T nominee who resigned from the Company
Board.
Information regarding executive officers required by Item 401 of Regulation
S-K is furnished in a separate disclosure in Part I of this report because the
Company did not furnish such information in its definitive proxy statement
prepared in accordance with Schedule 14A.
The other information required by Items 10 through 13 is included in the
Company's definitive proxy statement dated December 30, 1996, on page 7 and
page 10 through page 29.Such information is incorporated herein by reference,
pursuant to General Instruction G(3).
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) Documents filed as a part of the report:
(1) Financial Statements:
<TABLE>
<CAPTION>
Pages
<S> <C>
Report of Management ................................
Report of Independent Auditors ...................... *
</TABLE>
- -----------------
* Incorporated herein by reference to the appropriate portions in pages 48
through 67 of the Company's annual report to security holders for the fiscal
year ended September 30, 1996. (See Part II.)
20
<PAGE> 24
<TABLE>
<S> <C>
Statements:
Consolidated Statements of Income ................ *
Consolidated Balance Sheets ...................... *
Consolidated Statements of Changes in
Shareowner's Equity.............................. *
Consolidated Statements of Cash Flows ............ *
Notes to Consolidated Financial Statements ....... *
(2) Financial Statement Schedules:
Report of Independent Auditors ...................... 23
Schedules:
II -- Valuation and Qualifying Accounts ............. 24
</TABLE>
Separate financial statements of subsidiaries not consolidated and 50 percent
or less owned persons are omitted since no such entity constitutes a
"significant subsidiary" pursuant to the provisions of Regulation S-X, Article
3-09.
(3) Exhibits:
Exhibits identified in parentheses below, on file with the SEC,
are incorporated herein by reference as exhibits hereto.
<TABLE>
<CAPTION>
Exhibit
Number
<S> <C>
(3)(i) Articles of Incorporation of the registrant, as amended April 8,
1996 (Exhibit 3(i) to Form 8-K dated July 18, 1996, File No.
001-11639).
(3)(ii) By-Laws of the registrant, as amended July 17, 1996 (Exhibit 3(ii)
to Form 8-K dated July 18, 1996, File No. 001-11639).
(4)(a) Indenture dated as of April 1, 1996 between Lucent Technologies
Inc. and the Bank of New York, as Trustee (Exhibit 4A to
Registration Statement on Form S-3 No. 333-01223).
(4)(b) Other instruments in addition to Exhibit 4(a) which define the
rights of holders of long term debt, of the registrant and all of
its consolidated subsidiaries, are not filed herewith pursuant to
Regulation S-K, Item 601(b)(4)(iii)(A). Pursuant to this
regulation, the registrant hereby agrees to furnish a copy of any
such instrument to the SEC upon request.
(10)(i)1 Separation and Distribution Agreement by and among Lucent
Technologies Inc., AT&T Corp. and NCR Corporation, dated as of
February 1, 1996 and amended and restated as of March 29, 1996
(Exhibit 10.1 to Registration Statement on Form S-1 No. 333-00703).
(10)(i)2 Tax Sharing Agreement by and among Lucent Technologies Inc., AT&T
Corp. and NCR Corporation, dated as of February 1, 1996 and amended
and restated as of March 29, 1996 (Exhibit 10.6 to Registration
Statement on Form S-1 No. 333-00703).
(10)(i)3 Employee Benefits Agreement by and between AT&T and Lucent
Technologies Inc., dated as of February 1, 1996 and amended and
restated as of March 29, 1996 (Exhibit 10.2 to Registration
Statement on Form S-1 No. 333-00703).
(10)(i)4 Lucent Technologies Inc. Operating Agreement between Lucent
Technologies and AT&T Capital Corporation, dated as of April 2,
1996 (Exhibit 10.13 to Registration Statement on Form S-1 No.
333-00703).
(10)(i)5 Rights Agreement between Lucent Technologies Inc. and First Chicago
Trust Company of New York, as Rights Agent, dated as of April 4,
1996 (Exhibit 4.2 to Registration Statement on Form S-1 No.
333-00703).
</TABLE>
21
<PAGE> 25
<TABLE>
<S> <C>
(10)(ii)(B)1 General Purchase Agreement by and between AT&T Corp. and Lucent
Technologies Inc., dated February 1, 1996 and amended and restated
as of March 29, 1996 (Exhibit 10.3 to Registration Statement on
Form S-1 No. 333-00703).
(10)(ii)(B)2 Interim Services and Systems Replication Agreement by and among
AT&T, Lucent Technologies Inc. and NCR, dated as of February 1,
1996 and amended and restated as of March 29, 1996 (Exhibit 10.4 to
Registration Statement on Form S-1 No. 333-00703).
(10)(ii)(B)3 Brand License Agreement by and between Lucent Technologies Inc. and
AT&T, dated as of February 1, 1996 (Exhibit 10.5 to Registration
Statement on Form S-1 No. 333-00703).
(10)(ii)(B)4 Patent License Agreement among AT&T, NCR and Lucent Technologies
Inc., effective as of March 29, 1996 (Exhibit 10.7 to Registration
Statement on Form S-1 No. 333-00703).
(10)(ii)(B)5 Amended and Restated Technology License Agreement among AT&T, NCR
and Lucent Technologies Inc., effective as of March 29, 1996
(Exhibit 10.8 to Registration Statement on Form S-1 No. 333-00703).
(10)(iii)(A)1 Lucent Technologies Inc. Long Term Incentive Program.
(10)(iii)(A)2 Lucent Technologies Inc. Deferred Compensation Plan for
Non-Employee Directors.
(10)(iii)(A)3 Pension Plan for Lucent Non-Employee Directors (Exhibit 10.11 to
Registration Statement on Form S-1 No. 333-00703).
(10)(iii)(A)4 Lucent Technologies Inc. Stock Retainer Plan for Non-Employee
Directors (Exhibit 10.12 to Registration Statement on Form S-1 No.
333-00703).
(10)(iii)(A)5 Lucent Technologies Inc. Excess Benefit and Compensation Plan.
(10)(iii)(A)6 Lucent Technologies Inc. Mid-Career Pension Plan.
(10)(iii)(A)7 Lucent Technologies Inc. Non-Qualified Pension Plan.
(10)(iii)(A)8 Lucent Technologies Inc. Officer Long-Term Disability and Survivor
Protection Plan.
(10)(iii)(A)9 Lucent Technologies Inc. Officer Incentive Award Deferral Plan.
(12) Computation of Ratio of Earnings to Fixed Charges.
(13) Specified portions (pages 38 through 68) of the Company's Annual
Report to security holders for the year ended September 30, 1996.
(21) List of subsidiaries of Lucent Technologies Inc.
(23) Consent of Coopers & Lybrand L.L.P.
(24) Powers of Attorney executed by officers and directors who signed
this report.
(27) Financial Data Schedule.
</TABLE>
22
<PAGE> 26
The Company will furnish, without charge, to a security holder upon request
a copy of the annual report to security holders and the proxy statement,
portions of which are incorporated herein by reference thereto. The Company
will furnish any other exhibit at cost.
(b) Reports on Form 8-K:
Form 8-K dated July 18, 1996 was filed pursuant to Items 5 (Other
Events), 7(c) (Exhibits), and 8 (Change in Fiscal Year).
Form 8-K dated September 6, 1996 was filed pursuant to Item 7(c)
(Exhibits).
REPORT OF INDEPENDENT AUDITORS
To the Shareowners of Lucent Technologies Inc.:
Our report on the consolidated financial statements of Lucent Technologies
Inc. and subsidiaries has been incorporated by reference in this Form 10-K
from page 48 of the 1996 Annual Report to the Shareowners of Lucent
Technologies Inc. In connection with our audits of such financial statements,
we have also audited the related consolidated financial statement schedule
listed in the index on page 21 of this Form 10-K.
In our opinion, the consolidated 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.
COOPERS & LYBRAND L.L.P.
New York, New York
October 24, 1996
23
<PAGE> 27
Lucent Technologies Inc.
Schedule II - Valuation and Qualifying Accounts
In Millions
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
----------------------------------------- ------------ ----------------------- ---------- ---------
-------Additions-------
Balance at Charged to Charged to Balance at
Description Beginning of Costs & Other End
Period Expenses Accounts Deductions(a) of Period
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year 1996
Allowance for doubtful accounts 248 64 - 39 273
Reserves related to business restructuring
and facility consolidation 1,907 (98)(b) - 520(b) 1,289
Deferred tax asset valuation allowance 142 7 102(d) 43 208
Inventory valuation 790 92 9 247 644
Year 1995
Allowance for doubtful accounts 206 94 (3) 49 248
Reserves related to business restructuring
and facility consolidation 133 1,774 - - 1,907
Deferred tax asset valuation allowance 96 46 - - 142
Inventory valuation 591 336(c) - 137 790
Year 1994
Allowance for doubtful accounts 143 82 17 36 206
Reserves related to business restructuring
and facility consolidation 205 - 26 98 133
Deferred tax asset valuation allowance 123 - - 27 96
Inventory valuation 521 174 - 104 591
</TABLE>
(a) Amounts written off as uncollectible, payments or reversals.
(b) See Note 4 of the Notes to Consolidated Financial Statements for background
information.
(c) Includes $194 related to business restructuring in the fourth quarter of
1995.
(d) Relates to net asset additions and net liability reductions from AT&T. See
Note 1 of the Notes to Consolidated Financial Statements for background
information.
24
<PAGE> 28
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
By James S. Lusk
Vice President and Controller
December 30, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
<TABLE>
<S> <C> <C>
Principal Executive Officer: #
#
Henry B. Schacht Chairman #
of the Board and #
Chief Executive #
Officer #
#
Principal Financial Officer: #
#
Donald K. Peterson Executive #
Vice President and #
Chief Financial #
Officer #
#
Principal Accounting Officer: #
#
James S. Lusk Vice President ## By James S. Lusk
and Controller # (attorney-in-fact)*
#
Directors: #
# December 30, 1996
#
Paul A. Allaire #
Carla A. Hills #
Drew Lewis #
Richard A. McGinn #
Paul H. O'Neill #
Donald S. Perkins #
Henry B. Schacht #
Franklin A. Thomas #
John A. Young #
#
#
# * As Principal Accounting
# Officer and by power of
# attorney
#
#
</TABLE>
25
<PAGE> 29
Exhibit Index
Exhibits identified in parentheses below, on file with the SEC,
are incorporated herein by reference as exhibits hereto.
<TABLE>
<CAPTION>
Exhibit
Number
<S> <C>
(3)(i) Articles of Incorporation of the registrant, as amended April 8,
1996 (Exhibit 3(i) to Form 8-K dated July 18, 1996, File No.
001-11639).
(3)(ii) By-Laws of the registrant, as amended July 17, 1996 (Exhibit 3(ii)
to Form 8-K dated July 18, 1996, File No. 001-11639).
(4)(a) Indenture dated as of April 1, 1996 between Lucent Technologies
Inc. and the Bank of New York, as Trustee (Exhibit 4A to
Registration Statement on Form S-3 No. 333-01223).
(4)(b) Other instruments in addition to Exhibit 4(a) which define the
rights of holders of long term debt, of the registrant and all of
its consolidated subsidiaries, are not filed herewith pursuant to
Regulation S-K, Item 601(b)(4)(iii)(A). Pursuant to this
regulation, the registrant hereby agrees to furnish a copy of any
such instrument to the SEC upon request.
(10)(i)1 Separation and Distribution Agreement by and among Lucent
Technologies Inc., AT&T Corp. and NCR Corporation, dated as of
February 1, 1996 and amended and restated as of March 29, 1996
(Exhibit 10.1 to Registration Statement on Form S-1 No. 333-00703).
(10)(i)2 Tax Sharing Agreement by and among Lucent Technologies Inc., AT&T
Corp. and NCR Corporation, dated as of February 1, 1996 and amended
and restated as of March 29, 1996 (Exhibit 10.6 to Registration
Statement on Form S-1 No. 333-00703).
(10)(i)3 Employee Benefits Agreement by and between AT&T and Lucent
Technologies Inc., dated as of February 1, 1996 and amended and
restated as of March 29, 1996 (Exhibit 10.2 to Registration
Statement on Form S-1 No. 333-00703).
(10)(i)4 Lucent Technologies Inc. Operating Agreement between Lucent
Technologies and AT&T Capital Corporation, dated as of April 2,
1996 (Exhibit 10.13 to Registration Statement on Form S-1 No.
333-00703).
(10)(i)5 Rights Agreement between Lucent Technologies Inc. and First Chicago
Trust Company of New York, as Rights Agent, dated as of April 4,
1996 (Exhibit 4.2 to Registration Statement on Form S-1 No.
333-00703).
</TABLE>
<PAGE> 30
<TABLE>
<S> <C>
(10)(ii)(B)1 General Purchase Agreement by and between AT&T Corp. and Lucent
Technologies Inc., dated February 1, 1996 and amended and restated
as of March 29, 1996 (Exhibit 10.3 to Registration Statement on
Form S-1 No. 333-00703).
(10)(ii)(B)2 Interim Services and Systems Replication Agreement by and among
AT&T, Lucent Technologies Inc. and NCR, dated as of February 1,
1996 and amended and restated as of March 29, 1996 (Exhibit 10.4 to
Registration Statement on Form S-1 No. 333-00703).
(10)(ii)(B)3 Brand License Agreement by and between Lucent Technologies Inc. and
AT&T, dated as of February 1, 1996 (Exhibit 10.5 to Registration
Statement on Form S-1 No. 333-00703).
(10)(ii)(B)4 Patent License Agreement among AT&T, NCR and Lucent Technologies
Inc., effective as of March 29, 1996 (Exhibit 10.7 to Registration
Statement on Form S-1 No. 333-00703).
(10)(ii)(B)5 Amended and Restated Technology License Agreement among AT&T, NCR
and Lucent Technologies Inc., effective as of March 29, 1996
(Exhibit 10.8 to Registration Statement on Form S-1 No. 333-00703).
(10)(iii)(A)1 Lucent Technologies Inc. Long Term Incentive Program.
(10)(iii)(A)2 Lucent Technologies Inc. Deferred Compensation Plan for
Non-Employee Directors.
(10)(iii)(A)3 Pension Plan for Lucent Non-Employee Directors (Exhibit 10.11 to
Registration Statement on Form S-1 No. 333-00703).
(10)(iii)(A)4 Lucent Technologies Inc. Stock Retainer Plan for Non-Employee
Directors (Exhibit 10.12 to Registration Statement on Form S-1 No.
333-00703).
(10)(iii)(A)5 Lucent Technologies Inc. Excess Benefit and Compensation Plan.
(10)(iii)(A)6 Lucent Technologies Inc. Mid-Career Pension Plan.
(10)(iii)(A)7 Lucent Technologies Inc. Non-Qualified Pension Plan.
(10)(iii)(A)8 Lucent Technologies Inc. Officer Long-Term Disability and Survivor
Protection Plan.
(10)(iii)(A)9 Lucent Technologies Inc. Officer Incentive Award Deferral Plan.
(12) Computation of Ratio of Earnings to Fixed Charges.
(13) Specified portions (pages 38 through 68) of the Company's Annual
Report to security holders for the year ended September 30, 1996.
(21) List of subsidiaries of Lucent Technologies Inc.
(23) Consent of Coopers & Lybrand L.L.P.
(24) Powers of Attorney executed by officers and directors who signed
this report.
(27) Financial Data Schedule.
</TABLE>
<PAGE> 1
EXHIBIT (10)(iii)(A)1
LUCENT TECHNOLOGIES INC. 1996 LONG TERM INCENTIVE PROGRAM
Adopted April 3, 1996,
As Amended September 18, 1996
SECTION 1. PURPOSE. The purposes of the Lucent Technologies Inc. 1996
Long Term Incentive Program (the "Plan") are to encourage selected key employees
of Lucent Technologies Inc. (the "Company") and its Affiliates to acquire a
proprietary and vested interest in the growth and performance of the Company, to
generate an increased incentive to contribute to the Company's future success
and prosperity, thus enhancing the value of the Company for the benefit of share
owners, and to enhance the ability of the Company and its Affiliates to attract
and retain individuals of exceptional managerial talent upon whom, in large
measure, the sustained progress, growth and profitability of the Company
depends.
SECTION 2. DEFINITIONS. As used in the Plan, the following terms shall
have the meanings set forth below:
(a) "Affiliate" shall mean (i) any Person that directly, or through one
or more intermediaries, controls, or is controlled by, or is under common
control with, the Company or (ii) any entity in which the Company has a
significant equity interest, as determined by the Committee.
(b) "Award" shall mean any Option, Stock Appreciation Right, Restricted
Stock Award, Performance Share, Performance Unit, Dividend Equivalent, Other
Stock Unit Award, or any other right, interest, or option relating to Shares or
other securities of the Company granted pursuant to the provisions of the Plan.
(c)) "Award Agreement" shall mean any written agreement, contract, or
other instrument or document evidencing any Award granted by the Committee
hereunder and signed by both the Company and the Participant.
(d) "Board" shall mean the Board of Directors of the Company.
(e) "Change in Control" shall mean the happening of any of the
following events:
(i) An acquisition by any individual, entity or group (within the
meaning of Section 13 (d) (3) or 14 (d) (2) of the Exchange Act) (an "Entity")
of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 20% or more of either (A) the then outstanding shares of common
stock of the Company (the "Outstanding Company Common Stock") or (B) the
combined voting power of the then outstanding voting securities of the Company
entitled to vote generally in the election of directors (the "Outstanding
Company Voting Securities"); excluding, however, the following: (1) any
acquisition directly from the Company, other than an acquisition by virtue of
the exercise of a conversion privilege unless the security being so converted
was itself acquired directly from the Company, (2) any acquisition
<PAGE> 2
by the Company, (3) any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by the Company or any corporation controlled by
the Company, (4) any acquisition by any corporation pursuant to a transaction
which complies with clauses (A), (B) and (C) of subsection (iii) of this Section
2(e), or (5) any acquisition by AT&T Corp. or any of its Affiliates prior to the
Effective Date; or
(ii) A change in the composition of the Board such that the
individuals who, as of the Effective Date, constitute the Board (such Board
shall be hereinafter referred to as the "Incumbent Board") cease for any reason
to constitute at least a majority of the Board; provided, however, that for
purposes of this definition, that any individual who becomes a member of the
Board subsequent to the Effective Date, whose election, or nomination for
election by the Company's stockholders, was approved by a vote of at least a
majority of those individuals who are members of the Board and who were also
members of the Incumbent Board (or deemed to be such pursuant to this proviso)
shall be considered as though such individual were a member of the Incumbent
Board; and provided, further however, that any such individual whose initial
assumption of office occurs as a result of or in connection with either an
actual or threatened election contest (as such terms are used in Rule 14a-11 of
Regulation 14A promulgated under the Exchange Act) or other actual or threatened
solicitation of proxies or consents by or on behalf of an Entity other than the
Board shall not be so considered as a member of the Incumbent Board; or
(iii) The approval by the stockholders of the Company of a merger,
reorganization or consolidation or sale or other disposition of all or
substantially all of the assets of the Company (each, a "Corporate Transaction")
or, if consummation of such Corporate Transaction is subject, at the time of
such approval by stockholders, to the consent of any government or governmental
agency, the obtaining of such consent (either explicitly or implicitly by
consummation); excluding however, such a Corporate Transaction pursuant to which
(A) all or substantially all of the individuals and entities who are the
beneficial owners, respectively, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities immediately prior to such Corporate
Transaction will beneficially own, directly or indirectly, more than 60% of,
respectively, the outstanding shares of common stock, and the combined voting
power of the then outstanding voting securities entitled to vote generally in
the election of directors, as the case may be, of the corporation resulting from
such Corporate Transaction (including, without limitation, a corporation or
other Person which as a result of such transaction owns the Company or all or
substantially all of the Company's assets either directly or through one or more
subsidiaries (a "Parent Company")) in substantially the same proportions as
their ownership, immediately prior to such Corporate Transaction, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities, as
the case may be, (B) no Entity (other than the Company, any employee benefit
plan (or related trust) of the Company, such corporation resulting from such
Corporate Transaction or, if reference was made to equity ownership of any
Parent Company for purposes of determining whether clause (A) above is satisfied
in connection with the
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applicable Corporate Transaction, such Parent Company) will beneficially own,
directly or indirectly, 20% or more of, respectively, the outstanding shares of
common stock of the corporation resulting from such Corporate Transaction or the
combined voting power of the outstanding voting securities of such corporation
entitled to vote generally in the election of directors unless such ownership
resulted solely from ownership of securities of the Company prior to the
Corporate Transaction, and (C) individuals who were members of the Incumbent
Board will immediately after the consummation of the Corporate Transaction
constitute at least a majority of the members of the board of directors of the
corporation resulting from such Corporate Transaction (or, if reference was made
to equity ownership of any Parent Company for purposes of determining whether
clause (A) above is satisfied in connection with the applicable Corporate
Transaction, of the Parent Company); or
(iv) The approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
(f) "Change in Control Price" means the higher of (A) the highest
reported sales price, regular way, of a Share in any transaction reported on the
New York Stock Exchange Composite Tape or other national exchange on which
Shares are listed or on NASDAQ during the 60-day period prior to and including
the date of a Change in Control or (B) if the Change in Control is the result of
a tender or exchange offer or a Corporate Transaction, the highest price per
Share paid in such tender or exchange offer or Corporate Transaction; provided
however, that in the case of Incentive Stock Options and Stock Appreciation
Rights relating to Incentive Stock Options, the Change in Control Price shall be
in all cases the Fair Market Value of a Share on the date such Incentive Stock
Option or Stock Appreciation Right is exercised or deemed exercised. To the
extent that the consideration paid in any such transaction described above
consists all or in part of securities or other noncash consideration, the value
of such securities or other noncash consideration shall be determined in the
sole discretion of the Board.
(g) "Closing Date" shall have the meaning given in the Separation and
Distribution Agreement among AT&T Corp., the Company and NCR Corporation dated
as of February 1, 1996, as amended, modified or otherwise supplemented.
(h) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time, and any successor thereto.
(i) "Committee" shall mean the Compensation Subcommittee of the
Executive, Corporate Governance and Compensation Committee of the Board,
composed of no fewer than three directors, each of whom is a Non-Employee
Director and an "outside director" within the meaning of Section 162(m) of the
Code.
(j) "Company" shall mean Lucent Technologies Inc., a Delaware
corporation.
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(k) "Covered Employee" shall mean a "covered employee" within the
meaning of Section 162(m) (3) of the Code.
(l) "Dividend Equivalent" shall mean any right granted pursuant to
Section 14(h) hereof.
(m) "Effective Date" shall mean "Immediately after the Distribution
Date," as that term is defined in the Employee Benefits Agreement between AT&T
Corp. and the Company dated as of February 1, 1996, as amended, modified or
otherwise supplemented.
(n) "Employee" shall mean any employee of the Company or of any
Affiliate. Unless otherwise determined by the Committee in its sole discretion,
for purposes of the Plan, an Employee shall be considered to have terminated
employment and to have ceased to be an Employee if his or her employer ceases to
be an Affiliate, even if he or she continues to be employed by such employer.
(o) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time, and any successor thereto.
(p) "Fair Market Value" shall mean, with respect to any property, the
fair market value of such property determined by such methods or procedures as
shall be established from time to time by the Committee.
(q) "Incentive Stock Option" shall mean an Option granted under Section
6 hereof that is intended to meet the requirements of Section 422 of the Code or
any successor provision thereto.
(r) "Non-Employee Director" means a member of the Board who qualifies
as a Non-Employee Director as defined in Rule 16b-3(b)(3) promulgated by the
Securities and Exchange Commission under the Exchange Act or any successor
definition adopted by the Securities and Exchange Commission.
(s) "Nonstatutory Stock Option" shall mean an Option granted under
Section 6 hereof that is not intended to be an Incentive Stock Option.
(t) "Option" shall mean any right granted to a Participant under the
Plan allowing such Participant to purchase Shares at such price or prices and
during such period or periods as the Committee shall determine.
(u) "Other Stock Unit Award" shall mean any right granted to a
Participant by the Committee pursuant to Section 10 hereof.
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(v) "Participant" shall mean an Employee who is selected by the
Committee to receive an Award under the Plan.
(w) "Performance Award" shall mean any Award of Performance Shares or
Performance Units pursuant to Section 9 hereof.
(x) "Performance Period" shall mean that period established by the
Committee at the time any Performance Award is granted or at any time thereafter
during which any performance goals specified by the Committee with respect to
such Award are to be measured.
(y) "Performance Share" shall mean any grant pursuant to Section 9
hereof of a unit valued by reference to a designated number of Shares, which
value may be paid to the Participant by delivery of such property as the
Committee shall determine, including, without limitation, cash, Shares, or any
combination thereof, upon achievement of such performance goals during the
Performance Period as the Committee shall establish at the time of such grant or
thereafter.
(z) "Performance Unit" shall mean any grant pursuant to Section 9
hereof of a unit valued by reference to a designated amount of property other
than Shares, which value may be paid to the Participant by delivery of such
property as the Committee shall determine, including, without limitation, cash,
Shares, or any combination thereof, upon achievement of such performance goals
during the Performance Period as the Committee shall establish at the time of
such grant or thereafter.
(Aa) "Person" shall mean any individual, corporation, partnership,
association, joint-stock company, trust, unincorporated organization, limited
liability company, other entity or government or political subdivision thereof.
(Bb) "Restricted Stock" shall mean any Share issued with the
restriction that the holder may not sell, transfer, pledge, or assign such Share
and with such other restrictions as the Committee, in its sole discretion, may
impose (including, without limitation, any restriction on the right to vote such
Share, and the right to receive any cash dividends), which restrictions may
lapse separately or in combination at such time or times, in installments or
otherwise, as the Committee may deem appropriate.
(Cc) "Restricted Stock Award" shall mean an award of Restricted Stock
under Section 8 hereof.
(Dd) "Senior Manager" shall mean any manager of the Company or any
Affiliate holding a position above E band or any future salary grade that is the
equivalent thereof.
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(Ee) "Shares" shall mean the shares of common stock, $.01 par value, of
the Company and such other securities of the Company as the Committee may from
time to time determine.
(Ff) "Stock Appreciation Right" shall mean any right granted to a
Participant pursuant to Section 7 hereof to receive, upon exercise by the
Participant, the excess of (i) the Fair Market Value of one Share on the date of
exercise or, if the Committee shall so determine in the case of any such right
other than one related to any Incentive Stock Option, at any time during a
specified period before the date of exercise over (ii) the grant price of the
right on the date of grant, or if granted in connection with an outstanding
Option on the date of grant of the related Option, as specified by the Committee
in its sole discretion, which, other than in the case of Substitute Awards,
shall not be less than the Fair Market Value of one Share on such date of grant
of the right or the related Option, as the case may be. Any payment by the
Company in respect of such right may be made in cash, Shares, other property, or
any combination thereof, as the Committee, in its sole discretion, shall
determine.
(Gg) "Substitute Award" is defined in Section 4(a).
SECTION 3. ADMINISTRATION. The Plan shall be administered by the
Committee. The Committee shall have full power and authority, subject to such
orders or resolutions not inconsistent with the provisions of the Plan as may
from time to time be adopted by the Board, to: (i) select the Employees of the
Company and its Affiliates to whom Awards may from time to time be granted
hereunder; (ii) determine the type or types of Award to be granted to each
Participant hereunder; (iii) determine the number of Shares to be covered by
each Award granted hereunder; (iv) determine the terms and conditions, not
inconsistent with the provisions of the Plan, of any Award granted hereunder;
(v) determine whether, to what extent and under what circumstances Awards may be
settled in cash, Shares or other property or canceled or suspended; (vi)
determine whether, to what extent and under what circumstances cash, Shares and
other property and other amounts payable with respect to an Award under this
Plan shall be deferred either automatically or at the election of the
Participant; (vii) interpret and administer the Plan and any instrument or
agreement entered into under the Plan; (viii) establish such rules and
regulations and appoint such agents as it shall deem appropriate for the proper
administration of the Plan; and (ix) make any other determination and take any
other action that the Committee deems necessary or desirable for administration
of the Plan. Decisions of the Committee shall be final, conclusive and binding
upon all persons, including the Company, any Participant, any stockholder, and
any employee of the Company or of any Affiliate. A majority of the members of
the Committee may determine its actions and fix the time and place of its
meetings.
SECTION 4. SHARES SUBJECT TO THE PLAN.
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(a) Subject to adjustment as provided in Section 4(b), the total number
of Shares available for grant under the Plan in the 1996 calendar year shall be
one and two-tenths percent (1.2%) of the total outstanding Shares immediately
after the Closing Date, and in each calendar year thereafter shall be one and
two-tenths percent (1.2%) of the total outstanding Shares as of the first day of
such year for which the Plan is in effect; provided that such number shall be
increased in any year by the number of Shares available for grant hereunder in
previous years but not covered by Awards granted hereunder in such years; and
provided, further, that if any Shares subject to an Award are forfeited or if
any Award based on Shares otherwise terminated without issuance of such Shares
or other consideration in lieu of such Shares, the Shares subject to such Award
shall to the extent of such forfeiture or termination, again be available for
awards under the Plan if no Participant shall have received any benefits of
ownership in respect thereof; and provided further that no more than fifty
million (50,000,000) Shares shall be cumulatively available for the grant of
Incentive Stock Options under the Plan; and provided further that no Participant
may be granted Awards in any one calendar year with respect to more than one
million (1,000,000) Shares. In addition, Awards granted or Shares issued by the
Company (i) pursuant to the Employee Benefits Agreement, by and between the
Company and AT&T Corp., dated as of February 1, 1996, as amended, supplemented
or otherwise modified from time to time or (ii) through the assumption of, or in
substitution or exchange for, employee benefit awards or the right or obligation
to make future employee benefit awards, in connection with the acquisition of
another corporation or business entity (clauses (i) and (ii) collectively, the
"Substitute Awards") shall not reduce the shares available for grants under the
Plan or to a Participant in any calendar year. Any Shares issued hereunder may
consist, in whole or in part, of authorized and unissued shares or treasury
shares.
(b) In the event of any merger, reorganization, consolidation,
recapitalization, stock dividend, stock split, reverse stock split, spin off or
similar transaction or other change in corporate structure affecting the Shares,
such adjustments and other substitutions shall be made to the Plan and to Awards
as the Committee in its sole discretion deems equitable or appropriate,
including without limitation such adjustments in the aggregate number, class and
kind of Shares which may be delivered under the Plan, in the aggregate or to any
one Participant, in the number, class, kind and option or exercise price of
Shares subject to outstanding Options, Stock Appreciation Rights or other Awards
granted under the Plan, and in the number, class and kind of Shares subject to,
Awards granted under the Plan (including, if the Committee deems appropriate,
the substitution of similar options to purchase the shares of, or other awards
denominated in the shares of, another company) as the Committee may determine to
be appropriate in its sole discretion, provided that the number of Shares or
other securities subject to any Award shall always be a whole number.
SECTION 5. ELIGIBILITY. Any Employee (excluding any member of the
Committee) shall be eligible to be selected as a Participant.
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SECTION 6. STOCK OPTIONS. Options may be granted hereunder to
Participants either alone or in addition to other Awards granted under the Plan.
Any Option granted under the Plan shall be evidenced by an Award Agreement in
such form as the Committee may from time to time approve. Any such Option shall
be subject to the following terms and conditions and to such additional terms
and conditions, not inconsistent with the provisions of the Plan, as the
Committee shall deem desirable:
(a) OPTION PRICE. The purchase price per Share purchasable under an
Option shall be determined by the Committee in its sole discretion; provided
that except in the case of an Option pursuant to a Substitute Award, such
purchase price shall not be less than the Fair Market Value of the Share on the
date of the grant of the Option.
(b) OPTION PERIOD. The term of each Option shall be fixed by the
Committee in its sole discretion; provided that no Incentive Stock Option shall
be exercisable after the expiration of ten years from the date the Option is
granted.
(c) EXERCISABILITY. Options shall be exercisable at such time or times
as determined by the Committee at or subsequent to grant. Unless otherwise
determined by the Committee at or subsequent to grant, no Incentive Stock Option
shall be exercisable during the year ending on the day before the first
anniversary date of the granting of the Incentive Stock Option.
(d) METHOD OF EXERCISE. Subject to the other provisions of the Plan 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 or other consideration (including, where
permitted by law and the Committee, Awards) having a Fair Market Value on the
exercise date equal to the total option price, or by any combination of cash,
Shares and other consideration as the Committee may specify in the applicable
Award Agreement.
(e) INCENTIVE STOCK OPTIONS. In accordance with rules and procedures
established by the Committee, the aggregate Fair Market Value (determined as of
the time of grant) of the Shares with respect to which Incentive Stock Options
held by any Participant which are exercisable for the first time by such
Participant during any calendar year under the Plan (and under any other benefit
plans of the Company or of any parent or subsidiary corporation of the Company)
shall 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. The terms of any Incentive Stock Option
granted hereunder shall comply in all respects with the provisions of Section
422 of the Code, or any successor provision, and any regulations promulgated
thereunder.
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(f) FORM OF SETTLEMENT. In its sole discretion, the Committee may
provide, at the time of grant, that the shares to be issued upon an Option's
exercise shall be in the form of Restricted Stock or other similar securities,
or may reserve the right so to provide after the time of grant.
SECTION 7. STOCK APPRECIATION RIGHTS. Stock Appreciation Rights may be
granted hereunder to Participants either alone or in addition to other Awards
granted under the Plan and may, but need not, relate to a specific Option
granted under Section 6. The provisions of Stock Appreciation Rights need not be
the same with respect to each recipient. Any Stock Appreciation Right related to
a Nonstatutory Stock Option may be granted at the same time such Option is
granted or at any time thereafter before exercise or expiration of such Option.
Any Stock Appreciation Right related to an Incentive Stock Option must be
granted at the same time such Option is granted. In the case of any Stock
Appreciation Right related to any Option, the Stock Appreciation Right or
applicable portion thereof shall terminate and no longer be exercisable upon the
termination or exercise of the related Option, except that a Stock Appreciation
Right granted with respect to less than the full number of Shares covered by a
related Option shall not be reduced until the exercise or termination of the
related Option exceeds the number of shares not covered by the Stock
Appreciation Right. Any Option related to any Stock Appreciation Right shall no
longer be exercisable to the extent the related Stock Appreciation Right has
been exercised. The Committee may impose such conditions or restrictions on the
exercise of any Stock Appreciation Right as it shall deem appropriate.
SECTION 8. RESTRICTED STOCK.
(a) ISSUANCE. Restricted Stock Awards may be issued hereunder 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 Plan. The provisions of Restricted Stock Awards need not be
the same with respect to each recipient.
(b) REGISTRATION. Any Restricted Stock issued hereunder may be
evidenced in such manner as the Committee in its sole discretion shall deem
appropriate, including, without limitation, book-entry registration or issuance
of a stock certificate or certificates. In the event any stock certificate is
issued in respect of shares of Restricted Stock awarded under the Plan, such
certificate shall be registered in the name of the Participant, and shall bear
an appropriate legend referring to the terms, conditions, and restrictions
applicable to such Award.
(c) FORFEITURE. Except as otherwise determined by the Committee at the
time of grant, upon termination of employment for any reason during the
restriction period, all shares of Restricted Stock still subject to restriction
shall be forfeited by the Participant and reacquired by the Company; provided
that except as provided in
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Section 12, in the event of a Participant's retirement, permanent disability,
other termination of employment or death, or in cases of special circumstances,
the Committee may, in its sole discretion, when it finds that a waiver would be
in the best interest of the Company, waive in whole or in part any or all
remaining restrictions with respect to such Participant's shares of Restricted
Stock. Unrestricted Shares, evidenced in such manner as the Committee shall deem
appropriate, shall be issued to the grantee promptly after the period of
forfeiture, as determined or modified by the Committee, shall expire.
SECTION 9. PERFORMANCE AWARDS. Performance Awards may be issued
hereunder 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 Plan. The performance criteria to be achieved
during any Performance Period and the length of the Performance Period shall be
determined by the Committee upon the grant of each Performance Award. Except as
provided in Section 11, Performance Awards will be distributed only after the
end of the relevant Performance Period. Performance Awards may be paid in cash,
Shares, other property or any combination thereof, in the sole discretion of the
Committee at the time of payment. The performance levels to be achieved for each
Performance Period and the amount of the Award to be distributed shall be
conclusively determined by the Committee. Performance Awards may be paid in a
lump sum or in installments following the close of the Performance Period. The
maximum value of the property, including cash, that may be paid or distributed
to any Participant pursuant to a grant of Performance Units made in any one
calendar year shall be $10,000,000.
SECTION 10. OTHER STOCK UNIT AWARDS.
(a) STOCK AND ADMINISTRATION. Other Awards of Shares and other Awards
that are valued in whole or in part by reference to, or are otherwise based on,
Shares or other property ("Other Stock Unit Awards") may be granted hereunder to
Participants, either alone or in addition to other Awards granted under the
Plan. Other Stock Unit Awards may be paid in Shares, other securities of the
Company, cash or any other form of property as the Committee shall determine.
Subject to the provisions of the Plan, the Committee shall 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 shall be made, the number of
shares of 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.
(b) TERMS AND CONDITIONS. Shares (including securities convertible into
Shares) granted under this Section 10 may be issued for no cash consideration or
for such minimum consideration as may be required by applicable law; Shares
(including securities convertible into Shares) purchased pursuant to a purchase
right awarded under this Section 10 shall be purchased for such consideration as
the Committee shall
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in its sole discretion determine, which shall not be less than the Fair Market
Value of such Shares or other securities as of the date such purchase right is
awarded.
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SECTION 11. CHANGE IN CONTROL PROVISIONS.
(a) IMPACT OF EVENT. Notwithstanding any other provision of the Plan to
the contrary, unless the Committee shall determine otherwise at the time of
grant with respect to a particular Award, in the event of a Change in Control:
(i) Any Options and Stock Appreciation Rights outstanding as of the
date such Change in Control is determined to have occurred, and which are not
then exercisable and vested, shall become fully exercisable and vested to the
full extent of the original grant.
(ii) The restrictions and deferral limitations applicable to any
Restricted Stock shall lapse, and such Restricted Stock shall become free of all
restrictions and limitations and become fully vested and transferable to the
full extent of the original grant.
(iii) All Performance Awards shall be considered to be earned and
payable in full, and any deferral or other restriction shall lapse and such
Performance Awards shall be immediately settled or distributed.
(iv) The restrictions and deferral limitations and other conditions
applicable to any Other Stock Awards or any other Awards shall lapse, and such
Other Stock Awards or such other Awards shall become free of all restrictions,
limitations or conditions and become fully vested and transferable to the full
extent of the original grant.
(b) CHANGE IN CONTROL CASH-OUT. Notwithstanding any other provision of
the Plan, during the 60-day period from and after a Change in Control (the
"Exercise Period"), if the Committee shall determine at, or at any time after,
the time of grant, a Participant holding an Option shall have the right, whether
or not the Option is fully exercisable and in lieu of the payment of the
purchase price for the Shares being purchased under the Option and by giving
notice to the Company, to elect (within the Exercise Period) to surrender all or
part of the Option to the Company and to receive cash, within 30 days of such
notice, in an amount equal to the amount by which the Change in Control Price
per Share on the date of such election shall exceed the purchase price per Share
under the Option (the "Spread") multiplied by the number of Shares granted under
the Option as to which the right granted under this Section 11(b) shall have
been exercised.
(c) Notwithstanding any other provision of this Plan, if any right
granted pursuant to this Plan would make a Change in Control transaction
ineligible for pooling-of-interests accounting under APB No. 16 that (after
giving effect to any other actions taken to cause such transaction to be
eligible for such pooling-of-interests accounting
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treatment) but for the nature of such grant would otherwise be eligible for such
accounting treatment, the Committee shall have the ability to substitute for the
cash payable pursuant to such right Shares with a Fair Market Value equal to the
cash that would otherwise be payable pursuant thereto.
SECTION 12. CODE SECTION 162(M) PROVISIONS.
(a) Notwithstanding any other provision of this Plan, if the Committee
determines at the time Restricted Stock, a Performance Award or an Other Stock
Unit Award is granted to a Participant that such Participant is, or is likely to
be at the time he or she recognizes income for federal income tax purposes in
connection with such Award, a Covered Employee, then the Committee may provide
that this Section 12 is applicable to such Award.
(b) If an Award is subject to this Section 12, then the lapsing of
restrictions thereon and the distribution of cash, Shares or other property
pursuant thereto, as applicable, shall be subject to the achievement of one or
more objective performance goals established by the Committee, which shall be
based on the attainment of one or any combination of the following: specified
levels of earnings per share from continuing operations, operating income,
revenues, gross margin, return on operating assets, return on equity, economic
value added, stock price appreciation, total stockholder return (measured in
terms of stock price appreciation and dividend growth), or cost control, of the
Company or the Affiliate or division of the Company for or within which the
Participant is primarily employed. Such Performance Goals also may be based upon
the attaining of specified levels of Company performance under one or more of
the measures described above relative to the performance of other corporations.
Such performance goals shall be set by the Committee within the time period
prescribed by, and shall otherwise comply with the requirements of, Section
162(m) of the Code and the regulations thereunder.
(c) Notwithstanding any provision of this Plan other than Section 11,
with respect to any Award that is subject to this Section 12, the Committee may
not adjust upwards the amount payable pursuant to such Award, nor may it waive
the achievement of the applicable performance goals except in the case of the
death or disability of the Participant.
(d) The Committee shall have the power to impose such other
restrictions on Awards subject to this Section 12 as it may deem necessary or
appropriate to ensure that such Awards satisfy all requirements for
"performance-based compensation" within the meaning of Section 162(m) (4) (B) of
the Code or any successor thereto.
SECTION 13. AMENDMENTS AND TERMINATION. The Board may amend, alter or
discontinue the Plan, but no amendment, alteration, or discontinuation shall be
made that would impair the rights of an optionee or Participant under an Award
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theretofore granted, without the optionee's or Participant's consent, or that
without the approval of the Stockholders would:
(a) except as is provided in Section 4(b) of the Plan, increase the
total number of shares reserved for the purpose of the Plan; or
(b) change the employees or class of employees eligible to participate
in the Plan.
The Committee may amend the terms of any Award theretofore granted,
prospectively or retroactively, but no such amendment shall impair the rights of
any Participant without his consent. The Committee may also substitute new
Awards for previously granted Awards, including without limitation previously
granted Options having higher option prices.
SECTION 14. GENERAL PROVISIONS.
(a) Unless the Committee determines otherwise at the time the Award is
granted, no Award, and no Shares subject to Awards described in Section 10 which
have not been issued or as to which any applicable restriction, performance or
deferral period has not lapsed, may be sold, assigned, transferred, pledged or
otherwise encumbered, except by will or by the laws of descent and distribution;
provided that, if so determined by the Committee, a Participant may, in the
manner established by the Committee, designate a beneficiary to exercise the
rights of the Participant with respect to any Award upon the death of the
Participant. Each Award shall be exercisable, during the Participant's lifetime,
only by the Participant or, if permissible under applicable law, by the
Participant's guardian or legal representative.
(b) The term of each Award shall be for such period of months or years
from the date of its grant as may be determined by the Committee; provided that
in no event shall the term of any Incentive Stock Option or any Stock
Appreciation Right related to any Incentive Stock Option exceed a period of ten
(10) years from the date of its grant.
(c) No Employee or Participant shall have any claim to be granted any
Award under the Plan and there is no obligation for uniformity of treatment of
Employees or Participants under the Plan.
(d) The prospective recipient of any Award under the Plan shall not,
with respect to such Award, be deemed to have become a Participant, or to have
any rights with respect to such Award, until and unless such recipient shall
have executed an agreement or other instrument evidencing the Award and
delivered a fully executed copy thereof to the Company, and otherwise complied
with the then applicable terms and conditions.
Page 14
<PAGE> 15
(e) Except as provided in Section 12, the Committee shall be authorized
to make adjustments in Performance Award criteria or in the terms and conditions
of other Awards in recognition of unusual or nonrecurring events affecting the
Company or its financial statements or changes in applicable laws, regulations
or accounting principles. The Committee may correct any defect, supply any
omission or reconcile any inconsistency in the Plan or any Award in the manner
and to the extent it shall deem desirable to carry it into effect. In the event
the Company shall assume outstanding employee benefit awards or the right or
obligation to make future such awards in connection with the acquisition of
another corporation or business entity, the Committee may, in its discretion,
make such adjustments in the terms of Awards under the Plan as it shall deem
appropriate.
(f) The Committee shall have full power and authority to determine
whether, to what extent and under what circumstances any Award shall be canceled
or suspended. In particular, but without limitation, all outstanding Awards to
any Participant shall be canceled if the Participant, without the consent of the
Committee, while employed by the Company or after termination of such
employment, becomes associated with, employed by, renders services to, or owns
any interest in (other than any nonsubstantial interest, as determined by the
Committee), any business that is in competition with the Company or with any
business in which the Company has a substantial interest as determined by the
Committee or any one or more Senior Managers or committee of Senior Managers to
whom the authority to make such determination is delegated by the Committee.
(g) All certificates for Shares delivered under the Plan pursuant to
any Award shall be subject to such stock-transfer orders and other restrictions
as the Committee may deem advisable under the rules, regulations, and other
requirements of the Securities and Exchange Commission, any stock exchange upon
which the Shares are then listed, and any applicable Federal or state securities
law, and the Committee may cause a legend or legends to be put on any such
certificates to make appropriate reference to such restrictions.
(h) The Committee shall be authorized to establish procedures pursuant
to which the payment of any Award may be deferred. Subject to the provisions of
this Plan and any Award Agreement, the recipient of an Award (including, without
limitation, any deferred Award) may, if so determined by the 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 covered
by the Award, as determined by the Committee, in its sole discretion, and the
Committee may provide that such amounts (if any) shall be deemed to have been
reinvested in additional Shares or otherwise reinvested.
Page 15
<PAGE> 16
(i) Except as otherwise required in any applicable Award Agreement or
by the terms of the Plan, recipients of Awards under the Plan shall not be
required to make any payment or provide consideration other than the rendering
of services.
(j) The Committee may delegate to one or more Senior Managers or a
committee of Senior Managers the right to grant Awards to Employees who are not
officers or directors of the Company and to cancel or suspend Awards to
Employees who are not officers or directors of the Company.
(k) The Company shall be authorized to withhold from any Award granted
or payment due under the Plan the amount of withholding taxes due in respect of
an Award or payment hereunder and to take such other action as may be necessary
in the opinion of the Company to satisfy all obligations for the payment of such
taxes. The Committee shall be authorized to establish procedures for election by
Participants to satisfy such withholding taxes by delivery of, or directing the
Company to retain, Shares.
(l) Nothing contained in this Plan shall prevent the Board of Directors
from adopting other or additional compensation arrangements, subject to
stockholder approval if such approval is otherwise required; and such
arrangements may be either generally applicable or applicable only in specific
cases.
(m) The validity, construction, and effect of the Plan and any rules
and regulations relating to the Plan shall be determined in accordance with the
laws of the State of Delaware and applicable Federal law.
(n) If any provision of this Plan is or becomes or is deemed invalid,
illegal or unenforceable in any jurisdiction, or would disqualify the Plan or
any Award under any law deemed applicable by the Committee, such provision shall
be construed or deemed amended to conform to applicable laws or if it cannot be
construed or deemed amended without, in the determination of the Committee,
materially altering the intent of the Plan, it shall be stricken and the
remainder of the Plan shall remain in full force and effect.
(o) Awards may be granted to Employees who are foreign nationals or
employed outside the United States, or both, on such terms and conditions
different from those specified in the Plan as may, in the judgment of the
Committee, be necessary or desirable in order to recognize differences in local
law or tax policy. The Committee also may impose conditions on the exercise or
vesting of Awards in order to minimize the Company's obligation with respect to
tax equalization for Employees on assignments outside their home country.
SECTION 15. EFFECTIVE DATE OF PLAN. The Plan shall be effective on the
Effective Date.
Page 16
<PAGE> 17
SECTION 16. TERM OF PLAN. No Award shall be granted pursuant to the
Plan after 10 years from the Effective Date, but any Award theretofore granted
may extend beyond that date.
Page 17
<PAGE> 1
EXHIBIT (10)(iii)(A)2
LUCENT TECHNOLOGIES INC.
DEFERRED COMPENSATION PLAN FOR NON-EMPLOYEE DIRECTORS
Adopted April 3, 1996
and Amended on November 20, 1996
1. Eligibility
Each member of the Board of Directors ("Board") of Lucent Technologies
Inc. ("Company") who is not an employee of the Company, or of any of its
subsidiaries or of any controlling affiliate and its subsidiaries (including
AT&T Corp., a New York Corporation ("AT&T"), and its subsidiaries during the
period when they are affiliated with the Company), is eligible to
participate in a Deferred Compensation Plan for Non-Employee Directors
("Plan").
Notwithstanding the foregoing, or anything to the contrary contained
elsewhere in the Plan, the account under the AT&T Corp. Deferred
Compensation Plan for Non-Employee Directors ("Assumed Account") of any
Director who, prior to the date of adoption of this plan, was a Non-Employee
Director of AT&T, which account is assumed by the Company pursuant to the
Employee Benefits Agreement between AT&T and the Company dated as of
February 1, 1996 (the "Employee Benefits Agreement") shall continue to
accrue dividends on any Company Shares portion as provided in this Plan and
to accrue interest on any Cash portion notwithstanding that such Director is
ineligible to or does not otherwise participate in this Plan.
2. Participation
(a) Prior to the beginning of any calendar year, or, in the case of
newly elected Directors, within 30 days of such election, each eligible
Director may elect to participate in the Plan by directing that all or any
part of the compensation which would otherwise have been payable currently
for services as a Director (including fees payable for services as a member
of a committee of the Board) during such calendar year, or, in the case of
newly elected Directors, during the remainder of such
<PAGE> 2
calendar year, shall be credited to a deferred compensation account subject
to the terms of the Plan.
(b) Such an election to participate in the Plan shall be in the form of
a document executed by the Director and filed with the Secretary of the
Company. An election related to fees otherwise payable currently in any
calendar year shall become irrevocable on the last day prior to the
beginning of such calendar year, or, in the case of new Directors, on the
30th day after becoming a Director. An election shall continue until a
Director ceases to be a Director or until he or she terminates or modifies
such election by written notice. Any such termination or modification shall
become effective as of the end of the calendar year in which such notice is
given with respect to all fees otherwise payable in subsequent calendar
years. A Director who has filed a termination of election may thereafter
again file an election to participate for any calendar year or years
subsequent to the filing of such election.
3. Deferred Compensation Accounts
(a) At the time of election to participate in the Plan under Item 2(a)
above, a Director shall also designate the percentage of such deferred
amounts to be credited to the Company Shares portion of the Director's
deferred account and the percentage to be credited to the Cash portion of
such account; provided, however, that any portion of a Stock Retainer
payable under the Company's Stock Retainer Plan for Non-Employee Directors,
which is deferred pursuant to this Plan, shall be credited only to the
Company Shares portion of such Director's account under this Plan.
(b) Deferred Company Shares. Deferred amounts credited to the Company
Shares portion of a Director's account on the date the related compensation
is or would be otherwise paid shall be converted to a number of deferred
Company Shares, determined by dividing the amount of such compensation by
the price of a share of the Company's common stock, par value $0.01 per
share (the "Common Stock"), as determined in the last sentence of this
paragraph. The Director's account (including any portion of an Assumed
Account represented by Company Shares) shall also be credited on each
dividend payment date for the Common Stock with a number of Company Shares
2
<PAGE> 3
equivalent to the dividend payment on the number of shares of Common Stock
equal to the number of deferred Company Shares in the Director's account on
the record date for such dividend. Such amount shall then be converted to a
number of additional deferred Company Shares determined by dividing such
amount by the price of a share of Common Stock, as determined in the last
sentence of this paragraph. The price of a share of Common Stock related to
any compensation or dividend payment date shall be the average of the
closing prices of a share of Common Stock over the five consecutive trading
days immediately preceding the date of the valuation. The closing price for
each day shall be the last sale price, regular way, or, in case no such sale
takes place on such day, the average of the closing bid and asked prices,
regular way, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or admitted
to trading on the New York Stock Exchange or, if the Common Stock is not
listed or admitted to trading on the New York Stock Exchange, as reported in
the principal consolidated transaction reporting system with respect to
securities listed on the principal national securities exchange on which the
Common Stock is listed or admitted to trading on any national securities
exchange, the last quoted price or, if not so quoted, the average of the
high bid and low asked prices in the over-the-counter market, as reported by
the National Association of Securities Dealers, Inc. Automated Quotations
System ("NASDAQ") or such other system then in use, or, if on any such date
the Common Stock is not quoted by any such organization, the average of the
closing bid and asked prices as furnished by the professional market maker
making a market in the Common Stock.
In the event of any change in outstanding Common Stock by reason of any
stock dividend or split, recapitalization, merger, consolidation,
combination or exchange of shares, spin-off or other similar corporate
change, the Board shall make such adjustments, if any, that it deems
appropriate in the number of deferred Company Shares then credited to
Directors' accounts (including any portion of an Assumed Account represented
by Company Shares). Any and all such adjustments shall be conclusive and
binding upon all parties concerned.
The maximum number of deferred Company Shares that may be maintained in
the Company Shares portion of all Directors' deferred compensation accounts
may not exceed two million (including any portion of an
3
<PAGE> 4
Assumed Account represented by Company Shares). This number is subject to
adjustment to take into consideration adjustment in the number of
outstanding shares of Common Stock as described in the preceding paragraph.
(c) Deferred Cash. Deferred amounts credited to the Cash portion of a
Director's account (including any portion of an Assumed Account represented
by Cash) shall bear interest from the date the related compensation is or
would otherwise be paid. The interest credited to the Cash portion of the
account will be compounded quarterly at the end of each calendar quarter.
For all amounts whenever credited, the rate of interest credited thereon, as
of the end of each calendar quarter ending after the date of adoption of
this Plan by the Board, shall be equal to the average ten-year U. S.
Treasury note rate for the previous calendar quarter plus 5% or such other
rate as shall be determined from time to time by the Board. Any change in
such interest rate shall take effect only for accruals of interest after it
is approved by the Board.
4. Distribution
(a) At the time of election to participate in the Plan, a Director
shall also make elections with respect to the distribution (during the
Director's lifetime or in the event of the Director's death) of amounts
deferred under the Plan plus accumulated earnings. Such elections shall be
contained in the document referred to in Item 2(b), executed by the Director
and filed with the Secretary of the Company. The election with respect to
the distribution during the Director's lifetime, of fees for any calendar
year, shall become irrevocable on the last day prior to the beginning of
such calendar year. The election related to the distribution in the event of
the Director's death, including the designation of a beneficiary or
beneficiaries, may be changed by the Director at any time, by filing the
appropriate document with the Secretary of the Company.
(b) A Director may elect to receive amounts credited to his or her
account in one payment or in some other number of equal annual installments
(not exceeding 20), provided, however, that the number of annual
installments may not extend beyond the life expectancy of the Director,
determined as of the date the first installment is paid. The election shall
direct that the first installment (or the single payment if the Director has
so elected) be paid on the first day of the calendar
4
<PAGE> 5
year immediately following either (1) the year in which the Director ceases
to be a Director of the Company, or (2) the later of the year in which the
Director ceases to be a Director of the Company or the year in which the
Director attains the age specified in such election, which age shall not be
later than age 70-1/2. Each distribution shall be made pro-rata from amounts
credited to the Cash portion and to the Company Shares portion of the
Director's account on the applicable payment date.
(c) All distributions shall be in cash. For this purpose, the value of
deferred Company Shares distributed on any payment date shall be determined
by multiplying the number of such deferred Company Shares by the price of a
share of Common Stock, as determined pursuant to Item 3(b) with respect to
the five trading day period ending ten business days prior to the date of
the distribution.
(d) Notwithstanding an election pursuant to Item 4(b), in the event a
Director engages in any competitive activity, as determined in accordance
with and pursuant to the terms and conditions of the Company's
non-competition guideline, the entire balance in the Director's deferred
account, including earnings, shall be paid immediately in a single payment.
(e) A Director may elect that, in the event the Director should die
before full payment of all amounts credited to the Director's deferred
account, the balance of the deferred amounts shall be distributed in one
payment or in some other number of approximately equal annual installments
(not exceeding 10) to the beneficiary or beneficiaries designated in writing
by the Director, or if no designation has been made, to the estate of the
Director. The first installment (or the single payment if the Director has
so elected) shall be paid on the first day of the calendar year following
the year of death.
(f) Installments subsequent to the first installment to the Director,
or to a beneficiary or to the Director's estate, shall be paid on the first
day of each succeeding calendar year until the entire amount credited to the
Director's deferred account shall have been paid. Deferred amounts held
pending distribution shall continue to be credited with earnings, determined
in accordance with Item 3.
5
<PAGE> 6
(g) Payments of amounts credited to a Director's account under this
Plan shall not be duplicative of payments, if any, received by a Director
under the AT&T Corp. Deferred Compensation Plan for Non-Employee Directors,
which payments shall be a complete offset to any payments under this Plan.
The Board may, as a prerequisite to the commencement of any installments or
lump-sum payment to any Director or beneficiary under this Plan, obtain a
written acknowledgment, in a form reasonably satisfactory to the Board, that
such installments or payment represent a complete satisfaction of any
amounts deferred or earnings accrued under the AT&T Plan.
(h) A Director (or former Director) participating in the Plan may at
any time elect to receive a distribution of all or any portion of the Cash
amount credited to his or her account under the Plan. Amounts credited as
deferred Company Shares shall not be available for distribution under this
Paragraph (h). Requests for distributions shall be submitted in writing (on
a form approved for that purpose) to the Secretary of the Company or his or
her delegate. Distributions from the Director's (or former Director's) Cash
account under the Plan pursuant to this Paragraph (h) will at all times be
subject to (1) reduction for applicable Federal income tax withholdings, and
(2) a percentage reduction in the amount requested equal to six percent (6%)
of the amount requested. Distributions pursuant to this Paragraph (h) shall
be payable in a single lump sum, in cash, within thirty (30) days of
submission of the completed distribution form.
5. Miscellaneous
(a) The right of a Director to any deferred fees and/or earnings
thereon shall not be subject to assignment by the Director.
(b) Except as provided in Section 5(c), all deferred amounts shall be
held in the general funds of the Company. The Company shall not be required
to reserve, or otherwise set aside, funds for the payment of its obligations
hereunder and Participants shall have no rights thereto except as general
creditors of the Company.
(c) (i) The Company shall create a grantor trust or utilize an existing
grantor trust (in either
6
<PAGE> 7
case, the "Trust") to assist it in accumulating the shares of Common Stock
and cash needed to fulfill its obligations under this Plan, to which it
shall be obligated to make contributions, no later than the date upon which
any "Potential Change of Control" (as defined below) occurs, of a number of
shares of Common Stock and an amount of cash such that the assets of the
Trust are sufficient to be discharge all of the Company's obligations under
this Plan accrued as of the date of the Potential Change of Control. While a
Potential Change of Control is pending and after any "Change of Control" (as
defined below), the Company shall be obligated to make additional
contributions at least once each fiscal quarter to the extent necessary to
ensure that the assets of the Trust remain sufficient to discharge all such
obligations accrued as of the last day of such fiscal quarter. If a
Potential Change of Control occurs but ceases to be pending without the
occurrence of a Change of Control or a subsequent Potential Change of
Control then the Company shall be permitted (but not required) to cause the
trustee of the Trust to distribute any or all of the assets of the Trust to
the Company.
(ii) Directors shall have no beneficial or other interest in the
Trust and the assets thereof, and their rights under the Plan shall be as
general creditors of the Company, unaffected by the existence of the Trust,
except that payments to Directors from the Trust shall, to the extent
thereof, be treated as satisfying the Company's obligations under this Plan.
(iii) "Change in Control" shall mean the happening of any of the
following events:
(A) An acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act)(an "Entity") of
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 20% or more of either (A) the then outstanding shares of
common stock of the Company (the "Outstanding Company Common Stock") or (B)
the combined voting power of the then outstanding voting securities of the
Company entitled to vote generally in the election of directors (the
"Outstanding Company Voting Securities"); excluding, however, the following:
(1) any acquisition directly from the Company, other than an acquisition by
virtue of the exercise of a conversion privilege unless the security being
so converted was itself acquired directly from the Company, (2) any
acquisition by the Company, (3) any acquisition by any
7
<PAGE> 8
employee benefit plan (or related trust) sponsored or maintained by the
Company or any corporation controlled by the Company, (4) any acquisition by
any corporation pursuant to a transaction which complies with clauses (A),
(B) and (C) of subsection (iii) of this Section 2(e), or (5) any acquisition
by AT&T Corp. or any of its Affiliates prior to Immediately After the
Distribution Date (as that term is defined in the Employee Benefits
Agreement between AT&T Corp. and the Company dated as of February 1, 1996 as
amended, modified or otherwise supplemented); or
(B) A change in the composition of the Board such that the individuals
who, as of the Effective Date, constitute the Board (such Board shall be
hereinafter referred to as the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board; provided, however, that for
purposes of this definition, that any individual who becomes a member of the
Board subsequent to the Immediately After the Distribution Date, whose
election, or nomination for election by the Company's stockholders, was
approved by a vote of at least a majority of those individuals who are
members of the Board and who were also members of the Incumbent Board (or
deemed to be such pursuant to this proviso) shall be considered as though
such individual were a member of the Incumbent Board; and provided, further
however, that any such individual whose initial assumption of office occurs
as a result of or in connection with either an actual or threatened election
contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated
under the Exchange Act) or other actual or threatened solicitation of
proxies or consents by or on behalf of an Entity other than the Board shall
not be so considered as a member of the Incumbent Board; or
(C) The approval by the stockholders of the Company of a merger,
reorganization or consolidation or sale or other disposition of all or
substantially all of the assets of the Company (each, a "Corporate
Transaction") or, if consummation of such Corporate Transaction is subject,
at the time of such approval by stockholders, to the consent of any
government or governmental agency, the obtaining of such consent (either
explicitly or implicitly by consummation); excluding however, such a
Corporate Transaction pursuant to which (A) all or substantially all of the
individuals and entities who are the beneficial owners, respectively, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities
immediately prior to such
8
<PAGE> 9
Corporate Transaction will beneficially own, directly or indirectly, more
than 60% of, respectively, the outstanding shares of common stock, and the
combined voting power of the then outstanding voting securities entitled to
vote generally in the election of directors, as the case may be, of the
corporation resulting from such Corporate Transaction (including, without
limitation, a corporation or other Person which as a result of such
transaction owns the Company or all or substantially all of the Company's
assets either directly or through one or more subsidiaries (a "Parent
Company")) in substantially the same proportions as their ownership,
immediately prior to such Corporate Transaction, of the Outstanding Company
Common Stock and Outstanding Company Voting Securities, as the case may be,
(B) no Entity (other than the Company, any employee benefit plan (or related
trust) of the Company, such corporation resulting from such Corporate
Transaction or, if reference was made to equity ownership of any Parent
Company for purposes of determining whether clause (A) above is satisfied in
connection with the applicable Corporate Transaction, such Parent Company)
will beneficially own, directly or indirectly, 20% or more of, respectively,
the outstanding shares of common stock of the corporation resulting from
such Corporate Transaction or the combined voting power of the outstanding
voting securities of such corporation entitled to vote generally in the
election of directors unless such ownership resulted solely from ownership
of securities of the Company prior to the Corporate Transaction, and (C)
individuals who were members of the Incumbent Board will immediately after
the consummation of the Corporate Transaction constitute at least a majority
of the members of the board of directors of the corporation resulting from
such Corporate Transaction (or, if reference was made to equity ownership of
any Parent Company for purposes of determining whether clause (A) above is
satisfied in connection with the applicable Corporate Transaction, of the
Parent Company); or
(D) The approval by the stockholders of the Company of a complete
liquidation of the Company.
(iv) A "Potential Change of Control" shall mean:
(A) the commencement of a tender or exchange offer by any third
person which, if consummated, would result in a Change of Control;
9
<PAGE> 10
(B) the execution of an agreement by the Company, the consummation
of which would result in the occurrence of a Change of Control;
(C) the public announcement by any person (including the Company)
of an intention to take or to consider taking actions which if consummated
would constitute a Change of Control other than through a contested election
for directors of the Company; or
(D) the adoption by the Board, as a result of other circumstances,
including, without limitation, circumstances similar or related to the
foregoing, of a resolution to the effect that, for purposes of this
definition, a Potential Change of Control has occurred.
A Potential Change of Control shall be deemed to be pending until the
earliest of (i) the second anniversary thereof, (ii) the occurrence of a
Change of Control, and (iii) the occurrence of a subsequent Potential Change
of Control.
(d) Copies of the Plan and any and all amendments thereto shall be
made available at all reasonable times at the office of the Secretary of the
Company to all Directors.
(e) This Plan may be amended or terminated by the Board at any
time on six months notice to all Participants; provided, however, the Board
may at any time amend this Plan to provide that any transaction hereunder
must be made pursuant to an irrevocable election made by the Participant at
least six (6) months in advance of the transaction.
10
<PAGE> 1
EXHIBIT (10)(iii)(A)5
LUCENT TECHNOLOGIES INC.
EXCESS BENEFIT AND COMPENSATION PLAN
Lucent Technologies Inc.
and
Such of its Subsidiary Companies which are
Participating Companies
Effective October 1, 1996
<PAGE> 2
LUCENT TECHNOLOGIES INC.
EXCESS BENEFIT AND COMPENSATION PLAN
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. INTRODUCTION AND PURPOSE .............................................................. 1
2. DEFINITIONS ........................................................................... 2
2.1. ADMINISTRATOR .................................................................. 2
2.2. AFFILIATED CORPORATION ......................................................... 2
2.3. BENEFICIARY .................................................................... 2
2.4. BENEFIT LIMITATION ............................................................. 2
2.5. BOARD .......................................................................... 2
2.6. CODE ........................................................................... 2
2.7. COMMITTEE ...................................................................... 2
2.8. COMPANY ........................................................................ 2
2.9. COMPENSATION LIMITATION ........................................................ 3
2.10. ERISA ......................................................................... 3
2.11. EXCESS RETIREMENT BENEFIT ..................................................... 3
2.12. EXECUTIVE ..................................................................... 3
2.13. PARTICIPANT ................................................................... 3
2.14. PARTICIPATING COMPANY ......................................................... 3
2.15. PLAN .......................................................................... 3
2.16. SUBSIDIARY .................................................................... 3
2.17. SURVIVING SPOUSE .............................................................. 3
2.18. TERM OF EMPLOYMENT ............................................................ 4
2.19. TRANSFERRED INDIVIDUAL ........................................................ 4
3. ELIGIBILITY ........................................................................... 5
3.1. PARTICIPATION .................................................................. 5
3.2. SURVIVING SPOUSE BENEFIT ....................................................... 5
3.3. RELATIONSHIP TO OTHER PLANS .................................................... 5
3.4. FORFEITURE OF BENEFITS ......................................................... 5
4. RETIREMENT AND DEATH BENEFITS ......................................................... 6
4.1. EXCESS RETIREMENT BENEFITS ..................................................... 6
4.2. AMOUNT OF EXCESS RETIREMENT BENEFIT ............................................ 6
4.3. COMMENCEMENT AND FORM OF BENEFITS PAYABLE TO PARTICIPANT OR SURVIVING SPOUSE ... 7
4.4. NO SURVIVING SPOUSE ............................................................ 7
4.5. FUTURE BENEFIT ADJUSTMENTS ..................................................... 7
4.6. DETERMINATION OF BENEFITS ...................................................... 8
4.7. SUSPENSION AND RECOMMENCEMENT OF BENEFIT PAYMENTS .............................. 8
4.8. MANDATORY PORTABILITY AGREEMENT ................................................ 8
4.9. EXCESS DEATH BENEFIT ........................................................... 9
5. DISPOSITION OF PARTICIPATING COMPANY .................................................. 10
5.1. SALE, SPIN-OFF, OR OTHER DISPOSITION OF PARTICIPATING COMPANY .................. 10
6. SOURCE OF PAYMENT ..................................................................... 11
6.1. SOURCE OF PAYMENTS ............................................................. 11
6.2. UNFUNDED STATUS ................................................................ 11
</TABLE>
-i-
<PAGE> 3
LUCENT TECHNOLOGIES INC.
EXCESS BENEFIT AND COMPENSATION PLAN
<TABLE>
<S> <C>
6.3. FIDUCIARY RELATIONSHIP ....................................... 11
7. ADMINISTRATION OF THE PLAN .......................................... 12
7.1. ADMINISTRATION ............................................... 12
7.2. INDEMNIFICATION .............................................. 12
7.3. CLAIMS PROCEDURE ............................................. 12
7.4. NAMED FIDUCIARIES ............................................ 13
7.5. ROLE OF THE COMMITTEE ........................................ 13
7.6. ALLOCATION OF RESPONSIBILITIES ............................... 13
7.7. MULTIPLE CAPACITIES .......................................... 13
8. AMENDMENT AND TERMINATION ........................................... 14
8.1. AMENDMENT AND TERMINATION .................................... 14
9. GENERAL PROVISIONS .................................................. 15
9.1. BINDING EFFECT ............................................... 15
9.2. NO GUARANTEE OF EMPLOYMENT ................................... 15
9.3. TAX WITHHOLDING .............................................. 15
9.4. ASSIGNMENT OF BENEFITS ....................................... 15
9.5. FACILITY OF PAYMENT .......................................... 16
9.6. SEVERABILITY ................................................. 16
9.7. PLAN YEAR .................................................... 16
9.8. HEADINGS ..................................................... 16
9.9. GOVERNING LAW ................................................ 16
9.10. ENTIRE PLAN ................................................. 17
</TABLE>
-ii-
<PAGE> 4
LUCENT TECHNOLOGIES INC.
EXCESS BENEFIT AND COMPENSATION PLAN
ADOPTED effective October 1, 1996
ARTICLE
1.
INTRODUCTION AND PURPOSE
The Lucent Technologies Inc. Excess Benefit and Compensation Plan (the
"Plan") is intended to constitute an unfunded "excess benefit plan" as defined
in ERISA Section 3(36) to the extent it provides benefits that would Be paid
under the Lucent Technologies Inc. Management Pension Plan or the Lucent
Technologies Inc. Pension Plan but for the limitations imposed by Code Section
415, and an "unfunded plan of deferred compensation for a select group of
management or highly compensated employees" for purposes of Title I of ERISA, to
the extent it provides other benefits.
The Plan is a successor to the AT&T Excess Benefit and Compensation
Plan in effect as of September 30, 1996 with respect to "Transferred
Individuals" (as defined in Article 2). The Plan assumes and is solely
responsible for all liabilities as of September 30, 1996 relating to Transferred
Individuals. Effective as of the date an individual becomes a "Transition
Individual" (as defined in Section 1.38(b) or (c) of the Management Interchange
Agreement or Section 1.30(b) or (c) of the Occupational Interchange Agreement),
the Plan shall also assume and be solely responsible for all liabilities
relating to such Transition Individuals. Accordingly, the Plan shall recognize
such service and compensation as of September 30, 1996 with respect to
Transferred Individuals as would be recognized by the AT&T Excess Benefit and
Compensation Plan in effect as of September 30, 1996. To the extent that the
Plan refers to dates, events, agreements, elections, or designations before
October 1, 1996 relating to Transferred Individuals, such dates, events,
agreements, elections, and designations shall be recognized as if Lucent
Technologies Inc. and the Plan were in existence at the applicable time. For
Transferred Individuals who terminated employment before October 1, 1996, the
provisions of the AT&T Excess Benefit and Compensation Plan in effect at
termination of the Transferred Individual's employment shall be deemed to be
incorporated in this Plan and shall govern.
<PAGE> 5
LUCENT TECHNOLOGIES INC.
EXCESS BENEFIT AND COMPENSATION PLAN
ARTICLE
2.
DEFINITIONS
Unless the context clearly indicates otherwise, the following terms
have the meanings described below when used in this Plan and references to a
particular Article or Section shall mean the Article or Section so delineated in
this Plan, or such other portion or entity designated by the Company.
2.1. ADMINISTRATOR
With respect to individuals covered by the Lucent Technologies Inc.
Management Pension Plan, the Pension Plan Administrator under the Lucent
Technologies Inc. Management Pension Plan and, with respect to individuals
covered by the Lucent Technologies Inc. Pension Plan, the Pension Plan
Administrator under the Lucent Technologies Inc. Pension Plan, or such other
person or entity designated by the Company.
2.2. AFFILIATED CORPORATION
Any corporation of which more than 50 percent of the voting stock is
owned directly or indirectly by the Company.
2.3. BENEFICIARY
Any person entitled to an Excess Death Benefit pursuant to Section 4.9.
2.4. BENEFIT LIMITATION
The maximum benefit payable to a Participant under the Lucent
Technologies Inc. Management Pension Plan or the Lucent Technologies Inc.
Pension Plan in accordance with Code Section 415, but after application of the
Compensation Limitation, if any, under the Lucent Technologies Inc. Management
Pension Plan or the Lucent Technologies Inc. Pension Plan.
2.5. BOARD
The Board of Directors of the Company.
2.6. CODE
The Internal Revenue Code of 1986, as amended from time to time. Any
reference to a particular section of ERISA includes any applicable regulations
promulgated under that section.
2.7. COMMITTEE
The Lucent Technologies Inc. Employee Benefits Committee.
2.8. COMPANY
Lucent Technologies Inc., a Delaware Corporation, or its successor.
ARTICLE 2 -2- DEFINITIONS
<PAGE> 6
LUCENT TECHNOLOGIES INC.
EXCESS BENEFIT AND COMPENSATION PLAN
2.9. COMPENSATION LIMITATION
The maximum amount of annual compensation under Code Section 401(a)(17)
that may be taken into account in any Plan Year for benefit accrual purposes
under the Lucent Technologies Inc. Management Pension Plan or for purposes of
calculating an Accident Death Benefit, Sickness Death Benefit or Pensioner Death
Benefit under the Lucent Technologies Inc. Management Pension Plan.
2.10. ERISA
The Employee Retirement Income Security Act of 1974, as amended from
time to time. Any reference to a particular section of ERISA includes any
applicable regulations promulgated under that section.
2.11. EXCESS RETIREMENT BENEFIT
The benefit, if any, described in Article 4 which is payable to a
Participant or a Surviving Spouse under the terms of the Plan.
2.12. EXECUTIVE
An individual who is considered to be within "a select group of
management or highly compensated employees" for purposes of Title I of ERISA and
whose annual compensation in any year exceeds the Compensation Limitation.
2.13. PARTICIPANT
An individual and/or an Executive who has satisfied the eligibility
requirements in Section 3.1 for accrual of an Excess Retirement Benefit.
2.14. PARTICIPATING COMPANY
The Company and any of its subsidiaries, which is a Participating
Company under the Lucent Technologies Inc. Management Pension Plan or the Lucent
Technologies Inc. Pension Plan.
2.15. PLAN
This Lucent Technologies Inc. Excess Benefit and Compensation Plan.
2.16. SUBSIDIARY
Any corporation of which more than 80% of the voting stock is owned
directly or indirectly by the Company.
2.17. SURVIVING SPOUSE
A deceased Participant's surviving spouse who is eligible to receive a
survivor annuity benefit under the Lucent Technologies Inc. Management Pension
Plan or the Lucent Technologies Inc. Pension Plan.
ARTICLE 2 -3- DEFINITIONS
<PAGE> 7
LUCENT TECHNOLOGIES INC.
EXCESS BENEFIT AND COMPENSATION PLAN
2.18. TERM OF EMPLOYMENT
"Term of Employment" within the meaning of the Lucent Technologies Inc.
Management Pension Plan or the Lucent Technologies Inc. Pension Plan, as
applicable, for purposes of calculating a Participant's benefit.
2.19. TRANSFERRED INDIVIDUAL
A "Transferred Individual" within the meaning of the Employee Benefits
Agreement between AT&T and the Company dated as of February 1, 1996, as amended.
ARTICLE 2 -4- DEFINITIONS
<PAGE> 8
LUCENT TECHNOLOGIES INC.
EXCESS BENEFIT AND COMPENSATION PLAN
ARTICLE
3.
ELIGIBILITY
3.1. PARTICIPATION
(i) Each individual who becomes eligible or is eligible for a deferred
vested pension, a disability pension or a service pension, under the terms and
conditions of either the Lucent Technologies Inc. Management Pension Plan or the
Lucent Technologies Inc. Pension Plan, shall be eligible to participate in this
Plan, and/or (ii) each Executive who, in any year, has annual compensation in
excess of the Compensation Limitation and who becomes or is eligible for a
deferred vested pension, a disability pension or a service pension, under the
terms and conditions of the Lucent Technologies Inc. Management Pension Plan,
shall be eligible to participate in this Plan.
3.2. SURVIVING SPOUSE BENEFIT
Each Surviving Spouse of a Participant shall be eligible to receive an
Excess Retirement Benefit under the Plan, if eligible as provided in Section
4.1.
3.3. RELATIONSHIP TO OTHER PLANS
The Excess Retirement Benefit and Excess Death Benefit payable under
the Plan shall be in addition to any other benefits provided, directly or
indirectly, to a Participant, Surviving Spouse or Beneficiary by any
Participating Company. Participation in the Plan shall not preclude or limit the
participation of the Participant in any other benefit plan sponsored by a
Participating Company for which such Participant would otherwise be eligible.
The Excess Retirement Benefit and Excess Death Benefit payable to a Participant,
Surviving Spouse or Beneficiary under this Plan shall not duplicate benefits
payable to such Participant, Surviving Spouse or Beneficiary under any other
plan or arrangement of a Participating Company or any Affiliated Corporation.
3.4. FORFEITURE OF BENEFITS
If any Participant who otherwise would be entitled to an Excess
Retirement Benefit under this Plan is discharged for cause due to conviction of
a felony related to his or her employment, the rights of such Participant to an
Excess Retirement Benefit under this Plan, including the rights of the
Participant's spouse to an Excess Retirement Benefit as a Surviving Spouse
and/or the rights of a Beneficiary to an Excess Death Benefit, shall be
forfeited.
ARTICLE 3 -5- ELIGIBILITY
<PAGE> 9
LUCENT TECHNOLOGIES INC.
EXCESS BENEFIT AND COMPENSATION PLAN
ARTICLE
4.
RETIREMENT AND DEATH BENEFITS
4.1. EXCESS RETIREMENT BENEFITS
If the benefit payable to a Participant or a Surviving Spouse under the
Lucent Technologies Inc. Management Pension Plan or the Lucent Technologies Inc.
Pension Plan is limited by reason of the application of the Benefit Limitation
and/or, for an Executive or a Surviving Spouse of an Executive, the Compensation
Limitation, an Excess Retirement Benefit shall be paid as provided in this
Article 4 to the Participant or the Surviving Spouse.
4.2. AMOUNT OF EXCESS RETIREMENT BENEFIT
(a) The amount, if any, of the Excess Retirement Benefit payable
monthly to a Participant or a Surviving Spouse shall be equal to the difference
between (i) and (ii) where:
(i) is the amount of the monthly pension benefit which would be
provided to the Participant or Surviving Spouse under the Lucent
Technologies Inc. Management Pension Plan or the Lucent Technologies
Inc. Pension Plan, without regard to the Benefit Limitation and/or for
an Executive, or a Surviving Spouse of an Executive, without regard to
the Compensation Limitation under the Lucent Technologies Inc.
Management Pension Plan, based upon the Lucent Technologies Inc.
Management Pension Plan or the Lucent Technologies Inc. Pension Plan
formula, as applicable, in effect as of the date of termination of
employment or death; and
(ii) is the amount of the monthly pension benefit actually payable
to such Participant or Surviving Spouse under the Lucent Technologies
Inc. Management Pension Plan or the Lucent Technologies Inc. Pension
Plan.
(b) The amount of the Excess Retirement Benefit payable as a result of
the application of the Benefit Limitation under the Lucent Technologies Inc.
Management Pension Plan or the Lucent Technologies Inc. Pension Plan shall be
determined or redetermined, based upon the Lucent Technologies Inc. Management
Pension Plan or the Lucent Technologies Inc. Pension Plan formula, as
applicable, in effect as of the date of termination of employment or termination
of reemployment pursuant to Section 4.7 or death, (i) as of the date when
benefits are to commence pursuant to Section 4.3 or recommence pursuant to
Section 4.7; (ii) as of the effective date of any subsequent increases and/or
decreases in the Benefit Limitation, and/or (iii) as of the effective date of
any special increases in the monthly benefit payable, prior to application of
the Benefit Limitation, as a result of amendments to the Lucent Technologies
Inc. Management Pension Plan and/or the Lucent Technologies Inc. Pension Plan,
whichever is applicable. Further, the amount of the Excess Retirement Benefit
shall be reduced for commencement of the Excess Retirement Benefit prior to age
55 and/or for the cost of the survivor annuity, if any, in the same manner as is
set forth in the Lucent Technologies Inc. Management Pension Plan or the Lucent
Technologies Inc. Pension Plan, as applicable.
ARTICLE 4 -6- RETIREMENT AND DEATH BENEFITS
<PAGE> 10
LUCENT TECHNOLOGIES INC.
EXCESS BENEFIT AND COMPENSATION PLAN
4.3. COMMENCEMENT AND FORM OF BENEFITS PAYABLE TO PARTICIPANT OR SURVIVING
SPOUSE
The Excess Retirement Benefit provided under this Plan payable to
either the Participant or the Surviving Spouse (i) shall commence at the same
time, (ii) shall be paid for as long as (subject to Section 4.2) and (iii) shall
be paid in the same benefit form as the Participant's or Surviving Spouse's
benefits are paid under the Lucent Technologies Inc. Management Pension Plan or
the Lucent Technologies Inc. Pension Plan; whichever is applicable, provided,
however, that the Committee shall have the right to approve the Participant's
election of the form of the Excess Retirement Benefit payable to the
Participant.
4.4. NO SURVIVING SPOUSE
If a Participant dies before the date as of which his or her benefit
commences under the Lucent Technologies Inc. Management Pension Plan or the
Lucent Technologies Inc. Pension Plan, and he or she does not have a Surviving
Spouse on his or her date of death, no Excess Retirement Benefit shall be paid
after the death of the Participant with respect to the Participant.
4.5. FUTURE BENEFIT ADJUSTMENTS
(a) If a Participant has commenced receiving a service or disability
pension under the Lucent Technologies Inc. Management Pension Plan or the Lucent
Technologies Inc. Pension Plan in the form of a joint and 50 percent survivor
annuity and his or her designated annuitant subsequently predeceases him or her,
the Participant's Excess Retirement Benefit under this Plan shall be calculated
in accordance with Section 4.2 and thereafter paid, prospectively, by restoring
the original cost of the joint and 50 percent survivor annuity form of benefit
under the Lucent Technologies Inc. Management Pension Plan or the Lucent
Technologies Inc. Pension Plan, whichever is applicable. Such adjustment shall
be effective as of the first day of the first month following the death of the
Participant's surviving annuitant.
(b) In the event that, following commencement of benefits to a
Participant under the Plan, the Lucent Technologies Inc. Management Pension Plan
benefit is subsequently adjusted to include any payments considered Compensation
under the Lucent Technologies Inc. Management Pension Plan paid after
commencement of the Lucent Technologies Inc. Management Pension Plan benefit,
the Excess Retirement Benefit to the Participant under this Plan shall be
recalculated as soon as practicable after the Lucent Technologies Inc.
Management Pension Plan benefit is adjusted and shall be paid retroactively to
the date the Lucent Technologies Inc. Management Pension Plan benefit commences,
if the Lucent Technologies Inc. Management Pension Plan benefit is adjusted
retroactively to such date.
(c) In the event that, following commencement of benefits to a
Participant or Surviving Spouse under the Plan, the Lucent Technologies Inc.
Management Pension Plan or Lucent Technologies Inc. Pension Plan benefit is
subsequently increased as a result of a successful claim for benefits under the
Lucent Technologies Inc. Management Pension Plan or Lucent Technologies Inc.
Pension Plan, the Excess Retirement Benefit to the Participant or Surviving
Spouse under this Plan shall be recalculated as soon as practicable after the
Lucent
ARTICLE 4 -7- RETIREMENT AND DEATH BENEFITS
<PAGE> 11
LUCENT TECHNOLOGIES INC.
EXCESS BENEFIT AND COMPENSATION PLAN
Technologies Inc. Management Pension Plan or the Lucent Technologies Inc.
Pension Plan benefit is adjusted.
4.6. DETERMINATION OF BENEFITS
Excess Retirement Benefit payments and Excess Death Benefit payments
under this Plan shall be calculated in accordance with the rules, procedures,
and assumptions utilized under the Lucent Technologies Inc. Management Pension
Plan or the Lucent Technologies Inc. Pension Plan, whichever is applicable.
Thus, whenever it is necessary to determine whether one benefit is less than,
equal to, or larger than another, or to determine the equivalent actuarial value
of any benefit, whether or not such form of benefit is provided under this Plan,
such determination shall be made, at the Administrator's discretion, by the
Company's enrolled actuary, using mortality, interest and other assumptions
normally used at the time in determining actuarial equivalence under the Lucent
Technologies Inc. Management Pension Plan or Lucent Technologies Inc. Pension
Plan, whichever is applicable.
4.7. SUSPENSION AND RECOMMENCEMENT OF BENEFIT PAYMENTS
A Participant's employment or reemployment subsequent to retirement or
termination of employment with entitlement to an Excess Retirement Benefit under
this Plan shall result in the permanent suspension of payment of the Excess
Retirement Benefit to the Participant for the period of such employment or
reemployment to the extent and in a manner consistent with the terms and
conditions applicable to the suspension of benefit payments under the Lucent
Technologies Inc. Management Pension Plan or the Lucent Technologies Inc.
Pension Plan, whichever is applicable. A Participant's Excess Retirement Benefit
shall recommence simultaneously with the recommencement of his or her benefits
under the Lucent Technologies Inc. Management Pension Plan or the Lucent
Technologies Inc. Pension Plan. The amount of the Participant's Excess
Retirement Benefit upon recommencement shall be adjusted to reflect adjustments,
if any, in the amount of the Participant's pension benefit under the Lucent
Technologies Inc. Management Pension Plan or the Lucent Technologies Inc.
Pension Plan resulting from the period of reemployment, pursuant to Section 4.2.
Following recommencement of payment under this Plan, the Participant (or
Surviving Spouse) shall not be eligible to receive any Excess Retirement Benefit
payments that would otherwise have been payable but for the suspension.
4.8. MANDATORY PORTABILITY AGREEMENT
A Participant (i) who is employed by an "Interchange Company", as that
term is defined under the Mandatory Portability Agreement ("MPA"), subsequent to
retirement or termination of employment from the Company, its subsidiaries or
any Affiliated Corporation, (ii) who is covered under the terms and conditions
of the MPA, and (iii) for whom assets and liabilities are transferred from the
Lucent Technologies Inc. Management Pension Plan or the Lucent Technologies Inc.
Pension Plan, shall forfeit his rights to an Excess Retirement Benefit under
this Plan, including the rights of the Participant's spouse to an Excess
Retirement Benefit as a Surviving Spouse and the rights of Beneficiary to an
Excess Death Benefit.
ARTICLE 4 -8- RETIREMENT AND DEATH BENEFITS
<PAGE> 12
LUCENT TECHNOLOGIES INC.
EXCESS BENEFIT AND COMPENSATION PLAN
4.9. EXCESS DEATH BENEFIT
(a) If the actual Accident Death Benefit, Sickness Death Benefit or
Pensioner Death Benefit ("Death Benefit") payable to any person as a result of
the death of a Participant under the terms of the Lucent Technologies Inc.
Management Pension Plan is reduced or limited by reason of the Compensation
Limitation, an Excess Death Benefit shall be paid as provided in this Section
4.9 to the beneficiary otherwise entitled to receive the Death Benefit under the
terms and conditions of the Lucent Technologies Inc. Management Pension Plan.
(b) The amount, if any, of the Excess Death Benefit payable shall be
equal to the difference between (i) and (ii) where:
(i) is the amount of the Death Benefit which would be provided to
the beneficiary under the Lucent Technologies Inc. Management Pension
Plan without regard to the Compensation Limitation under the Lucent
Technologies Inc. Management Pension Plan in effect as of the date of
death; and
(ii) is the amount of the Death Benefit actually payable to such
beneficiary under the Lucent Technologies Inc. Management Pension Plan.
(c) The Excess Death Benefit provided under this Plan (i) shall
commence at the same time, (ii) shall be paid for as long as, and (iii) shall be
paid in the same benefit form as the Committee or its delegate has determined
with respect to the Death Benefit payable under the Lucent Technologies Inc.
Management Pension Plan.
ARTICLE 4 -9- RETIREMENT AND DEATH BENEFITS
<PAGE> 13
LUCENT TECHNOLOGIES INC.
EXCESS BENEFIT AND COMPENSATION PLAN
ARTICLE
5.
DISPOSITION OF PARTICIPATING COMPANY
5.1. SALE, SPIN-OFF, OR OTHER DISPOSITION OF PARTICIPATING COMPANY
(a) Subject to Sections 4.8 and 9.1, in the event the Company sells,
spins off, or otherwise disposes of a Subsidiary or an Affiliated Corporation,
or disposes of all or substantially all of the assets of a Subsidiary or an
Affiliated Corporation such that one or more Participants terminate employment
for the purpose of accepting employment with the purchaser of such stock or
assets, any person employed by such Subsidiary or Affiliated Corporation who
ceases to be an employee as a result of the sale, spin-off, or disposition shall
be deemed to have terminated his or her employment with a Participating Company
and be eligible for an Excess Retirement Benefit commencing at the same time as
his or her benefit, if any, commences under the Lucent Technologies Inc.
Management Pension Plan or the Lucent Technologies Inc. Pension Plan. Further,
if the Participant dies after termination of employment as described in this
Section 5.1, his or her Surviving Spouse may be entitled to an Excess Retirement
Benefit, if eligible as provided in Section 4.1, and/or his or her Beneficiary
may be entitled to an Excess Death Benefit, if eligible as provided in Section
4.9.
(b) Notwithstanding the foregoing provisions of this Section 5.1, and
subject to Section 9.1, if, as part of the sale, spin-off, or other disposition
of the stock or assets of a Subsidiary or Affiliated Corporation, the Subsidiary
or Affiliated Corporation, its successor owner, or any other party agrees in
writing to assume the liability for the payment of the Excess Retirement Benefit
and/or the Excess Death Benefit to which the Participant, Surviving Spouse
and/or Beneficiary would have been entitled under the Plan but for such sale,
spin-off, or other disposition, then the entitlement of the Participant or his
or her Surviving Spouse to an Excess Retirement Benefit and/or any Beneficiary
to an Excess Death Benefit under this Plan shall terminate. Any subsequent
entitlement of the former Participant or his or her Surviving Spouse or
Beneficiary to the Excess Retirement Benefit and/or the Excess Death Benefit
shall be the sole responsibility of the assuming party. Upon the assumption of
the liability for the payment of an Excess Retirement Benefit and Excess Death
Benefit by AT&T Corp. pursuant to Section 7.1 of the Management Interchange
Agreement or Section 3.1 of the Occupational Interchange Agreement, both dated
as of April 8, 1996, between Lucent Technologies Inc. and AT&T Corp., the
entitlement of a Transition Individual (as defined in Section 1.38(a) or (d) of
the Management Interchange Agreement or Section 1.30(a) or (d) of the
Occupational Interchange Agreement), and/or his or her Surviving Spouse or
Beneficiary, to an Excess Retirement Benefit and/or an Excess Death Benefit
under this Plan shall terminate.
ARTICLE 5 -10- DISPOSITION OF PARTICIPATING COMPANY
<PAGE> 14
LUCENT TECHNOLOGIES INC.
EXCESS BENEFIT AND COMPENSATION PLAN
ARTICLE
6.
SOURCE OF PAYMENT
6.1. SOURCE OF PAYMENTS
Benefits arising under this Plan and all costs, charges, and expenses
relating thereto will be payable from the Company's general assets. The Company
may, however, establish a trust to pay such benefits and related expenses,
provided such trust does not cause the Plan to be "funded" within the meaning of
ERISA. To the extent trust assets are available, they may be used to pay
benefits arising under this Plan and all costs, charges, and expenses relating
thereto. To the extent that the funds held in the trust, if any, are
insufficient to pay such benefits, costs, charges and expenses, the Company
shall pay such benefits, costs, charges, and expenses from its general assets.
6.2. UNFUNDED STATUS
The Plan at all times shall be entirely unfunded for purposes of the
Code and ERISA and no provision shall at any time be made with respect to
segregating any assets of a Participating Company for payment of any benefits
hereunder. Funds that may be invested through a trust described in Section 6.1
shall continue for all purposes to be part of the general assets of the
Participating Company which invested the funds. The Plan constitutes a mere
promise by the Company and the Participating Companies to make Excess Retirement
Benefit payments and Excess Death Benefit payments, if any, in the future. No
Participant, Surviving Spouse or any other person shall have any interest in any
particular assets of a Participating Company by reason of the right to receive a
benefit under the Plan and to the extent the Participant, Surviving Spouse or
any other person acquires a right to receive benefits under this Plan, such
right shall be no greater than the right of any unsecured general creditor of a
Participating Company.
6.3. FIDUCIARY RELATIONSHIP
Nothing contained in the Plan, and no action taken pursuant to the
provisions of the Plan, shall create or be construed to create a trust or a
fiduciary relationship between or among the Company, any other Participating
Company, the Board, the Administrator, the Committee, any Participant, any
Surviving Spouse, or any other person, except as provided in Section 7.4.
ARTICLE 6 -11- SOURCE OF PAYMENT
<PAGE> 15
LUCENT TECHNOLOGIES INC.
EXCESS BENEFIT AND COMPENSATION PLAN
ARTICLE
7.
ADMINISTRATION OF THE PLAN
7.1. ADMINISTRATION
The Company shall be the "plan administrator" of the Plan as that term
is defined in ERISA.
7.2. INDEMNIFICATION
Neither the Administrator, any member of the Board or of the Committee,
nor each other officer to whom any duty or power relating to the administration
or interpretation of the Plan may be allocated or delegated, shall be personally
liable by reason of any contract or other instrument executed by such individual
or on his or her behalf in his or her capacity as the Administrator or as a
member of the Board or of the Committee, nor for any mistake of judgment made in
good faith, and the Company shall indemnify and hold harmless the Administrator,
each member of the Board, each member of the Committee, and each other employee
or officer to whom any duty or power relating to the administration or
interpretation of the Plan may be allocated or delegated, against any cost or
expense (including attorneys' fees) or liability (including any sum paid in
settlement of a claim) arising out of any act or omission to act in connection
with the Plan unless arising out of such person's own fraud or bad faith.
7.3. CLAIMS PROCEDURE
(a) All claims for benefit payments under the Plan shall be submitted
in writing by the Participant, Surviving Spouse, Beneficiaries, or any
individual duly authorized by them (Claimant for purposes of Section 7.3), to
the Administrator. The Administrator shall notify the Claimant in writing within
90 days after receipt as to whether the claim has been granted or denied. This
period may be extended for up to an additional 90 days in unusual cases provided
that written notice of the extension is furnished to the Claimant prior to the
commencement of the extension. In the event the claim is denied, such notice
shall (i) set forth the specific reasons for denial, (ii) make reference to the
pertinent Plan provisions on which the denial is based, (iii) describe any
additional material or information necessary before the Claimant's request may
be acted upon, and (iv) explain the procedure for appealing the adverse
determination.
(b) Any Claimant whose claim for benefits has been denied, in whole or
in part, may, within 60 days of receipt of any adverse benefit determination,
appeal such denial to the Committee. All appeals shall be in the form of a
written statement and shall (i) set forth all of the reasons in support of
favorable action on the appeal, (ii) identify those provisions of the Plan upon
which the Claimant is relying, and (iii) include copies of any other documents
or materials which may support favorable consideration of the claim. The
Committee shall decide the issues presented within 60 days after receipt of such
request, but this period may be extended for up to an additional 60 days in
unusual cases provided that written notice of the extension is furnished to the
Claimant prior to the commencement of the extension. The decision of the
Committee shall be set forth in writing, include specific reasons for the
decision, refer to pertinent Plan
ARTICLE 7 -12- ADMINISTRATION OF THE PLAN
<PAGE> 16
LUCENT TECHNOLOGIES INC.
EXCESS BENEFIT AND COMPENSATION PLAN
provisions on which the decision is based, and shall be final and binding on all
persons affected thereby.
Any Claimant whose claim for benefits has been denied shall have such
further rights of review as are provided in ERISA Section 503, and the Committee
and Administrator shall retain such right, authority, and discretIon as is
provided in or not expressly limited by ERISA Section 503.
(c) The Committee shall serve as the final review committee, under the
Plan and ERISA, for the review of all appeals by Claimants whose initial claims
for benefits have been denied, in whole or in part, by the Administrator. The
Committee shall have the authority to determine conclusively for all parties any
and all questions arising from administration of the Plan, and shall have sole
and complete discretionary authority and control to manage the operation and
administration of the Plan, including, but not limited to, authorizing
disbursements according to the Plan, the determination of all questions relating
to eligibility for participation and benefits, interpretation of all Plan
provisions, determination of the amount and kind of benefits payable to any
Participant, Surviving Spouse or Beneficiary, and the construction of disputed
and doubtful terms. Such decisions by the Committee shall be conclusive and
binding on all parties and not subject to further review.
7.4. NAMED FIDUCIARIES
The Company, the Committee, the Pension Plan Administrator(s) and each
Participating Company is each a named fiduciary as that term is used in ERISA
with respect to the particular duties and responsibilities herein provided to be
allocated to each of them.
7.5. ROLE OF THE COMMITTEE
(a) The Committee shall have the specific powers elsewhere herein
granted to it and shall have such other powers as may be necessary in order to
enable it to administer the Plan, except for powers herein granted or provided
to be granted to others.
(b) The procedures for the adoption of by-laws and rules of procedure
and for the employment of a secretary and assistants shall be the same as are
set forth in the Lucent Technologies Inc. Management Pension Plan or the Lucent
Technologies Inc. Pension Plan.
7.6. ALLOCATION OF RESPONSIBILITIES
The Company may allocate responsibilities for the operation and
administration of the Plan consistent with the Plan's terms, including
allocation of responsibilities to the Committee and the other Participating
Companies. The Company and other named fiduciaries may designate in writing
other persons to carry out their respective responsibilities under the Plan, and
may employ persons to advise them with regard to any such responsibilities.
7.7. MULTIPLE CAPACITIES
Any person or group of persons may serve in more than one fiduciary
capacity with respect to the Plan.
ARTICLE 7 -13- ADMINISTRATION OF THE PLAN
<PAGE> 17
LUCENT TECHNOLOGIES INC.
EXCESS BENEFIT AND COMPENSATION PLAN
ARTICLE
8.
AMENDMENT AND TERMINATION
8.1. AMENDMENT AND TERMINATION
Pursuant to ERISA Section 402(b)(3), the Board or its delegate (acting
pursuant to the Board's delegationS of authority then in effect) may from time
to time amend, suspend, or terminate the Plan at any time. Plan amendments may
include, but are not limited to, elimination or reduction in the level or type
of benefits provided prospectively to any class or classes of Participants (and
Surviving Spouses and Beneficiaries). Any and all Plan amendments may be made
without the consent of any Participant, Surviving Spouse or Beneficiary.
Notwithstanding the foregoing, no such amendment, suspension, or termination
shall retroactively impair or otherwise adversely affect the rights of any
Participant, Surviving Spouse, or other person to benefits under the Plan, the
Lucent Technologies Inc. Management Pension Plan or the Lucent Technologies Inc.
Pension Plan which have arisen prior to the date of such action.
ARTICLE 8 -14- AMENDMENT AND TERMINATION
<PAGE> 18
LUCENT TECHNOLOGIES INC.
EXCESS BENEFIT AND COMPENSATION PLAN
ARTICLE
9.
GENERAL PROVISIONS
9.1. BINDING EFFECT
The Plan shall be binding upon and inure to the benefit of each
Participating Company and its successors and assigns, and to each Participant,
his or her successors, designees, Beneficiaries, designated annuitants, and
estate. The Plan shall also be binding upon any successor corporation or
organization succeeding to substantially all of the assets and business of the
Company. Nothing in the Plan shall preclude the Company from merging or
consolidating into or with, or transferring all or substantially all of its
assets to, another corporation which assumes the Plan and all obligations of the
Company hereunder. The Company agrees that it will make appropriate provision
for the preservation of the rights of Participants, Surviving Spouses and
Beneficiaries under the Plan in any agreement or plan or reorganization into
which it may enter to effect any merger, consolidation, reorganization, or
transfer of assets. Upon such a merger, consolidation, reorganization, or
transfer of assets, the term "Participating Company" shall refer to such other
corporation and the Plan shall continue in full force and effect.
9.2. NO GUARANTEE OF EMPLOYMENT
Neither the Plan nor any action taken hereunder shall be construed as
(i) a contract of employment or deemed to give any Participant the right to be
retained in the employment of a Participating Company, the right to any level of
compensation, or the right to future participation in the Plan; or (ii)
affecting the right of a Participating Company to discharge or dismiss any
Participant at any time.
9.3. TAX WITHHOLDING
The Company or a Participating Company, as applicable, shall withhold
all federal, state, local, or other taxes required by law to be withheld from
Excess Retirement Benefit payments under the Plan. The Company shall also
withhold all FICA taxes required by law to be withheld on an Executive's Excess
Retirement Benefits under the Plan.
9.4. ASSIGNMENT OF BENEFITS
No Excess Retirement Benefit or Excess Death Benefit under this Plan or
any right or interest in such Excess Retirement Benefit or Excess Death Benefit
shall be assignable or subject in any manner to anticipation, alienation, sale,
transfer, claims of creditors, garnishment, pledge, execution, attachment or
encumbrance of any kind, including, but not limited to, pursuant to any domestic
relations order (within the meaning of ERISA Section 206(d)(3) and Code Section
414(p)(1)(B)) or judgment or claims for alimony, support, separate maintenance,
and claIms in bankruptcy proceedings, and any such attempted disposition shall
be null and void.
ARTICLE 9 -15- GENERAL PROVISIONS
<PAGE> 19
LUCENT TECHNOLOGIES INC.
EXCESS BENEFIT AND COMPENSATION PLAN
9.5. FACILITY OF PAYMENT
If the Administrator shall find that any person to whom any amount is
or was payable under the Plan is unable to care for his or her affairs because
of illness or accident, then any payment, or any part thereof, due to such
person (unless a prior claim therefor has been made by a duly appointed legal
representative), may, if the Administrator so directs the Company, be paid to
the same person or institution that the benefit with respect to such person is
paid or to be paid under the Lucent Technologies Inc. Management Pension Plan or
Lucent Technologies Inc. Pension Plan, if applicable, or the Participant's
lawful spouse, a child, a relative, an institution maintaining or having custody
of such person, or any other person deemed by the Administrator to be a proper
recipient on behalf of such person otherwise entitled to payment. Any such
payment shall be in complete discharge of the liability of the Company, the
Board, the Committee, the Administrator, and the Participating Company therefor.
If any payment to which a Participant, Surviving Spouse or Beneficiary is
entitled under this Plan is unclaimed or otherwise not subject to payment to the
person or persons so entitled, such amounts representing such payment or
payments shall be forfeited after a period of two years from the date the first
such payment was payable and shall not escheat to any state or revert to any
party; provided, however, that any such payment or payments shall be restored if
any person otherwise entitled to such payment or payments makes a valid claim.
9.6. SEVERABILITY
If any section, clause, phrase, provision, or portion of this Plan or
the application thereof to any person or circumstance shall be invalid or
unenforceable under any applicable law, such event shall not affect or render
invalid or unenforceable the remainder of this Plan and shall not affect the
application of any section, clause, provision, or portion hereof to other
persons or circumstances.
9.7. PLAN YEAR
For purposes of administering the Plan, each plan year shall begin on
January 1 and end on December 31, provided, however, that the first Plan Year
shall begin on October 1 and end on December 31.
9.8. HEADINGS
The captions preceding the sections and articles hereof have been
inserted solely as a matter of convenience and shall not in any manner define or
limit the scope or intent of any provisions of the Plan.
9.9. GOVERNING LAW
The Plan shall be governed by the laws of the State of New Jersey
(other than its conflict of laws provisions) from time to time in effect, except
to the extent such laws are preempted by the laws of the United States of
America.
ARTICLE 9 -16- GENERAL PROVISIONS
<PAGE> 20
LUCENT TECHNOLOGIES INC.
EXCESS BENEFIT AND COMPENSATION PLAN
9.10. ENTIRE PLAN
This written Plan document is the final and exclusive statement of the
terms of this Plan, and any claim of right or entitlement under the Plan shall
be determined in accordance with its provisions pursuant to the procedures
described in Article 7. Unless otherwise authorized by the Board or its
delegate, no amendment or modification to this Plan shall be effective until
reduced to writing and adopted pursuant to Section 8.1.
ARTICLE 9 -17- GENERAL PROVISIONS
<PAGE> 21
LUCENT TECHNOLOGIES INC.
EXCESS BENEFIT AND COMPENSATION PLAN
IN WITNESS WHEREOF, the Company has caused this Plan to be effective on October
1, 1996 and to be executed on this ___ day of ___________, 1996.
By:________________________________________
Curtis R. Artis
Senior Vice President, Human Resources
Attest:____________________________________
Pamela F. Craven
Vice President - Law
Assistant Secretary
ARTICLE 9 -18- GENERAL PROVISIONS
<PAGE> 1
EXHIBIT (10)(iii)(A)6
LUCENT TECHNOLOGIES INC.
MID-CAREER PENSION PLAN
Lucent Technologies Inc.
and
Such of its Subsidiary Companies which are
Participating Companies
Effective October 1, 1996
<PAGE> 2
LUCENT TECHNOLOGIES INC.
MID-CAREER PENSION PLAN
TABLE OF CONTENTS
1. INTRODUCTION AND PURPOSE...................................................1
2. DEFINITIONS................................................................2
2.1. ADEA................................................................2
2.2. AFFILIATED CORPORATION..............................................2
2.3. AT&T................................................................2
2.4. ADMINISTRATOR.......................................................2
2.5. BOARD...............................................................2
2.6. CODE................................................................2
2.7. COMMITTEE...........................................................2
2.8. COMPANY.............................................................2
2.9. COMPENSATION........................................................2
2.10. D-BAND.............................................................3
2.11. EXECUTIVE..........................................................3
2.12. ERISA..............................................................3
2.13. INTERCHANGE AGREEMENT..............................................3
2.14. INTERCHANGE COMPANY................................................3
2.15. LUCENT.............................................................3
2.16. LUCENT CONTROLLED GROUP............................................3
2.17. MANDATORY RETIREMENT AGE...........................................3
2.18. MID-CAREER PENSION CREDITS.........................................3
2.19. NORMAL RETIREMENT AGE..............................................4
2.20. PARTICIPATING COMPANY..............................................4
2.21. PENSION PLAN.......................................................4
2.22. PLAN...............................................................4
2.23. PREDECESSOR PLAN...................................................4
2.24. PLAN YEAR..........................................................4
2.25. SUBSIDIARY.........................................................4
2.26. TERM OF EMPLOYMENT.................................................4
2.27. TRANSFERRED INDIVIDUAL.............................................5
3. ADMINISTRATION.............................................................6
3.1. ADMINISTRATION......................................................6
3.2. ROLE OF THE COMMITTEE...............................................6
3.3. CLAIMS PROCEDURE....................................................6
(a) Benefit Claims..................................................6
(b) Benefit Appeals.................................................6
(c) Final Review....................................................7
3.4. INDEMNIFICATION.....................................................7
3.5. NAMED FIDUCIARIES...................................................7
3.6. ALLOCATION OF RESPONSIBILITIES......................................7
3.7. MULTIPLE CAPACITIES.................................................8
4. BENEFITS...................................................................9
4.1. PARTICIPANT.........................................................9
4.2. ELIGIBILITY.........................................................9
-i-
<PAGE> 3
LUCENT TECHNOLOGIES INC.
MID-CAREER PENSION PLAN
(a) Employee........................................................9
(b) Service and Disability Benefit.................................10
(c) Deferred Benefit...............................................10
(d) Contingent Benefits............................................10
4.3. BENEFIT AMOUNTS....................................................10
(a) Calculation of Monthly Pension Benefit.........................10
(b) Early Retirement Discount......................................12
(c) Deferred Benefit Amount........................................13
(d) Management Pension Enhancement.................................13
(e) Special Increases..............................................13
4.4. TREATMENT DURING SUBSEQUENT EMPLOYMENT.............................13
4.5. COMMENCEMENT AND DURATION OF PAYMENTS..............................13
(a) Service or Disability Benefit..................................13
(b) Deferred Benefit...............................................14
4.6. FORFEITURE OF BENEFITS.............................................14
5. GENERAL PROVISIONS........................................................15
5.1. NO GUARANTEE OF EMPLOYMENT.........................................15
5.2. ASSIGNMENT OR ALIENATION...........................................15
5.3. BREAKS IN SERVICE..................................................15
5.4. LEAVE OF ABSENCE...................................................15
5.5. METHOD OF PAYMENT..................................................15
5.6. AMOUNTS ACCRUED PRIOR TO DEATH.....................................15
5.7. FACILITY OF PAYMENT................................................15
5.8. OPTION DURING DISABILITY...........................................16
5.9. PAYMENTS UNDER LAW.................................................16
5.10. BINDING EFFECT....................................................16
5.11. SEVERABILITY......................................................17
5.12. HEADINGS..........................................................17
5.13. ENTIRE PLAN.......................................................17
6. PLAN MODIFICATION.........................................................18
6.1. AMENDMENT AND TERMINATION..........................................18
7. SOURCE OF PAYMENT.........................................................19
7.1. SOURCE OF PAYMENTS.................................................19
7.2. UNFUNDED STATUS....................................................19
8. DISPOSITION OF PARTICIPATING COMPANY......................................20
8.1. SALE, SPIN-OFF, OR OTHER DISPOSITION OF PARTICIPATING COMPANY......20
-ii-
<PAGE> 4
LUCENT TECHNOLOGIES INC.
MID-CAREER PENSION PLAN
ADOPTED effective October 1, 1996
ARTICLE
1.
INTRODUCTION AND PURPOSE
The purpose of the Lucent Technologies Inc. Mid-Career Pension Plan
(the "Plan") is to provide certain unfunded single life pension payments, as set
forth more fully herein, to eligible employees of the Company and such other
subsidiaries of the Company that become Participating Companies. The Plan is
intended to constitute an unfunded pension plan for a select group of management
or highly compensated employees for purposes of Title I of the Employee
Retirement Income Security Act of 1974, as amended.
The Plan is a successor to the AT&T Mid-Career Pension Plan in effect
as of September 30, 1996 with respect to Transferred Individuals (as defined in
Article 2). The Plan assumes and is solely responsible for all liabilities as of
September 30, 1996 relating to Transferred Individuals. Accordingly, the Plan
shall recognize such service and compensation as of September 30, 1996 with
respect to Transferred Individuals as would be recognized by the AT&T Mid-Career
Pension Plan in effect as of September 30, 1996. Effective as of the date an
individual becomes a "Transition Individual" (as defined in Section 1.38(b) or
(c) of the Management Interchange Agreement or Section 1.30(b) or (c) of the
Occupational Interchange Agreement), the Plan shall also assume and be solely
responsible for all liabilities relating to such Transition Individuals. To the
extent that the Plan refers to dates, events, agreements, elections, or
designations before October 1, 1996 relating to Transferred Individuals, such
dates, events, agreements, elections, and designations shall be recognized as if
Lucent Technologies Inc. and the Plan were in existence at the applicable time.
For Transferred Individuals who terminated employment before October 1, 1996,
the provisions of the AT&T Mid-Career Pension Plan in effect at termination of
the Transferred Individual's employment shall be deemed to be incorporated in
this Plan and shall govern.
<PAGE> 5
LUCENT TECHNOLOGIES INC. MID-CAREER PENSION PLAN
ARTICLE
2.
DEFINITIONS
Unless the context clearly indicates otherwise, the following terms
have the meanings described below when used in this Plan and references to a
particular Article or Section shall mean the Article or Section so delineated in
this Plan.
2.1. ADEA
The Age Discrimination in Employment Act of 1967, and as it may be
amended from time to time.
2.2. AFFILIATED CORPORATION
Any corporation of which more than 50 percent of the voting stock is
owned directly or indirectly by AT&T.
2.3. AT&T
AT&T Corp., a New York Corporation, or its successors.
2.4. ADMINISTRATOR
The "Pension Plan Administrator" under the Pension Plan, or such other
person or entity designated by the Company.
2.5. BOARD
The Board of Directors of the Company.
2.6. CODE
The Internal Revenue Code of 1986, as amended from time to time. Any
reference to a particular section of the Code includes any applicable
regulations promulgated under that section.
2.7. COMMITTEE
The Employee Benefits Committee appointed by the Company to administer
the Pension Plan.
2.8. COMPANY
Lucent Technologies Inc., a Delaware corporation, or its successors.
2.9. COMPENSATION
"Compensation" within the meaning of the Pension Plan.
ARTICLE 2 -2- DEFINITIONS
<PAGE> 6
LUCENT TECHNOLOGIES INC. MID-CAREER PENSION PLAN
2.10. D-BAND
"D-band," formerly D-Level, Fourth level and SG-10 and SG-11, shall
mean the level directly above C-band, or any equivalent salary grade or level as
determined by the Company.
2.11. EXECUTIVE
"Executive," formerly E-Level, E-band, Fifth level and SG-12 through
SG-14, shall mean the level directly above D-band, or any equivalent salary
grade or level as determined by the Company.
2.12. ERISA
The Employee Retirement Income Security Act of 1974, as amended from
time to time. Any reference to a particular section of ERISA includes any
applicable regulations promulgated under that section.
2.13. INTERCHANGE AGREEMENT
An "Interchange Agreement" within the meaning of the Pension Plan.
2.14. INTERCHANGE COMPANY
An "Interchange Company" within the meaning of the Pension Plan.
2.15. LUCENT
The Company, its subsidiaries and any successors to such entity.
2.16. LUCENT CONTROLLED GROUP
The "Lucent Controlled Group" within the meaning of the Pension Plan.
2.17. MANDATORY RETIREMENT AGE
Age 65 for those employees referred to in ADEA Section 12(c)(1) of ADEA
or at such later time as may first be permissible under such section. For those
employees for whom age is a bona fide occupational qualification within the
meaning of ADEA Section 4(f)(1), the Mandatory Retirement Age shall be as may be
applicable under the ADEA.
2.18. MID-CAREER PENSION CREDITS
(a) For those employees hired or rehired at Executive level or above, and all of
whose Term of Employment is at Executive level or above, Mid-Career Pension
Credits is the difference between 35 years and the Term of Employment that could
accrue if the employee worked to the later of Normal Retirement Age, retirement
or termination of employment, provided that the Mid-Career Pension Credits shall
not exceed the actual Term of Employment and shall not include any part-time
service if the employee was hired by Lucent on or after November 18, 1981.
ARTICLE 2 -3- DEFINITIONS
<PAGE> 7
LUCENT TECHNOLOGIES INC. MID-CAREER PENSION PLAN
(b) For those employees hired or rehired at D-band or above, and whose
Term of Employment includes service at D-band or below, Mid-Career Pension
Credits is computed by multiplying the employee's Mid-Career Pension Credits as
defined in Section 2.18(a), by a fraction, the numerator of which shall be the
number of years and months of service completed with a Participating Company
(or, with respect to Transferred Individuals, a "Participating Company" under
the Predecessor Plan) at Executive level and above, and the denominator of which
shall be the actual Term of Employment at termination of employment, provided,
however, that for any Transferred Individual on the active roll of AT&T as of
August 29, 1991, his or her benefit under this Plan shall equal the greater of
the benefit calculated under the definition of Mid-Career Pension Credits in
this Section 2.18(b) as of the Transferred Individual's retirement or
termination of employment or the benefit accrued under the Predecessor Plan as
of August 29, 1991.
2.19. NORMAL RETIREMENT AGE
"Normal Retirement Age" within the meaning of the Pension Plan.
2.20. PARTICIPATING COMPANY
The Company or any subsidiary of the Company which is a Participating
Company under the Pension Plan.
2.21. PENSION PLAN
The Lucent Technologies Inc. Management Pension Plan.
2.22. PLAN
This Lucent Technologies Inc. Mid-Career Pension Plan.
2.23. PREDECESSOR PLAN
The AT&T Mid-Career Pension Plan for that portion of the plan which
provided benefit coverage to certain Lucent employees prior to October 1, 1996.
2.24. PLAN YEAR
The Plan Year for the Plan shall be January 1 through December 31,
provided, however, that the first Plan Year shall begin on October 1 and end on
December 31.
2.25. SUBSIDIARY
Any corporation of which more than 80% of the voting stock is owned
directly or indirectly by AT&T.
2.26. TERM OF EMPLOYMENT
"Term of Employment" within the meaning of the Pension Plan for
purposes calculating the amount of an employee's benefit, except that "Term of
Employment" shall not include any period of part-time employment completed after
November 18, 1981, in the case of an employee
ARTICLE 2 -4- DEFINITIONS
<PAGE> 8
LUCENT TECHNOLOGIES INC. MID-CAREER PENSION PLAN
hired or rehired by a Participating Company (or, with respect to Transferred
Individuals, a "Participating Company" under the Predecessor Plan) on or after
November 18, 1981.
2.27. TRANSFERRED INDIVIDUAL
A "Transferred Individual" within the meaning of the Employee Benefits
Agreement between AT&T and the Company dated as of February 1, 1996, as amended.
ARTICLE 2 -5- DEFINITIONS
<PAGE> 9
LUCENT TECHNOLOGIES INC. MID-CAREER PENSION PLAN
ARTICLE
3.
ADMINISTRATION
3.1 ADMINISTRATION
The Company shall be the "plan administrator" and the "sponsor" of the
Plan as those terms are defined in ERISA.
3.2. ROLE OF THE COMMITTEE
(a) The Committee shall have the specific powers elsewhere herein
granted to it and shall have such other powers as may be necessary in order to
enable it to administer the Plan, except for powers herein granted or provided
to be granted to others.
(b) The procedures for the adoption of by-laws and rules of procedure
and for the employment of a secretary and assistants shall be the same as are
set forth in the Pension Plan.
3.3. CLAIMS PROCEDURE
(a) BENEFIT CLAIMS
All claims for benefit payments under the Plan shall be submitted in
writing by the Participant or any individual duly authorized by him ("Claimant"
for purposes of Section 3.3) to the Administrator. The Administrator shall
notify the Claimant in writing within 90 days after receipt as to whether the
claim has been granted or denied. This period may be extended for up to an
additional 90 days in unusual cases provided that written notice of the
extension is furnished to the Claimant prior to the commencement of the
extension. In the event the claim is denied, such notice shall (i) set forth the
specific reasons for denial, (ii) make reference to the pertinent Plan
provisions on which the denial is based, (iii) describe any additional material
or information necessary before the Claimant's request may be acted upon, and
(iv) explain the procedure for appealing the adverse determination.
(b) BENEFIT APPEALS
A Claimant whose claim for benefits has been denied, in whole or in
part, may, within 60 days of receipt of any adverse benefit determination,
appeal such denial to the Committee. All appeals shall be in the form of a
written statement and shall (i) set forth all of the reasons in support of
favorable action on the appeal, (ii) identify those provisions of the Plan upon
which the Claimant is relying, and (iii) include copies of any other documents
or materials which may support favorable consideration of the claim. The
Committee shall decide the issues presented within 60 days after receipt of such
request, but this period may be extended for up to an additional 60 days in
unusual cases provided that written notice of the extension is furnished to the
Claimant prior to the commencement of the extension. The decision of the
Committee shall be set forth in writing, include specific reasons for the
decision, refer to pertinent Plan provisions on which the decision is based, and
shall be final and binding on all persons affected thereby.
ARTICLE 3 -6- ADMINISTRATION
<PAGE> 10
LUCENT TECHNOLOGIES INC. MID-CAREER PENSION PLAN
Any Claimant whose claim for benefits has been denied shall have such
further rights of review as are provided in ERISA Section 503, and the Committee
and Administrator shall retain such right, authority, and discretion as is
provided in or not expressly limited by ERISA Section 503.
(c) FINAL REVIEW
The Committee shall serve as the final review committee, under the Plan
and ERISA, for the review of all appeals by Claimants, whose initial claims for
benefits have been denied, in whole or in part, by the Administrator. The
Committee shall have the authority to determine conclusively for all parties any
and all questions arising from administration of the Plan, and shall have sole
and complete discretionary authority and control to manage the operation and
administration of the Plan, including, but not limited to, authorizing
disbursements according to the Plan, the determination of all questions relating
to eligibility for participation and benefits, interpretation of all Plan
provisions, determination of the amount and kind of benefits payable to any
Participant, and the construction of disputed and doubtful terms. Such decisions
by the Committee shall be conclusive and binding on all parties and not subject
to further review.
3.4. INDEMNIFICATION
Neither the Administrator, any member of the Board or of the Committee,
nor each other employee or officer to whom any duty or power relating to the
administration or interpretation of the Plan may be allocated or delegated,
shall be personally liable by reason of any contract or other instrument
executed by such individual or on his or her behalf in his or her capacity as
the Administrator or as a member of the Board or of the Committee, nor for any
mistake of judgment made in good faith, and the Company shall indemnify and hold
harmless the Administrator, each member of the Board, each member of the
Committee, and each other employee or officer to whom any duty or power relating
to the administration or interpretation of the Plan may be allocated or
delegated, against any cost or expense (including attorneys' fees) or liability
(including any sum paid in settlement of a claim) arising out of any act or
omission to act in connection with the Plan unless arising out of such person's
own fraud or bad faith.
3.5. NAMED FIDUCIARIES
The Committee, the Administrator and each Participating Company is each
a named fiduciary as that term is used in ERISA with respect to the particular
duties and responsibilities allocated to each of them.
3.6. ALLOCATION OF RESPONSIBILITIES
The Company may allocate responsibilities for the operation and
administration of the Plan consistent with the Plan's terms, including
allocation of responsibilities to the Committee and the other Participating
Companies. The Company and other named fiduciaries may designate in writing
other persons to carry out their respective responsibilities under the Plan, and
may employ persons to advise them with regard to any such responsibilities.
ARTICLE 3 -7- ADMINISTRATION
<PAGE> 11
LUCENT TECHNOLOGIES INC. MID-CAREER PENSION PLAN
3.7. MULTIPLE CAPACITIES
Any person or group of persons may serve in more than one fiduciary
capacity with respect to the Plan.
ARTICLE 3 -8- ADMINISTRATION
<PAGE> 12
LUCENT TECHNOLOGIES INC. MID-CAREER PENSION PLAN
ARTICLE
4.
BENEFITS
4.1. PARTICIPANT
An individual is a Participant in this Plan if (a) the individual was
hired or rehired by a Participating Company (or, with respect to Transferred
Individuals, a "Participating Company" under the Predecessor Plan) at age 35 or
older, and (b) the individual was hired or rehired by a Participating Company
(or, with respect to Transferred Individuals, a "Participating Company" under
the Predecessor Plan) at D-band or above, and (c) the individual's Term of
Employment includes at least one year of continuous employment for a
Participating Company (or, with respect to Transferred Individuals, a
"Participating Company" under the Predecessor Plan) at D-band or above,
provided, however, that if an individual was hired or rehired by a Participating
Company (or, with respect to Transferred Individuals, a "Participating Company"
under the Predecessor Plan) on or after November 18, 1981, such continuous
employment was on a full-time basis (as classified by the Company), and (d) the
individual terminates employment at Executive level or above.
4.2. ELIGIBILITY
(a) EMPLOYEE
For purposes of this Article 4, the word "Employee" shall mean (a) a
Participant, as defined in Section 4.1 and (b) who (i) if hired or rehired by
AT&T before November 18, 1981, has completed a Term of Employment of at least
five years for one or more Participating Companies (including, with respect to
Term of Employment before October 1, 1996, with "Participating Companies" under
the Predecessor Plan) at Executive level or above, prior to the last day of the
month in which he or she reaches Normal Retirement Age, or (ii) if hired or
rehired on or after November 18, 1981, has completed a Term of Employment of at
least five years, classified by the Company as full-time, for one or more
Participating Companies (including, with respect to Term of Employment before
October 1, 1996, with "Participating Companies" under the Predecessor Plan) at
Executive level or above, prior to the last day of the month in which he or she
reaches Normal Retirement Age, provided, however, that unless approved by the
Board, or its delegate, an individual is not an Employee if:
(i) the individual (ineligible to participate in this Plan
because he or she was hired after age 35 and/or he or she was hired
below D-band) terminates employment with a Participating Company, and
is rehired by a Participating Company within one year of his or her
termination of employment;
(ii) the individual terminates employment with a company with
which a Participating Company has an Interchange Agreement, and is
hired by a Participating Company within one year of termination of
employment, if the individual has not waived coverage pursuant to the
terms of the applicable Interchange Agreement;
ARTICLE 4 -9- BENEFITS
<PAGE> 13
LUCENT TECHNOLOGIES INC. MID-CAREER PENSION PLAN
(iii) the individual terminates employment with a company in
which a Participating Company has an ownership interest, and is hired
or rehired by a Participating Company within one year of termination of
employment, unless he or she was a Participant in the Plan prior to
employment with the Lucent non-Controlled Group company or the
nonparticipating Controlled Group company; or
(iv) the individual is employed by a company which is acquired
by a Participating Company.
(b) SERVICE AND DISABILITY BENEFIT
Any Employee shall be eligible for a service benefit or a disability
benefit pursuant to this Plan if he or she is eligible for a service or a
disability pension pursuant to the Pension Plan, including an Employee who is
eligible for a service pension as the result of a Transition Leave of Absence or
a Transition to Retirement as set forth in the Pension Plan.
(c) DEFERRED BENEFIT
Any Employee is eligible for a deferred benefit pursuant to this Plan
if the Employee is not eligible for either a service or a disability pension
under the Pension Plan.
(d) CONTINGENT BENEFITS
An Employee whose job category has been reclassified during the
Grandfathering Period, defined below, from Executive level to a level below
Executive level, and who has completed a Term of Employment of at least five
years at (1) Executive level or above, or (2) the reclassified level below
Executive level prior to the end of the Grandfathering period, shall be entitled
to a frozen benefit under this Plan based upon the terms of this Plan (or the
Predecessor Plan) and his or her Term of Employment as of the last day of the
Grandfathering Period, provided, however, that such employee shall not be
entitled to a benefit under this Plan if he or she has been demoted for
performance subsequent to job reclassification and prior to attainment of the
requisite number of years of benefit eligibility. The Grandfathering Period
shall be January 1, 1986 through the later of December 31, 1988 or the last day
of the calendar year in which the job has been reclassified. If an Employee
whose job has been reclassified, as described in this Section 4.2(d), is
promoted to Executive level or above, his or her benefit under this Plan shall
be calculated as if his or her job had never been reclassified.
4.3. BENEFIT AMOUNTS
(a) CALCULATION OF MONTHLY PENSION BENEFIT
(i) FORMULA
The annual benefit amount will equal:
A*[(B*C)+(D*E)]
+
ARTICLE 4 -10- BENEFITS
<PAGE> 14
LUCENT TECHNOLOGIES INC. MID-CAREER PENSION PLAN
A*[(F*G)+(H*I)]
Where:
A = Mid-Career Pension Credits;
B = One-half of the Pension Plan Base Formula Multiplier;
C = Average Base Period Compensation x Term of Employment to
the end of the Base Period divided by Total Term of
Employment;
D = One-half of the Lucent Technologies Inc. Non-Qualified
Pension Plan ("NQPP") Base Formula Multiplier;
E = NQPP Average Base Period Compensation x Term of
Employment to the end of the Base Period divided by
Total Term of Employment;
F = One-half of the Pension Plan Post-Base Formula
Multiplier;
G = Post-Base Period Compensation divided by Total Term of
Employment;
H = One-half of the NQPP Post-Base Formula Multiplier;
I = NQPP Post-Base Period Compensation divided by Total Term
of Employment.
(ii) MID-CAREER PENSION CREDITS
For purposes of determining A in Section 4.3(a)(i), "Mid-Career Pension
Credits" is defined in Section 2.18(a) or (b), as applicable.
(iii) BASE PERIOD
For purposes of determining B and C in Section 4.3(a)(i), "Base Period"
shall be the January 1, 1987 to December 31, 1992 pay base averaging period as
is set forth in the Pension Plan, provided, however, that if an Employee's
benefit under the Pension Plan is determined under an earlier pay base averaging
period, such other pay base averaging period shall be used for determining B & C
in Section 4.3(a)(i). For purposes of determining D and E in Section 4.3(a)(i),
"Base Period" shall be the 1989 Base Period as is set forth in the Basic Formula
of the NQPP.
(iv) BASE FORMULA MULTIPLIER
For purposes of determining B in Section 4.3(a)(i), the "Pension Plan
Base Formula Multiplier" shall be the numerical percentage which is multiplied
by the Employee's average annual Compensation for the Base Period, in the
calculation of the Employee's accrued pension benefit under the Pension Plan.
For purposes of determining D in Section 4.3(a)(i), the "NQPP Base Formula
Multiplier" shall be the numerical percentage which is multiplied by the
ARTICLE 4 -11- BENEFITS
<PAGE> 15
LUCENT TECHNOLOGIES INC. MID-CAREER PENSION PLAN
Employee's average annual Short Term Incentive Awards for the Base Period, in
the calculation of the Employee's accrued pension benefit under the Basic
Formula of the NQPP.
(v) AVERAGE BASE PERIOD COMPENSATION
For purposes of determining C in Section 4.3(a)(i), "Average Base
Period Compensation" shall be the Employee's average annual Compensation for the
Base Period, in the calculation of the Employee's accrued pension benefit under
the Pension Plan, except that Compensation shall be defined for this purpose as
not being limited by Code Section 401(a)(17). For purposes of determining E in
Section 4.3(a)(i), "NQPP Average Base Period Compensation" shall be the average
annual Short Term Incentive Awards for the Base Period in the calculation of the
Employee's accrued pension benefit under the Basic Formula of the NQPP.
(vi) TOTAL TERM OF EMPLOYMENT
For purposes of determining C, E, G & I in Section 4.3(a)(i), "Total
Term of Employment" shall be the Employee's actual Term of Employment as of
retirement or termination of employment.
(vii) POST-BASE FORMULA MULTIPLIER
For purposes of determining F in Section 4.3(a)(i), "Pension Plan
Post-Base Formula Multiplier" shall be the numerical percentage which is
multiplied by the Employee's Compensation for periods after the Base Period, in
the calculation of the Employee's accrued pension benefit under the Pension
Plan. For purposes of determining H in Section 4.3(a)(i), the "NQPP Post-Base
Formula Multiplier" shall be the numerical percentage which is multiplied by the
Employee's Short Term Incentive Awards for periods after the Base Period, in the
calculation of the Employee's accrued pension benefit under the Basic Formula of
the NQPP.
(viii) POST-BASE PERIOD COMPENSATION
For purposes of determining G in Section 4.3(a)(i), "Post-Base Period
Compensation" shall be the Employee's Compensation after the Base Period, in the
calculation of the Employee's accrued pension benefit under the Pension Plan,
except that Compensation shall be defined for this purpose as not being limited
by Code Section 401(a)(17). For purposes of determining I in Section 4.3(a)(i),
"NQPP Post-Base Period Compensation" shall be the Employee's Short Term
Incentive Awards for periods after the Base Period, in the calculation of the
Employee's accrued pension benefit under the Basic Formula of the NQPP.
(b) EARLY RETIREMENT DISCOUNT
Where an Employee terminates from service under the age of 55 years and
commences a service pension under the Pension Plan, his or her monthly service
benefit, as set forth in Section 4.2(b), shall be reduced in the same manner as
is set forth in the Pension Plan in the case of service pensions.
ARTICLE 4 -12- BENEFITS
<PAGE> 16
LUCENT TECHNOLOGIES INC. MID-CAREER PENSION PLAN
(c) DEFERRED BENEFIT AMOUNT
The monthly benefit amount for each person eligible for a deferred
benefit under the provisions of Section 4.2(c) shall be calculated exclusively
in accordance with the provisions specified as applicable to those receiving a
benefit under Section 4.2(b) effective as of the date his or her benefit
payments commence pursuant to Section 4.5(b). No recomputation of the benefit
shall be made after such date or as a result of amendments made to this Plan
subsequent to such date.
(d) MANAGEMENT PENSION ENHANCEMENT
The calculation of benefit amounts and eligibility for a benefit amount
shall be determined without regard to the Management Pension Enhancement as is
set forth in the Pension Plan.
(e) SPECIAL INCREASES
Monthly service and disability benefit payments, as determined in
Section 4.3(a), of retired employees shall be increased by the same percentage
and pursuant to the same terms and conditions as are set forth in the Pension
Plan.
4.4. TREATMENT DURING SUBSEQUENT EMPLOYMENT
Notwithstanding any other provision of this Plan, employment with any
Participating Company or with any Interchange Company (if the Employee is
covered by the applicable Interchange Agreement and, if applicable, has not
waived coverage pursuant to the terms of the Interchange Agreement), subsequent
to retirement or termination of employment with entitlement to any type of
benefit described heretofore shall result in the permanent suspension of the
benefit for the period of such employment or reemployment. Notwithstanding any
other provision of this Plan, employment with any Lucent Controlled Group
company which is not a Participating Company subsequent to retirement or
termination of employment with entitlement to any type of benefit described
heretofore shall result in the permanent suspension of the benefit for the
period of such employment or reemployment if the Employee's benefit under the
Pension Plan is suspended by reason of such employment.
4.5. COMMENCEMENT AND DURATION OF PAYMENTS
Except for the reasons specified in Section 4.6, or as may be otherwise
determined by the Company, benefits granted under this Plan shall commence as
follows:
(a) SERVICE OR DISABILITY BENEFIT
Payment of a service or disability benefit under this Plan shall
commence to an Employee at the same time as the Employee's service or disability
pension benefits commence under the Pension Plan and shall continue to the
Employee's date of death, or, in the case of a disability benefit, until
termination of disability pension payments under the Pension Plan, if earlier,
subject to Section 4.4 of this Plan.
ARTICLE 4 -13- BENEFITS
<PAGE> 17
LUCENT TECHNOLOGIES INC. MID-CAREER PENSION PLAN
(b) DEFERRED BENEFIT
(i) Payment of a deferred benefit under this Plan shall commence to
an Employee at the same time as the Employee's deferred vested pension
benefits commence under the Pension Plan and shall continue to the
Employee's date of death, subject to Section 4.4 of this Plan.
(ii) Eligibility for a deferred benefit payable before Normal
Retirement Age in reduced amounts shall be pursuant to the same terms
and conditions as are set forth in the Pension Plan with respect to
deferred vested pensions.
4.6. FORFEITURE OF BENEFITS
(a) Notwithstanding Section 4.5, all or a portion of benefits for which
an Employee would be otherwise eligible hereunder may be forfeited under the
following circumstances, at the discretion of the Board or its delegate:
(i) The Employee is discharged by a Participating Company for
cause. For purposes of this Plan, cause shall mean:
(A) The Employee's conviction (including a plea of guilty or nolo
contendere) of a felony or any crime of theft, dishonesty or moral
turpitude;
(B) Gross omission or gross dereliction of any statutory or common
law duty of loyalty to the Company.
(ii) Determination by the Board or its delegate that the Employee
engaged in misconduct in connection with the Employee's employment with a
Participating Company or with any other entity of which the Company has an
ownership interest.
(iii) The Employee, without the consent of the Board, violates the
Lucent Technologies Inc. Non-Competition Guideline.
(b) The portion of the benefit subject to forfeiture under the
conditions described in this Section 4.6(a), are as follows:
(i) The total benefit, or any unpaid benefit if the former Employee
is in pay status, is subject to forfeiture, except as provided in Section
4.6(b)(ii).
(ii) In the case of an Employee who is retiring at his or her
Mandatory Retirement Age the provisions of Section 4.6(b)(i) shall not apply to
that portion of the benefits computed under Article 4 of this Plan which, when
added to the retirement payments payable under the Pension Plan (prior to any
reduction for the cost of a survivor annuity) and the Lucent Technologies Inc.
Excess Benefit and Compensation Plan, does not exceed the non-forfeitable
retirement income requirement of ADEA Section 12(c)(i).
ARTICLE 4 -14- BENEFITS
<PAGE> 18
LUCENT TECHNOLOGIES INC. MID-CAREER PENSION PLAN
ARTICLE
5.
GENERAL PROVISIONS
5.1. NO GUARANTEE OF EMPLOYMENT
Neither the Plan nor any action taken hereunder shall be construed as
(i) a contract of employment or deemed to give any Participant the right to be
retained in the employment of a Participating Company, the right to any level of
compensation, or the right to future participation in the Plan; or (ii)
affecting the right of a Participating Company to discharge or dismiss any
Participant at any time.
5.2. ASSIGNMENT OR ALIENATION
No service, disability, or deferred benefit under this Plan or any
right or interest in such service, disability, or deferred benefit shall be
assignable or subject in any manner to anticipation, alienation, sale, transfer,
claims of creditors, garnishment, pledge, execution, attachment or encumbrance
of any kind, including, but not limited to, pursuant to any domestic relations
order (within the meaning of ERISA Section 206(d)(3) and Code Section
414(p)(1)(B)) or judgment or claims for alimony, support, separate maintenance,
and claims in bankruptcy proceedings, and any such attempted disposition shall
be null and void.
5.3. BREAKS IN SERVICE
For purposes of this Plan a break in service shall be defined and
treated in the same manner as is set forth in the Pension Plan.
5.4. LEAVE OF ABSENCE
For purposes of this Plan, a leave of absence shall be defined and
administered in the same manner as is set forth in the Pension Plan.
5.5. METHOD OF PAYMENT
Payments under this Plan shall be made in the same manner as is set
forth under the Pension Plan.
5.6. AMOUNTS ACCRUED PRIOR TO DEATH
Benefit amounts accrued but not actually paid at the time of death of a
former employee or retiree shall be paid in accordance with the standards and
procedures set forth in the Pension Plan.
5.7. FACILITY OF PAYMENT
If the Administrator shall find that any person to whom any amount is
or was payable under the Plan is unable to care for his or her affairs because
of illness or accident, then any payment, or any part thereof, due to such
person (unless a prior claim therefor has been made by a duly appointed legal
representative), may, if the Administrator so directs the Company, be paid
ARTICLE 5 -15- GENERAL PROVISIONS
<PAGE> 19
LUCENT TECHNOLOGIES INC. MID-CAREER PENSION PLAN
to the same person or institution that the benefit with respect to such person
is paid or to be paid under the Pension Plan, or to the Participant's lawful
spouse, a child, a relative, or institution maintaining or having custody of
such person, or any other person deemed by the Administrator to be a proper
recipient on behalf of such person otherwise entitled to payment. Any such
payments made pursuant to this Section 5.7 shall be in complete discharge of the
liability of the Company, the Board, the Committee, the Administrator, and the
Participating Company therefor. If any payment to which a Participant or
beneficiary is unclaimed, such payment shall be forfeited after a period of two
years from the date the first such payment was payable and shall not escheat to
any state or revert to any party; provided, however, that any such payment or
payments shall be restored if any person otherwise entitled to such payment or
payments makes a valid claim.
5.8. OPTION DURING DISABILITY
For an employee who has left the service of a Participating Company and
has elected to continue receiving disability benefits which he or she had been
receiving prior to termination of employment (including disability benefits
under the Lucent Technologies Inc. Officer Long Term Disability and Survivor
Protection Plan) and to defer receiving pension payments under the Pension Plan
to which he or she is eligible, benefits under this Plan shall be deferred until
such time as the employee begins to receive payments under the Pension Plan.
5.9. PAYMENTS UNDER LAW
In case any benefit which the Committee shall determine to be of the
same general character as a payment provided by the Plan that is payable to a
former employee of a Participating Company under any law now in force or
hereafter enacted, the excess only, if any, of the amount prescribed in the Plan
above the amount of such payment prescribed by law shall be payable under the
Plan; provided, however, that no benefit payable under this Plan shall be
reduced by reason of any governmental benefit or pension payable on account of
military service, or by reason of any benefit which the recipient would be
entitled to receive under the Social Security Act or the Railroad Retirement
Act. In those cases where, because of differences in the beneficiaries, or
differences in the time or methods of payment, or otherwise, whether or not
there is such excess is not ascertainable by mere comparison but adjustments are
necessary, the Committee has discretion to determine whether or not in fact any
such excess exists and to make the adjustments necessary to carry out in a fair
and equitable manner the spirit of the provision for the payment of such excess.
Further, in determining whether or not there is an excess, to the extent any
payments under any law are considered in determining whether there is any excess
payable to an employee under the Pension Plan, the amount of such payments under
law shall not be considered under this Plan.
5.10. BINDING EFFECT
The Plan shall be binding upon and inure to the benefit of each
Participating Company and its successors and assigns, and to each Participant,
his or her successors, designees, beneficiaries, designated annuitants, and
estate. The Plan shall also be binding upon any successor corporation or
organization succeeding to substantially all of the assets and business of a
Participating Company. Nothing in the Plan shall preclude a Participating
Company from
ARTICLE 5 -16- GENERAL PROVISIONS
<PAGE> 20
LUCENT TECHNOLOGIES INC. MID-CAREER PENSION PLAN
merging or consolidating into or with, or transferring all or a portion of all
of its assets to, another corporation which assumes the Plan or a portion of the
Plan and all or a portion of the obligations of a Participating Company
hereunder. Each Participating Company agrees that it will make appropriate
provision for the preservation of the rights of Participants and beneficiaries
under the Plan in any agreement or plan or reorganization into which it may
enter to effect any merger, consolidation, reorganization into which it may
enter to effect any merger, consolidation, reorganization, or transfer of
assets. Upon such a merger, consolidation, reorganization, or transfer of
assets, the term "Participating Company" shall refer to such other corporation
and the Plan shall continue in full force and effect.
5.11. SEVERABILITY
If any section, clause, phrase, provision, or portion of this Plan or
the application thereof to any person or circumstance shall be invalid or
unenforceable under any applicable law, such event shall not affect or render
invalid or unenforceable the remainder of this Plan and shall not affect the
application of any section, clause, provision, or portion hereof to other
persons or circumstances.
5.12. HEADINGS
The captions preceding the sections and articles hereof have been
inserted solely as a matter of convenience and shall not in any manner define or
limit the scope or intent of any provisions of the Plan.
5.13. ENTIRE PLAN
This written Plan document is the final and exclusive statement of the
terms of this Plan, and any claim of right or entitlement under the Plan shall
be determined in accordance with its provisions pursuant to the procedures
described in Article 3. Unless otherwise authorized by the Board or its
delegate, no amendment or modification to this Plan shall be effective until
reduced to writing and adopted pursuant to Section 6.1.
ARTICLE 5 -17- GENERAL PROVISIONS
<PAGE> 21
LUCENT TECHNOLOGIES INC. MID-CAREER PENSION PLAN
ARTICLE
6.
PLAN MODIFICATION
6.1. AMENDMENT AND TERMINATION
Pursuant to ERISA Section 402(b)(3), the Board or its delegate, (acting
pursuant to the Board's delegations of authority then in effect) may from time
to time amend, modify or change the Plan at any time as set forth in this
document, and the Board or its delegate (acting pursuant to the Board's
delegations of authority then in effect) may terminate the Plan at any time.
Plan amendments may include, but are not limited to, elimination or reduction in
the level or type of benefits provided to employees. Any and all Plan amendments
may be made without the consent of any employee. Notwithstanding the foregoing,
no such amendment, suspension or termination shall retroactively impair or
otherwise adversely affect the accrued benefit of any employee as of the date of
such action.
ARTICLE 6 -18- PLAN MODIFICATION
<PAGE> 22
LUCENT TECHNOLOGIES INC. MID-CAREER PENSION PLAN
ARTICLE
7.
SOURCE OF PAYMENT
7.1. SOURCE OF PAYMENTS
Benefits arising under this Plan and all costs, charges, and expenses
relating thereto will be payable from the Company's general assets. The Company
may, however, establish a trust to pay such benefits and related expenses,
provided such trust does not cause the Plan to be "funded" within the meaning of
ERISA. To the extent trust assets are available, they may be used to pay
benefits arising under this Plan and all costs, charges, and expenses relating
thereto. To the extent that the funds held in the trust, if any, are
insufficient to pay such benefits, costs, charges and expenses, the Company
shall pay such benefits, costs, charges, and expenses from its general assets.
7.1. UNFUNDED STATUS
The Plan at all times shall be entirely unfunded for purposes of the
Code and ERISA and no provision shall at any time be made with respect to
segregating any assets of a Participating Company for payment of any benefits
hereunder. Funds that may be invested through a trust described in Section 7.1
hereunder shall continue for all purposes to be part of the general assets of
the Participating Companies which invested the funds. The Plan constitutes a
mere promise by the Participating Companies to make benefit payments under this
Plan in the future. No Participant shall have any interest in any particular
assets of a Participating Company by reason of the right to receive a benefit
under the Plan and to the extent the Participant acquires a right to receive
benefits under this Plan, such right shall be no greater than the right of any
unsecured general creditor of a Participating Company.
ARTICLE 8 -19- SOURCE OF PAYMENT
<PAGE> 23
LUCENT TECHNOLOGIES INC. MID-CAREER PENSION PLAN
ARTICLE
8.
DISPOSITION OF PARTICIPATING COMPANY
8.1. SALE, SPIN-OFF, OR OTHER DISPOSITION OF PARTICIPATING COMPANY
(a) Subject to Section 5.10, in the event the Company sells, spins off,
or otherwise disposes of a Subsidiary or an Affiliated Corporation, or disposes
of all or substantially all of the assets of a Subsidiary or an Affiliated
Corporation such that one or more Participants terminate employment for the
purpose of accepting employment with the purchaser of such stock or assets, any
person employed by such Subsidiary or Affiliated Corporation who ceases to be an
employee as a result of the sale, spin-off, or disposition shall be deemed to
have terminated his or her employment with a Participating Company and be
eligible for a Mid-Career Pension benefit commencing at the same time as his or
her benefit, if any, commences under the Pension Plan.
(b) Notwithstanding the foregoing provisions of this Section 8.1, and
subject to Section 5.10, if, as part of the sale, spin-off, or other disposition
of the stock or assets of a Subsidiary or Affiliated Corporation, the Subsidiary
or Affiliated Corporation, its successor owner, or any other party agrees in
writing to assume the liability for the payment of the Mid-Career Pension
benefit to which the Participant would have been entitled under the Plan but for
such sale, spin-off, or other disposition, then the entitlement of the
Participant to a Mid-Career Pension benefit under this Plan shall terminate. Any
subsequent entitlement of the former Participant to the Mid-Career Pension
benefit shall be the sole responsibility of the assuming party. Upon the
assumption of the liability for the payment of a Mid-Career Pension benefit by
AT&T Corp. pursuant to Section 7.1 of the Management Interchange Agreement or
Section 3.1 of the Occupational Interchange Agreement, both dated as of April 8,
1996, between Lucent Technologies Inc. and AT&T Corp., the entitlement of a
Transition Individual (as defined in Section 1.38(a) or (d) of the Management
Interchange Agreement or Section 1.30(a) or (d) of the Occupational Interchange
Agreement), to a Mid-Career Pension benefit under this Plan shall terminate.
ARTICLE 8 -20- DISPOSITION OF PARTICIPATING COMPANY
<PAGE> 24
IN WITNESS WHEREOF, the Company has caused this Plan to be effective on
October 1, 1996 and to be executed on this ___ day of ___________, 1996.
For Lucent Technologies Inc.
By:______________________________________
Curtis R. Artis
Senior Vice President, Human Resources
Attest:__________________________________
Pamela F. Craven
Vice President - Law
Assistant Secretary
<PAGE> 1
EXHIBIT (10)(iii)(A)7
LUCENT TECHNOLOGIES INC.
NON-QUALIFIED PENSION PLAN
As effective October 1, 1996
<PAGE> 2
TABLE OF CONTENTS
ARTICLE 1 PURPOSE............................................................4
ARTICLE 2 DEFINITIONS........................................................5
ARTICLE 3 PARTICIPATION AND ELIGIBILITY......................................9
3.01. PARTICIPATION...........................................................9
3.02. ELIGIBILITY.............................................................9
ARTICLE 4 PENSION BENEFITS..................................................12
4.01. BENEFIT ELIGIBILITY....................................................12
4.02. BENEFIT FORMULAS.......................................................13
4.03. MONTHLY PAYMENTS.......................................................15
4.04. COMMENCEMENT AND DURATION OF PAYMENTS..................................16
4.05. TREATMENT DURING SUBSEQUENT EMPLOYMENT.................................16
4.06. METHOD AND FORM OF PAYMENT.............................................16
ARTICLE 5 DEATH BENEFITS....................................................17
5.01. PARTICIPATION..........................................................17
5.02. DEATH BENEFITS.........................................................17
ARTICLE 6 SOURCE OF PAYMENT.................................................19
6.01. SOURCE OF PAYMENTS.....................................................19
6.02. UNFUNDED STATUS........................................................19
ARTICLE 7 ADMINISTRATION OF THE PLAN........................................21
7.01. ADMINISTRATION AND AUTHORITIES.........................................21
7.02. COMMITTEE..............................................................21
7.03. INDEMNIFICATION........................................................21
7.04. BENEFIT CLAIMS AND APPEALS.............................................23
ARTICLE 8 ADOPTION, AMENDMENT AND TERMINATION...............................24
8.01. ADOPTION OF PLAN.......................................................24
8.02. AMENDMENT AND TERMINATION..............................................24
8.03. ACQUISITION OR DISPOSITION OF PARTICIPATING COMPANY....................24
ARTICLE 9 GENERAL PROVISIONS................................................26
9.01. BINDING EFFECT.........................................................26
9.02. FIDUCIARY RELATIONSHIP.................................................26
9.03. NO GUARANTEE OF EMPLOYMENT.............................................26
9.04. TAX WITHHOLDING........................................................26
9.05. ASSIGNMENT OF BENEFITS.................................................27
9.06. FACILITY OF PAYMENT....................................................27
9.07. SEVERABILITY...........................................................27
9.08. EFFECTIVE DATE.........................................................27
9.09. PLAN YEAR..............................................................28
9.10. HEADINGS...............................................................28
9.11. GOVERNING LAW..........................................................28
LUCENT TECHNOLOGIES INC. NON-QUALIFIED PENSION PLAN
PAGE 2
<PAGE> 3
9.12. FORFEITURE OF BENEFITS.................................................28
9.13. OPTION DURING DISABILITY...............................................28
9.14. SPECIAL CLASSIFICATION.................................................28
9.15. CLAIMS RELEASE.........................................................29
9.16. DAMAGE CLAIMS OR SUITS.................................................29
9.17. JUDGMENT OR SETTLEMENT.................................................29
9.18. PAYMENT UNDER LAW......................................................29
9.19. ENTIRE PLAN............................................................30
APPENDIX A...................................................................31
APPENDIX B...................................................................33
LUCENT TECHNOLOGIES INC. NON-QUALIFIED PENSION PLAN
PAGE 3
<PAGE> 4
ARTICLE 1
PURPOSE
This Lucent Technologies Inc. Non-Qualified Pension Plan (the "Plan") is an
Amendment and Restatement of predecessor programs sponsored by AT&T that were
first adopted on October 1, 1980, to provide supplemental pension, disability
and death benefits to certain employees of AT&T and the Company. The Plan is
intended to constitute an unfunded plan of deferred compensation for a select
group of management or highly compensated employees for purposes of Title I of
ERISA.
The Plan is a successor to the AT&T Non-Qualified Pension Plan in effect as of
September 30, 1996, with respect to Transferred Individuals (as defined in
Article 2 of the Employee Benefits Agreement dated February 1, 1996, and as
amended and restated effective March 29, 1996). The Plan assumes and is solely
responsible for all liabilities as of September 30, 1996, relating to
Transferred Individuals under the Plan. Accordingly, the Plan shall recognize
such service and compensation as of September 30, 1996, with respect to
Transferred Individuals as would be recognized by the AT&T Non-Qualified Pension
Plan in effect as of September 30, 1996. To the extent that the Plan refers to
dates, events, agreements, elections, or designations before October 1, 1996
relating to Transferred Individuals, such dates, events, agreements, elections
and designations shall be recognized as if Lucent Technologies Inc. and the Plan
were in existence at the applicable time. For Transferred Individuals who
terminated employment before October 1, 1996, the provisions of the AT&T
Non-Qualified Pension Plan in effect at termination of the Transferred
Individual's employment shall be deemed to be incorporated in this Plan and
shall govern.
LUCENT TECHNOLOGIES INC. NON-QUALIFIED PENSION PLAN
PAGE 4
<PAGE> 5
ARTICLE 2
DEFINITIONS
Whenever used herein, the terms set forth below have the following meanings
unless a different meaning is clearly required by the context:
2.01. "ACTIVE SERVICE" means the period of active employment but excluding
any time the individual is absent on account of disability and receiving or
eligible to receive sickness or accident disability benefits under the Company's
Sickness and Accident Disability Benefit Plan.
2.02. "ADEA" means the Age Discrimination in Employment Act of 1967, as it
may be amended from time to time.
2.03. "ADJUSTED CAREER AVERAGE PAY" as used in the Alternate Formula
described in SECTION 4.02(B), means (i) in the case of an Officer, the sum of A
and B below divided by such Officer's Term of Employment and (ii) in the case of
an Executive Employee, the amount described in B below divided by such Executive
Employee's Term of Employment:
A. the sum of (1) the average of an Officer's annual Short Term
Incentive Awards and any salary amounts deferred under the Lucent
Technologies Inc. Senior Management Incentive Award Deferral Plan
includable in the 1989 Base Period multiplied by his or her Term of
Employment as of December 31, 1989, (2) his or her Short Term Incentive
Awards and any salary amounts deferred under the Lucent Tecnologies
Inc. Senior Management Incentive Award Deferral Plan includable under
the Basic Formula for the period from January 1, 1990, to the date of
retirement.
B. the sum of (a) the product of (i) the Participant's average annual
"Compensation" as defined in the Pension Plan for the 1992 Base Period
and (ii) the Participant's Term of Employment as of December 31, 1992,
and (b) the Participant's "Compensation" for the period from January 1,
1993, to the last day of his or her Term of Employment.
2.04. "ADMINISTRATOR" means the person identified as the Pension Plan
Administrator under the Pension Plan or such other person or entity designated
by the Company.
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2.05. "AFFILIATED CORPORATION" means any corporation or other entity of which
50 percent or more of the voting stock is owned directly or indirectly by the
Company.
2.06. "AT&T" means AT&T Corp. (formerly American Telephone and Telegraph
Company), a New York Corporation, or its successors.
2.07. "1989 BASE PERIOD" means the period from January 1, 1987, to December
31, 1989.
2.08. "1992 BASE PERIOD" means the period from January 1, 1990, to December
31, 1992.
2.09. "BOARD" means the Board of Directors of Lucent Technologies Inc.
2.10. "COMMITTEE" means the Employee Benefits Committee appointed by the
Company to administer the Pension Plan.
2.11. "COMPANY" means Lucent Technologies Inc. or its successors.
2.12. "COVERED COMPENSATION BASE" means an amount which is the average of the
maximum wage amounts on which an employee's liability for Social Security taxes
were determined for each year beginning with January 1, 1958, and ending with
the year the year in which the calculation is made.
2.13. "DELEGATE" means the Board's authorized representative designated
pursuant to a delegation of authority by the Board to act on behalf of or to
perform one or more administrative responsibilities under the Plan.
2.14. "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
2.15. "EXECUTIVE EMPLOYEE" means any employee of a Participating Company
employed in a position evaluated or classified as an "Executive" or equivalent
position by the Company, except that no employee who is assigned to such a
position on a temporary basis after being notified in writing of the temporary
status of such assignment shall be an "Executive Employee" for any purpose under
this Plan.
2.16. "LONG TERM DISABILITY PLAN" means the Lucent Technologies Inc. Officers
Long Term Disability and Survivor Protection Plan.
2.17. "NORMAL RETIREMENT AGE" means the Normal Retirement Age determined
under the Pension Plan.
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2.18. "OFFICER" means any employee of a Participating Company holding a
position evaluated or classified above the "Executive" level by the Company,
except that no employee who is assigned to such a position on a temporary basis
after being notified in writing of the temporary status of such assignment shall
be an "Officer" for any purpose under this Plan.
2.19. "PARTICIPANT" means an Officer who is eligible for a service pension,
deferred vested pension or disability pension under the terms of the Pension
Plan or an Executive Employee who is eligible for a service pension under the
terms of the Pension Plan.
2.20. "PARTICIPATING COMPANY" means the Company and any Affiliated
Corporation which has elected, with the approval of the Committee as required by
SECTION 8.01, to participate in the Plan.
2.21. "PENSION PLAN" means the Lucent Technologies Inc. Management Pension
Plan, as amended from time to time.
2.22. "PENSION PLAN BENEFIT" means the annual pension benefit determined
under the Pension Plan without regard to the limitations on covered compensation
under Section 401(a)(17) of the Internal Revenue Code of 1986 or the limitations
on benefit accruals and payments under Section 415 of the Internal Revenue Code
of 1986, and before any reduction in such pension benefit for the cost of a
survivor annuity or for early retirement.
2.23. "PLAN" means this Lucent Technologies Inc. Non-Qualified Pension Plan,
as set forth herein and as amended from time to time.
2.24. "POSITION RATE" means an amount established periodically by the Company
for each Officer position upon which base salaries are administered.
2.25. "PREDECESSOR PLAN SPONSOR" means AT&T and any other corporation or
entity that enters into an agreement or agreements providing for the assumption
of liabilities by this Plan comparable to the Management Interchange Agreement
dated as of April 8, 1996, and the Employee Benefits Agreement dated February 1,
1996, and amended and restated as of March 29, 1996, between AT&T and the
Company.
2.26. "SHORT TERM INCENTIVE AWARD" means the actual amount awarded (including
any amounts deferred pursuant to the Lucent Technologies Inc. Officers Incentive
Award Deferral Plan) annually to an Officer pursuant to the Lucent Technologies
Inc. Senior Management Short Term Incentive Plan or predecessor short term
incentive plans. Short Term Incentive Awards shall, for
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purposes of this Plan, be considered to be awarded on the last day of the
performance period with respect to which they are earned.
2.27. "STANDARD AWARD" means an amount determined periodically for each
Position Rate under the Lucent Technologies Inc. Senior Management Short Term
Incentive Plan or predecessor short term incentive plans.
2.28. "SUCCESSOR PLAN SPONSOR" means any corporation or entity that enters
into an agreement or agreements providing for the assumption of liabilities
arising under this Plan comparable to the Management Interchange Agreement dated
as of April 8, 1996, and the Employee Benefits Agreement dated February 1, 1996,
and amended and restated as of March 29, 1996, between AT&T and Lucent
Technologies Inc.
2.29. "TERM OF EMPLOYMENT" means the period of employment described in
Section 2.38 of the Pension Plan and, unless expressly limited by the context,
shall also mean the number of full or partial calendar years comprising Years of
Service as defined in Section 2.39 of the Pension Plan.
2.30. "TOTAL COMPENSATION" As used in the Alternate Minimum Formula described
in SECTION 4.02(C) means the sum of (i) the elements of Compensation as defined
in Section 4.2(f) of the Pension Plan, (ii) salary amounts deferred under the
Lucent Technologies Inc. Officers Incentive Award Deferral Plan, and (iii) Short
Term Incentive Awards.
2.31. "TRANSITION PARTICIPANT" means a Participant as to whom the
responsibility and liability for the payment of benefits accrued or payable
under a plan or plans of a Predecessor Plan Sponsor has been assumed by the
Company and are payable under this Plan.
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ARTICLE 3
PARTICIPATION AND ELIGIBILITY
3.01. PARTICIPATION.
All Officers and Executive Employees who meet the criteria set forth in
SECTION 2.18 shall be eligible to participate in this Plan.
3.02. ELIGIBILITY.
(a) SERVICE BENEFIT. Each Participant who is eligible for a
service pension pursuant to the terms of the Pension Plan
(excluding for purposes of this Section 3.02(a) the effect of
any management pension enhancement pursuant to Section 4.2(h)
of the Pension Plan) and who meets the relevant requirements
of Article 4 shall be eligible for a service benefit pursuant
to this Plan.
(b) DEFERRED BENEFIT.
(i) Except as otherwise specified in Sections
4.04 and 4.05, an Officer who is eligible
for a deferred vested pension pursuant to
the terms and conditions of the Pension Plan
is eligible for a deferred benefit pursuant
to this Plan.
(ii) An Officer who leaves the service of a
Participating Company and who has elected to
have his or her deferred vested pension
payable early in reduced amounts pursuant to
the terms and conditions of the Pension Plan
shall be deemed to have elected to have his
or her deferred benefits under this Plan
payable early in reduced amounts under the
same terms and conditions as set forth in
the Pension Plan. In the event of such an
election, the amount of deferred benefit
otherwise payable at Normal Retirement Age
under this Plan to such participant shall be
reduced in accordance with the same formulas
as are set forth in the Pension Plan for the
discounting of the deferred vested pension.
(iii) The Committee, the Administrator or a
Delegate, as appropriate, shall notify each
Officer who leaves the employment of such
Participating Company (except to take
employment without a break in service with
another Participating Company or other
Affiliated Corporation) of his
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or her eligibility, if any, for a deferred
benefit by mailing, within a reasonable time
after his or her leaving, a notice to his or
her last known address as shown on the
Participating Company's records.
(c) DISABILITY BENEFIT. A Participant who, while an Officer, has
become eligible for a Disability Pension pursuant to Section
4.1(c) of the Pension Plan shall be eligible for a Disability
Benefit hereunder. Should the Disability Pension be
discontinued (other than by reason of conversion to a Service
Pension) pursuant to the terms of the Pension Plan, the
Disability Benefit hereunder shall be discontinued as well.
(d) CONTINGENT BENEFITS.
(i) An Officer who, on or after October 1, 1996,
is reassigned to a position evaluated at or
below the Executive level for reasons other
than unsatisfactory performance, and who has
satisfied the vesting requirements of
SECTION 3.02(a) OR SECTION 3.02(b) of this
Plan as of the reassignment date, will be
eligible for Officers benefits upon his or
her termination of employment provided he or
she is then eligible for pension payments
under the Pension Plan. The determination of
the amount of such former Officer's benefits
will be based on his or her Term of
Employment completed as of the reassignment
date and shall be computed in accordance
with SECTION 4.02(a) in effect on such date.
(ii) An Officer who, on or after October 1, 1996,
is reassigned to a position evaluated below
the Executive level for reasons other than
unsatisfactory performance, and who has not
satisfied the vesting requirements of this
Plan as of the reassignment date, will not
be eligible for benefits under this Plan
upon his or her termination of employment.
(iii) An Officer who, on or after October 1, 1996,
is reassigned to a position evaluated at the
Executive level for reasons other than
unsatisfactory performance, and who has
satisfied the vesting requirements of
SECTION 3.02(a) OR SECTION 3.02(b) of this
Plan as of the reassignment date shall be
eligible for a benefit (A) under SECTION
3.02(a), if such Officer is eligible for a
service pension under Section 4.1(a) of the
Pension Plan on the last day of his or her
Term of Employment or (B) under SECTION
3.02(b), if such Officer is not eligible for
a service pension under Section 4.1(a) of
the Pension Plan on
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the last day of his or her Term of
Employment. The benefit of any reassigned
Officer described in this SECTION
3.02(d)(III)(a) shall be computed based on
his or her Term of Employment and in
accordance with SECTION 4.02(b) in effect on
the last day of such Term of Employment. The
benefit of any reassigned Officer described
in this SECTION 3.02(d)(III)(b) shall be
computed based on his or her Term of
Employment completed as of the last day of
the year in which his or her job is
reclassified and in accordance with SECTION
4.02(a) in effect as of the date of such
reassignment.
(iv) A Participant, other than an Officer whose
job is classified or reclassified during or
after 1986 to a level below Executive will
be eligible for the service benefit describe
in SECTION 3.02(a) and computed in
accordance with SECTION 4.02(b) based on his
or her Term of Employment completed as of
the last day of 1988 or if later, the last
day of the year in which his or her job is
reclassified and based on the provisions of
the Plan in effect on such day, provided he
or she is then eligible for a service
pension under the Pension Plan, and further
provided he or she is not demoted subsequent
to such day because of unsatisfactory job
performance prior to retiring under the
Pension Plan.
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ARTICLE 4
PENSION BENEFITS
4.01. BENEFIT ELIGIBILITY.
(a) OFFICERS. The following provisions govern the eligibility for
benefits of Officers whose retirement date is on or after
October 1, 1996.
(i) The benefit of an Officer who had at least
five Years of Service as an Officer as of
December 31, 1993, will be the greater of the
annual benefit amounts determined under the
Basic Formula, the Alternate Formula or the
Alternate Minimum Formula described in
SECTIONS 4.02(a), (b) and (c) respectively.
(ii) The benefit of an Officer who is not described
in SECTION 4.01(a)(i) but who is eligible for
a service pension under Section 4.1(a) of the
Pension Plan as of the last day of his or her
Term of Employment will be the greater of the
annual benefit amounts under the Basic Formula
or the Alternate Formula described in SECTIONS
4.02(a) and (b) respectively.
(iii) The benefit of an Officer who is not described
in SECTIONS 4.01(a)(i) or (ii) but who is
eligible for a deferred vested pension under
Section 4.1(b) or a disability pension under
Section 4.1(c) of the Pension Plan as of the
last day of his or her Term of Employment will
be the amount determined under the Basic
Formula described in SECTION 4.02(a).
(iv) The benefit payable to the surviving lawful
spouse of an Officer shall be determined in
accordance with SECTION 4.02(d)(i), if the
Officer is an employee at the time of death
and in accordance with SECTIONS 4.02(d)(ii)
and (iii), if the Officer is not an employee
at the time of death.
(b) EXECUTIVE EMPLOYEES. The annual service benefit of an
Executive Employee whose retirement date is on or after
October 1, 1996, will be the amount computed under the
Alternate Formula described in Section 4.02(b). The benefit
payable to the surviving lawful spouse of an Executive
Employee shall be determined in accordance with Section
4.02(d)(i), if the Executive Employee is an employee at the
time of death.
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4.02. BENEFIT FORMULAS.
(a) BASIC FORMULA. The annual service or disability benefit under
the Basic Formula shall be determined by adding (A) the
product of one and five-tenths percent (1.5%) of the average
annual Short Term Incentive Awards for the 1989 Base Period
and the Officer's Term of Employment as of December 31, 1989
and (B) the sum of one and six-tenths percent (1.6%) of the
Short Term Incentive Award for each successive full or partial
calendar year of employment following 1989.
(i) Early Retirement Discount. The monthly
service benefit, determined in accordance
with the Basic Formula of this SECTION
4.02(a), for each Officer who is granted a
service benefit for reasons other than total
disability as a result of sickness or
injury, shall be reduced by one-half percent
(0.5%) for each calendar month or part
thereof by which his or her age at time
benefits are first paid under this Plan is
less than fifty-five (55) years, except that
each Officer retired with thirty (30) or
more years of service shall receive a
monthly benefit allowance reduced by
one-quarter percent (0.25%) for each
calendar month or part thereof by which such
Officer's age at the time benefits are first
paid under this Plan is less than fifty-five
(55) years.
(ii) Deferred Benefit Amount. The monthly benefit
for each Officer eligible for a deferred
benefit under the provisions of SECTION
3.02(b) shall be calculated exclusively in
accordance with the provisions specified as
applicable to those receiving a benefit
under this SECTION 4.02(a) effective as of
the date such Officer leaves the service of
a Participating Company.
(iii) An Officer who leaves the service of a
Participating Company with eligibility for a
deferred benefit in accordance with SECTION
3.02(b) but who is not entitled to any other
class of pension or benefit under this Plan
shall not be considered a retiree pursuant
to the Pension Plan or a retired Officer.
(b) ALTERNATE FORMULA. The annual benefit under the Alternate
Formula shall be the excess of B over A, where A equals the
Participant's Pension Plan Benefit and B equals the product of
one and seven-tenths percent (1.7%) of the Participant's
Adjusted Career Average Pay, less eight-tenths of one percent
(0.8%) of the Participant's Covered Compensation Base,
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and the Participant's Term of Employment. The service benefit
under this Alternate Formula will be reduced in case of
retirement before age 60 by applying the appropriate reduction
factor from the Table of such factors shown in Appendix B to
such benefit.
(c) ALTERNATE MINIMUM FORMULA. The annual benefit under the
Alternate Minimum Formula in this Section 4.02(c) shall be an
amount equal to (A) the product of the greater of the amount
determined under Formula A or the amount determined under
Formula B, multiplied by the applicable factor set forth in
Appendix A, less (B) the amount of the Officer's Pension Plan
Benefit.
(i) Formula A. For purposes of the Alternate
Minimum Formula in this SECTION 4.02(c),
Formula A means the sum of (a) the product
of one and five tenths percent (1.5%) of
average calendar year Total Compensation for
the 1992 Base Period and the Term of
Employment as of December 31, 1992, and (b)
one and six tenths percent (1.6%)of Total
Compensation for the calendar year 1993
actuarially reduced in case of retirement
before age 55 by applying the appropriate
reduction factor set forth in SECTION
4.02(a)(i).
(ii) Formula B. For purposes of this Alternate
Minimum Formula in this SECTION 4.02(c),
Formula B means the product of (a) the
excess of one and seven tenths percent
(1.7%) of Adjusted Career Average Pay, over
eight tenths of one percent (0.8%) of the
Covered Compensation Base, and (b) the
Officer's Term of Employment at December 31,
1993, reduced in case of retirement before
age 60 by applying the appropriate reduction
factor set forth in APPENDIX B.
(d) AUTOMATIC SURVIVOR ANNUITIES.
(i) Before-Retirement. In the event of the death
of an active Participant whose Term of
Employment includes at least fifteen years
or who is eligible for a service benefit
under SECTION 4.02(a) at the time of his or
her death and who leaves a surviving lawful
spouse, such surviving lawful spouse shall
receive, effective on the day following the
date of death, a survivor annuity in the
amount of forty five percent (45%) of the
benefit which would have been payable had
such Participant retired with a service
benefit, regardless of his or her actual
eligibility therefor, on the date of his or
her death. For purposes of the automatic
survivor annuity
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provided in this SECTION 4.02(d)(i), the
early retirement discounts in SECTIONS
4.02(a)(i) and 4.02 (b)(i) shall not apply.
(ii) Post-Retirement. Upon the death of an
Officer receiving a service or disability
benefit under this Plan who retired on or
after December 31, 1986 or retired prior to
that date but had not reached age 55 on or
before December 31, 1983, a survivor annuity
in the amount of 45% of such retired
Officer's monthly benefit amount will be
payable beginning on the day following the
date of his or her death to the surviving
lawful spouse of such retired Officer.
(iii) Post-Retirement Transition Cases. In the
case of a deceased Officer who retired prior
to December 31, 1987, the survivor annuity
payable under SECTION 4.02(d)(ii) above,
shall be increased by the amount required,
if any, to bring the total monthly survivor
annuity payable under this Plan to an amount
computed by multiplying the product of the
average of such Officer's Standard Awards
for a maximum of six (6) years prior to his
or her retirement year and sixty-five
hundredths percent (0.65%) by his or her
Term of Employment, and dividing the result
by twelve (12); the Standard Awards
includable in this computation cannot exceed
sixty percent (0.60%) of such Officer's
Position Rate.
(e) SPECIAL INCREASES. Service and disability benefit payments, as
determined under SECTIONS 4.02(a) and (b), of retired Officers
and service benefit payments, as determined under SECTION
4.02(b), of retired Executive Employees, and survivor
annuities in pay status under SECTIONS 4.02(d)(i), (d)(ii),
and (d)(iii) shall be increased by the same percentage and
pursuant to the same terms and conditions as are set forth for
comparable payments, from time to time, in the Pension Plan.
4.03. MONTHLY PAYMENTS.
The annual benefit determined under this ARTICLE 4 shall be divided by
twelve (12) and shall be payable monthly or at such other periods as
the Committee or the Administrator, as applicable, may determine in
each case.
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4.04. COMMENCEMENT AND DURATION OF PAYMENTS.
(i) Subject to the exception set forth in
paragraph (ii) herein, benefits granted
under this Plan shall commence on the date
the benefits under the Pension Plan are
first paid to the Participant and shall,
except for the reasons specified in SECTIONS
3.02(c), 4.05 and 9.12, continue to the
death of the recipient.
(ii) Any benefit payable to an Officer pursuant
to SECTION 4.02(c) who had at least five
Years of Service as an Officer as of
December 31, 1993, and as to whom the sum of
his or her attained age and Term of
Employment equaled or exceeded seventy (70)
as of that date shall be payable as of the
last day of his or her Term of Employment
and shall, except for the reasons specified
in SECTION 4.05 AND SECTION 9.12, continue
to his or her death.
(iii) Benefit amounts accrued and payable under
this ARTICLE 4 but not actually paid at the
time of death of a Participant shall be paid
in accordance with the standards and
procedures set forth in the Pension Plan.
4.05. TREATMENT DURING SUBSEQUENT EMPLOYMENT.
When a Participant's Term of Employment includes service with more than
one Participating Company or with a company that is not a Participating
Company, the last Participating Company to employ him or her
immediately prior to his or her retirement or termination of employment
with entitlement to a benefit hereunder shall be responsible for the
full benefit under this Plan. Employment with any Participating Company
subsequent to retirement or termination of employment with entitlement
to any type of benefit under this Plan shall result in the permanent
suspension of the benefit for the period of such employment or
reemployment to the extent and in a manner consistent with the terms
and conditions applicable to the suspension of benefit payments under
the Pension Plan. Payment of a Participant's benefit under this Plan
shall resume simultaneously with the recommencement of his or her
benefits under the Pension Plan. Following recommencement of payment
under this Plan, the Participant (or surviving lawful spouse) shall not
be eligible to receive any payments under this Plan that would
otherwise have been payable but for the suspension.
4.06. METHOD AND FORM OF PAYMENT.
Payments under this Article 4 shall be made in the same manner as set
forth under the Pension Plan.
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ARTICLE 5
DEATH BENEFITS
5.01. PARTICIPATION.
Upon the death of an active Officer or an Officer who, on or after
October 1, 1996, retires on a service or disability pension under the
Pension Plan (excluding for purposes of this Section 5.01 the effect of
any management pension enhancement pursuant to Section 4.2(h) of the
Pension Plan) or who terminates employment with eligibility to receive
payments under the Long Term Disability Plan, a Death Benefit shall be
provided under this Article 5. The Death Benefits under this Article 5
are in addition to the accident, sickness and pensioner death benefits
under the Death Benefit Plan in the Pension Plan and shall be paid to
the same beneficiary or beneficiaries and administered in the same
manner as such benefits under the Pension Plan.
5.02. DEATH BENEFITS.
(a) PRIMARY DEATH BENEFIT. In the case of the death of an Officer
described in Section 5.01 a benefit equal to one year's wages
shall be paid. For purposes of determining the benefit payable
under this Section 5.02(a) with respect to an Officer who dies
on or after October 1, 1996, one year's wages is defined as
the greater of (A) his or her Short Term Award for the
calendar year preceding the earlier of his or her date of
death or date of retirement, or (B) the Officer's Short Term
Award payable with respect to any later partial calendar year
period of service.
(b) OTHER POST-RETIREMENT DEATH BENEFITS. An additional death
benefit described in this Section 5.02(b) shall be provided
under this Plan in the case of an Officer who retires on a
service or disability Pension under the Pension Plan after
October 1, 1996. The death benefits under Section 5.02(b)(ii)
are provided also in the case of an Officer who terminates
employment with entitlement to Long Term Disability Plan
payments.
(i) Group Life Differential. Upon the death of
an Officer age 66 or older who retired after
December 31, 1986, and before October 1,
1990, the difference between the amount of
his or her Basic Group Life Insurance under
the Company's Group Life Insurance Program
which was in effect on the day before his or
her sixty-sixth (66) birthday and the amount
of such insurance in effect on the date of
his or her death shall be paid in a lump sum
to a beneficiary or beneficiaries designated
by the Officer, or, if there is no such
beneficiary, to the Officer's Estate.
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(ii) Tax Differential. An individual who is the
beneficiary of a deceased retired Officer or
an Officer who terminated employment with
entitlement to Long Term Disability payments
and who receives one or more of the benefits
listed below, shall be eligible to receive,
under this SECTION 5.02(B)(I), a tax
differential payment related to the
difference between the beneficiary's assumed
Federal Income tax liability on such benefit
or benefits and the beneficiary's assumed
Federal Income Tax liability had such
benefit or benefits been funded by the
proceeds of a life insurance policy on the
life of the retired Officer:
(A) Post-Retirement Survivor Annuity
described in Section 4.02(d)(ii),
(B) Pensioner Death Benefit described
in SECTION 5.02(a),
(C) Group Life Differential Death
Benefit described in SECTION
5.02(b)(i),
(D) Pensioner Death Benefit described
in Paragraph 3 of Section 5 of the
Pension Plan, and
(E) The Death Benefit described in
Section 5 of the Long Term
Disability Plan.
Federal Estate Tax and state and local inheritance or
income taxes shall not be considered in computing the
tax differential payment under this SECTION
5.02(b)(i).
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ARTICLE 6
SOURCE OF PAYMENT
6.01. SOURCE OF PAYMENTS.
The Company may establish a trust to hold assets to be used to make
benefit payments under the terms of this Plan, provided such trust does
not cause the Plan to be "funded" within the meaning of ERISA. Funds
invested hereunder shall, for purposes of this Plan, be considered to
be part of the general assets of the Participating Company which
invested the funds, and no Participant, beneficiary or lawful spouse
shall have any interest or right in such funds. To the extent trust
assets are available, they may be used to pay benefits arising under
this Plan and all costs, charges and expenses relating thereto. To the
extent that the funds held in the trust are insufficient to pay such
benefits, costs, charges and expenses, the Company or the responsible
Participating Company shall pay such benefits, costs, charges and
expenses from its general assets. In addition, the Company may, in its
sole discretion, direct that payments required under this Plan to any
Participant or surviving lawful spouse be made through the purchase and
distribution of one or more nontransferable annuity contracts or cause
the trustee of the trust to purchase and distribute such annuity
contracts. Any such purchase and distribution of an annuity contract
shall be a full and complete discharge of the Plan's, the Company's and
the Participating Companies' liability for payments assumed by the
issuer of the annuity contract. Further, the Senior Vice President,
Human Resources, may determine, in his sole discretion, to pay
additional sums to any Senior Manager, from the Company's general
assets or from the trust, if any, to reimburse the Senior Manager for
additional federal and state income taxes estimated to be incurred by
reason of the distribution of any such annuity contracts. The Senior
Vice President, Human Resources shall establish a methodology or
methodologies for determining the amount of such additional sums. The
methodology or methodologies selected shall be those that the Senior
Vice President, Human Resources determines, in his sole discretion, to
be the most effective and administratively feasible for the purpose of
producing after tax periodic benefit payments that approximate the
after tax periodic benefit payments that would have been received by
Participants in the absence of the distribution of the annuity
contract.
6.02. UNFUNDED STATUS.
The Plan at all times shall be entirely unfunded for purposes of the
Internal Revenue Code of 1986, and ERISA and, except as provided in
SECTION 6.01, no provision shall at any time be made with respect to
segregating any assets of a Participating Company for payment of any
benefits hereunder. The Plan constitutes a mere promise by the
Participating Company to make payments, if any,
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in the future. No Participant, surviving lawful spouse or any other
person shall have any interest in any particular assets of a
Participating Company by reason of the right to receive a benefit under
the Plan and to the extent the Participant, surviving lawful spouse or
any other person acquires a right to receive benefits under this Plan,
such right shall be no greater than the right of any unsecured general
creditor of a Participating Company.
LUCENT TECHNOLOGIES INC. NON-QUALIFIED PENSION PLAN
PAGE 20
<PAGE> 21
ARTICLE 7
ADMINISTRATION OF THE PLAN
7.01. ADMINISTRATION AND AUTHORITIES.
The Plan shall be administered by the Company and it shall have full
discretionary authority to manage and control the operation and
administration of the Plan, including the power to interpret provisions
of the Plan, make determinations of fact, promulgate rules and
regulations, determine benefit eligibility of individual and classes of
Participants (including, without limitation, determinations of a
Participant's applicable Term of Employment, Position Rate and rate of
pay), delegate its powers and duties hereunder to the Committee, the
Administrator or others and take such other action as it shall find
necessary and appropriate to implement the provisions of the Plan. The
Committee and the Administrator may retain attorneys, consultants,
accountants or other persons (who may be employees of the Company or an
Affiliated Corporation) to render advice and assistance and may
delegate any of the authorities conferred on it to such persons as it
shall determine to be appropriate to effect the discharge of its duties
hereunder. The Company, the Predecessor Plan Sponsor, the Affiliated
Corporations and any of their Officers and Executive Employees shall be
entitled to rely upon the advice, opinions, and determinations of any
such persons. Any exercise of the authorities set forth in this
Section, whether by the Company, the Committee, the Administrator or
their Delegate, shall be final and binding upon the Company, its
Affiliated Corporations, their officers, directors and affected
Participants and beneficiaries.
7.02. COMMITTEE.
The Company has delegated to the Committee authority to make the final
determination to grant or deny claims for benefits under the Plan with
respect to Participants, surviving lawful spouses, and other
beneficiaries and to authorize disbursements according to the terms of
the Plan.
7.03. INDEMNIFICATION.
No member of the Board, the Committee or the Administrator shall be
personally liable by reason of any contract or other instrument
executed by such individual or on his or her behalf in his or her
capacity as a member of the Board, Committee or the Administrator nor
for any mistake of judgment made in good faith, and the Company shall
indemnify and hold harmless each member of the Board, each member of
the Committee, the Administrator and each other employee, officer, or
director of the Company or any Participating Company to whom any duty
or power relating to the administration or interpretation of the Plan
may be allocated or delegated, against any cost or expense (including
attorneys' fees) or liability
LUCENT TECHNOLOGIES INC. NON-QUALIFIED PENSION PLAN
PAGE 21
<PAGE> 22
(including any sum paid in settlement of a claim) arising out of any
act or omission to act in connection with the Plan unless arising out
of such person's own fraud or bad faith.
LUCENT TECHNOLOGIES INC. NON-QUALIFIED PENSION PLAN
PAGE 22
<PAGE> 23
7.04. BENEFIT CLAIMS AND APPEALS.
(a) BENEFIT CLAIMS. All claims for benefit payments under the Plan
shall be submitted in writing by Participants to the person
designated by the Company to make determinations as to
eligibility for benefits under the Plan and such person shall
notify the Participant in writing within 90 days after receipt
as to whether the claim has been granted or denied. This
period may be extended for up to an additional 90 days in
unusual cases provided that written notice of the extension is
furnished to the claimant prior to the commencement of the
extension. In the event the claim is denied, such notice shall
(i) set forth the specific reason or reasons for denial, (ii)
make reference to the pertinent Plan provisions on which the
denial is based, (iii) describe any additional material or
information necessary before the Participant's request may be
acted upon favorably, and (iv) explain the procedure for
appealing the adverse determination.
(b) BENEFIT APPEALS. A Participant whose claim for benefits has
been denied may, within 60 days of receipt of any adverse
benefit determination, appeal such denial to the Committee.
All appeals shall be in the form of a written statement and
shall (i) set forth all of the reasons in support of favorable
action on the appeal, (ii) identify those provisions of the
Plan upon which the claimant is relying, and (iii) include
copies of any other documents or materials which may support
favorable consideration of the claim. The Committee shall
decide the issues presented within 60 days after receipt of
such request, but this period may be extended for up to an
additional 60 days in unusual cases provided that written
notice of the extension is furnished to the claimant prior to
the commencement of the extension. The decision of the
Committee shall be set forth in writing, include specific
reasons for the decision, refer to pertinent Plan provisions
on which the decision is based, and shall be final and binding
on all persons affected thereby.
LUCENT TECHNOLOGIES INC. NON-QUALIFIED PENSION PLAN
PAGE 23
<PAGE> 24
ARTICLE 8
ADOPTION, AMENDMENT AND TERMINATION
8.01. ADOPTION OF PLAN.
Any Affiliated Corporation that participates in the Pension Plan may,
with the consent of the Committee, elect to participate in the Plan.
Such Affiliated Corporation shall become a Participating Company as of
the date specified by the Committee in its resolution approving the
participation of the Affiliated Corporation in the Plan.
8.02. AMENDMENT AND TERMINATION.
The Company is the Sponsor of the Plan and the Board or its Delegate,
may from time to time amend, modify or change the Plan at as set forth
in this document, and the Board or its Delegate (acting pursuant to the
Board's delegations of authority then in effect) may terminate the Plan
at any time. Plan amendments may include, but are not limited to,
elimination or reduction in the level or type of benefits provided to
any class or classes of Participant (and surviving lawful spouses). Any
and all Plan amendments may be made without the consent of any
Participant, surviving lawful spouse or beneficiary. Notwithstanding
the foregoing, no such amendment, suspension or termination shall
retroactively impair or otherwise adversely affect the rights of any
Participant or surviving lawful spouse to benefits under the Plan to
which they have previously become entitled as a result of a
Participant's satisfaction of the vesting schedule of this Plan which
is the same as and never will be greater than the vesting schedule
under the Pension Plan.
8.03. ACQUISITION OR DISPOSITION OF PARTICIPATING COMPANY.
(a) Subject to Section 9.01 of this Plan, in the event the Company
sells, spins off, or otherwise disposes of an Affiliated
Corporation, or disposes of all or substantially all of the
assets of an Affiliated Corporation such that one or more
Participants terminate employment for the purposes of
accepting employment with the purchaser of such stock or
assets, any person employed by such Affiliated Corporation who
ceases to be an employee of the Company or an Affiliated
Corporation as a result of the sale, spin-off, or disposition
shall be deemed to have terminated his or her employment with
a Participating Company for all relevant purposes under this
Plan.
(b) Notwithstanding the foregoing provisions of this Section 8.03,
and subject to Section 9.01 of this Plan, if the sale,
spin-off, or other disposition of the stock or assets of an
Affiliated Corporation is to a Successor Plan Sponsor with the
effect that the responsibility for the payment of benefits
under this Plan is assumed by the Successor Plan Sponsor, the
Successor Plan Sponsor shall be solely liable for the payment
of the pension and
LUCENT TECHNOLOGIES INC. NON-QUALIFIED PENSION PLAN
PAGE 24
<PAGE> 25
death benefits described in this Plan to affected
Participants, and the entitlement of any affected Participant
or his or her surviving lawful spouse or beneficiary to
benefits under this Plan shall terminate. Any Participant
affected by this Section 8.03(b) shall not be considered to
have terminated his or her employment with the Company or a
Participating Company for any purpose under this Plan.
(c) In the event that the Company acquires through spin-off,
purchase, merger or otherwise, the stock or assets a
corporation or business unit that becomes a Participating
Company with the result that certain of the acquired entity
employees become Transition Participants, this Plan shall
become solely responsible for the benefits payable to the
Transition Participants pursuant to the terms of the agreement
or agreements referred to in Section 2.24.
LUCENT TECHNOLOGIES INC. NON-QUALIFIED PENSION PLAN
PAGE 25
<PAGE> 26
ARTICLE 9
GENERAL PROVISIONS
9.01. BINDING EFFECT.
The Plan shall be binding upon and inure to the benefit of each
Participating Company and its successors and assigns, and each
Participant, employee, his or her successors, assigns, designees,
spouse, and estate. The Plan shall also be binding upon any successor
corporation or organization succeeding to substantially all of the
assets and business of the Company, but nothing in the Plan shall
preclude the Company from merging or consolidating into or with, or
transferring all or substantially all of its assets to, another
corporation which assumes the Plan and all obligations of the Company
hereunder. The Company agrees that it will make appropriate provision
for the preservation of the rights of Participants, employees and
surviving lawful spouses under the Plan in any agreement or plan or
reorganization into which it may enter to effect any merger,
consolidation, reorganization or transfer of assets. Upon such a
merger, consolidation, reorganization, or transfer of assets and
assumption that results in a Participant continuing to be employed by
the Company or an Affiliated Corporation, the term "Participating
Company" shall refer to such other corporation and the Plan shall
continue in full force and effect as to that Participant and his or her
lawful spouse or other beneficiary.
9.02. FIDUCIARY RELATIONSHIP.
Nothing contained in the Plan, and no action taken pursuant to the
provisions of the Plan, shall create or be construed to create a trust
or contract of any kind, or a fiduciary relationship between or among
the Company, any other Participating Company, any Affiliated
Corporation, the Board, the Administrator, the Committee, any
Participant, employee, any surviving lawful spouse or any other person.
9.03. NO GUARANTEE OF EMPLOYMENT.
Neither the Plan nor any action taken hereunder shall be construed as
(i) a contract of employment or deemed to give any employee the right
to be retained in the employment of a Participating Company, the right
to any level of compensation, or the right to future participation in
the Plan; or (ii) affecting the right of the Participating Company to
discharge or dismiss any employee at any time.
9.04. TAX WITHHOLDING.
The Company shall withhold all federal, state, local or other taxes
required by law to be withheld from payments or accruals under the
Plan.
LUCENT TECHNOLOGIES INC. NON-QUALIFIED PENSION PLAN
PAGE 26
<PAGE> 27
9.05. ASSIGNMENT OF BENEFITS.
The benefits payable hereunder or the right to receive future benefits
under the Plan may not be anticipated, alienated, sold, transferred,
assigned, pledged, executed upon, encumbered, or subjected to any
charge or legal process; no interest or right to receive a benefit may
be taken, either voluntarily or involuntarily, for the satisfaction of
the debts of, or other obligations or claims against, such person or
entity, including without limitation, any judgment or claim for
alimony, support or separate maintenance pursuant to a domestic
relations order within the meaning of Section 206(d)(3) of ERISA and
claims in bankruptcy proceedings. Any such attempted disposition shall
be null and void.
9.06. FACILITY OF PAYMENT.
If the Administrator shall find that any person to whom any amount is
or was payable under the Plan is unable to care for his or her affairs
because of illness or accident, then any payment, or any part thereof,
due to such person (unless a prior claim therefor has been made by a
duly appointed legal representative), may, if the Administrator so
directs the Company, be paid to the same person or institution that the
benefits with respect to such person are paid under the Pension Plan if
applicable, or to the Participant's surviving lawful spouse, a child, a
relative, an institution maintaining or having custody of such person,
or to any other person deemed by the Administrator to be a proper
recipient on behalf of such person otherwise entitled to payment. Any
such payment shall be in complete discharge of the liability of the
Company, the Board, the Committee, the Administrator, and the
Participating Company therefor. If any payment to which a Participant
or beneficiary is entitled under this Plan is unclaimed or otherwise
not subject to payment to the person or persons so entitled, such
amounts representing such payment or payments shall be forfeited after
a period of two years from the date the first such payment was payable
and shall not escheat to any state or revert to any party; provided,
however, that any such payment or payments shall be restored if any
person otherwise entitled to such payment or payments makes a valid
claim.
9.07. SEVERABILITY.
If any section, clause, phrase, provision or portion of this Plan or
the application thereof to any person or circumstance shall be invalid
or unenforceable under any applicable law, such event shall not affect
or render invalid or unenforceable the remainder of this Plan and shall
not affect the application of any section, clause, provision, or
portion hereof to other persons or circumstances.
9.08. EFFECTIVE DATE.
This Plan shall be effective for Participants actively employed on or
after October 1, 1996.
LUCENT TECHNOLOGIES INC. NON-QUALIFIED PENSION PLAN
PAGE 27
<PAGE> 28
9.09. PLAN YEAR.
For purposes of administering the Plan, the plan year shall begin on
January 1 and end on December 31, provided, however, that the first
Plan Year shall begin on October 1, 1996 and end on December 31, 1996.
9.10. HEADINGS.
The captions of the preceding sections and articles hereof have been
inserted solely as a matter of convenience and shall not in any manner
define or limit the scope or intent of any provision of the Plan.
9.11. GOVERNING LAW.
To the extent such laws are not preempted by the laws of the United
States of America, the Plan shall be governed by the laws of the State
of New Jersey, except as to its principles of conflict of laws.
9.12. FORFEITURE OF BENEFITS.
Except as provided in this SECTION 9.12 and SECTION 3.02, benefits
previously awarded may not be canceled and, upon attaining the right
under the Plan for an immediate service benefit or deferred benefit or
for an automatic survivor annuity, such right shall be nonforfeitable.
Notwithstanding any eligibility or entitlement to benefits of an
individual arising or conferred under any other provision or paragraph
of this Plan, all benefits for which a Participant would otherwise be
eligible hereunder may be forfeited, at the discretion of the Board or
the Committee, if an individual without the Company's consent
establishes a relationship with a competitor of the Company or engages
in activity in conflict with or adverse to the interests of the Company
under the standards of the Company's Non-Competition Guideline and as
determined by the Board or the Committee in its sole discretion.
9.13. OPTION DURING DISABILITY.
If an employee who has left the service of a Participating Company has
elected to continue receiving disability benefits which he or she had
been receiving prior to his or her termination and to defer receiving
pension payments under the Pension Plan to which he or she is eligible,
benefits under the Plan shall be deferred until such time as the
employee begins to receive payments under the Pension Plan.
9.14. SPECIAL CLASSIFICATION.
For purposes of the Plan, the determination of those causes of death
not classified as due to accident shall be accomplished in the same
manner as set forth in the Pension Plan.
LUCENT TECHNOLOGIES INC. NON-QUALIFIED PENSION PLAN
PAGE 28
<PAGE> 29
9.15. CLAIMS RELEASE.
In case of accident resulting in the death of a participant which
entitles his or her beneficiaries or his or her annuitant to death
benefits under the Plan, such beneficiaries or annuitant shall, prior
to the payment of any such benefits, sign a release, releasing the
Company or other Participating Companies, as applicable, from all
claims and demands which the deceased had and which his or her
beneficiaries or his or her annuitant may have against them, otherwise
than under the Plan, on account of such accident. If any persons other
than the beneficiaries under this Plan might legally assert claims
against a Participating Company on account of the death of the
individual, no part of the death benefit under the Plan shall be due or
payable until there have also been delivered to the Committee or the
Administrator, as applicable, good and sufficient releases of all
claims, arising from or growing out of the death of the individual,
which such other persons might legally assert against any Participating
Company. The Committee or the Administrator, as applicable, in its
discretion, may require that the releases described above shall release
an other company connected with the accident, including the Company or
any other Participating Company, as applicable. This requirement of a
release or releases shall not apply in the case of Survivor Annuities
as described in SECTION 4.02(D).
9.16. DAMAGE CLAIMS OR SUITS.
Should a claim other than under the Plan be presented or suit brought
against the Company or any Participating Company for damages on account
of death of a Participant, nothing shall be payable under the Plan on
account of such death except as provided in SECTION 9.17; provided,
however, that the Committee or the Administrator, as applicable, may,
in its discretion and upon such terms as it may prescribe, waive this
provision if such claim be withdrawn or if such suit be discontinued;
and provided further that this provision shall not preclude the payment
of Survivor Annuities as described in SECTION 4.02(D).
9.17. JUDGMENT OR SETTLEMENT.
In case any judgment is recovered against any Participating Company or
any settlement is made of any claim or suit on account of the death of
a Participant, and the amount paid to the beneficiaries who would have
received benefits under the Plan is less than what would otherwise have
been payable under the Plan, the difference between the two amounts
may, in the discretion of the Committee or the Administrator, as
applicable, be distributed to such beneficiaries.
9.18. PAYMENT UNDER LAW.
In the case of any benefit (which the Committee or the Administrator,
as applicable, shall determine to be of the same general character as a
payment provided by the Plan) that is payable to any Participant, to
his or her beneficiaries, his or her estate or his or her annuitant
under any law now in force
LUCENT TECHNOLOGIES INC. NON-QUALIFIED PENSION PLAN
PAGE 29
<PAGE> 30
or hereafter enacted, only the excess, if any, of the amount prescribed
in the Plan above the amount of such payment prescribed by law shall be
payable under the Plan; provided, however, that no benefit payable
under the Plan shall be reduced by reason of any governmental benefit
or pension payable on account of military service or by reason of any
benefit which the recipient would be entitled to receive under the
Social Security Act or Railroad Retirement Act. In those cases where,
because of differences in the beneficiaries or in the time or methods
of payment or otherwise, the determination of any such excess is not
ascertainable by mere comparison but adjustments are necessary, the
Committee or the Administrator, as applicable, shall, in its
discretion, determine whether or not in fact any such excess exists and
make the adjustments necessary to carry out in a fair and equitable
manner the spirit of the provision for the payment of any such excess.
Further, in determining whether or not there is an excess, to the
extent any payments under any law are considered in determining whether
there is any excess payable to an employee under any other comparable
plan sponsored by the Company, the amount of such payments under law
shall not be considered under this Plan.
9.19. ENTIRE PLAN.
This written Plan document is the final and exclusive statement of the
terms of this Plan, and any claim of right or entitlement under the
Plan shall be determined in accordance with its provisions pursuant to
the procedures described in ARTICLE 7. Unless otherwise authorized by
the Board or its delegate, no amendment or modification to this Plan
shall be effective until reduced to writing and adopted pursuant to
SECTION 8.02.
IN WITNESS WHEREOF, the Company has caused this Plan to be effective on
October 1, 1996, and to be executed on this ____ day of _________,
1996.
For Lucent Technologies Inc.
By:________________________
Curtis R. Artis
Senior Vice President, Human Resources
Attest:____________________
Pamela F. Kraven
Vice President - Law
Assistant Secretary
LUCENT TECHNOLOGIES INC. NON-QUALIFIED PENSION PLAN
PAGE 30
<PAGE> 31
APPENDIX A
SECTION 4.02(C) ALTERNATE MINIMUM FORMULA - TABLE OF FACTORS
<TABLE>
<CAPTION>
AGE
50 or less 51 52 53 54 55 56 57 58 59
SERVICE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
20 or less 1.33 1.33 1.33 1.36 1.43 1.47 1.43 1.38 1.33 1.28
21 1.38 1.32 1.32 1.35 1.42 1.46 1.42 1.37 1.32 1.27
22 1.42 1.37 1.31 1.34 1.41 1.45 1.41 1.36 1.30 1.26
23 1.47 1.41 1.36 1.33 1.40 1.44 1.40 1.35 1.29 1.25
24 1.52 1.46 1.40 1.39 1.39 1.43 1.39 1.34 1.29 1.24
25 1.58 1.51 1.45 1.43 1.45 1.42 1.38 1.33 1.28 1.23
26 1.57 1.50 1.44 1.42 1.44 1.41 1.37 1.32 1.27 1.22
27 1.57 1.49 1.43 1.42 1.43 1.40 1.36 1.31 1.26 1.21
28 1.56 1.48 1.42 1.41 1.43 1.39 1.36 1.31 1.25 1.21
29 1.55 1.48 1.42 1.40 1.42 1.39 1.35 1.30 1.25 1.20
30 1.38 1.36 1.33 1.35 1.39 1.38 1.34 1.29 1.24 1.19
31 1.38 1.35 1.33 1.34 1.39 1.37 1.34 1.29 1.24 1.19
</TABLE>
<TABLE>
<CAPTION>
60 61 62 63 64 65
SERVICE
<C> <C> <C> <C> <C> <C> <C>
20 or less 1.25 1.20 1.15 1.10 1.05 1.00
21 1.24 1.19 1.14 1.09 1.05 1.00
22 1.23 1.18 1.14 1.09 1.05 1.00
23 1.22 1.17 1.13 1.09 1.04 1.00
24 1.21 1.17 1.12 1.08 1.04 1.00
25 1.20 1.16 1.12 1.08 1.04 1.00
26 1.19 1.15 1.11 1.08 1.04 1.00
27 1.18 1.15 1.11 1.07 1.04 1.00
28 1.18 1.14 1.11 1.07 1.04 1.00
29 1.17 1.14 1.10 1.07 1.03 1.00
30 1.17 1.13 1.10 1.07 1.03 1.00
31 1.16 1.13 1.10 1.06 1.03 1.00
</TABLE>
LUCENT TECHNOLOGIES INC. NON-QUALIFIED PENSION PLAN
PAGE 31
<PAGE> 32
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
32 1.37 1.35 1.32 1.34 1.38 1.37 1.33 1.28 1.23 1.18
33 1.37 1.34 1.32 1.34 1.38 1.36 1.33 1.28 1.23 1.18
34 1.36 1.34 1/31 1.33 1.37 1.36 1.32 1.27 1.22 1.17
35 or more 1.36 1.33 1.31 1.33 1.37 1.35 1.32 1.27 1.22 1.17
<C> <C> <C> <C> <C> <C> <C>
32 1.16 1.12 1.09 1.06 1.03 1.00
33 1.15 1.12 1.09 1.06 1.03 1.00
34 1.15 1.12 1.09 1.06 1.03 1.00
35 or more 1.14 1.11 1.09 1.06 1.03 1.00
</TABLE>
LUCENT TECHNOLOGIES INC. NON-QUALIFIED PENSION PLAN
PAGE 32
<PAGE> 33
APPENDIX B
SECTION 4.02(b) ALTERNATE FORMULA
EARLY RETIREMENT FACTORS BASED UPON ATTAINED YEARS AND MONTHS OF AGE
ATTAINED AGE
<TABLE>
<CAPTION>
Years Months
- ----- ------
0 1 2 3 4 5 6 7 8 9 10 11
- - - - - - - - - - -- --
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
50 .29 .29 .30 .30 .31 .31 .32 .32 .32 .33 .33 .34
- --
51 .34 .34 .35 .35 .36 .36 .37 .37 .37 .38 .38 .39
- --
52 .39 .40 .40 .41 .42 .42 .43 .44 .44 .45 .46 .46
- --
53 .47 .48 .48 .49 .50 .50 .51 .52 .52 .53 .54 .54
- --
54 .55 .56 .57 .57 .58 .59 .60 .60 .61 .62 .63 .63
- --
55 .64 .64 .66 .66 .66 .66 .67 .67 .67 .67 .69 .69
- --
56 .69 .69 .71 .71 .71 .72 .72 .72 .74 .74 .74 .76
- --
57 .76 .76 .78 .78 .78 .79 .79 .79 .81 .81 .81 .83
- --
58 .83 .83 .84 .84 .86 .86 .88 .88 .88 .90 .90 .91
- --
59 .91 .91 .93 .93 .95 .95 .97 .97 .97 .98 .98 1.00
- --
60 1.00
</TABLE>
LUCENT TECHNOLOGIES INC. NON-QUALIFIED PENSION PLAN
PAGE 33
<PAGE> 1
EXHIBIT (10)(iii)(A)8
LUCENT TECHNOLOGIES INC.
OFFICERS LONG TERM
DISABILITY AND SURVIVOR PROTECTION PLAN
As effective October 1, 1996
LUCENT TECHNOLOGIES INC. OFFICERS LTD
AND SURVIVOR PROTECTION PLAN
PAGE 1
<PAGE> 2
LUCENT TECHNOLOGIES INC.
OFFICERS LONG TERM
DISABILITY AND SURVIVOR PROTECTION PLAN
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
ARTICLE 1. PURPOSE........................................................ 4
ARTICLE 2. DEFINITIONS.................................................... 5
ARTICLE 3. DISABILITY ALLOWANCE........................................... 8
ARTICLE 4. MINIMUM RETIREMENT BENEFIT..................................... 12
ARTICLE 5. SURVIVING SPOUSE BENEFIT....................................... 13
ARTICLE 6. DEATH BENEFITS................................................. 14
ARTICLE 7. SOURCE OF PAYMENT.............................................. 15
7.01. SOURCE OF PAYMENTS.................................................... 15
7.02. UNFUNDED STATUS....................................................... 15
ARTICLE 8. ADMINISTRATION OF THE PLAN..................................... 17
8.01. ADMINISTRATION AND AUTHORITIES........................................ 17
8.02. COMMITTEE............................................................. 17
8.03. INDEMNIFICATION....................................................... 17
8.04. BENEFIT CLAIMS AND APPEALS............................................ 18
ARTICLE 9. ADOPTION, AMENDMENT AND TERMINATION............................ 19
9.01. ADOPTION OF PLAN...................................................... 19
9.02. AMENDMENT AND TERMINATION............................................. 19
9.03. ACQUISITION OR DISPOSITION OF PARTICIPATING COMPANY................... 20
ARTICLE 10. GENERAL PROVISIONS............................................. 21
10.01. EFFECTIVE DATE....................................................... 21
10.02. ASSIGNMENT OF BENEFITS............................................... 21
10.03. CLAIMS RELEASE....................................................... 21
10.04. DAMAGE CLAIMS OR SUITS............................................... 21
10.05. JUDGMENT OR SETTLEMENT............................................... 22
10.06. FORFEITURE OF BENEFITS............................................... 22
10.07. PAYMENT UNDER LAW.................................................... 22
10.08. GOVERNING LAW........................................................ 22
10.09. SEVERABILITY......................................................... 22
</TABLE>
LUCENT TECHNOLOGIES INC. OFFICERS LTD
AND SURVIVOR PROTECTION PLAN
PAGE 2
<PAGE> 3
<TABLE>
<S> <C>
10.10. FACILITY OF PAYMENT.................................................. 23
10.11. HEADINGS............................................................. 23
10.12. TAX WITHHOLDING...................................................... 23
10.13. FIDUCIARY RELATIONSHIP............................................... 23
10.14. NO GUARANTEE OF EMPLOYMENT........................................... 24
10.15. PLAN YEAR............................................................ 24
10.16. ENTIRE PLAN.......................................................... 24
</TABLE>
LUCENT TECHNOLOGIES INC. OFFICERS LTD
AND SURVIVOR PROTECTION PLAN
PAGE 3
<PAGE> 4
ARTICLE 1.
PURPOSE
The Plan is a successor to the AT&T Senior Management Long Term
Disability and Survivor Protection Plan in effect as of September 30, 1996, with
respect to Transferred Individuals (as defined in Article 2 of the Employee
Benefits Agreement dated February 1, 1996, and is amended and restated effective
March 29, 1996). The Plan assumes and is solely responsible for all liabilities
as of September 30, 1996, relating to Transferred Individuals under the Plan.
Accordingly, the Plan shall recognize such service and compensation as of
September 30, 1996, with respect to Transferred Individuals as would be
recognized by the AT&T Senior Management Long Term Disability and Survivor
Protection Plan in effect as of September 30, 1996. To the extent that the Plan
refers to dates, events, agreements, elections, or designations before October
1, 1996, relating to Transferred Individuals, such dates, events, agreements,
elections and designations shall be recognized as if Lucent Technologies Inc.
and the Plan were in existence at the applicable time. For Transferred
Individuals who terminated employment before October 1, 1996, the provisions of
the AT&T Senior Management Long Term Disability and Survivor Protection Plan in
effect at termination of the Transferred Individual's employment shall be deemed
to be incorporated in this Plan and shall govern.
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ARTICLE 2.
DEFINITIONS
For the purpose of the Plan, the following terms shall have the meanings set
forth in this ARTICLE 1.
2.01. "ADMINISTRATOR" shall mean the person identified as the Pension Plan
Administrator under the Pension Plan or such other person or entity
designated by the Company.
2.02. "AFFILIATED CORPORATION" shall mean any corporation or other entity of
which 50 percent or more of the voting stock is owned directly or
indirectly by The Company.
2.03. "AT&T" shall mean AT&T Corp. (formerly American Telephone and Telegraph
Company), a New York Corporation, or its successors.
2.04. "ANNUAL BASIC PAY" shall mean the Participant's annual base salary rate
on the last day the Participant was on the active payroll plus, with
respect to a Participant whose last day on the active payroll occurred
after October 1, 1996, an amount determined with reference to the Short
Term Plan, but excluding all differentials regarded as temporary or
extra payments and all awards and distributions made under the Long
Term Plan. For purposes of determining the Disability Allowance under
ARTICLE 3, the amount determined with reference to the Short Term Plan
shall be the last Short Term Award granted to the Participant prior to
the last day the Participant was on the active payroll. For purposes of
determining the Minimum Retirement Benefit under ARTICLE 4 and the
Surviving Spouse Benefit under ARTICLE 5, the amount determined with
reference to the Short Term Plan shall be the greater of (1) the Short
Term Award for the last full calendar year of service prior to the
earlier of the Participant's retirement, termination or death, or (2)
the Short Term Award granted with respect to any later partial calendar
year of service.
2.05. "BOARD" shall mean the Board of Directors of Lucent Technologies Inc.
2.06. "COMMITTEE" shall mean the Employee Benefits Committee appointed by the
Company to administer the Pension Plan.
2.07. "COMPANY" shall mean Lucent Technologies Inc. or its successors.
2.08. "DISABILITY BENEFIT PLAN" shall mean a Participating Company's Sickness
and Accident Disability Benefit Plan.
2.09. "INSURED ANNUITANT'S PLAN" shall mean the Senior Management
Post-Retirement Insured Annuitant's Benefit Plan established as part of
the AT&T Corp. Senior Management Life Insurance Program.
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2.10. "LONG TERM PLAN" shall mean the Lucent Technologies Inc. Long Term
Incentive Program or predecessor long term incentive plans.
2.11. (a) "PARTICIPANT" for purposes of the Disability Allowance under
ARTICLE 3, shall mean an employee holding a position evaluated or
classified as above "Executive" or equivalent, except that no employee
who has been notified in writing that the assignment to such position
will be temporary shall be considered as a Participant for any purpose
under this Plan.
(b) "PARTICIPANT" for purposes of the Minimum Retirement Benefit under
ARTICLE 4, shall mean an employee described in SECTION 2.11 (a) above,
or a former employee of a Participating Company who was a Participant
under SECTION 2.11 (A) on the last day of employment, if such former
employee is retired on a service pension under the Pension Plan.
(c) "PARTICIPANT" for purposes of the Surviving Spouse Benefit under
ARTICLE 5, shall mean an employee described in SECTION 2.11 (a) above,
or a former employee of a Participating Company who was a Participant
under SECTION 2.11 (a) on the last day of employment, if such former
employee (1) is eligible to receive a Disability Allowance under
ARTICLE 3, or (2) is eligible to receive a Minimum Retirement Benefit
under ARTICLE 4.
(d) "PARTICIPANT" for purposes of the Death Benefit under ARTICLE 6,
shall mean a former employee of a Participating Company who was a
Participant under SECTION 2.11 (a) above on the last day of employment,
if such former employee is eligible to receive a Disability Allowance
under ARTICLE 3, or is eligible to receive a Minimum Retirement Benefit
under ARTICLE 4.
(e) For purposes of SECTIONS 2.11 (b), 2.11 (c), AND 2.11 (d) above, a
former employee shall be considered to be eligible to receive a
Disability Allowance under ARTICLE 3 or a Minimum Retirement Benefit
under ARTICLE 4 if he has met the conditions specified in ARTICLE 3 or
in ARTICLE 4, even though the receipt of other benefits by such former
employee precludes his or her receipt of any benefits under ARTICLE 3
or under ARTICLE 4.
2.12. "PARTICIPATING COMPANY" shall mean the Company and any Affiliated
Corporation that has elected, with the approval of the Committee as
required by SECTION 9.01, to participate in the Plan.
2.13. "PENSION PLAN" shall mean the Lucent Technologies Inc. Management
Pension Plan or predecessor pension plans.
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2.14. "PLAN" shall mean this Lucent Technologies Inc. Officers Long Term
Disability and Survivor Protection Plan.
2.15. "PREDECESSOR PLAN SPONSOR" means AT&T and any other corporation or
entity that enters into an agreement or agreements providing for the
assumption of liabilities by this Plan comparable to the Management
Interchange Agreement dated as of April 8, 1996, and the Employee
Benefits Agreement dated as of March 29, 1996, between AT&T and the
Company.
2.16. "SHORT TERM AWARD" means the actual amount awarded (including any
amounts deferred pursuant to the Lucent Tecnologies Inc. Senior
Management Incentive Award Deferral Plan) annually to a Participant
pursuant to the Lucent Technologies Inc. Short Term Incentive Plan or
predecessor short term incentive plans. Short Term Awards shall, for
purposes of this Plan, be considered to be awarded on the last day of
the performance period with respect to which they are earned.
2.17. "SHORT TERM PLAN" shall mean the Lucent Technologies Inc. Short Term
Incentive Plan or predecessor short term incentive plans.
2.18. "SUCCESSOR PLAN SPONSOR" shall mean Lucent Technologies Inc. and any
other corporation or entity that enters into an agreement or agreements
providing for the assumption of liabilities arising under this Plan
comparable to the Management Interchange Agreement dated as of April 8,
1996, and the Employee Benefits Agreement dated as of March 29, 1996,
between AT&T and Lucent Technologies Inc.
2.19. "TERM OF EMPLOYMENT" shall have the same meaning as the meaning
assigned to such expression in the Pension Plan.
2.20. "TRANSITION PARTICIPANT" shall mean a Participant or a person eligible
to receive a Surviving Spouse Benefit or a Death Benefit as to whom the
responsibility and liability for the payment of benefits accrued or
payable under a Plan or Plans of a Predecessor Plan Sponsor has been
assumed by the Company and are payable under this Plan.
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ARTICLE 3.
DISABILITY ALLOWANCE
3.01. (a) A Participant shall be considered to be "disabled" at any
time during the first fifty-two week period following the onset of a
physical or mental impairment, if such impairment prevents the
Participant from meeting the performance requirements of the position
held immediately preceding the onset of the physical or mental
impairment.
(b) A Participant shall be considered to be "disabled" after
the first fifty-two week period following the onset of a physical or
mental impairment if such impairment prevents the Participant from
meeting the performance requirements of (1) the position held
immediately preceding the onset of the physical or mental impairment,
(2) a similar position, or (3) any appropriate position with the
Company or any other Participating Company which the Participant would
otherwise be capable of performing by reason of the Participant's
background and experience.
(c) The Administrator shall make the determination of whether
a Participant is disabled within the meaning of paragraph (a) above;
the Committee shall make such determination with respect to paragraph
(b) above.
3.02. A Participant who is disabled during a period described in SECTION
3.01(a) shall be eligible to receive a monthly disability allowance
equal to 100 percent of the Participant's monthly base salary rate on
the last day the Participant was on the active payroll, reduced by any
amounts described in SECTION 3.05(a) which are attributable to the
period for which benefits are provided under this SECTION 3.02.
3.03. A Participant who is disabled during a period described in SECTION
3.01(b) shall, prior to his or her sixty-fifth birthday, be eligible to
receive a monthly disability allowance equal to sixty percent of the
Participant's monthly base salary rate on the last day the Participant
was on the active payroll, reduced by any amounts described in SECTION
3.05(b) which are attributable to the period for which benefits are
provided under this SECTION 3.03.
3.04. A Participant who is disabled during a period described in SECTION
3.01(b) shall, commencing with his or her sixty-fifth birthday or the
start of the period described in SECTION 3.01 (b), if later, be
eligible to receive a monthly disability allowance equal to the greater
of:
(i) one and one-quarter percent of the Participant's
annual basic pay, as defined in SECTION 2.04, on the
last day the Participant was on the active payroll,
or
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(ii) if the Participant's Term of Employment has been five
years or more, ninety percent of the sum of (a) the
monthly pension the Participant would have been
entitled to receive commencing at age sixty-five
under the Pension Plan (as in effect on the last day
the Participant was on the active payroll, but
ignoring any minimum service requirements for
eligibility to a pension), if the period after the
last day the Participant was on the active payroll
and prior to the Participant's sixty-fifth birthday
had been included in the Participant's term of
employment as of the end of the applicable averaging
period under the Pension Plan, plus (b) the monthly
pension the Participant would have been entitled to
receive commencing at age 65 under the Lucent
Technologies Inc. Non-Qualified Pension Plan (as in
effect on the last day the Participant was on the
active payroll, but ignoring any minimum service
requirements for eligibility to a pension), if the
period after the last day the Participant was on the
active payroll and prior to the Participant's
sixty-fifth birthday had been included in the
Participant's Term of Employment as of the end of the
applicable averaging period under the Lucent
Non-Qualified Pension Plan, reduced by any amounts
described in SECTION 3.05(C) that are attributable to
the period for which benefits are provided under this
paragraph.
3.05. (a) The Disability Allowance determined for any period
under Section 3.02 shall be reduced by the sum of the following
benefits received by the Participant which are attributable to the
period for which such disability allowance is provided: a service
pension, deferred vested pension, or disability pension under the
Pension Plan, a pension under the Lucent Technologies Inc. Excess
Benefit and Compensation Plan, a pension under the Lucent Technologies
Inc. Non-Qualified Pension Plan, a pension under the Lucent
Technologies Inc. Mid-Career Pension Plan, an accident disability
benefit or sickness disability benefit under the Disability Benefit
Plan, any Workers' Compensation Benefit, plus any comparable benefits
provided under the plans or programs of any Successor Plan Sponsor and
any other benefit payments required by law on account of the
Participant's disability. However, no reduction shall be made on
account of any pension under the Pension Plan at a rate greater than
the rate of such pension on the date the Participant first received
such pension after his or her disability and no reduction shall be made
on account of any pension under the Lucent Technologies Inc.
Non-Qualified Pension Plan, the Lucent Technologies Inc. Excess Benefit
and Compensation Plan, or the Lucent Technologies Inc. Mid-Career
Pension Plan at a rate greater than the rate of such pension, including
adjustments if any to reflect post-retirement incentive awards to the
Participant under the Short Term Plan, as of the first date the
Participant was entitled to receive such pension after his or her
disability.
(b) The Disability Allowance determined for any period
under SECTION 3.03 shall be reduced by the sum of the following
benefits received by the Participant which are attributable to the
period for which such disability allowance is provided: a service
pension, deferred vested pension or disability pension under the
Pension Plan, a pension
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under the Lucent Technologies Inc. Excess Benefit and Compensation
Plan, a pension under the Lucent Technologies Inc. Non-Qualified
Pension Plan, a pension under the Lucent Technologies Inc. Mid-Career
Pension Plan, an accident disability benefit under the Disability
Benefit Plan, any other retirement income payments from the
Participant's Participating Company or any predecessor in interest to
the Company, any Workers' Compensation Benefit, plus any Social
Security Insurance Benefit. However, no reduction shall be made on
account of any pension under the Pension Plan at a rate greater than
the rate of such pension on the date the Participant first received
such pension after his or her disability, and no reduction shall be
made on account of any pension under the Lucent Technologies Inc.
Non-Qualified Pension Plan, the Lucent Technologies Inc. Excess Benefit
and Compensation Plan, or under the Lucent Technologies Inc. Mid-Career
Pension Plan at a rate greater than the rate of such pension, including
adjustments if any to reflect post-retirement incentive awards to the
Participant under the Short Term Plan, as of first date the Participant
was entitled to receive such pension after his or her disability, and
no reduction shall be made on account of any Social Security Benefit at
a rate greater than the rate which the Participant would have first
been eligible to receive after his or her disability and as if no other
members of his or her family were eligible for any Social Security
Benefit.
Furthermore, the Board of Directors of the Company, in its
discretion, may reduce the disability allowance by the amount of
outside compensation or earnings of the Participant for work performed
by the Participant during the period for which such disability
allowance is provided.
(c) The disability allowance determined for any period under
SECTION 3.04 shall be reduced by the sum of the following benefits
received by the Participant which are attributable to the period for
which such disability allowance is provided: a service pension,
deferred vested pension or disability pension under the Pension Plan, a
pension under the Lucent Technologies Inc. Excess Benefit and
Compensation Plan, a pension under the Lucent Technologies Inc.
Non-Qualified Pension Plan, a pension under the Lucent Technologies
Inc. Mid-Career Pension Plan, an accident disability benefit under the
Disability Benefit Plan, any other retirement income payments from the
Participant's Participating Company or any Successor Plan Sponsor, plus
any Workers' Compensation Benefit. However, no reduction shall be made
on account of any pension under the Pension Plan at a rate greater than
the rate of such pension on the date the Participant first received
such pension after his or her disability, and no reduction shall be
made on account of any pension under the Lucent Technologies Inc.
Non-Qualified Pension Plan, the Lucent Technologies Inc. Excess Benefit
and Compensation Plan, or under the Lucent Technologies Inc. Mid-Career
Pension Plan at a rate greater than the rate of such pension, including
adjustments if any to reflect post-retirement incentive awards to the
Participant under the Short Term Plan, as of the first date the
Participant was entitled to receive such pension after his or her
disability.
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3.06. For purposes of Sections 3.01(a) and 3.01(b), the measurement of time
following the onset of a physical or mental impairment shall coincide
with the measurement of time used to calculate periods of Sickness and
Accident Disability Benefits under Sections 4 and 5 of the Disability
Benefit Plan. Successive periods of physical or mental impairment shall
be counted together in computing the periods during which the
Participant shall be entitled to the benefits provided under Sections
3.02 and 3.03, except that any disability absence after the Participant
has been continuously engaged in the performance of duty for thirteen
weeks shall be considered to commence a new period of physical or
mental impairment under Section 3.01 (a), so that such Participant
shall be entitled during such new period to the benefits provided under
Section 3.02.
3.07. With respect to a Participant not subject to mandatory retirement at
age 65 under the Age Discrimination in Employment Act (29 U.S. C.631),
the period of eligibility for the disability allowance provided in
SECTION 3.03 and the period of eligibility for the disability allowance
provided in SECTION 3.04, shall be the period described in SECTION
3.03, and the period described in SECTION 3.04, respectively, or such
other period as is required under the Age Discrimination in Employment
Act or under any applicable governing regulations or interpretations
thereunder.
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ARTICLE 4.
MINIMUM RETIREMENT BENEFIT
4.01. A Participant described in SECTION 2.10(a) whose term of employment has
been five years or more and is not disabled, who terminates employment
on or after his or her sixty-second birthday, or a Participant
described in SECTION 2.10(b) who is retired on a service pension under
the Pension Plan, shall be eligible to receive a monthly minimum
retirement benefit equal to one and one-quarter percent of
Participant's annual basic pay, as defined in SECTION 2.04, on the last
day the Participant was on the active payroll reduced by the sum of the
following benefits received by the Participant which are attributable
to the period for which benefits are provided under this ARTICLE 4: a
service pension or deferred vested pension under the Pension Plan, a
pension under the Lucent Excess Benefit and Compensation Plan, a
pension under the Lucent Technologies Inc. Non-Qualified Pension Plan,
a pension under the Lucent Technologies Inc. Mid-Career Pension Plan,
and by any other retirement income payments received by the Participant
from his or her Participating Company or from a Successor or
Predecessor Plan Sponsor. However, no reduction shall be made on
account of any pension under the Pension Plan at a rate greater than
the rate of such pension on the date the Participant first received
such pension after his or her retirement or other termination of
employment, and no reduction shall be made on account of any pension
under the Lucent Technologies Inc. Non-Qualified Pension Plan, the
Lucent Technologies Inc. Excess Benefit and Compensation Plan, or under
the Lucent Technologies Inc. Mid-Career Pension Plan at a rate greater
than the rate of such pension, including adjustments if any to reflect
post-retirement incentive awards to the Participant under the Short
Term Plan, as of first date the Participant was entitled to receive
such pension after his or her retirement or other termination of
employment.
4.02. If an amendment to the Pension Plan effective on or after October 1,
1996, provides for an increase in the service pensions of previously
retired employees, then a Participant's minimum retirement benefit
shall be increased pursuant to the same terms and conditions as are set
forth in such Pension Plan amendment.
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ARTICLE 5.
SURVIVING SPOUSE BENEFIT
5.01. In the event of the death of a Participant, who is described in SECTION
2.10(c), the surviving lawful spouse of such Participant shall be
eligible to receive a monthly benefit equal to one and one-quarter
percent of the Participant's annual basic pay, as defined in SECTION
2.04, on the last day the Participant was on the active payroll prior
to his or her death reduced by the sum of the following benefits
received by the Participant's surviving lawful spouse on account of the
death of the Participant and which are attributable to the period for
which benefits are provided under this ARTICLE 5: an annuitant's
pension under the Pension Plan, an annuity under the Insured
Annuitant's Plan, an annuitant's pension under the Lucent Technologies
Inc. Excess Benefit and Compensation Plan, an annuitant's pension under
the Lucent Technologies Inc. Non-Qualified Pension Plan and any other
lifetime payments to such surviving lawful spouse from the
Participant's Participating Company or from any Successor Plan Sponsor.
However, no reduction shall be made on account of an annuitant's
pension under the Pension Plan, or on account of an annuitant's pension
under the Lucent Technologies Inc. Non-Qualified Pension Plan or on
account of an annuitant's pension under the Lucent Technologies Inc.
Excess Benefit and Compensation Plan, or an account of any annuity
under the Insured Annuitant's Plan at a rate greater than (1) the rate
of such pension or annuity on the date such pension or annuity was
first payable in the case of the death of a Participant who is on the
active payroll or (2) the rate of such pension or annuity on the date
such pension or annuity first would have been payable had the
Participant died on the day after the last day the Participant was on
the active payroll in the case of the death of a Participant who is not
on the active payroll.
5.02. Notwithstanding any provision of SECTION 5.01 to the contrary, the
surviving lawful spouse of a Participant shall not be eligible to
receive benefits under this ARTICLE 5 if, prior to the Participant's
death, the Participantcould have elected under the Pension Plan or
under any predecessor pension plan maintained by a Participating
Company to receive a reduced pension for his or her life in order to
provide thereafter an annuity for the life of his or her spouse, but
the Participant declined to make such an election.
5.03. If an amendment to the Pension Plan effective on or after October 1,
1996, provides for an increase in the survivor annuities payable under
said Plan, then the Surviving Spouse Benefit payable under SECTION 5.01
above shall be increased pursuant to the same terms and conditions as
are set forth in such Pension Plan amendment, except that no such
increase shall apply to the Surviving Spouse Benefit related to a
deceased Participant who had not terminated employment or died prior to
the effective date of such amendment.
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ARTICLE 6.
DEATH BENEFITS
6.01. Upon the death of a Participant described in SECTION 2.10(d) whose last
day on the active payroll occurred on or after January 1, 1987, and who
has not retired on a service pension or a disability pension under the
Pension Plan, a death benefit in the amount of the Participant's annual
base salary rate in effect on the last day said Participant was on the
active payroll shall be paid to one or more of the beneficiaries listed
in SECTION 6.02 below as determined by the Committee, provided,
however, that such death benefit shall be reduced by the sum of any
death benefit paid under Section 5 of the Pension Plan on account of
the Participant's death.
6.02. The persons who may be the beneficiaries of the death benefit described
in SECTION 6.01 are the Participant's legal spouse if living with him
at the time of the Participant's death, his or her unmarried child or
children under age 23 (or over that age if physically or mentally
incapable of self-support) who were being supported in whole or in part
by the deceased at his or her death, or a dependent parent or parents
living with the deceased at the time of his or her death or in a
separate household in the vicinity of the deceased and provided by the
Participant.
6.03. If the Participant is not survived by any person listed in SECTION
6.02, a death benefit up to the maximum amount shown in SECTION 6.01
above may be payable, at the discretion of the Committee, to any other
dependent relative receiving or entitled to receive support from the
deceased; if no such dependent relative survives the deceased, no death
benefit will be payable under this Plan.
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ARTICLE 7.
SOURCE OF PAYMENT
7.01. SOURCE OF PAYMENTS.
The Company may establish a trust to hold assets to be used to make
benefit payments under the terms of this Plan, provided such trust does
not cause the Plan to be "funded" within the meaning of ERISA. Funds
invested hereunder shall, for purposes of this Plan, be considered to
be part of the general assets of the Participating Company which
invested the funds, and no Participant, beneficiary or lawful spouse
shall have any interest or right in such funds. To the extent trust
assets are available, they may be used to pay benefits arising under
this Plan and all costs, charges and expenses relating thereto. To the
extent that the funds held in the trust are insufficient to pay such
benefits, costs, charges and expenses, the Company or the responsible
Participating Company shall pay such benefits, costs, charges and
expenses from its general assets. In addition, the Company may, in its
sole discretion, direct that payments required under this Plan to any
Participant or surviving lawful spouse be made through the purchase and
distribution of one or more nontransferable annuity contracts or cause
the trustee of the trust to purchase and distribute such annuity
contracts. Any such purchase and distribution of an annuity contract
shall be a full and complete discharge of the Plan's, the Company's and
the Participating Companies' liability for payments assumed by the
issuer of the annuity contract. Further, the Senior Vice President,
Human Resources, may determine, in his sole discretion, to pay
additional sums to any Senior Manager, from the Company's general
assets or from the trust, if any, to reimburse the Senior Manager for
additional federal and state income taxes estimated to be incurred by
reason of the distribution of any such annuity contracts. The Senior
Vice President, Human Resources shall establish a methodology or
methodologies for determining the amount of such additional sums. The
methodology or methodologies selected shall be those that the Senior
Vice President, Human Resources determines, in his sole discretion, to
be the most effective and administratively feasible for the purpose of
producing after tax periodic benefit payments that approximate the
after tax periodic benefit payments that would have been received by
[Participants] in the absence of the distribution of the annuity
contract.
7.02. UNFUNDED STATUS.
The Plan at all times shall be entirely unfunded for purposes of the
Internal Revenue Code of 1986 and ERISA, and, except as provided in
SECTION 7.01, no provision shall at any time be made with respect to
segregating any assets of a Participating Company for payment of any
benefits hereunder. Funds invested hereunder shall continue for all
purposes to be part of the general assets of the Participating Company
which invested the funds. The Plan constitutes a mere promise by the
Participating Company to make payments, if any, in the future. No
Participant, spouse, beneficiary or any other person shall have any
interest in any particular assets of a Participating Company by reason
of
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the right to receive a benefit under the Plan and to the extent the
Participant, surviving lawful spouse, beneficiary or any other person
acquires a right to receive benefits under this Plan, such right shall
be no greater than the right of any unsecured general creditor of a
Participating Company.
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ARTICLE 8.
ADMINISTRATION OF THE PLAN
8.01. ADMINISTRATION AND AUTHORITIES.
The Plan shall be administered by the Company and it shall have full
discretionary authority to manage and control the operation and
administration of the Plan, including the power to interpret provisions
of the Plan, make determinations of fact, promulgate rules and
regulations, determine benefit eligibility of individual and classes of
Participants, delegate its powers and duties hereunder to the
Committee, the Administrator or others and take such other action as it
shall find necessary and appropriate to implement the provisions of the
Plan. The Committee and the Administrator may retain attorneys,
consultants, accountants or other persons (who may be employees of the
Company or an Affiliated Corporation) to render advice and assistance
and may delegate any of the authorities conferred on it to such persons
as it shall determine to be appropriate to effect the discharge of its
duties hereunder. The Company, the Predecessor Plan Sponsor, the
Affiliated Corporations and any of their officers and employees shall
be entitled to rely upon the advice, opinions, and determinations of
any such persons. Any exercise of the authorities set forth in this
Section, whether by the Company, the Committee,the Administrator, or
their Delegate shall be final and binding upon the Company, its
Affiliated Corporations, their officers, directors and affected
Participants and beneficiaries.
8.02. COMMITTEE.
The Company has delegated to the Committee authority to make the final
determination to grant or deny claims for benefits under the Plan with
respect to Participants and to authorize disbursements according to the
terms of the Plan.
8.03. INDEMNIFICATION.
No member of the Board or the Committee or the Administrator shall be
personally liable by reason of any contract or other instrument
executed by such individual on his or her behalf or in his or her
capacity as a member of the Board, Committee or the Administrator nor
for any mistake of judgment made in good faith, and the Company shall
indemnify and hold harmless each member of the Board, each member of
the Committee, the Administrator and each other employee, officer, or
director of the Company or any Participating Company to whom any duty
or power relating to the administration or interpretation of the Plan
may be allocated or delegated, against any cost or expense (including
attorneys' fees) or liability (including any sum paid in settlement of
a claim) arising out of any act or omission to act in connection with
the Plan unless arising out of such person's own fraud or bad faith.
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8.04. BENEFIT CLAIMS AND APPEALS.
(a) Benefit Claims. All claims for benefit payments under the
Plan shall be submitted in writing by Participants to the person
designated by the Company to make determinations as to eligibility for
benefits under the Plan and such person shall notify the Participant in
writing within 90 days after receipt as to whether the claim has been
granted or denied. This period may be extended for up to an additional
90 days in unusual cases provided that written notice of the extension
is furnished to the claimant prior to the commencement of the
extension. In the event the claim is denied, such notice shall (i) set
forth the specific reason or reasons for denial, (ii) make reference to
the pertinent Plan provisions on which the denial is based, (iii)
describe any additional material or information necessary before the
Participant's request may be acted upon favorably, and (iv) explain the
procedure for appealing the adverse determination.
(b) Benefit Appeals. A Participant whose claim for benefits
has been denied may, within 60 days of receipt of any adverse benefit
determination, appeal such denial to the Committee. All appeals shall
be in the form of a written statement and shall (i) set forth all of
the reasons in support of favorable action on the appeal, (ii) identify
those provisions of the Plan upon which the claimant is relying, and
(iii) include copies of any other documents or materials which may
support favorable consideration of the claim. The Committee shall
decide the issues presented within 60 days after receipt of such
request, but this period may be extended for up to an additional 60
days in unusual cases provided that written notice of the extension is
furnished to the claimant prior to the commencement of the extension.
The decision of the Committee shall be set forth in writing, include
specific reasons for the decision, refer to pertinent Plan provisions
on which the decision is based, and shall be final and binding on all
persons affected thereby.
LUCENT TECHNOLOGIES INC. OFFICERS LTD
AND SURVIVOR PROTECTION PLAN
PAGE 18
<PAGE> 19
ARTICLE 9.
ADOPTION, AMENDMENT AND TERMINATION
9.01. ADOPTION OF PLAN.
Any Affiliated Corporation that participates in the Pension Plan may,
with the consent of the Committee, elect to participate in the Plan.
Such Affiliated Corporation shall become a Participating Company as of
the date specified by the Committee in its resolution approving the
participation of the Affiliated Corporation in the Plan.
9.02. AMENDMENT AND TERMINATION.
The Company is the Sponsor of the Plan and the Board or its delegate,
may from time to time amend, modify or change the Plan as set forth in
this document, and the Board or its delegate (acting pursuant to the
Board's delegations of authority then in effect) may terminate the Plan
at any time. Plan amendments may include, but are not limited to,
elimination or reduction in the level or type of benefits provided to
any class or classes or Participants, surviving lawful spouses and
beneficiaries). Any and all Plan amendments may be made without the
consent of any employee, Participant, spouse or beneficiary.
Notwithstanding the foregoing, the exercise of the power to amend,
modify or terminate the Plan shall be subject to the limitations
described in paragraphs (a) and (b) below.
(a) Such amendment, modification or termination shall not
affect the rights of any Participant or surviving lawful spouse,
without his or her consent, to any benefit under the Plan to which such
Participant or surviving lawful spouse may have previously become
entitled as a result of disability, death or termination of employment
which occurred prior to the later of the adoption date or the effective
date of such amendment or termination.
Such amendment, modification or termination shall not
affect the rights of any Participant or his or her surviving lawful
spouse, without his or her consent, to any future benefits payable
under ARTICLE 4 or ARTICLE 5, provided that, prior to the later of the
adoption date or the effective date of such amendments or termination,
such Participant either (i) had satisfied the requirements for
eligibility for the benefits described in ARTICLE 4, other than the
termination of employment requirement, or (ii) had begun to receive a
disability allowance under ARTICLE 3. For purpose of determining a
spouse's benefit, it shall be assumed that a Participant who is
receiving a disability allowance as of the later of the adoption date
or effective date of such amendment will continue to receive said
allowance until his or her death. The annual basic pay used to compute
such future benefits under ARTICLE 4 or ARTICLE 5 shall be the
Participant's highest annual basic pay as described in SECTION 2.04 on
any day during the term of his or her employment completed prior to the
later of the adoption date or the effective date of such amendments or
termination as if the Participant had terminated employment on that
day.
LUCENT TECHNOLOGIES INC. OFFICERS LTD
AND SURVIVOR PROTECTION PLAN
PAGE 19
<PAGE> 20
9.03. ACQUISITION OR DISPOSITION OF PARTICIPATING COMPANY.
(a) Subject to SECTION 9.02 of this Plan, in the event the
Company sells, spins off, or otherwise disposes of an Affiliated
Corporation, or disposes of all or substantially all of the assets of
an Affiliated Corporation such that one or more Participants terminate
employment for the purposes of accepting employment with the purchaser
of such stock or assets, any person employed by such Affiliated
Corporation who ceases to be an employee of the Company or an
Affiliated Corporation as a result of the sale, spin-off, or
disposition shall be deemed to have terminated his or her employment
with a Participating Company for all relevant purposes under this Plan.
(b) Notwithstanding the foregoing provisions of this SECTION
9.03, and subject to SECTION 9.02 of this Plan, if the sale, spin-off,
or other disposition of the stock or assets of an Affiliated
Corporation is to a Successor Plan Sponsor with the effect that the
responsibility for the payment of benefits under this Plan is assumed
by the Successor Plan Sponsor, the Successor Plan Sponsor shall be
solely liable for the payment of the pension and death benefits
described in this Plan, and the entitlement of any affected Participant
or his or her surviving lawful spouse or beneficiary to benefits under
this Plan shall terminate. Any Participant affected by this SECTION
9.03(b) shall not be considered to have terminated his or her
employment with the Company or a Participating Company for any purpose
under this Plan.
(c) In the event that the Company acquires through spin-off,
purchase, merger or otherwise, the stock or assets of a corporation or
business unit that becomes a Participating Company with the result that
certain of the acquired entity employees become Transition
Participants, this Plan shall become solely responsible for the
benefits payable to the Transition Participants pursuant to the terms
of the agreement or agreements referred to in SECTION 2.14.
LUCENT TECHNOLOGIES INC. OFFICERS LTD
AND SURVIVOR PROTECTION PLAN
PAGE 20
<PAGE> 21
ARTICLE 10.
GENERAL PROVISIONS
10.01. EFFECTIVE DATE.
This Plan shall be effective for Participants actively employed on or
after October 1, 1996.
10.02. ASSIGNMENT OF BENEFITS.
The benefits payable hereunder or the right to receive future benefits
under the Plan may not be anticipated, alienated, sold, transferred,
assigned, pledged, executed upon, encumbered, or subjected to any
charge or legal process; no interest or right to receive a benefit may
be taken, either voluntarily or involuntarily, for the satisfaction of
the debts of, or other obligations or claims against, such person or
entity, including without limitation, any judgment or claim for
alimony, support or separate maintenance pursuant to a domestic
relations order within the meaning of Section 206(d)(3) of ERISA and
claims in bankruptcy proceedings. Any such attempted disposition shall
be null and void.
10.03. CLAIMS RELEASE.
In case of accident resulting in injury to or death of a Participant
which entitles the Participant or his or her surviving lawful spouse to
benefits under the Plan, the Participant or his or her surviving lawful
spouse may elect to accept such benefits or to prosecute such claims at
law as the Participant or the surviving lawful spouse may have against
one or more Participating Companies. If an election is made to accept
the benefits under the Plan, such election shall be in writing and
shall release such Participating Company or such Participating
Companies from all claims and demands that the Participant or his or
her surviving lawful spouse may have against it, or against them,
otherwise than under this Plan or under any other plan maintained by a
Participating Company, on account of such accident. The right of the
Participant to a disability allowance under ARTICLE 3 of the Plan shall
lapse if election to accept such benefits, as above provided, is not
made within sixty days after injury, or within such greater time as the
Company shall fix for the making of such election.
10.04. DAMAGE CLAIMS OR SUITS.
Should a claim other than under this Plan or under any other plan
maintained by a Participating Company be presented or suit brought
against a Participating Company, for damages on account of injury or
death of a Participant, nothing shall be payable under this Plan on
account of such injury or death except as provided in SECTION 10.05,
provided, however, that the Company may, in its discretion and upon
such terms as it may prescribe waive this provision if such claims be
withdrawn or if such suit be discontinued.
10.05. JUDGMENT OR SETTLEMENT.
LUCENT TECHNOLOGIES INC. OFFICERS LTD
AND SURVIVOR PROTECTION PLAN
PAGE 21
<PAGE> 22
In case any judgment is recovered against a Participating Company or
any settlement is made of any claim or suit on account of the injury or
death of a Participant, and the total amount which would otherwise have
been payable under the Plan and under any other plan maintained by the
Participating Company is greater than the amount paid on account of
such judgment or settlement, the lesser of (a) the difference between
such two amounts or (b) the amount which would otherwise have been
payable under this Plan, may in the discretion of the Company, be
distributed to the beneficiaries who would have received benefits under
this Plan.
10.06. FORFEITURE OF BENEFITS.
All Benefits to which a Participant and his or her spouse would be
otherwise eligible hereunder may be forfeited, at the discretion of the
Board or of the Committee, if an individual without the Company's
consent establishes a relationship with a competitor of the Company or
engages in any activity in conflict with or adverse to the interests of
the Company under the standards of the the Company's Non-Competition
Guideline and as determined by the Board or the Committee in its sole
discretion.
10.07. PAYMENT UNDER LAW.
In the case of any benefit, which the Committee shall determine to be
of the same general character as a payment provided by the Plan, that
is payable to any participant, to his or her beneficiaries, his or her
estate or his or her annuitant under any law now in force or hereafter
enacted, only the excess, if any, of the amount prescribed in the Plan
above the amount of such payment prescribed by law shall be payable
under the Plan; provided, however, that no benefit payable under the
Plan shall be reduced by reason of any governmental benefit or pension
payable on account of military service or by reason of any benefit
which the recipient would be entitled to receive under the Social
Security Act or Railroad Retirement Act. In those cases where, because
of differences in the beneficiaries or in the time or methods of
payment or otherwise, the determination of any such excess is not
ascertainable by mere comparison but adjustments are necessary, the
Committee or the Administrator, as applicable, shall, in its
discretion, determine whether or not in fact any such excess exists and
make the adjustments necessary to carry out in a fair and equitable
manner the spirit of the provision for the payment of any such excess.
10.08. GOVERNING LAW.
To the extent such laws are not preempted by the laws of the United
States of America, the Plan shall be governed by the laws of the State
of New Jersey, except as to its principles of conflict of laws.
10.09. SEVERABILITY.
If any section, clause, phrase, provision or portion of this Plan or
the application thereof to any person or circumstance shall be invalid
or unenforceable under any applicable law, such event shall not affect
or render invalid or unenforceable the remainder of this Plan and shall
not affect the application of any section, clause, provision, or
portion hereof to
LUCENT TECHNOLOGIES INC. OFFICERS LTD
AND SURVIVOR PROTECTION PLAN
PAGE 22
<PAGE> 23
other persons or circumstances.
10.10. FACILITY OF PAYMENT.
If the Administrator shall find that any person to whom any amount is
or was payable under the Plan is unable to care for his or her affairs
because of illness or accident, then any payment, or any part thereof,
due to such person (unless a prior claim therefor has been made by a
duly appointed legal representative), may, if the Administrator so
directs the Company, be paid to the same person or institution that
benefit with respect to such person is paid or to be paid under the
Pension Plan if applicable, or the Participant's lawful spouse, a
child, a relative, an institution maintaining or having custody of such
person, or any other person deemed by the Administrator to be a proper
recipient on behalf of such person otherwise entitled to payment. Any
such payment shall be in complete discharge of the liability of the
Company, the Board, the Committee, the Administrator, and the
Participating Company therefor. If any payment to which a Participant
or beneficiary is entitled under this Plan is unclaimed or otherwise
not subject to payment to the person or persons so entitled, such
amounts representing such payment or payments shall be forfeited after
a period of two years from the date the first such payment was payable
and shall not escheat to any state or revert to any party; provided,
however, that any such payment or payments shall be restored if any
person otherwise entitled to such payment or payments makes a valid
claim.
10.11. HEADINGS.
The captions of the preceding the sections and articles hereof have
been inserted solely as a matter of convenience and shall not in any
manner define or limit the scope or intent of any provision of the
Plan.
10.12. TAX WITHHOLDING.
The Company shall withhold all federal, state, local or other taxes
required by law to be withheld from payments or accruals under the
Plan.
10.13. FIDUCIARY RELATIONSHIP.
Nothing contained in the Plan, and no action taken pursuant to the
provisions of the Plan, shall create or be construed to create a trust
or contract of any kind, or a fiduciary relationship between or among
The Company, any other Participating Company, any Affiliated
Corporation, the Board, the Administrator, the Committee, any
Participant, employee, any surviving lawful spouse or any other person.
LUCENT TECHNOLOGIES INC. OFFICERS LTD
AND SURVIVOR PROTECTION PLAN
PAGE 23
<PAGE> 24
10.14. NO GUARANTEE OF EMPLOYMENT.
Neither the Plan nor any action taken hereunder shall be construed as
(i) a contract of employment or deemed to give any employee the right
to be retained in the employment of a Participating Company, the right
to any level of compensation, or the right to future participation in
the Plan; or (ii) affecting the right of the Participating Company to
discharge or dismiss any employee at any time.
10.15. PLAN YEAR.
For purposes of administering the Plan, the plan year shall begin on
January 1 and end on December 31.
10.16. ENTIRE PLAN.
This written Plan document is the final and exclusive statement of the
terms of this Plan, and any claim of right or entitlement under the
Plan shall be determined in accordance with its provisions pursuant to
the procedures described in ARTICLE 7. Unless otherwise authorized by
the Board or its delegate, no amendment or modification to this Plan
shall be effective until reduced to writing and adopted pursuant to
SECTION 9.02.
IN WITNESS WHEREOF, the Company has caused this Plan to be effective on October
1, 1996, and to be executed on this ____ day of _________, 1996.
For Lucent Technologies Inc.
By:______________________________________
Curtis R. Artis
Senior Vice President, Human Resources
Attest: _________________________________
Pamela F. Craven
Vice President - Law
Assistant Secretary
LUCENT TECHNOLOGIES INC. OFFICERS LTD
AND SURVIVOR PROTECTION PLAN
PAGE 24
<PAGE> 1
EXHIBIT (10)(iii)(A)9
LUCENT TECHNOLOGIES INC. OFFICER
INCENTIVE AWARD DEFERRAL PLAN
(Effective October 1, 1996)
1. Eligibility
Any employee holding a position at Lucent Technologies Inc.
("Lucent") evaluated or classified above the "E-band" level and identified in
Lucent's records as an officer of Lucent (hereinafter "Officer") who was a
participant in the AT&T Senior Management Incentive Award Deferral Plan
("predecessor plan"), and any Officer of Lucent Technologies Inc. who is
eligible for an award under the Lucent Technologies Inc. Short Term Incentive
Plan (the "Short Term Incentive Plan") and/or who has been granted a Performance
Award or a Stock Unit Award under the Lucent Technologies Inc. 1996 Long Term
Incentive Program ("1996 Program"), shall be eligible to participate in this
Lucent Technologies Inc. Officer Incentive Award Deferral Plan (the "Plan"). For
purposes of the Plan, the term "Participating Company" shall include Lucent and
any of its Affiliates (as defined in the 1996 Program).
2. Participation
(a) Prior to the beginning of any calendar year, any Officer
may elect to participate in the Plan by directing that (i) all or part of the
awards under the Short Term Incentive Plan, or the Performance Awards or the
Stock Unit Awards under the 1996 Program and/or (ii) all or part of the dividend
equivalent payments under the 1996 Program, which such employee would otherwise
receive currently in such calendar year and subsequent calendar years, shall be
credited to a deferred account subject to the terms of the Plan. However, in no
event shall the part of an award under any plan credited during
<PAGE> 2
any calendar year be less than $1,000 (based on a valuation at the time the
award would otherwise be paid). There shall be no such minimum limitation on
amounts credited during any calendar year that are related to dividend
equivalent payments.
In addition, prior to the beginning of any calendar year, the
Chairman of the Board and any other Officer designated by the Chairman of the
Board may elect to participate in the Plan by directing that all or part of such
Officer's salary, which such employee would otherwise receive currently in such
calendar year and subsequent calendar years, shall be credited to a deferred
account subject to the terms of the Plan.
(b) Such an election to participate in the Plan shall be in
the form of a document executed by the employee and filed with the employee's
Participating Company. An election related to awards, dividend equivalent
payments and/ or salary otherwise payable currently in any calendar year shall
become irrevocable on the last day prior to the beginning of such calendar year.
(c) An election under this Plan (or the predecessor plan)
shall continue until the employee terminates or modifies such election by
written notice. Any such termination or modification shall become effective as
of the end of the calendar year in which such notice is given with respect to
all awards, dividend equivalents and/or salary otherwise payable in subsequent
calendar years.
(d) An eligible employee who has filed a termination of
election may thereafter again file an election to participate with respect to
awards, dividend equivalent payments and/or salary otherwise payable in calendar
years subsequent to the filing of such election.
3. Deferred Accounts
(a) Deferred amounts related to awards, dividend equivalent
payments which would otherwise have been distributed in cash by a Participating
Company and deferred amounts related to salary, including amounts previously
deferred under the
<PAGE> 3
predecessor plan and credited under this Plan, shall be credited to the
employee's account and shall bear interest from the date the awards, dividend
equivalent payments and/or salary would otherwise have been paid. The interest
credited to the account will be compounded at the end of each calendar quarter,
and the annual rate of interest applied at the end of any calendar quarter shall
be determined by the Lucent Board of Directors from time to time.
(b) Deferred amounts related to awards which would otherwise
have been distributed in Lucent common shares by a Participating Company shall
be credited to the employee's account as deferred Lucent shares. The employee's
account shall also be credited on each dividend payment date for Lucent shares
with an amount equivalent to the dividend payable on the number of Lucent common
shares equal to the number of deferred Lucent shares in the employee's account
on the record date for such dividend. Such amount shall then be converted to a
number of additional deferred Lucent shares determined by dividing such amount
by the price of Lucent common shares, as determined in the following sentence.
The price of Lucent common shares related to any dividend payment date shall be
the average of the daily high and low sale prices of Lucent common shares on the
New York Stock Exchange ("NYSE") for the period of five trading days ending on
such dividend payment date, or the period of five trading days immediately
preceding such dividend payment date if the NYSE is closed on the dividend
payment date.
(c) In the event of any change in outstanding Lucent common
shares by reason of any stock dividend or split, recapitalization, merger,
consolidation, combination or exchange of shares or other similar corporate
change, the Lucent Board of Directors shall make such adjustments, if any, that
it deems appropriate in the number of deferred Lucent shares then credited to
employees' accounts. Any and all such adjustments shall be conclusive and
binding upon all parties concerned.
4. Distribution
<PAGE> 4
(a) At the time an eligible employee makes an election to
participate in the Plan (or the predecessor plan), the employee shall also make
an election with respect to the distribution (during the employee's lifetime or
in the event of the employee's death) of the amounts credited to the employee's
deferred account. Such an election related to the distribution during the
employee's lifetime, of amounts otherwise payable currently in any calendar
year, shall become irrevocable on the last day prior to the beginning of such
calendar year. Any election related to the distribution of deferred amounts
under the predecessor plan shall continue in effect under this Plan. The
election related to the distribution in the event of the employee's death,
including the designation of a beneficiary or beneficiaries, may be changed by
the employee at any time by filing the appropriate document with the Secretary
of the Company.
Amounts credited as cash plus accumulated interest shall be
distributed in cash; amounts credited as deferred Lucent shares shall be
distributed in the form of an equal number of Lucent shares.
(b) An employee may elect to receive the amounts credited to
the employee's account in one payment or in some other number of approximately
equal annual installments (not exceeding 20), provided however, that the number
of annual installments may not extend beyond the life expectancy of the
employee, determined as of the date the first installment is paid. The
employee's election shall also specify that the first installment (or the single
payment if the employee has so elected) shall be paid either (1) on the first
day of the calendar quarter next following the end of the month in which the
employee attains the age specified in such election, which age shall not be
earlier than age 55 or later than age 70-1/2, (2) on the first day of the
calendar quarter next following the end of the month in which the employee
retires from a Participating Company or otherwise terminates employment with any
Participating Company (except for a transfer to another Participating Company);
provided, however, that the Lucent Board of Directors or the Corporate
Governance and Compensation Committee of such Board may, in its sole
<PAGE> 5
discretion, direct that the first installment (or the single payment) shall be
paid on the first day of the first calendar quarter in the calendar year next
following the year of retirement or other termination of employment, or (3) on
the first day of the first calendar quarter in the calendar year next following
the calendar year in which the employee retires from a Participating Company or
otherwise terminates employment with any Participating Company (except for a
transfer to another Participating Company).
(c) Notwithstanding an election pursuant to Paragraph (b) of
this Section 4, the entire amount then credited to an employee's account shall
be paid immediately in a single payment (a) if the employee is discharged for
cause by his or her Participating Company, (b) if the Board of Directors of such
Participating Company determined that the employee engaged in misconduct in
connection with the employee's employment with the Participating Company, (c) if
the employee without the consent of the Board of Directors of his or her
Participating Company, while employed by such Participating Company or after the
termination of such employment, engages in "competitive activity" as such term
is defined in the Lucent Technologies Inc. Non-Competition Guideline as in
effect from time to time.
(d) An employee may elect that, in the event the employee
should die before full payment of all amounts credited to the employee's
account, the balance of the deferred amounts shall be distributed in one payment
or in some other number of approximately equal annual installments (not
exceeding 10) to the beneficiary or beneficiaries designated in writing by the
employee, or if no designation has been made, to the estate of the employee. The
first installment (or the single payment if the employee has so elected) shall
be paid on the first day of the calendar quarter next following the month of
death; provided, however, that the Lucent Board of Directors or the Corporate
Governance and Compensation Committee of such Board may, in its sole discretion,
direct that the first installment (or the single payment) shall be paid on the
first day of the first calendar quarter in the calendar year next following the
year of death.
<PAGE> 6
(e) Installments subsequent to the first installment to the
employee, or to a beneficiary or to the employee's estate, shall be paid on the
first day of the applicable calendar quarter in each succeeding calendar year
until the entire amount credited to the employee's deferred account shall have
been paid. Deferred amounts held pending distribution shall continue to be
credited with interest or additional deferred Lucent shares, as applicable,
determined in accordance with Section 3(a) and (b).
(f) In the event an employee, or the employee's beneficiary
after the employee's death, incurs a severe financial hardship, the Lucent Board
of Directors or the Corporate Governance and Compensation Committee of such
Board, in its sole discretion, may accelerate or otherwise revise the payment
schedule from the employee's account to the extent reasonably necessary to
eliminate the severe financial hardship. For the purpose of this subsection (f),
a severe financial hardship must have been caused by an accident, illness, or
other event beyond the control of the employee or, if applicable, the
beneficiary.
(g) The obligation to make a distribution of deferred amounts
credited to an employee's account during any calendar year plus the additional
amounts credited on such deferred amounts pursuant to Section 3(a) and (b) shall
be borne by the Participating Company which otherwise would have paid the
related award or salary currently. However, the obligation to make distribution
with respect to deferred amounts which are related to amounts credited as
deferred amounts under the predecessor plan, and with respect to which no
Participating Company would otherwise have paid the related award or deferred
amount currently, shall be borne by the Participating Company to which the
Participant has been assigned as of October 1, 1996.
5. Miscellaneous
(a) The deferred amounts, including amounts previously
deferred under the predecessor plan and credited under this Plan, shall be held
in the general funds of the
<PAGE> 7
Participating Companies. The Participating Companies shall not be required to
reserve, or otherwise set aside, funds for the payment of such amounts.
(b) The rights of an employee to any deferred amounts plus the
additional amounts credited pursuant to Section 3(a) and (b) shall not be
subject to assignment by the employee.
(c) The Senior Vice President - Human Resources of Lucent shall
have the authority to administer and to interpret the Plan.
(d) The Lucent Board of Directors may at any time amend the Plan
or terminate the Plan, but such amendment or termination shall not adversely
affect the rights of any employee, without his or her consent, to any benefit
under the Plan to which such employee may have previously become entitled prior
to the effective date of such amendment or termination. The Senior Vice
President - Human Resources of Lucent with the concurrence of the Senior Vice
President and General Counsel of Lucent shall be authorized to make minor or
administrative changes to the Plan, as well as amendments required by applicable
federal or state law (or authorized or made desirable by such statutes).
Approved and Adopted
_______________________________ Date:_________________________
<PAGE> 1
Exhibit (12)
LUCENT TECHNOLOGIES INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in Millions)
(Unaudited)
<TABLE>
<CAPTION>
----------------------- ------------------------------------
For the Nine Months For the Year Ended
Ended September 30, December 31,
----------------------- ------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Earnings Before Income
Taxes $ 367 $(1,138) $ 784 $ 619 $ 278
Less Interest Capitalized
During the Period 14 14 7 11 8
Less Undistributed
Earnings of Less Than
50% Owned Affiliates 1 2 21 29 -
Add Fixed Charges 311 327 338 321 371
------ ------ ------ ------ ------
Total Earnings $ 663 $ (827) $1,094 $ 900 $ 641
====== ====== ====== ====== ======
Fixed Charges
Total Interest Expense
Including Capitalized
Interest $ 250 $ 257 $ 277 $ 254 $ 300
Interest Portion of
Rental Expenses 61 70 61 67 71
------ ------ ------ ------ ------
Total Fixed
Charges $ 311 $ 327 $ 338 $ 321 $ 371
====== ====== ====== ====== ======
Ratio of Earnings to
Fixed Charges 2.1 (A) 3.2 2.8 1.7
====== ====== ====== ====== ======
</TABLE>
(A) For purposes of determining the ratio of earnings to fixed charges,
earnings are defined as income(loss) before income taxes, less interest
capitalized, less undistributed earnings of less than 50% owned
affiliates and plus fixed charges. Fixed charges consist of interest
expense on all indebtedness and that portion of operating lease rental
expense that is representative of the interest factor. Earnings were
inadequate to cover fixed charges for the year ended December 31, 1995 by
$1,154.
<PAGE> 1
EXHIBIT 13
MANAGEMENT'S DISCUSSION AND ANALYSIS LUCENT TECHNOLOGIES INC. AND SUBSIDIARIES
OVERVIEW
Lucent Technologies Inc.("Lucent" or the "Company") is one of the world's
leading designers, developers and manufacturers of telecommunications systems,
software and products. Lucent is a global market leader in the sale of public
telecommunications systems, and is a supplier of systems and software to the
world's largest networks. Lucent is also a global leader in the sale of business
communications systems and microelectronic components for communications systems
and computer manufacturers. In addition, Lucent is the largest supplier in the
United States of consumer telecommunications products. Lucent is comprised of
the systems and technology units that were formerly part of AT&T Corp. ("AT&T"),
including the research and development capabilities of Bell Laboratories. Lucent
is engaged in the design, development, manufacturing and servicing of systems
and software for telecommunications applications within the global
telecommunications networking industry. These integrated systems enable network
operators and business enterprises to connect, route, manage and store
information between and within locations.
On July 17, 1996, Lucent's board of directors voted to change Lucent's
fiscal accounting year to begin October 1st and end September 30th. As a result,
Lucent's 1996 fiscal year ended on September 30, 1996.
The following table provides the revenues, gross margin, operating income
and net income for the twelve months ended September 30, 1996 (excluding
business restructuring and other charges) and 1995:
<TABLE>
<CAPTION>
TWELVE MONTHS FINANCIAL INFORMATION
- --------------------------------------------------------
SEPTEMBER 30, September 30,
(Dollars in Millions) 1996 1995
- --------------------------------------------------------
<S> <C> <C>
Revenues $23,286 $20,258
Gross margin 9,786 8,797
Operating income 1,854 1,152
Net income 1,054 553
- --------------------------------------------------------
</TABLE>
1
<PAGE> 2
MANAGEMENT'S DISCUSSION AND ANALYSIS LUCENT TECHNOLOGIES INC. AND SUBSIDIARIES
Revenue Summary Chart - Fiscal Year View (in billions of dollars)
For The Twelve Months Ended September 30, 1996 and 1995 -
Total Revenues $23 Billion and $20 Billion, Respectively
<TABLE>
<CAPTION>
Revenue Summary - Fiscal Year View
FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
- --------------------------------------------------------
(Dollars in Millions) 1996 1995
- --------------------------------------------------------
<S> <C> <C>
Systems for Network Opertors $13,192 $10,586
Business Communications Systems 5,509 5,107
Microelectronic Products 2,315 1,821
Consumer Products 1,431 1,836
Other 839 908
Total 23,286 20,258
- --------------------------------------------------------
</TABLE>
For the twelve months ended September 30, 1996 compared with the same period in
1995, revenues from: Systems for Network Operators increased 24.6%,
Microelectonic Products increased 27.1% and Business Communications Systems
increased 7.9%. As expected, revenues from Consumer Products declined due to the
closing of the Phone Center Stores, discontinued unprofitable product lines and
decreased rental revenues. Consumer Products revenues decreased 22.1% from the
comparable period in 1995.
2
<PAGE> 3
MANAGEMENT'S DISCUSSION AND ANALYSIS LUCENT TECHNOLOGIES INC. AND SUBSIDIARIES
Lucent reported net income of $224 million or $0.38 per share for the nine-month
period ended September 30, 1996, compared with $150 million or $0.28 per share
for the same period in 1995 (assuming all 524,624,894 shares owned by AT&T were
outstanding since January 1, 1995). On a pro forma basis, Lucent would have
reported $0.35 per share for the nine-month period ended September 30, 1996
compared with $0.24 per share for the same period in 1995. The calculation of
earnings per share on a pro forma basis assumed that all 636,661,931 common
shares outstanding on April 10, 1996 were outstanding since January 1, 1995 and
gives no effect to the use of proceeds from the Initial Public Offering ("IPO").
Operating income increased $53 million or 12.2% in the nine-month period of
1996, compared with the same period of 1995.
INITIAL PUBLIC OFFERING
Prior to February 1, 1996, AT&T conducted Lucent's business through various
divisions and subsidiaries. On February 1, 1996, AT&T began executing its
decision to separate Lucent into a stand-alone company (the "Separation") by
transferring to Lucent the assets and liabilities related to the business,
except for $2,000 million of accounts receivable retained by AT&T. On April 10,
1996, the closing date of the IPO, the Separation was substantially completed,
including the transfer of most of the assets and liabilities. The remaining
asset and liability transfers, except for employee benefit assets and
liabilities, were finalized by September 30, 1996. The effective date of the
transfer of employee benefit assets and liabilities to Lucent, or trusts
established by Lucent, was October 1, 1996. After the completion of the IPO,
AT&T owned 82.4% of the outstanding shares of Lucent's common stock. On
September 30, 1996, AT&T distributed all of its shares in Lucent to AT&T
shareowners of record as of September 17, 1996.
The 1995 and 1994 consolidated financial statements of Lucent reflect the
results of operations, financial position and cash flows of the operations
transferred to Lucent from AT&T in the Separation. Accordingly, Lucent's 1995
and 1994 consolidated financial statements 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 the business. Additionally,
the consolidated financial statements of Lucent include certain assets,
liabilities, revenues and expenses which were not historically recorded at the
level of, but are primarily associated with, the business. Management believes
the assumptions underlying Lucent's financial statements for 1995 and 1994 are
reasonable.
The 1995 and 1994 financial statements, however, may not necessarily
reflect the results of operations or financial position of Lucent in the future,
or what the results of operations or financial position would have been had
Lucent been a separate, stand-alone entity.
VARIABILITY IN THE BUSINESS
Lucent's sales are highly seasonal. Many of Lucent's large customers have
historically delayed a disproportionate percentage of their capital expenditures
until the fourth quarter of the calendar year. Lucent 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 of the calendar year. These
software releases require significant research and development expenditures
early in the year, with minimal offsetting revenues, but are key contributors to
Lucent's profits during the fourth quarter of the calendar year. Additionally,
sales of consumer products are generally stronger in the fourth quarter,
corresponding to holiday buying.
3
<PAGE> 4
MANAGEMENT'S DISCUSSION AND ANALYSIS LUCENT TECHNOLOGIES INC. AND SUBSIDIARIES
BUSINESS SEASONALITY CHART - QUARTERLY REVENUES - (IN BILLIONS OF DOLLARS)
<TABLE>
<CAPTION>
BUSINESS SEASONALITY -- QUARTERLY REVENUES
(DOLLARS IN MILLIONS)
<S> <C>
4th Quarter 1994 $6,272
1st Quarter 1995 4,159
2nd Quarter 1995 5,083
3rd Quarter 1995 4,744
4th Quarter 1995 7,427
1st Quarter 1996 4,577
2nd Quarter 1996 5,364
3rd Quarter 1996 5,918
</TABLE>
There are a number of factors that contribute to variability in Lucent'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 Lucent expects it to continue, and possibly intensify.
4
<PAGE> 5
MANAGEMENT'S DISCUSSION AND ANALYSIS LUCENT TECHNOLOGIES INC. AND SUBSIDIARIES
The growing competitive pressures among network operators, along with
the increase in software revenues, have resulted in an increasing trend toward
seasonality. Consequently, Lucent's results of operations for the first three
quarters of each calendar year historically have, in the aggregate, been
significantly less profitable than the fourth quarter. Lucent has reported net
losses in the first quarter of each calendar year.
In recent years, the purchasing behavior of Lucent'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 Lucent's
results. Such larger purchase contracts typically involve longer negotiating
cycles, require the dedication of substantial amounts of working capital and
other 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, as well as
financing from Lucent. Certain multi-year contracts may involve new technologies
which may not have been previously deployed on a large-scale commercial basis.
Lucent 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.
To manage this fluctuation caused by the buying behaviors of large
customers, Lucent continues to seek out new types of customers both in the
United States and internationally, such as competitive access providers, cable
television network operators and computer manufacturers.
Lucent continues to face significant competition in its markets and
expects that the level of competition on pricing and product offerings will
intensify. Lucent expects that new competitors will enter its markets as a
result of the combined impact of global expansion by foreign and domestic
competitors as well as continued changes in technology and public policy.
Lucent's business leaders continuously assess the Company's resource needs and
redirect them as necessary to address market conditions and to reduce costs.
Such steps can include closing and consolidating facilities, disposing of
assets, reducing workforce levels or withdrawing from markets.
In February 1996, Lucent acquired several manufacturing and other
operations of certain subsidiaries of Philips Electronics NV ("Philips"),
primarily in Germany and France. The acquisition was designed to permit Lucent
to expand its global line of systems which support non-United States standards
for mobile and fixed wireless access and digital optical transport. Lucent also
purchased Agile Networks ("Agile") in October 1996 to offer enhanced
capabilities to business customers in managing their multimedia networks more
effectively. Agile's advanced intelligent data switching products support
Ethernet as well as emerging asynchronous transfer mode ("ATM") technology.
Agile also offers "virtual local area network" software. Lucent is in the
process of determining the allocation of the purchase price. Additionally, 1996
included businesses Lucent has sold or plans to dispose of by the end of the
calendar year (the results of such operations are not material to the
consolidated financial statements). For example, Lucent sold its Paradyne
business in July 1996 and signed a letter of intent to sell its interconnect
products business.
5
<PAGE> 6
MANAGEMENT'S DISCUSSION AND ANALYSIS LUCENT TECHNOLOGIES INC. AND SUBSIDIARIES
(Dollars in Millions, Except Per Share Amounts)
<TABLE>
<CAPTION>
------------------------------------------------------------------------
FIVE YEAR SUMMARY Nine Months Ended Year Ended
(Unaudited) September 30, December 31,
- ---------------------------------------------------------------------------------------------------------
1996 1995 1995(1) 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Revenues $ 15,859 $ 13,986 $ 21,413 $ 19,765 $ 17,734 $ 17,312
Gross margin 6,569 6,143 8,468 8,428 7,646 6,929
Operating income(loss) 487 434 (1,000) 971 669 404
Income(loss) before cumulative
effects of accounting changes 224 150 (867) 482 430 179
Cumulative effects of
accounting change - - - - (4,208) -
Net income(loss) 224 150 (867) 482 (3,778) 179
Earnings per common share -
Historical(2) 0.38 0.28 (1.65) n/a n/a n/a
Earnings per common share -
Pro Forma(3) 0.35 0.24 (1.36) n/a n/a n/a
Dividends per common share 0.15 - - n/a n/a n/a
FINANCIAL POSITION
Total assets $ 22,626 $ 18,219 $ 19,722 $ 17,340 $ 17,109 $ 14,466
Working capital 2,068 188 (384) 246 1,773 (1,719)
Total debt 3,997 4,192 4,014 3,164 3,195 3,942
Shareowners' equity 2,686 2,783 1,434 2,476 2,580 3,098
OTHER INFORMATION
Sales, general and
administrative expenses
as a percentage of revenues 26.8% 28.9% 33.1% 27.1% 28.3% 27.8%
Research and development
expenses as a percentage
of revenues 11.6 12.0 11.1 10.6 11.1 9.9
Gross margin percentage 41.4 43.9 39.5 42.6 43.1 40.0
- ---------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes pretax 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.
(2) The calculation of earnings per share on a historical basis includes the
retroactive recognition to January 1, 1995 of the 524,624,894 shares owned
by AT&T.
(3) The calculation of earnings per share on a pro forma basis assumed that all
636,661,931 common shares outstanding on April 10, 1996 were outstanding
since January 1, 1995 and gives no effect to the use of proceeds from the
IPO.
6
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS LUCENT TECHNOLOGIES INC. AND SUBSIDIARIES
NINE MONTHS ENDED SEPTEMBER 30, 1996 VERSUS NINE
MONTHS ENDED SEPTEMBER 30, 1995
REVENUES
Total revenues increased $1,873 million or 13.4% for the nine-month period of
1996, compared with the same period of 1995, primarily due to gains in sales
from Systems for Network Operators, Microelectronic Products and Business
Communications Systems. The overall revenue growth was partially offset by the
expected decline in revenues from Consumer Products due to the closing of the
Phone Center Stores, discontinuance of unprofitable product lines and the
decreased telephone rental revenues. Revenue growth continued to be generated
both from sales in the United States and internationally (including exports).
International revenues represented 23.1% of total revenues in 1996 compared with
20.7% of total revenues in 1995. The following table presents Lucent's revenues
by product line, and the related approximate percentage of total revenues for
the nine months ended September 30, 1996 and 1995 (1995 has been restated to
align intellectual property and other service revenues with Lucent's operating
units):
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
- ------------------------------------------------------------------------
(Dollars in Millions) 1996 1995
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Systems for Network Operators $ 8,637 54% $ 6,914 49%
Business Communications Systems 3,983 25 3,710 27
Microelectronic Products 1,756 11 1,420 10
Consumer Products 880 6 1,238 9
Other Systems and Products 603 4 704 5
Total $15,859 100% $13,986 100%
========================================================================
</TABLE>
Revenues from Systems for Network Operators increased $1,723 million or
24.9% compared with the same period in 1995. The increase was driven by higher
sales of switching, transmission, fiber-optic cable products and professional
services. Demand for those products was driven by second line subscriber growth
and customer demand for continued network upgrades. In 1996, a contract was
signed with ICG Communications, Inc. to supply the latest advanced
telecommunications products and services. This is an example of Lucent's product
offerings to alternative network access providers which will support the
expansion and enhancement of their networks.
7
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS LUCENT TECHNOLOGIES INC. AND SUBSIDIARIES
Software sales increased $117 million or 15.0% compared with the same
period in 1995. For 1996, sales of wireless infrastructure increased $69 million
or 6.4 % compared to the same period in 1995. In July 1996, Lucent signed a
contract with Cox California PCS, Inc. ("Cox") for the purchase of personal
communications services ("PCS") network equipment and services. The system being
built by Cox will integrate its existing cable infrastructure with PCS networks,
using the Code Division Multiple Access ("CDMA") technology. Lucent expects to
recognize revenue related to its digital PCS contracts in subsequent periods.
Sales from Systems for Network Operators in the United States increased
23.4% and international revenues increased 29.6% compared with the same period
in 1995. The revenue increase in the United States was led by sales to AT&T and
the Regional Bell Operating Companies, partially offset by a revenue decrease
resulting from Lucent's exit from the copper cable business in 1995. Increased
sales of infrastructure systems and services continue to drive international
revenue growth in the Asia/Pacific and Europe/Middle-East/Africa regions. In
addition, the international revenue increase includes approximately $298 million
in revenue resulting from the acquisition of Philips. International revenues
represented 24.8% of revenues from Systems for Network Operators in the
nine-month period of 1996 compared with 23.9% in the same period of 1995.
Lucent continues to focus resources on marketing CDMA technology. This
latest technology has shown acceptance in both the international and domestic
markets. Recently, Lucent has made progress in the buildout of CDMA
infrastructure for PrimeCo Personal Communications LP. During the first quarter
of 1996, Lucent was awarded a contract from Sprint Spectrum Holdings LP ("SSLP")
to supply equipment and services for approximately 60% of SSLP's market areas
for its nationwide PCS wireless network over a five-year period.
Revenues from Business Communications Systems increased $273 million or
7.4% compared with the same period in 1995. This increase was primarily due to
higher sales in the United States and internationally, partially offset by the
continued erosion of the rental base. The revenue growth in the United States
was led by sales of DEFINITY(R) products, SYSTIMAX(R) structured wiring systems
and INTUITY(TM) voice messaging products as well as higher revenue from call
centers and maintenance contracts. International revenues increased by 24.7%,
reflecting growth in all international regions.
- --------------------------------------
(R) Registered trademark of Lucent
(TM) Trademark of Lucent
8
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS LUCENT TECHNOLOGIES INC. AND SUBSIDIARIES
Sales of Microelectronic Products increased $336 million or 23.7% compared
with the same period in 1995 due to higher sales of digital signal processors
("DSPs") and application specific integrated circuits ("ASICs") to original
equipment manufacturers ("OEMs"), both internationally and in the United States.
Domestic revenues increased 14.7% compared to the period in 1995, led by sales
to OEMs. The growth in international revenues of 34.6% was driven by continued
strength of DSPs and ASICs sales in the Asia/Pacific region. International
revenues represented 49.0% of the Microelectronic Products sales for the
nine-month period of 1996. In 1996, Microelectronic Products revenue growth
exceeded the growth rate reported by the semiconductor industry for
microprocessors. Microelectronic Products has been successful in focusing its
resources in those areas of the semiconductor industry that are experiencing the
highest growth rates and building products that are least exposed to the
cyclical nature of the semiconductor industry.
In August 1996, Lucent signed a letter of intent to sell its
interconnect products business to Hicks, Muse, Tate and Furst Incorporated of
Dallas ("HMT&F Inc"), subject to certain conditions. In connection with the
sale, Lucent would enter into a contract to purchase products from HMT&F Inc
over a several year period.
Revenues from Consumer Products decreased $358 million or 28.9%
compared with the same period in 1995. The expected decline in revenues was
primarily due to the decrease in product sales resulting from the closing of the
Phone Center Stores, the discontinuance of unprofitable product lines and the
decrease in telephone rentals. Consumer Products will continue to distribute its
products through retailers.
Revenues from Other Systems and Products decreased $101 million or
14.3% compared with the same period in 1995. These revenues include sales from
the Paradyne subsidiary sold in July 1996 as well as the custom manufacturing
systems business, which Lucent expects to sell by the end of 1996.
COSTS
Total costs increased $1,447 million or 18.4% in 1996 compared with the same
period in 1995 due primarily to higher sales volumes. As a percentage of
revenue, gross margin declined to 41.4% from 43.9% in the year-ago period. This
gross margin decline was due to changes in the mix of revenues, erosion of high
margin rental revenues and lower margins on Philips' products. The revenue mix
reflected a higher proportion of hardware sales and a higher proportion of
revenues from contracts accounted for on a percentage of completion basis
("POC"). Under POC accounting, direct contract expenditures are accounted for as
costs and not operating expenses.
9
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS LUCENT TECHNOLOGIES INC. AND SUBSIDIARIES
OPERATING EXPENSES
Selling, general and administrative expenses increased $207 million or 5.1%
compared with the same period in 1995. Included are approximately $160 million
due to expenditures associated with start-up related costs such as advertising
and creating a new information systems infrastructure, as well as the additional
expenses resulting from the consolidation of Philips' financial results.
Selling, general and administrative expenses were 26.8% of revenues for
the nine-month period of 1996 compared with 28.9% of revenues for the same
period last year.
Research and development expenses increased $166 million or 9.9%
compared with the same period in 1995. Research and development expenses
represented 11.6% of revenues for the nine-month period of 1996 compared with
12.0% of revenues for the same period in 1995.
OTHER INCOME AND PROVISION FOR INCOME TAXES
Other income -- net increased $54 million compared with the same period in 1995.
The increase was primarily due to interest income on short-term investments.
The effective income tax rate of 39.0% for the nine-month period of
1996 decreased from 40.2% in the same period of 1995, primarily due to increased
federal research tax credits.
CASH FLOWS
Cash from operating activities increased compared with the same period in 1995
due to an increase in prepayments from customers. Additionally, inventory in
1996 remained relatively level versus the buildup reported in 1995. These
activities were offset by AT&T's retention of $2,000 million of accounts
receivable in 1996.
Cash payments of $456 million related to business restructuring were
made during the nine months of 1996. The September 30, 1996 remaining balance
will result in future cash payments over the next two years. Of the 22,000
employee separations announced as part of the 1995 business restructuring,
approximately 11,400 people left the workforce as of September 30, 1996. In
addition, approximately 1,000 employees left Lucent's workforce as part of the
sale of Paradyne. Actual experience in employee separations, combined with
redeployment of employees into other areas of the business, has resulted in
lower separation costs than originally anticipated. Lucent anticipates that
approximately 70% of the total expected employee separations will be complete by
the end of December 1996.
10
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS LUCENT TECHNOLOGIES INC. AND SUBSIDIARIES
The increase in cash used in investing activities was largely the
result of the Philips acquisition and higher capital expenditures compared with
the same period in 1995. Capital expenditures, the largest component, were $939
million and $784 million for the nine-month periods ended September 30, 1996 and
1995, respectively. These expenditures related to the expansion of manufacturing
capacity of Microelectronic Products and the necessary expansion of various
other facilities.
Cash provided by financing activities increased primarily due to the
proceeds from the IPO in 1996 compared with the same period in 1995.
In 1995, Lucent relied on AT&T to provide financing for its operations.
Cash flows from financing activities in 1995 principally reflect changes in
Lucent's assumed capital structure. These cash flows are not necessarily
indicative of the cash flows from financing activities that would have resulted
if Lucent was a stand-alone entity.
TWELVE MONTHS ENDED DECEMBER 31, 1995 VERSUS TWELVE MONTHS ENDED DECEMBER 31,
1994
REVENUES
For 1995, Lucent reported a net loss of $867 million, reflecting $2,801 million
($1,847 million after taxes) of restructuring and other charges. Excluding the
charges, net income was $980 million, an increase of $498 million compared with
1994. The following table presents Lucent's revenues by product line, and the
related approximate percentage of total revenues for 1995 and 1994 (1995 has
been restated to align intellectual property and other service revenues with
Lucent's operating units):
<TABLE>
<CAPTION>
Twelve Months Ended
December 31,
- ------------------------------------------------------------------------
(Dollars in Millions) 1995 1994
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Systems for Network Operators $11,469 54% $10,841 55%
Business Communications Systems 5,236 25 4,557 23
Microelectronic Products 1,979 9 1,461 7
Consumer Products 1,789 8 1,924 10
Other Systems and Products 940 4 982 5
Total $21,413 100% $19,765 100%
========================================================================
</TABLE>
Revenues grew in Lucent'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
with 19.1% of total revenues in 1994.
Revenues from Systems for Network Operators were $11,469 million, an
increase of $628 million or 5.8% 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 was caused by delays in spending by network operators and their growing
reluctance to purchase from AT&T, a potential competitor. However, domestic
sales of wireless infrastructure increased approximately 19%.
11
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS LUCENT TECHNOLOGIES INC. AND SUBSIDIARIES
Revenues from Systems for Network Operators outside the United States
increased approximately 28% in 1995 compared with 1994. These increases were
primarily due to increases in sales of wireless infrastructure of approximately
14% and increases in sales of switching and transmission systems, including
software, of approximately 22%.
Revenues from Business Communications Systems of $5,236 million
increased $679 million or 14.9% 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. United States revenues grew
approximately 12%, primarily due to increased sales of DEFINITY(R) products,
including upgrades, and sales of INTUITY(TM) voice messaging products. This
increase was offset in part by the continuing decline in the rental base of
approximately $84 million. International revenues grew approximately 36%,
primarily due to sales of Lucent's SYSTIMAX(R) structured cabling systems and
higher sales of private branch exchanges and call centers through international
distributors.
Sales of Microelectronic Products of $1,979 million increased $518
million or 35.5% in 1995 compared with 1994, due to higher sales of ASICs both
inside and outside the United States. Most of this growth resulted from sales to
customers outside the United States.
Revenues from Consumer Products were $1,789 million, a decline of $135
million or 7.0% in 1995 compared with 1994. Included in these revenues were $425
million in sales through the Phone Center Stores, which Lucent closed in 1996.
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 Other Systems and Products sales of $940 million in 1995
decreased $42 million or 4.3% compared with 1994.
COSTS
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
due to increased sales of higher margin software products to network operators,
offset in part by the erosion of high margin rental revenues.
OPERATING EXPENSES
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. These restructuring charges 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.
12
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS LUCENT TECHNOLOGIES INC. AND SUBSIDIARIES
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 (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.
OTHER INCOME, INTEREST EXPENSE AND PROVISION FOR INCOME TAXES
Other income -- net increased $81 million to $164 million in 1995 compared with
1994, primarily due to gains on investments in 1995.
Interest expense in 1995 was $302 million, an increase of $32 million
or 12% compared with 1994. The increase was due to higher average debt levels in
1995 compared with 1994. The average borrowings assumed to be outstanding in
1995 increased to approximately $3,589 million from approximately $3,179 million
in 1994.
The effective income tax rate of 23.8% in 1995 decreased from 38.5% in
1994, primarily due to the nondeductibility of certain 1995 restructuring and
other charges, which resulted in a net loss for 1995.
CASH FLOWS
Lucent's cash from operations decreased in 1995 compared with the same period in
1994. The decline in cash provided by operations in 1995 was primarily due to
the higher accounts receivable balance at year-end 1995, reflecting
significantly higher calendar year fourth quarter sales, and higher inventory
balances, as work in process for long-term contracts increased.
Cash used in investing activities increased in 1995 compared with the
same period in 1994 primarily because of the increase in capital expenditures.
In 1995, capital expenditures included construction of a new facility to
consolidate Lucent's operations and expansion of manufacturing capacity for
ASICs and wireless equipment.
Net cash provided by financing activities increased in 1995 compared
with the same period in 1994. Lucent historically had relied on AT&T to provide
financing for its operations. Cash flows from financing activities reflected the
changes required to maintain its assumed capital structure. These cash flows
were not necessarily indicative of the cash flows from financing activities that
would have resulted if Lucent was a stand-alone entity.
13
<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS LUCENT TECHNOLOGIES INC. AND SUBSIDIARIES
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Total assets as of September 30, 1996, increased $2,904 million or 14.7% from
year-end 1995, largely as a result of the cash generated from Lucent's IPO and a
$500 million cash advance received from AT&T. Higher inventory levels also
contributed to the increase in total assets compared with year-end 1995. These
increases were partially offset by a decline in accounts receivable. At December
31, accounts receivable are historically at their highest levels and inventory
levels are historically at their lowest.
Working capital, defined as current assets less current liabilities,
increased $2,452 million from year-end primarily resulting from the cash
generated from the IPO and the repayment of commercial paper with the net
proceeds from the issuance of long-term debt. The increase would have been
greater, if not for the retention of $2,000 million of customer accounts
receivable by AT&T.
The fair value of Lucent's pension plan assets is greater than the
projected pension obligations. Lucent records pension income when the expected
return on plan assets plus amortization of the transition asset is greater than
the interest cost on the projected benefit obligation plus service cost for the
year. Consequently, Lucent continued to have pension income that added to the
prepaid pension costs in 1996.
Payroll and benefit-related liabilities decreased $534 million
primarily due to separation payments associated with the workforce reduction.
The increase in shareowners' equity resulted primarily from the IPO
proceeds of $2,887 million offset by the retention by AT&T of $2,000 million of
customer accounts receivable.
14
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS LUCENT TECHNOLOGIES INC. AND SUBSIDIARIES
Lucent filed a registration statement on Form S-3, which became
effective on April 3, 1996, to register the offering from time to time of up to
$3,500 million of debt securities. On July 22, 1996, Lucent issued $1,500
million of long-term debt to pay down a portion of its commercial paper. Lucent
expects that, over time, it may replace all or part of the outstanding
commercial paper with short- or long-term borrowings as market conditions
permit. Lucent maintains $6,000 million in credit facilities (a portion of which
is used to support Lucent's commercial paper program) that were unused at
September 30, 1996. Lucent also maintains lines of credit with primarily foreign
banks totaling approximately $430 million. At September 30, 1996, $267 million
of these foreign lines of credit were unused. Future financings will be arranged
to meet Lucent's requirements with the timing, amount and form of issue
depending on the prevailing market and general economic conditions. Lucent
anticipates that borrowings under its bank credit facilities, the issuance of
additional commercial paper, cash generated from operations and short- and
long-term debt financings will be adequate to satisfy its future cash
requirements, although there can be no assurance that this will be the case.
Lucent entered into a credit agreement in October 1996 to provide SSLP
long-term financing of $1,800 million for purchasing equipment and services for
its PCS network. Loans made under this credit agreement defer any principal
payment for up to four years. Repayment of principal will occur over a
subsequent five-year period. Payment of quarterly interest on each borrowing may
be deferred at the borrower's option for up to two years. Lucent is currently
discussing with financial institutions potential alternatives to sell loans it
may make under the credit agreement, which will depend, among other things, on
the market conditions and requirements at the time.
Network operators, domestically and internationally, have increasingly
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.
Lucent is proposing, and commiting, to provide financing where appropriate for
its business, in addition to the SSLP credit agreement discussed above.
Lucent believes that it will be able to access the capital markets on
terms and in amounts that will be satisfactory, and 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, although there can be no assurance that this will be the case.
In the normal course of business, Lucent uses various financial
instruments, including derivative financial instruments, for purposes other than
trading. Derivative financial instruments are not entered into for speculative
purposes. Lucent's derivative financial instruments include foreign currency
exchange contracts. Lucent's nonderivative financial instruments include letters
of credit, commitments to extend credit, and guarantees of debt.
By their nature, all such instruments involve risk, including market
risk and the credit risk of nonperformance by counterparties. The maximum
potential loss may exceed the amount recognized in the balance sheet. All of
Lucent's foreign currency exchange contracts are hedges against specific
exposures. In foreign exchange contracts, Lucent assumed the risk from the
possible inability of counterparties to meet the terms of their contracts;
however, management believes this risk to be remote since the counterparties to
these contracts are major international institutions. Lucent controls its
exposure to credit risk associated with its financial instruments through credit
approvals, credit limits and monitoring procedures. At September 30, 1996, in
management's opinion, Lucent did not have any significant exposure to any
individual customer or counterparty, nor did Lucent have any major concentration
of credit risk related to any financial instrument.
The ratio of total debt to total capital (debt plus equity) was 59.8%
at September 30, 1996 compared with 63.3% on a pro forma basis at December 31,
1995.
15
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS LUCENT TECHNOLOGIES INC. AND SUBSIDIARIES
OTHER
One of Lucent's multi-year contracts is with Pacific Bell for the provision of a
broadband network based on hybrid fiber-coaxial cable technology. In July 1996,
Lucent and Pacific Bell agreed to modify the terms of the contract so as to
resolve issues and potential claims which may have arisen due to implementation
difficulties and cost overruns under the contract. Lucent's consolidated
financial statements include reserves to reflect these contract modifications.
Lucent will continue to assess the adequacy of these reserves.
On July 26, 1996, as part of the corporate restructuring efforts,
Lucent signed a long-term contract turning over a significant portion of the
day-to-day operations and management of its information technology and
production application work to ISSC, an IBM subsidiary. Implementation of the
multi-year contract became effective July 1, 1996. This outsourcing contract
covers work such as the operation of Lucent's mainframe data centers, computer
maintenance and installation, desktop computer support (including help desk
functions), most production system applications maintenance and some
applications development.
Lucent's current and historical operations are subject to a wide range
of environmental protection laws. In the United States, these laws often require
parties to fund remedial action regardless of fault. Lucent has remedial and
investigatory activities underway at 46 current and former facilities. In
addition, Lucent was named a successor to AT&T as a potentially responsible
party ("PRP") at numerous "Superfund" sites pursuant to the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 ("CERCLA") or
comparable state statutes. Under the Separation and Distribution Agreement,
among AT&T, Lucent and NCR Corporation ("NCR") dated as of February 1, 1996, and
amended and restated as of March 29, 1996 ("Separation and Distribution
Agreement"), Lucent is responsible for all liabilities primarily resulting from
or related to the operation of Lucent's business as conducted at any time prior
to or after the Separation including related businesses discontinued or disposed
of prior to the Separation, and Lucent's assets including, without limitation,
those associated with these sites. In addition, under the Separation and
Distribution Agreement, Lucent is required to pay a portion of contingent
liabilities paid out in excess of certain amounts by AT&T and NCR, including
environmental liabilities.
It is often difficult to estimate the future impact of environmental
matters, including potential liabilities. Lucent records an environmental
reserve when it is probable that a liability has been incurred and the amount of
the liability is reasonably estimable. This practice is followed whether the
claims are asserted or unasserted. Management expects that the amounts reserved
will be paid out over the period of remediation for the applicable site which
ranges from 5 to 30 years. Reserves for estimated losses from environmental
remediation are, depending on the site, based primarily upon internal or third
party environmental studies, and estimates as to the number, participation level
and financial viability of any other PRPs, the extent of the contamination and
the nature of required remedial actions. Accruals are adjusted as further
information develops or circumstances change. The amounts provided for in
Lucent's consolidated financial statements in respect to environmental reserves
are the gross undiscounted amount of such reserves, without deductions for
insurance or third party indemnity claims. In those cases where insurance
carriers or third party indemnitors have agreed to pay any amounts and
management believes that collectibility of such amounts is probable, the amounts
are reflected as receivables in the financial statements. Although Lucent
believes that its reserves are adequate, there can be no assurance that the
amount of capital and other expenditures, which will be required relating to
remedial actions and compliance with applicable environmental laws, will not
exceed the amounts reflected in Lucent's reserves or will not have a material
adverse effect on Lucent's financial condition, results of operations or cash
flows. Any amounts of environmental costs that may be incurred in excess of
those provided for at September 30, 1996 cannot be determined.
16
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS LUCENT TECHNOLOGIES INC. AND SUBSIDIARIES
FORWARD-LOOKING STATEMENTS
This Management's Discussion and Analysis of Financial Condition and Results of
Operations and other sections of this Annual Report contain forward-looking
statements that are based on current expectations, estimates and projections
about the industries in which Lucent operates, management's beliefs and
assumptions made by management. Words such as "expects," "anticipates,"
"intends," "plans," "believes," "seeks," "estimates," variations of such words
and similar expressions are intended to identify such forward-looking
statements. These statements are not guarantees of future performance and
involve certain risks, uncertainties and assumptions ("Future Factors") which
are difficult to predict. Therefore, actual outcomes and results may differ
materially from what is expressed or forecasted in such forward-looking
statements. Lucent undertakes no obligation to update publicly any
forward-looking statements, whether as a result of new information, future
events or otherwise.
Future Factors include increasing price and product/service competition by
foreign and domestic competitors, including new entrants; rapid technological
developments and changes; the ability to continue to introduce competitive new
products and services on a timely, cost effective basis; the mix of
products/services; the achievement of lower costs and expenses; domestic and
foreign governmental and public policy changes including environmental
regulations; protection and validity of patent and other intellectual property
rights; reliance on large customers; technological, implementation and
cost/financial risks in increasing use of large, multi-year contracts; the
cyclical nature of Lucent's business; the outcome of pending and future
litigation and governmental proceedings and continued availability of financing,
financial instruments and financial resources in the amounts, at the times and
on the terms required to support Lucent's future business. These are
representative of the Future Factors that could affect the outcome of the
forward-looking statements. In addition, such statements could be affected by
general industry and market conditions and growth rates, general domestic and
international economic conditions including interest rate and currency exchange
rate fluctuations and other Future Factors.
RECENT PRONOUNCEMENTS
In June 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 125, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities." This Standard provides
consistent standards for distinguishing transfers of financial assets that are
sales from transfers that are secured borrowings. This Standard is effective for
transfers and servicing of financial assets and extinguishments of liabilities
occurring after December 31, 1996. For Lucent, this Standard will be effective
in the second quarter of the new fiscal year 1997. The adoption of this Standard
is not expected to impact Lucent's consolidated results of operations, financial
position or cash flows.
17
<PAGE> 18
REPORT OF MANAGEMENT
LUCENT TECHNOLOGIES INC. AND SUBSIDIARIES
Management is responsible for the preparation of Lucent Technologies Inc.'s
consolidated financial statements and all related information appearing in this
Annual Report. The financial statements and notes have been prepared in
conformity with generally accepted accounting principles and include certain
amounts which are estimates based upon currently available information and
management's judgment of current conditions and circumstances.
To provide reasonable assurance that assets are safeguarded against
loss from unauthorized use or disposition and that accounting records are
reliable for preparing financial statements, management maintains a system of
accounting and other controls, including an internal audit function. Even an
effective internal control system, no matter how well designed, has inherent
limitations - including the possibility of circumvention or overriding of
controls - and therefore can provide only reasonable assurance with respect to
financial statement presentation. The system of accounting and other controls is
improved and modified in response to changes in business conditions and
operations and recommendations made by the independent public accountants and
the internal auditors.
The Audit and Finance Committee of the Board of Directors, which is
composed of directors who are not employees, meets periodically with management,
the internal auditors and the independent auditors to review the manner in which
these groups of individuals are performing their responsibilities and to carry
out the Audit and Finance Committee's oversight role with respect to auditing,
internal controls and financial reporting matters. Periodically, both the
internal auditors and the independent auditors meet privately with the Audit and
Finance Committee and have access to its individual members.
Lucent engaged Coopers & Lybrand L.L.P., independent public
accountants, to audit the consolidated financial statements in accordance with
generally accepted auditing standards, which include consideration of the
internal control structure. Their report appears on this page.
/s/ Henry B. Schacht /s/ Donald K. Peterson
- ------------------------ -------------------------
Henry B. Schacht Donald K. Peterson
Chairman of the Board, Executive Vice President,
Chief Executive Officer Chief Financial Officer
18
<PAGE> 19
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareowners of Lucent Technologies Inc.:
We have audited the consolidated balance sheets of Lucent Technologies Inc. and
subsidiaries as of September 30, 1996 and December 31, 1995 and the related
consolidated statements of income, changes in shareowners' equity, and cash
flows for the nine-month period ended September 30, 1996 and the years ended
December 31, 1995 and 1994. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements 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 as of September 30, 1996 and December 31,
1995, and the consolidated results of their operations, changes in their
shareowners' equity, and their cash flows for the nine-month period ended
September 30, 1996 and the years ended December 31, 1995 and 1994, in conformity
with generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
- ----------------------------
Coopers & Lybrand L.L.P.
1301 Avenue of the Americas
New York, New York
October 24, 1996
19
<PAGE> 20
CONSOLIDATED STATEMENTS OF INCOME LUCENT TECHNOLOGIES INC. AND SUBSIDIARIES
(Dollars in Millions, Except Per Share Amounts)
<TABLE>
<CAPTION>
----------------- --------------------
Nine Months Ended Year Ended
September 30, December 31,
- -----------------------------------------------------------------------------
1996 1995 1995 1994
Unaudited
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES $ 15,859 $ 13,986 $ 21,413 $ 19,765
COSTS 9,290 7,843 12,945 11,337
GROSS MARGIN 6,569 6,143 8,468 8,428
OPERATING EXPENSES
Selling, general
and administrative 4,244 4,037 7,083 5,360
Research and development 1,838 1,672 2,385 2,097
Total operating expenses 6,082 5,709 9,468 7,457
OPERATING INCOME(LOSS) 487 434 (1,000) 971
Other income - net 96 42 164 83
Interest expense 216 225 302 270
INCOME (LOSS) BEFORE INCOME TAXES 367 251 (1,138) 784
Provision(benefit) for
income taxes 143 101 (271) 302
NET INCOME(LOSS) $ 224 $ 150 $ (867) $ 482
Weighted average common shares
outstanding (millions) 595.9 524.6 524.6 n/a
EARNINGS(LOSS) PER COMMON SHARE $ 0.38 $ 0.28 $ (1.65) n/a
DIVIDENDS PER COMMON SHARE $ 0.15 $ -- $ -- n/a
</TABLE>
See Notes to Consolidated Financial Statements.
20
<PAGE> 21
CONSOLIDATED BALANCE SHEETS LUCENT TECHNOLOGIES INC. AND SUBSIDIARIES
(Dollars in Millions, Except Per Share Amount)
<TABLE>
<CAPTION>
------------- ------------
SEPTEMBER 30, December 31,
- ------------------------------------------------------------------------------
1996 1995
- ------------------------------------------------------------------------------
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 2,241 $ 448
Accounts receivable less
allowances of $273 in 1996 and
$248 in 1995 4,914 5,354
Inventories 3,288 2,851
Contracts in process (net of progress
billings of $708 in 1996 and
$355 in 1995) 505 371
Deferred income taxes - net 1,617 1,482
Other current assets 216 173
TOTAL CURRENT ASSETS 12,781 10,679
Property, plant and equipment, net 4,687 4,338
Prepaid pension costs 2,828 2,522
Deferred income taxes - net 979 872
Capitalized software development costs 362 387
Other assets 989 924
TOTAL ASSETS $ 22,626 $ 19,722
LIABILITIES
Accounts payable $ 1,900 $ 1,229
Payroll and benefit-related
liabilities 2,492 3,026
Postretirement and postemployment
benefit liabilities 220 227
Debt sharing amount in anticipation of
the assumption of the Commercial
Paper Program - 3,842
Debt maturing within one year 2,363 49
Other current liabilities 3,738 2,690
TOTAL CURRENT LIABILITIES 10,713 11,063
Postretirement and postemployment
benefit liabilities 5,642 5,569
Long-term debt 1,634 123
Other liabilities 1,951 1,533
TOTAL LIABILITIES $ 19,940 $ 18,288
Commitments and contingencies
SHAREOWNERS' EQUITY
Common stock - par value $.01 per share
Authorized shares: 3,000,000,000
Issued and outstanding shares:
636,662,634 at September 30, 1996;
1,000 at December 31, 1995 $ 6 $ -
Additional paid-in capital 2,595 1,406
Guaranteed ESOP obligation (106) -
Foreign currency translation (16) 28
Retained earnings 207 -
TOTAL SHAREOWNERS' EQUITY $ 2,686 $ 1,434
TOTAL LIABILITIES AND
SHAREOWNERS' EQUITY $22,626 $19,722
</TABLE>
See Notes to Consolidated Financial Statements.
21
<PAGE> 22
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREOWNERS' EQUITY
LUCENT TECHNOLOGIES INC. AND SUBSIDIARIES
(Dollars in Millions)
<TABLE>
<CAPTION>
----------------- -----------------------
Nine Months Ended Year Ended
September 30, December 31,
- ----------------------------------------------------------------------------------------
1996 1995 1994
- ----------------------------------------------------------------------------------------
COMMON STOCK
<S> <C> <C> <C>
Balance at beginning of period $ - $ - $ -
Issuance of 1,000 shares - - -
Issuance of 524,623,894 shares 5 - -
Issuance of 112,037,037 shares 1 - -
Issuance of 703 shares - - -
Balance at end of period 6 - -
ADDITIONAL PAID-IN CAPITAL
Balance at beginning of period 1,406 - -
Issuance of 112,037,037 shares 2,881 - -
Loss from 1/1/96 through 1/31/96 (72) - -
Dividends declared (7) - -
Accounts receivable holdback
by AT&T (2,000) - -
Unrealized gain on investments 15 - -
Acceptance of ESOP 120 - -
Other contributions from AT&T 252 1,406 -
Balance at end of period 2,595 1,406 -
GUARANTEED ESOP OBLIGATION
Balance at beginning of period - - -
Acceptance of ESOP (120) - -
Amortization of ESOP obligation 14 - -
Balance at end of period (106) - -
FOREIGN CURRENCY
TRANSLATION ADJUSTMENTS
Balance at beginning of period 28 92 (10)
Translation adjustments (44) (64) 102
Balance at end of period (16) 28 92
SHAREOWNER'S NET INVESTMENT
Balance at beginning of period - 2,384 2,590
Net income(loss) - (867) 482
Transfers to AT&T - (111) (688)
Transfer to additional paid-in capital - (1,406) -
Balance at end of period - - 2,384
RETAINED EARNINGS
Balance at beginning of period - - -
Net income from 2/1/96
through 9/30/96 296 - -
Dividends declared (89) - -
Balance at end of period 207 - -
TOTAL SHAREOWNERS' EQUITY $ 2,686 $ 1,434 $2,476
</TABLE>
See Notes to Consolidated Financial Statements.
Lucent has 250 million authorized shares of preferred stock at $1 par value.
No preferred stock is currently issued or outstanding.
22
<PAGE> 23
CONSOLIDATED STATEMENTS OF CASH FLOWS LUCENT TECHNOLOGIES INC. AND SUBSIDIARIES
(Dollars in Millions)
<TABLE>
<CAPTION>
-------------------- -------------------
Nine Months Ended Year Ended
September 30, December 31,
- ----------------------------------------------------------------------------
1996 1995 1995 1994
Unaudited
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income(loss) $ 224 $ 150 $ (867) $ 482
Adjustments to reconcile
net income(loss)
to net cash provided by
(used in)operating activities:
Business restructuring charge (98) - 2,613 -
Asset impairment
and other charges 105 - 188 -
Depreciation and amortization 937 1,104 1,493 1,311
Provision for uncollectibles 54 50 69 83
Deferred income taxes (251) 92 (653) 338
(Increase) decrease in
accounts receivable (1,506) 405 (1,203) (159)
(Increase) in inventories
and contracts in process (524) (1,304) (1,089) (26)
Increase (decrease) in
accounts payable 629 (121) 271 291
Changes in other operating
assets and liabilities 537 (744) (241) (564)
Other adjustments for
noncash items - net (111) (137) (103) (177)
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (4) (505) 478 1,579
INVESTING ACTIVITIES:
Capital expenditures (939) (784) (1,277) (878)
Proceeds from the sale or
disposal of property, plant
and equipment 15 14 118 15
Purchases of equity investments (46) (36) (86) (38)
Sales of equity investments 102 - - 290
Dispositions of businesses,
net of cash relinquished 58 10 10 119
Acquisitions of businesses,
net of cash acquired (234) - - -
Other investing activities - net (22) 26 (107) (75)
NET CASH USED IN INVESTING
ACTIVITIES (1,066) (770) (1,342) (567)
FINANCING ACTIVITIES:
Repayments of long-term debt (39) (32) (46) (22)
Issuance of long-term debt 1,499 - - -
Proceeds of issuance
of common stock 2,887 - - -
Dividends paid (48) - - -
Proceeds of debt sharing
agreement - net - 948 881 53
Transfers from (to) AT&T 13 92 (111) (688)
(Increase) decrease in
short-term borrowings - net (1,436) 89 - (84)
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 2,876 1,097 724 (741)
(CONT'D)
</TABLE>
See Notes to Consolidated Financial Statements.
23
<PAGE> 24
CONSOLIDATED STATEMENTS OF CASH FLOWS LUCENT TECHNOLOGIES INC. AND SUBSIDIARIES
(CONT'D)
(Dollars in Millions)
<TABLE>
<CAPTION>
-------------------- -------------------
Nine Months Ended Year Ended
September 30, December 31,
- ----------------------------------------------------------------------------
1996 1995 1995 1994
Unaudited
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Effect of exchange rate
changes on cash
and cash equivalents $ (13) $ 11 $ 8 $ 13
Net increase (decrease)
in cash and
cash equivalents 1,793 (167) (132) 284
Cash and cash equivalents
at beginning of year 448 580 580 296
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 2,241 $ 413 $ 448 $ 580
</TABLE>
See Notes to Consolidated Financial Statements.
24
<PAGE> 25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LUCENT TECHNOLOGIES INC. AND SUBSIDIARIES
(Dollars In Millions, Except Per Share Amounts)
1. BACKGROUND AND BASIS OF PRESENTATION
BACKGROUND
On September 20, 1995, AT&T Corp. ("AT&T") announced its intention to create a
separate company comprised of the AT&T operations that are now Lucent
Technologies Inc. (the "Separation"). Lucent Technologies Inc. ("Lucent" or the
"Company") was incorporated on November 29, 1995 with 1,000 shares of Lucent
common stock ("Common Stock"), all of which were owned by AT&T. In February
1996, AT&T began to transfer to Lucent all of the assets and liabilities related
to Lucent's operations, except that AT&T retained $2,000 in customer accounts
receivable. On April 2, 1996, AT&T obtained an additional 524,623,894 shares of
Lucent's Common Stock. On April 10, 1996, Lucent issued 112,037,037 shares in an
Initial Public Offering (the "IPO") for $27 per share less underwriting
discounts and commissions of $1.05 per share. After the completion of the IPO,
AT&T owned 82.4% of the outstanding shares of Lucent's Common Stock. During
1996, there were net asset additions and net liability reductions, aggregating
$252 from AT&T. On September 30, 1996, AT&T distributed to its shareowners of
record as of September 17, 1996, all of its remaining interest in Lucent (the
"Distribution").
BASIS OF PRESENTATION
On July 17, 1996, Lucent changed its year end from December 31 to September 30.
The consolidated statements of income, cash flows and changes in shareowners'
equity reflect the nine-month transition period ended September 30, 1996 and the
historical calendar year results for 1995 and 1994. Lucent began accumulating
retained earnings on February 1, 1996, the date on which AT&T began transferring
to Lucent the assets and liabilities relating to Lucent's operations.
The consolidated financial statements for the years ended December 31,
1995 and 1994 reflect the results of operations, changes in shareowner's equity
and cash flows, and the financial position as of December 31, 1995 of the
business that was transferred to Lucent from AT&T in the Separation (the
"Company Business") as if Lucent was a stand-alone entity for these periods. The
1995 and 1994 consolidated financial statements have been prepared using the
historical basis in the assets and liabilities and historical results of
operations related to the Company Business. The 1995 and 1994 consolidated
financial statements also include an allocation of certain AT&T corporate
headquarters assets, liabilities and expenses related to the business
transferred to Lucent from AT&T in the Separation. Changes in additional paid-in
capital and shareowner's net investment in 1995 and 1994 represent AT&T's
contribution of its net investment after giving effect to the net income (loss)
of Lucent plus net cash transfers to AT&T.
Management believes the allocations reflected in the 1995 and 1994
consolidated financial statements are reasonable; however, the costs of the
corporate services allocated to Lucent are not necessarily indicative of the
costs that would have been incurred if Lucent had performed these functions as a
stand-alone company. The 1995 and 1994 financial statements may not necessarily
reflect the consolidated results of Lucent's operations, financial position,
changes in shareowner's equity or cash flows in the future or what they would
have been had Lucent been a separate, stand-alone company during such periods.
25
<PAGE> 26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LUCENT TECHNOLOGIES INC. AND SUBSIDIARIES
(Dollars In Millions, Except Per Share Amounts)
ACQUISITION
In February 1996, Lucent acquired several manufacturing and other operations of
certain subsidiaries of Philips Electronics NV ("Philips"), primarily in Germany
and France, for $234. The acquisition was accounted for using the purchase
method of accounting and Philips' results have been included in Lucent's
consolidated results of operations since February 1996.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The consolidated financial statements include all majority-owned subsidiaries of
Lucent. Investments in which Lucent 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 Lucent has less
than a 20% ownership interest are accounted for under the cost method of
accounting. All material intercompany transactions and balances have been
eliminated.
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, among others.
EARNINGS PER COMMON SHARE
Earnings per common share was calculated by dividing the net income by the
weighted average shares of common stock and common stock equivalents outstanding
during the periods. Included in the calculation of the weighted average shares
outstanding is the retroactive recognition to January 1, 1995 of the 524,624,894
shares owned by AT&T.
CURRENCY TRANSLATION
For operations outside the United States that prepare financial statements in
currencies other than the United States dollar, income, expense and cash flow
amounts are translated at average exchange rates during the period, and assets
and liabilities are translated at period-end exchange rates. These translation
adjustments are included as a separate component of shareowners' equity.
REVENUE RECOGNITION
Revenue is generally recognized on the sales of products or services when the
products are delivered or the services performed, all significant contractual
obligations have been satisfied, and the collection of the resulting receivable
isreasonably assured. Revenue from sales of software products is generally
recognized upon product delivery, acceptance, and completion of all significant
obligations. Rental revenues are recognized proportionately over the contract
period. Revenues and estimated profits on long-term performance contracts are
recognized under the percentage of completion method of accounting using either
a units-of-delivery or a cost-to-cost methodology. Profit estimates are revised
periodically based upon changes in facts. Any losses identified on contracts are
recognized immediately.
26
<PAGE> 27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LUCENT TECHNOLOGIES INC. AND SUBSIDIARIES
(Dollars In Millions, Except Per Share Amounts)
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are charged to expense as incurred. However, the
costs incurred for the development of computer software that will be sold,
leased or otherwise marketed are capitalized when 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 that are 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 immediately.
DERIVATIVE FINANCIAL INSTRUMENTS
Lucent uses various financial instruments, including derivative financial
instruments, for purposes other than trading. Lucent does not enter into
derivative financial instruments for speculative purposes. Derivatives, used as
part of Lucent's risk management strategy, are 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 settled.
INCOME TAXES
Lucent's operations through September 30, 1996 will be included in the
consolidated income tax returns filed by AT&T. Income tax expense in Lucent's
consolidated financial statements has been calculated on a separate tax return
basis.
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 (determined principally on a
first-in, first-out basis)or market (i.e., net realizable value). Cost includes
material, labor and manufacturing overhead.
CONTRACTS IN PROCESS
Contracts in process are valued at cost plus accrued profits less progress
billings.
27
<PAGE> 28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LUCENT TECHNOLOGIES INC. AND SUBSIDIARIES
(Dollars In Millions, Except Per Share Amounts)
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost less accumulated depreciation.
Depreciation is determined using primarily the unit and group methods. The unit
method is used for manufacturing and laboratory equipment and large computer
systems. The group method is used for other depreciable assets. When assets that
were depreciated using the unit method are sold or retired, 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
appropriate account and accumulated depreciation. Any proceeds are applied
against accumulated depreciation.
Accelerated depreciation is 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.
Long-lived assets are 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 for the difference between the fair
value and carrying value of the asset.
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 goodwill, a loss is recognized for the
difference between the fair value and carrying value of the goodwill.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with the 1996
presentation.
3. SUPPLEMENTARY FINANCIAL INFORMATION
SUPPLEMENTARY INCOME STATEMENT INFORMATION
<TABLE>
<CAPTION>
NINE MONTHS ENDED Year Ended
SEPTEMBER 30, December 31,
1996 1995 1994
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INCLUDED IN COSTS
Amortization of software development costs $ 218 $ 312 $ 345
INCLUDED IN SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Amortization of goodwill $ 25 $ 40 $ 31
INCLUDED IN COSTS AND OPERATING EXPENSES
Depreciation and amortization of property,
plant and equipment $ 674 $ 1,109 $ 891
OTHER INCOME
Interest income $ 71 $ 44 $ 24
Minority interests in earnings of subsidiaries (21) (20) (14)
Net equity (losses) earnings from investments (26) (25) 21
Increase in cash surrender value of life insurance 35 40 30
Loss on foreign currency transactions (4) (26) (48)
Miscellaneous -- net 41 151 70
- ----------------------------------------------------------------------------------------------------
Total other income -- net $ 96 $ 164 $ 83
====================================================================================================
</TABLE>
28
<PAGE> 29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LUCENT TECHNOLOGIES INC. AND SUBSIDIARIES
(Dollars In Millions, Except Per Share Amounts)
SUPPLEMENTARY INCOME STATEMENT INFORMATION
<TABLE>
<CAPTION>
NINE MONTHS ENDED Year Ended
SEPTEMBER 30, December 31,
1996 1995 1994
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DEDUCTED FROM INTEREST EXPENSE
Capitalized interest $ 14 $ 14 $ 7
- ----------------------------------------------------------------------------------------------------
</TABLE>
SUPPLEMENTARY BALANCE SHEET INFORMATION
<TABLE>
<CAPTION>
SEPTEMBER 30, December 31,
1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C>
INVENTORIES
Completed goods $ 1,837 $ 1,673
Work in process and raw materials 1,451 1,178
- ------------------------------------------------------------------------------
Inventories $ 3,288 $ 2,851
==============================================================================
PROPERTY, PLANT AND EQUIPMENT -- NET
Land and improvements $ 275 $ 273
Buildings and improvements 2,875 2,668
Machinery, electronic and other equipment 7,870 8,096
- ------------------------------------------------------------------------------
Total property, plant and equipment 11,020 11,037
Less: Accumulated depreciation and amortization (6,333) (6,699)
- ------------------------------------------------------------------------------
Property, plant and equipment -- net $ 4,687 $ 4,338
==============================================================================
OTHER CURRENT LIABILITIES
Advance billings and customer deposits $ 1,202 $ 398
==============================================================================
</TABLE>
SUPPLEMENTARY CASH FLOW INFORMATION
<TABLE>
<CAPTION>
NINE MONTHS ENDED Year Ended
SEPTEMBER 30, December 31,
1996 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest payments, net of amounts capitalized $209 $303 $274
Income tax payments $142 $224 $ 46
==============================================================================
</TABLE>
The consolidated statement of cash flows for the nine months ended
September 30, 1996 excludes $2,000 of customer accounts receivable retained by
AT&T as well as a net asset transfer of $239 received from AT&T in 1996. These
transactions have not been reflected on the consolidated statement of cash flows
because they were noncash events that were accounted for as changes in paid-in
capital.
4. BUSINESS RESTRUCTURING AND OTHER CHARGES
In the fourth quarter of calendar 1995, a pretax charge of $2,801 was recorded
to cover restructuring costs of $2,613 and asset impairment and other charges of
$188. Lucent's restructuring plans included the following items: restructuring
of its Consumer Products business, including closing all of the Company-owned
retail Phone Center Stores; consolidating and reengineering numerous corporate
and business unit operations; and selling its Microelectronics interconnect and
Paradyne businesses.
29
<PAGE> 30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LUCENT TECHNOLOGIES INC. AND SUBSIDIARIES
(Dollars In Millions, Except Per Share Amounts)
The 1995 business restructuring charge of $2,613 included restructuring
liabilities of $1,774, asset impairments of $497 resulting from restructuring
activities, and $342 of benefit plan losses. Benefit plan losses related to
pension and other employee benefit plans and primarily represented losses in
1995 from the actuarial changes that otherwise might have been amortized over
future periods.
The pretax total 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 included $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 $1,847.
The restructuring charge of $2,613 incorporated the separation costs,
both voluntary and involuntary, for nearly 22,000 employees. As of September 30,
1996, the workforce has been reduced by approximately 11,400 people due to
business restructuring. In addition, approximately 1,000 employees left Lucent's
workforce as part of the sale of Paradyne. Actual experience in employee
separations, combined with redeploying employees into other areas of the
business, has resulted in lower separation costs than originally anticipated.
Lucent anticipates that approximately 70% of the total expected employee
separations will be complete by December 1996. The 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 following table displays a rollforward of the liabilities for
business restructuring from December 31, 1994 to September 30, 1996:
<TABLE>
<CAPTION>
1995
December 31, ------------------------- December 31,
Type of Cost 1994 Balance Additions Other Usage 1995 Balance
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Employee separation $ 52 $1,167 $ - $ - $1,219
Facility closing 70 202 - - 272
Other 11 405 - - 216
- -----------------------------------------------------------------------------
Total $133 $1,774 $ - $ - $1,907
=============================================================================
</TABLE>
<TABLE>
<CAPTION>
1996
December 31, ------------------------- September 30,
Type of Cost 1995 Balance Additions Other Usage 1996 Balance
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Employee separation $1,219 $ - $(81) $(372) $ 766
Facility closing 272 - (35) (62) 175
Other 416 - 18 (86) 348
- -----------------------------------------------------------------------------
Total $1,907 $ - $(98)* $(520) $1,289
=============================================================================
</TABLE>
* The 1996 net reduction of $98 in the above table is associated
principally with employee separations. Additionally, $105 of
non-recurring and other charges, associated principally with the
separation from AT&T, were recorded during 1996.
The December 31, 1994 business restructuring balance included reserves
primarily for real estate. As of September 30, 1996, $43 remained of the $133
December 31, 1994 balance. The majority of this balance is related to excess
space at certain locations that will not be utilized over the remaining terms of
the leases.
Management believes that the remaining reserves for business
restructuring of $1,289 at September 30, 1996 are adequate to complete its plan.
30
<PAGE> 31
During the nine months ended September 30, 1996, cash payments of $456
and noncash related charges of $64 primarily associated with asset write-offs
were charged against the business restructuring reserves. The September 30, 1996
remaining balance will result in future cash payments over the next two years.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LUCENT TECHNOLOGIES INC. AND SUBSIDIARIES
(Dollars In Millions, Except Per Share Amounts)
5. 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>
NINE MONTHS ENDED Year Ended
SEPTEMBER 30, December 31,
1996 1995 1994
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. federal statutory income tax rate 35% 35% 35%
- -----------------------------------------------------------------------------
Federal income tax provision (benefit)
at statutory rate $ 128 $ (398) $ 274
State and local income taxes, net of
federal income tax effect 5 (57) 23
Amortization of intangibles - 29 12
Foreign earnings and dividends taxed at
different rates 15 140 36
Research credits (18) (3) (27)
Other differences -- net 13 18 (16)
- -----------------------------------------------------------------------------
Provision (benefit) for income taxes $ 143 $ (271) $ 302
=============================================================================
Effective income tax rate 39.0% 23.8% 38.5%
=============================================================================
</TABLE>
The following table presents the U.S. and foreign components of income
before income taxes and the provision for income taxes:
<TABLE>
<CAPTION>
NINE MONTHS ENDED Year Ended
SEPTEMBER 30, December 31,
1996 1995 1994
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
INCOME (LOSS) BEFORE INCOME TAXES
United States $ 101 $(1,253) $405
Foreign 266 115 379
- -----------------------------------------------------------------------------
$ 367 $(1,138) $784
=============================================================================
PROVISION(BENEFIT) FOR INCOME TAXES
CURRENT
Federal $ 242 $199 $(119)
State and local 53 42 (40)
Foreign 98 141 123
- -----------------------------------------------------------------------------
393 382 (36)
- -----------------------------------------------------------------------------
DEFERRED
Federal (198) (523) 267
State and local ( 45) (130) 76
Foreign ( 6) 1 (4)
- -----------------------------------------------------------------------------
(249) (652) 339
Deferred investment tax credits ( 1) (1) (1)
- -----------------------------------------------------------------------------
Provision(benefit) for income taxes $ 143 $(271) $302
=============================================================================
</TABLE>
31
<PAGE> 32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LUCENT TECHNOLOGIES INC. AND SUBSIDIARIES
(Dollars In Millions, Except Per Share Amounts)
As of September 30, 1996, Lucent had foreign net operating loss
carryforwards (tax effected) of $65, which expire primarily after 2000.
The components of deferred tax assets and liabilities at September 30,
1996 and December 31, 1995 are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, December 31,
1996 1995
- ---------------------------------------------------------------------------------
<S> <C> <C>
CURRENT DEFERRED INCOME TAX ASSETS:
Employee pensions and other benefits $ 584 $ 516
Business restructuring 317 519
Reserves and allowances 589 537
Valuation allowance ( 38) (117)
Other 182 143
- ---------------------------------------------------------------------------------
Total current deferred income tax assets 1,634 1,598
- ---------------------------------------------------------------------------------
Current deferred income tax liabilities 17 116
- ---------------------------------------------------------------------------------
Net current deferred income tax assets $ 1,617 $ 1,482
=================================================================================
LONG-TERM DEFERRED INCOME TAX ASSETS:
Employee pensions and other benefits, net $ 1,317 $ 1,425
Business restructuring 101 267
Net operating loss/credit carryforwards 67 28
Reserves and allowances 69 9
Valuation allowance (170) (25)
Other 371 270
- ---------------------------------------------------------------------------------
Total long-term deferred income tax assets 1,755 1,974
- ---------------------------------------------------------------------------------
LONG-TERM DEFERRED INCOME TAX LIABILITIES:
Property, plant and equipment 518 738
Other 258 364
- ---------------------------------------------------------------------------------
Total long-term deferred income tax liabilities 776 1,102
- ---------------------------------------------------------------------------------
Net long-term deferred income tax assets $ 979 $ 872
=================================================================================
</TABLE>
Lucent has not provided for United States federal income taxes or
foreign withholding taxes on $1,289 of undistributed earnings of its non-United
States subsidiaries as of September 30, 1996, since these earnings are intended
to be reinvested indefinitely. It is not practicable to determine the amount of
applicable taxes that would be incurred if any of such earnings were
repatriated.
32
<PAGE> 33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LUCENT TECHNOLOGIES INC. AND SUBSIDIARIES
(Dollars In Millions, Except Per Share Amounts)
6. DEBT OBLIGATIONS
DEBT MATURING WITHIN ONE YEAR
Debt maturing within one year consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, December 31,
1996 1995
- --------------------------------------------------------------------
<S> <C> <C>
Commercial paper $ 2,225 $ -
Debt sharing agreement - 3,842
Long-term debt 59 -
Other 79 49
- --------------------------------------------------------------------
Total debt maturing within one year $ 2,363 $3,891
====================================================================
WEIGHTED AVERAGE INTEREST RATES
Commercial paper 5.4% n/a
Debt sharing agreement n/a 6.8%
Long-term debt 7.1% n/a
====================================================================
</TABLE>
Lucent had revolving credit facilities at September 30, 1996
aggregating $6,000 (a portion of which is used to support Lucent's commercial
paper program), and $430 with domestic and foreign lenders, respectively. Of
such amounts, $6,000 and $267, respectively, were available at September 30,
1996.
LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, December 31,
1996 1995
- --------------------------------------------------------------------
<C> <C> <C>
6.90% notes due July 15, 2001 $ 750 $ -
7.25% notes due July 15, 2006 750 -
Long-term lease obligations 4 -
Other 201 123
Less: Unamortized discount 12 -
- --------------------------------------------------------------------
Total long-term debt 1,693 123
Less: Amounts maturing within one year 59 -
- --------------------------------------------------------------------
Net long-term debt $1,634 $ 123
====================================================================
</TABLE>
Lucent filed a registration statement on Form S-3, which became
effective on April 3, 1996, to register the offering from time to time of up to
$3,500 of debt securities. On July 22, 1996, Lucent issued 6.90% notes due July
15, 2001 and 7.25% notes due July 15, 2006 under such shelf registration.
Interest on the notes is payable on January 15 and July 15 each year. The notes
are not redeemable prior to maturity. The notes were issued to pay down
outstanding commercial paper.
33
<PAGE> 34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LUCENT TECHNOLOGIES INC. AND SUBSIDIARIES
(Dollars In Millions, Except Per Share Amounts)
This table shows the maturities, by year, of the $1,693 in total
long-term debt obligations:
<TABLE>
<CAPTION>
September 30,
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
---------------------------------------------------------------
$59 $33 $32 $20 $752 $797
---------------------------------------------------------------
</TABLE>
DEBT SHARING AGREEMENT
Lucent's December 31, 1995 and 1994 consolidated financial statements include an
allocation of AT&T's consolidated debt and the related interest expense. The
allocation was based on the capital structure of Lucent as anticipated at the
IPO closing date of April 10, 1996. An allocation methodology was used to
reflect the capital structure through each historic period presented based on
cash flows for those periods, adjusted for interest expense. To formalize the
allocations, Lucent and AT&T entered into debt sharing agreements effective from
January 1, 1991 until April 10, 1996.
In the second quarter of 1996, the amount outstanding under the debt
sharing agreements was replaced with commercial paper issued by AT&T and
assumed by Lucent on the IPO closing date. In July 1996, Lucent issued notes
totaling $1,500 to pay down a portion of the commercial paper. Lucent expects
that, over time, it may replace all or part of the outstanding commercial paper
with short- or long-term borrowings, as market conditions permit. The amount,
timing and pricing of such debt issues are uncertain.
Interest expense under the debt sharing agreement was $58 for the nine
months ended September 30, 1996 and $237 and $203 for the years ended December
31, 1995 and 1994, respectively. For each respective period, interest expense
was determined based on a blend of AT&T's short-term and long-term weighted
average interest rates. Lucent believes these allocations are reasonable
estimates of the cost of financing Lucent's assets and operations.
7. EMPLOYEE BENEFIT PLANS
Lucent's financial statements reflect the costs experienced for its employees
and retirees while included in the AT&T plans. Effective October 1, 1996, Lucent
assumed responsibility for employee benefit plans covering its active employees
and retirees.
PENSION PLANS
The majority of Lucent's employees participate in AT&T's noncontributory defined
benefit plans. Benefits for management employees are based principally on
career-average pay. Benefits for occupational employees are not directly
pay-related. Pension contributions are determined principally using the
aggregate cost method and are made primarily to trust funds held for the sole
benefit of plan participants.
Effective October 1, 1996, pension obligations under the AT&T plans
relating to Lucent's employees and retirees were transferred to Lucent plans.
AT&T's Group Pension Trust (the "Trust") assets will be divided between the
master pension trusts for qualified pension plans of Lucent and AT&T so that
each plan's participating master pension trust receives the legally required
amount to meet the minimum requirements set forth in applicable benefit and tax
regulations and a sufficient amount of additional assets to ensure, at October
1, 1996, compliance with AT&T's previously established pension funding policy.
Any remaining Trust assets in excess of the funding policy level will be divided
equally and assigned to the master pension trusts of Lucent and AT&T. As of
September 30, 1996, subject to final adjustment, the projected benefit
obligation and plan assets to be transferred to Lucent are $20,767 and $29,250,
respectively. The effective date of the transfer was October 1, 1996. Assets,
obligations and expenses were previously estimated for 1995 and 1994 using the
same methodology.
34
<PAGE> 35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LUCENT TECHNOLOGIES INC. AND SUBSIDIARIES
(Dollars In Millions, Except Per Share Amounts)
The information that follows relates to the entire AT&T noncontributory
defined benefit plans. The following table shows the funded status of the AT&T
noncontributory defined benefit pension plans:
<TABLE>
<CAPTION>
SEPTEMBER 30, December 31,
1996 1995
- ----------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of accumulated benefit obligation:
Vested $30,746 $32,726
Nonvested 2,579 3,326
- ----------------------------------------------------------------------------------
Accumulated benefit obligation 33,325 36,052
- ----------------------------------------------------------------------------------
Plan assets at fair value 49,147 47,634
Less: actuarial present value of
projected benefit obligation 35,087 37,989
- ----------------------------------------------------------------------------------
Excess of assets over projected benefit obligation 14,060 9,645
Unrecognized prior service costs 1,980 2,297
Unrecognized transition asset (2,586) (2,961)
Unrecognized net gain (8,547) (4,528)
Net minimum liability of nonqualified plans (100) (166)
- ----------------------------------------------------------------------------------
Prepaid pension costs $4,807 $4,287
==================================================================================
</TABLE>
The assumptions used in determining the actuarial present value of
projected benefit obligations were:
<TABLE>
<CAPTION>
SEPTEMBER 30, December 31,
1996 1995
- ----------------------------------------------------------------------------------
<S> <C> <C>
Weighted average discount rate 8.0% 7.0%
Rate of increase in future compensation levels 5.0% 5.0%
==================================================================================
</TABLE>
Plan assets consist primarily of listed stocks (including $174 and $259
of AT&T common stock at September 30, 1996 and December 31, 1995, respectively,
and $9 of Lucent common stock at September 30, 1996), corporate and governmental
debt, cash and cash equivalents, and real estate investments.
The prepaid pension costs shown above include pension liabilities for plans
where accumulated plan benefits exceed assets. Such liabilities are included in
other liabilities in the consolidated balance sheets of AT&T. As of September
30, 1996 and December 31, 1995, AT&T had a prepaid pension asset of $4,958 and
$4,664, respectively. Lucent's share of the prepaid pension asset as of
September 30, 1996 and December 31, 1995 was $2,828 and $2,522, respectively.
35
<PAGE> 36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LUCENT TECHNOLOGIES INC. AND SUBSIDIARIES
(Dollars In Millions, Except Per Share Amounts)
Pension cost was computed using the projected unit credit method and
assumed a long-term rate of return on plan assets of 9.0% in 1996, 1995 and
1994. The components of AT&T's pension cost are shown in this table for the
periods:
<TABLE>
<CAPTION>
NINE MONTHS ENDED Year Ended
SEPTEMBER 30, December 31,
1996 1995 1994
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost - benefits earned during the period $ 565 $ 570 $ 669
Interest cost on projected benefit obligation 1,959 2,551 2,400
Amortization of unrecognized prior service costs 204 280 230
Expected return on plan assets* (2,677) (3,318) (3,260)
Amortization of transition asset (376) (500) (501)
Charges (credits) for special pension options** (72) 213 -
- --------------------------------------------------------------------------------------
Net pension credit ($397) ($204) ($462)
======================================================================================
</TABLE>
* The actual return on plan assets was $3,604 for the nine months ended
September 30, 1996, and was $9,484 and $582 for the calendar years ended in
1995 and 1994, respectively.
** Charges and credits for early retirement options and curtailments.
Lucent recorded a net pension credit related to the AT&T plans of $265,
$135 and $288 in the nine months ended September 30, 1996 and the calendar years
1995 and 1994, respectively. The 1995 pension credit was net of a charge of $97
for a curtailment loss.
Lucent is amortizing over approximately 16 years the unrecognized
transition asset related to the adoption of Statement of Financial Accounting
Standards ("SFAS") No.87, "Employers' Accounting for Pensions" in 1986. Prior
service costs are amortized primarily on a straight-line basis over the average
remaining service period of active employees.
POSTRETIREMENT BENEFITS
The majority of Lucent's employees and retirees participate in AT&T's benefit
plans for retirees, which include health care benefits, life insurance coverage
and telephone concessions. Effective October 1, 1996, Lucent established
separate postretirement benefit plans for its employees and retirees.
Postretirement benefit assets will be transferred from AT&T to Lucent, pro rata,
on the basis of the present value of future benefit obligations of the
applicable plan. As of September 30, 1996, subject to final adjustment, the
accumulated postretirement benefit obligation and the assets to be transferred
were $7,297 and $3,610, respectively. The effective date of the transfer was
October 1, 1996. Assets, obligations and expenses were previously estimated for
1995 and 1994 using the same methodology.
36
<PAGE> 37
The following information relates to the entire AT&T postretirement
benefit plan. The following table shows the funded status of AT&T's
postretirement benefit plans reconciled with the amounts recognized in AT&T's
consolidated balance sheets as of:
<TABLE>
<CAPTION>
SEPTEMBER 30, December 31,
1996 1995
- ---------------------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $7,811 $8,250
Fully eligible active plan participants 1,385 1,453
Other active plan participants 2,084 2,869
- ---------------------------------------------------------------------------------
Accumulated postretirement benefit obligation 11,280 12,572
Less:
Plan assets at fair value 5,022 4,704
- ---------------------------------------------------------------------------------
Unfunded postretirement obligation 6,258 7,868
Less:
Unrecognized prior service costs 634 771
Unrecognized net gain (1,719) (292)
- ---------------------------------------------------------------------------------
Accrued postretirement benefit obligation $7,343 $7,389
=================================================================================
</TABLE>
Lucent's share of the accrued postretirement benefit obligation as of
September 30, 1996 and December 31, 1995, was $4,431 and $4,635, respectively.
The assumptions used in determining the postretirement benefit
obligations were:
<TABLE>
<CAPTION>
SEPTEMBER 30, December 31,
1996 1995
- ---------------------------------------------------------------------------------
<S> <C> <C>
Weighted average discount rate 8.0% 7.0%
Assumed rate of increase in the per capita cost of
covered health care benefits 5.9% 6.1%
=================================================================================
</TABLE>
Plan assets consist primarily of listed stocks (including $37 of AT&T
common stock at September 30, 1996 and December 31, 1995, and $12 of Lucent
common stock at September 30, 1996), corporate and governmental debt, cash and
cash equivalents, and life insurance contracts.
37
<PAGE> 38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LUCENT TECHNOLOGIES INC. AND SUBSIDIARIES
(Dollars In Millions, Except Per Share Amounts)
The components of AT&T's net postretirement benefit cost are shown in
this table for the periods through:
<TABLE>
<CAPTION>
NINE MONTHS ENDED Year Ended
SEPTEMBER 30, December 31,
1996 1995 1994
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost - benefits earned during the period $ 101 $ 98 $ 108
Interest cost on accumulated postretirement
benefit obligation 625 888 852
Expected return on plan assets* (261) (298) (243)
Amortization of unrecognized prior service costs 85 67 14
Amortization of net loss (gain) 14 (14) 1
Charge (credit) for special options (8) 11 -
- ----------------------------------------------------------------------------------------
Net postretirement benefit cost $ 556 $ 752 $ 732
========================================================================================
</TABLE>
* A 9% long-term rate of return on plan assets was assumed for 1996, 1995 and
1994. The actual return on plan assets was $305 for the nine months ended
September 30, 1996 and was $962 and $(30) for the calendar years ended 1995
and 1994, respectively.
Lucent recorded postretirement benefit expense related to the AT&T
plans of $329, $468 and $461 in the nine months ended September 30, 1996 and the
calendar years 1995 and 1994, respectively.
AT&T assumed that growth in the per capita cost of covered health care
benefits (the health care cost trend rate) would gradually decline after 1996 to
4.8% by the year 2005 and then remain level. This assumption has a significant
effect on the amounts reported. Increasing the assumed trend rate by 1% in each
year would increase AT&T's accumulated postretirement benefit obligation as of
September 30, 1996 by $517 and the interest and service cost by $49 for the
period year then ended. Lucent's share of these increases would be $336 and $31
for the accumulated postretirement benefit obligation and the interest and
service cost, respectively.
SAVINGS PLANS
AT&T's savings plans' assets and liabilities related to Lucent employees and
retirees were transferred to Lucent effective October 1, 1996. Lucent's savings
plans allow employees to contribute a portion of their pretax and/or after-tax
income in accordance with specified guidelines. Lucent matches a percentage of
the employee contributions up to certain limits. The expense amounted to $131
for the nine months ended September 30, 1996 and $196 and $178 for the calendar
years ended 1995 and 1994, respectively.
EMPLOYEE STOCK OWNERSHIP PLAN
In March 1990, AT&T established a leveraged Employee Stock Ownership Plan
("ESOP") for its existing nonmanagement savings and security plan and issued
13.4 million shares to the ESOP trust. Cash contributions have been determined
based on the ESOP's total debt service less dividends paid on ESOP shares. As
part of the Separation, AT&T transferred to Lucent its portion of the ESOP
obligation. As of September 30, 1996, Lucent had established a separate
leveraged ESOP trust and the Lucent long-term savings and security plan for
nonmanagement employees (the "LTSS Plan"). The LTSS Plan allows nonmanagement
employees to contribute a portion of their pretax and/or after-tax income in
accordance with specified guidelines. Under the LTSS Plan, Lucent matches a
percentage of the employee contributions, up to certain limits, with Lucent's
common stock provided through the ESOP. As of September 30, 1996, Lucent had a
remaining guaranteed ESOP obligation of $106, reported as debt and as a
reduction in shareowners' equity. As of September 30, 1996, the ESOP contained
shares of Lucent and AT&T common stock. In November 1996, all AT&T common stock
within the ESOP was converted to Lucent common stock (the "Conversion").
Assuming the effect of the Conversion as of September 30, 1996, the ESOP
contained 6.2 million shares of Lucent's common stock. Of the 6.2 million
shares, 3.9 million have been allocated to the LTSS Plan and 2.3 million were
unallocated. As of September 30, 1996, the unallocated shares had a fair value
of $105.
38
<PAGE> 39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LUCENT TECHNOLOGIES INC. AND SUBSIDIARIES
(Dollars In Millions, Except Per Share Amounts)
8. SEGMENT INFORMATION
INDUSTRY SEGMENT
Lucent operates in the global telecommunications networking industry segment.
This segment includes wire-line and wireless 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
segment data require the use of estimates and do not take into account the
extent to which product development, manufacturing and marketing depend upon
each other. Thus the information may not be indicative of results if the
geographic areas were independent organizations.
<TABLE>
<CAPTION>
NINE MONTHS ENDED Year Ended
SEPTEMBER 30, December 31,
1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
United States $ 13,334 $ 17,826 $ 17,207
Other geographic areas 2,525 3,587 2,558
- ---------------------------------------------------------------------------------------------------------------
$ 15,859 $ 21,413 $ 19,765
===============================================================================================================
TRANSFERS BETWEEN GEOGRAPHIC AREAS (ELIMINATED IN CONSOLIDATION)
United States $ 1,353 $ 1,081 $ 1,338
Other geographic areas 648 911 1,041
- ---------------------------------------------------------------------------------------------------------------
$ 2,001 $ 1,992 $ 2,379
===============================================================================================================
OPERATING INCOME (LOSS)
United States $ 940 $ (679) $ 1,241
Other geographic areas (108) (67) (5)
Corporate, eliminations and nonoperating (465) (392) (452)
- ---------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes $ 367 $(1,138) $ 784
===============================================================================================================
ASSETS
United States $ 17,807 $ 15,043 $ 14,114
Other geographic areas 4,049 4,696 3,493
Corporate assets 2,745 738 696
Eliminations (1,975) (755) (963)
- ---------------------------------------------------------------------------------------------------------------
$ 22,626 $ 19,722 $ 17,340
===============================================================================================================
</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 (other geographic
areas revenues plus export revenues) provided 23.1% of consolidated revenues for
the nine months ended September 30, 1996, and 23.3% and 19.1% for the calendar
years ended 1995 and 1994, respectively.
39
<PAGE> 40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LUCENT TECHNOLOGIES INC. AND SUBSIDIARIES
(Dollars In Millions, Except Per Share Amounts)
CONCENTRATIONS
Historically, Lucent has relied on a limited number of customers for a
substantial portion of its total revenues. In terms of total revenues, Lucent's
largest customer has been AT&T, although other large customers may purchase more
of any particular system or product line. Lucent 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 Lucent's
operating results. Lucent 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.
9. FINANCIAL INSTRUMENTS
In the normal course of business, Lucent uses various financial instruments,
including derivative financial instruments, for purposes other than trading.
Derivative financial instruments are not entered into for speculative purposes.
Lucent's derivative financial instruments include foreign currency exchange
contracts. Lucent's nonderivative financial instruments include letters of
credit, commitments to extend credit, and guarantees of debt. Lucent generally
does not require collateral to support these financial instruments.
By their nature, all such instruments involve risk, including market risk
and the credit risk of nonperformance by counterparties. The maximum potential
loss may exceed the amount recognized in the balance sheet. Lucent'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. The
contract or notional amounts of these instruments reflect the extent of
involvement Lucent has in particular classes of financial instruments.
Exposure to credit risk is controlled through credit approvals, credit
limits and monitoring procedures. Requests for providing commitments to extend
credit and financial guarantees are reviewed and approved by the senior
management of Lucent. 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 Lucent's reserve for
possible credit and guarantee losses. At September 30, 1996 and December 31,
1995, in management's opinion, there was no significant risk of loss in the
event of nonperformance of the counterparties to these financial instruments and
there was no significant exposure to any individual customer or counterparty.
Management believes that the reserves for losses are adequate.
LETTERS OF CREDIT
Letters of credit are purchased guarantees that ensure Lucent's performance or
payment to third parties in accordance with specified terms and conditions.
COMMITMENTS TO EXTEND CREDIT
Commitments to extend credit to third parties 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, Lucent 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
Lucent. Lucent 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
Lucent.
40
<PAGE> 41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LUCENT TECHNOLOGIES INC. AND SUBSIDIARIES
(Dollars In Millions, Except Per Share Amounts)
FOREIGN CURRENCY EXCHANGE CONTRACTS
Foreign currency exchange contracts, including forward and option 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
sudsidiaries. The use of derivative financial instruments allows Lucent to
reduce its exposure to the risk that the eventual dollar net cash inflows and
outflows resulting from the sale of products to foreign customers and purchases
from foreign suppliers will be adversely affected by changes in exchange rates.
The foreign exchange contracts are designated for firmly committed or forecasted
purchases and sales. These transactions are generally expected to occur in less
than one year for firmly committed sales and purchases. These gains and losses
are deferred in other current assets and liabilities. Deferred gains and losses
are recognized as adjustments to the underlying hedged transactions when the
future sales or purchases are recorded, or immediately, if the commitment is
canceled. At September 30, 1996 and December 31, 1995, deferred gains and losses
are not material to the consolidated financial statements. Gains and losses on
foreign exchange contracts that are designated for forecasted transactions are
recognized in other income as the exchange rates change.
FAIR VALUE OF FINANCIAL INSTRUMENTS INCLUDING DERIVATIVE FINANCIAL INSTRUMENTS
The tables that follow 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. 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. For derivative financial instruments, the notional amounts do
not represent amounts exchanged by the parties and, therefore, are not a measure
of the instruments. Lucent's exposure on its derivative financial instruments is
limited to the fair value of the contracts with a positive fair value 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.
Long-term debt Market quotes for similar
terms and maturities.
Letters of credit Fees paid to obtain the obligations.
Foreign currency
exchange contracts Market quotes.
Commitments to extend credit *
Guarantees of debt *
- -------------------------------------------------------------------------------
</TABLE>
* It is not practicable to estimate the fair value of these financial
obligations because there are no quoted market prices for transactions that
are similar in nature.
41
<PAGE> 42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LUCENT TECHNOLOGIES INC. AND SUBSIDIARIES
(Dollars In Millions, Except Per Share Amounts)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996 December 31, 1995
- -------------------------------------------------------------------------------
CARRYING FAIR Carrying Fair
AMOUNT VALUE Amount Value
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ON BALANCE SHEET INSTRUMENTS
Liabilities:
Long-term debt $1,630 $1,638 $ 123 $ 123
- -------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996 December 31, 1995
- -------------------------------------------------------------------------------
CARRYING FAIR Carrying Fair
AMOUNT VALUE Amount Value
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
DERIVATIVES AND OFF BALANCE
SHEET INSTRUMENTS
Assets:
Foreign currency exchange contracts $ 14 $ 17 $ 16 $ 11
Letters of credit - 1 - 2
Liabilities:
Foreign currency exchange contracts $ 11 $ 14 $ 10 $ 15
Letters of credit - - - -
- -------------------------------------------------------------------------------
</TABLE>
The following table presents the contract/notional amount of Lucent derivatives
and off balance sheet instruments and the amounts drawn down on such
instruments:
<TABLE>
<CAPTION>
Amounts Drawn
SEPT. 30, Dec. 31, Down and
1996 1995 Outstanding
CONTRACT/ Contract/ -----------------------
NOTIONAL Notional SEPT. 30, DEC. 31,
AMOUNT Amount 1996 1995
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Foreign exchange forward contracts:
Dutch guilders $ 128 $ 324
Deutsche marks 228 131
Japanese yen 436 304
Other 365 327
- -----------------------------------------------------------------------------------------
1,157 1,086
Foreign exchange
option contracts 109 4
Letters of credit 847 659
Commitments to extend credit 156 16 $ 7 $ 13
Guarantees of debt 494 598 346 296
- -----------------------------------------------------------------------------------------
</TABLE>
42
<PAGE> 43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LUCENT TECHNOLOGIES INC. AND SUBSIDIARIES
(Dollars In Millions, Except Per Share Amounts)
10. STOCK COMPENSATION PLANS
During 1996, 1995 and in prior years, certain employees of Lucent were granted
stock awards under the AT&T Long-Term Incentive Program ("AT&T LTIP"). Such
awards consisted of stock options, performance awards, restricted stock awards
and other stock unit awards. During 1996 Lucent's employees were also eligible
to participate in the AT&T Employee Stock Purchase Plan ("ESPP").
Effective October 1, 1996, awards outstanding under the AT&T LTIP that were held
by Lucent employees were replaced by substitute awards under the Lucent
Technologies Inc. Long-Term Incentive Program ("Lucent LTIP"). The Lucent LTIP
provides for the grant of stock options, stock appreciation rights, performance
awards, restricted stock awards and other stock unit awards. Generally, stock
options have a ten-year term and vest within three years of grant. Subject to
customary anti-dilution adjustments and certain exceptions, the total number of
shares of common stock authorized for grant under the Lucent LTIP in each
calendar year is 1.2% of the total outstanding shares of common stock as of the
first day of such year for which the Lucent LTIP is in effect (April 10, 1996
for calendar year 1996). The substitute awards do not reduce the shares
available for grant under the Lucent LTIP.
The substitute stock options and other awards have the same vesting
provisions, option periods, and other terms and conditions as the AT&T options
and awards they replaced. The substitute stock options had the same ratio of the
exercise price per share to the market value per share, and the same aggregate
difference between market value and exercise price as the AT&T stock options.
Lucent has adopted the disclosure-only provisions of SFAS No. 123
"Accounting for Stock-Based Compensation" but applies Accounting Principles
Board Opinion No. 25 and related interpretations in accounting for its plans.
Compensation expense was immaterial for 1996 and 1995. If Lucent had elected to
recognize compensation cost for the AT&T LTIP and the ESPP based on the fair
value at the grant dates for awards under those plans (including the substitute
awards), consistent with the method prescribed by SFAS No. 123, net income(loss)
and earnings(loss) per share would have been changed to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
NINE MONTHS ENDED Year Ended
SEPTEMBER 30, 1996 December 31, 1995
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income (loss) As reported $224 $(867)
Pro forma $202 $(870)
- -------------------------------------------------------------------------------------
Earnings (loss)
per share As reported $0.38 $(1.65)
Pro forma $0.34 $(1.66)
- -------------------------------------------------------------------------------------
</TABLE>
Note: The pro forma disclosures shown are not representative of the effects on
net income and earnings per share in future years because the nine months ended
September 30, 1996, includes an incremental fair value of the Lucent stock
options that were substituted for AT&T stock options. Pro forma net income and
earnings per share disclosures for the nine months ended September 30, 1996,
include a $10 charge to income and a $0.02 reduction in earnings per share,
respectively, related to the incremental fair value of all vested options. The
incremental value was determined by comparing the value of the AT&T options as
of September 16, 1996, the last day on which Lucent employees were able to
exercise their AT&T options prior to the substitution, with the value of the
replacement options that were granted on October 1, 1996. The incremental fair
value of nonvested options will be included in pro forma net income and earnings
per share in the remaining years of the vesting period.
43
<PAGE> 44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LUCENT TECHNOLOGIES INC. AND SUBSIDIARIES
(Dollars In Millions, Except Per Share Amounts)
The fair value of AT&T stock options used to compute pro forma net income
and earnings per share disclosures is the estimated present value at grant date
using the Black-Scholes option-pricing model with the following weighted average
assumptions for 1996 and 1995: dividend yield of 2.4%; expected volatility of
19.4%; a risk free interest rate of 6.4%; and an expected holding period of five
years. The incremental fair value of Lucent options substituted for the AT&T
options on October 1, 1996, used to compute pro forma net income and earnings
per share disclosures was determined using the Black-Scholes option-pricing
model with the following weighted average assumptions: dividend yield of 0.75%;
expected volatility of 22.4%; a risk free interest rate of 6.1%; and an expected
holding period of 4.5 years, adjusted to reflect the remaining period to
maturity of the substituted options.
Options to purchase common stock may be granted either alone or in addition
to other awards. The term of each option will be fixed by a subcommittee
("Committee") of the Corporate Governance and Compensation Committee of Lucent's
Board of Directors, provided that no incentive stock options, as defined in the
Internal Revenue Code, will be exercisable after the expiration of ten years
from the date the option is granted. Options will be exercisable at such time or
times as determined by the Committee at or subsequent to grant. Stock
Appreciation Rights ("SARs") may be granted to participants either alone or in
addition to stock options and may, but need not be, related to a specific
option. The provisions of SARs need not be the same with respect to each
recipient.
44
<PAGE> 45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LUCENT TECHNOLOGIES INC. AND SUBSIDIARIES
(Dollars In Millions, Except Per Share Amounts)
Presented below is a summary of the status of the AT&T fixed stock options
held by Lucent's employees, and the related transactions for the nine months
ended September 30, 1996 and the year ended December 31, 1995. Also shown are
Lucent's fixed stock options which were substituted for the AT&T options on
October 1, 1996:
<TABLE>
<CAPTION>
NINE MONTHS ENDED Year Ended
SEPTEMBER 30, December 31,
1996 1995
- ------------------------------------------------------------------------------------
WEIGHTED Weighted
AVERAGE Average
SHARES EXERCISE Shares Exercise
FIXED STOCK OPTIONS (000's) PRICE (000's) Price
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AT&T options outstanding
at beginning of period 6,392 $47.44 4,824 $42.66
Granted 1,690 65.81 2,046 55.08
Exercised (183) 38.27 (476) 35.86
Forfeited/Expired (3) 63.18 (2) 38.75
- ------------------------------------------------------------------------------------
AT&T options outstanding
at end of period 7,896 $51.36 6,392 $47.44
- ------------------------------------------------------------------------------------
Lucent options substituted
for AT&T options, and
outstanding at
October 1, 1996 9,786 $41.43 n/a n/a
Lucent options exercisable
at October 1, 1996 5,336 $35.35 n/a n/a
- ------------------------------------------------------------------------------------
</TABLE>
The weighted average fair value of AT&T stock options, calculated using the
Black-Scholes option-pricing model, granted during the nine months ended
September 30, 1996 and the year ended December 31, 1995 is $14.13 and $14.15,
respectively.
The following table summarizes the status of Lucent's fixed stock options,
substituted for AT&T options, outstanding and exercisable at October 1, 1996:
<TABLE>
<CAPTION>
---------------------------------- --------------------
Stock Options Stock Options
Outstanding Exercisable
- ----------------------------------------------------------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Shares Contractual Exercise Shares Exercise
Exercise Prices (000's) Life Price (000's) Price
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$16.64 to $24.19 1,136 3.4 Years $20.39 1,136 $20.39
$24.20 to $36.29 1,192 5.0 Years 31.23 1,192 31.23
$36.30 to $54.61 7,458 6.2 Years 44.33 3,008 41.76
- ----------------------------------------------------------------------------
Total 9,786 5,336
- ----------------------------------------------------------------------------
</TABLE>
45
<PAGE> 46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LUCENT TECHNOLOGIES INC. AND SUBSIDIARIES
(Dollars In Millions, Except Per Share Amounts)
Performance awards, restricted stock awards and other stock unit awards may also
be granted. Presented below is the total number of AT&T shares represented by
awards granted to Lucent employees for the nine months ended September 30, 1996
and the year ended December 31, 1995:
<TABLE>
<CAPTION>
1996 1995
- --------------------------------------------------------
<S> <C> <C>
AT&T shares granted (000's) 262 295
Weighted average market value of
shares granted during the period $66.24 $56.46
- --------------------------------------------------------
</TABLE>
11. TRANSACTIONS AND AGREEMENTS WITH AT&T
For the nine months ended September 30, 1996 and the years ended December 31,
1995 and 1994, Lucent had $1,970, $2,119 and $2,137, respectively, of revenues
from AT&T. At September 30, 1996 and December 31, 1995, the related receivables
amounted to $596 and $291, respectively.
AT&T has allocated general corporate overhead expenses amounting to $372 and
$358 for the years ended December 31, 1995 and 1994, respectively. There were no
such material expenses allocated to Lucent for the nine months ended September
30, 1996. Additionally, Lucent incurred expenses for long distance services
provided by AT&T of $74, $80 and $93 for the nine months ended September 30,
1996 and the years ended December 31, 1995 and 1994, respectively. Amounts
payable to AT&T were $698 and $25 at September 30, 1996 and December 31, 1995,
respectively, including current income taxes payable to AT&T as of September 30,
1996 of $183.
In connection with the Separation, AT&T prepaid $500 to Lucent which will be
applied to accounts receivable from AT&T due and payable on or after January 1,
1997 for the purchase of products, services and licensed materials from Lucent.
Rights, title and interest in certain lease receivables were sold at a discount
to AT&T's finance subsidiary, AT&T Capital Corporation. Lucent acts as an agent
to bill and collect such receivables. Lucent has agreed to repurchase certain of
these lease receivables in the event of a default thereon. At September 30, 1996
and December 31, 1995, $162 and $206, respectively, of such receivables had
recourse to Lucent in the event of default.
In connection with the Separation and Distribution, Lucent, AT&T and NCR
Corporation ("NCR"), a wholly owned subsidiary of AT&T, executed and delivered
the Separation and Distribution Agreement, dated as of February 1, 1996 and
amended and restated as of March 29, 1996 (the "Separation and Distribution
Agreement"), and certain related agreements which are summarized below.
46
<PAGE> 47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LUCENT TECHNOLOGIES INC. AND SUBSIDIARIES
(Dollars In Millions, Except Per Share Amounts)
SEPARATION AND DISTRIBUTION AGREEMENT
The Separation and Distribution Agreement, among other things, provides that
Lucent will indemnify AT&T and NCR for all liabilities relating to Lucent's
business and operations and for all contingent liabilities relating to Lucent's
business and operations or otherwise assigned to Lucent. In addition to
contingent liabilities relating to the present or former business of Lucent, any
contingent liabilities related to AT&T's discontinued computer operations (other
than those of NCR) were assigned to Lucent. 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%, Lucent: 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.
FEDERAL, STATE AND LOCAL TAX ALLOCATION AGREEMENTS
Lucent entered into agreements with AT&T and its other domestic subsidiaries
that apply to income taxes attributable to the period from Lucent'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
Lucent 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 upon 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 and
benefits generally will be borne 75% by AT&T, 22% by Lucent and 3% by NCR.
GENERAL PURCHASE AGREEMENT
Lucent and AT&T entered into the General Purchase Agreement and various related
and supplemental agreements thst govern transactions pursuant to which Lucent
provides products, licensed materials and services to AT&T and certain
designated AT&T affiliates. AT&T commits therein that payments made to Lucent
(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. AT&T purchased $1,970
of products, licensed materials and services from Lucent during the nine months
ended September 30, 1996. If the $3,000 commitment is not fulfilled by December
31, 1998, interest is payable on the shortfall until the entire purchase
commitment is met. Such interest is the sole remedy for any shortfall.
OTHER AGREEMENTS
In addition, Lucent is obligated under a purchase agreement with NCR to purchase
at least $150 of products and services cumulatively for the calendar years
1996, 1997 and 1998.
INTERIM SERVICES AND SYSTEMS REPLICATION AGREEMENT; REAL ESTATE SHARING
Lucent, AT&T and NCR entered into an agreement governing the provision by which
each party agreed to provide to one or more of the others on an interim basis
certain data processing and telecommunications services and certain corporate
support services at 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. In 1996, Lucent recognized
approximately $120 of net expenses associated with this agreement. With limited
exceptions, these interim services are not expected to extend beyond January 1,
1998.
47
<PAGE> 48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LUCENT TECHNOLOGIES INC. AND SUBSIDIARIES
(Dollars In Millions, Except Per Share Amounts)
AT&T, Lucent and NCR also entered into various lease and sublease agreements
for the sharing of certain facilities for a transitional period on commercial
terms. In the case of owned real estate to be leased, the lease terms are up to
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.
12. COMMITMENTS AND CONTINGENCIES
In the normal course of business, Lucent 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 September 30, 1996 cannot be ascertained. While
these matters could affect the operating results of any one quarter when
resolved in future periods and while there can be no assurance with respect
thereto, management believes that after final disposition, any monetary
liability or financial impact to Lucent beyond that provided for at September
30, 1996 would not be material to the annual consolidated financial statements.
ENVIRONMENTAL MATTERS
Lucent's current and historical operations are subject to a wide range of
environmental protection laws. In the United States, these laws often require
parties to fund remedial action regardless of fault. Lucent has remedial and
investigatory activities underway at forty-six current and former facilities. In
addition, Lucent was named a successor to AT&T as a potentially responsible
party ("PRP") at numerous "Superfund" sites pursuant to the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 ("CERCLA") or
comparable state statutes. Under the Separation and Distribution Agreement,
Lucent is responsible for all liabilities primarily resulting from or relating
to the operation of Lucent's business as conducted at any time prior to or after
the Separation including related businesses discontinued or disposed of prior to
the Separation, and Lucent's assets including, without limitation, those
associated with these sites. In addition, under such Separation and Distribution
Agreement, Lucent is required to pay a portion of contingent liabilities paid
out in excess of certain amounts by AT&T and NCR, including environmental
liabilities.
It is often difficult to estimate the future impact of environmental
matters, including potential liabilities. Lucent records an environmental
reserve when it is probable that a liability has been incurred and the amount of
the liability is reasonably estimable. This practice is followed whether the
claims are asserted or unasserted. Management expects that the amounts reserved
will be paid out over the periods of remediation for the applicable sites which
range from 5 to 30 years. Reserves for estimated losses from environmental
remediation are, depending on the site, based primarily upon internal or third
party environmental studies, and estimates as to the number, participation level
and financial viability of any other PRPs, the extent of the contamination and
the nature of required remedial actions. Accruals are adjusted as further
information develops or circumstances change. The amounts provided for in
Lucent's consolidated financial statements for environmental reserves are the
gross undiscounted amount of such reserves, without deductions for insurance or
third party indemnity claims. In those cases where insurance carriers or third
party indemnitors have agreed to pay any amounts and management believes that
collectibility of such amounts is probable, the amounts are reflected as
receivables in the financial statements. Although Lucent believes that its
reserves are adequate, there can be no assurance that the amount of capital
expenditures and other expenses which will be required relating to remedial
actions and compliance with applicable environmental laws will not exceed the
amounts reflected in Lucent's reserves or will not have a material adverse
effect on the financial condition of Lucent or Lucent's results of operations or
cash flows. Any amounts of environmental costs that may be incurred in excess of
those provided for at September 30, 1996 cannot be determined.
48
<PAGE> 49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LUCENT TECHNOLOGIES INC. AND SUBSIDIARIES
(Dollars In Millions, Except Per Share Amounts)
OTHER CONTINGENCIES
One of Lucent's multi-year contracts is with Pacific Bell for the provision of a
broadband network based on hybrid fiber-coaxial cable technology. In July 1996,
Lucent and Pacific Bell agreed to modify the terms of the contract so as to
resolve issues and potential claims which may have arisen due to implementation
difficulties and cost overruns under the contract. Lucent's consolidated
financial statements include reserves to reflect such contract modifications.
Lucent will continue to assess the adequacy of these reserves.
LEASE COMMITMENTS
Lucent leases land, buildings and equipment under agreements that expire in
various years through 2014. Rental expense under operating leases was $182 for
the nine months ended September 30, 1996, and $209 and $183 for the years ended
December 31, 1995 and 1994, respectively. The table below shows the future
minimum lease payments due under noncancelable operating leases at September 30,
1996. Such payments total $768.
<TABLE>
<CAPTION>
Fiscal Year Ended September 30,
- -------------------------------------------------------------------------------
1997 1998 1999 2000 2001 Later Years
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Operating leases $170 $147 $123 $99 $73 $156
- -------------------------------------------------------------------------------
</TABLE>
49
<PAGE> 50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LUCENT TECHNOLOGIES INC. AND SUBSIDIARIES
(Dollars In Millions, Except Per Share Amounts)
13. QUARTERLY INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH(1) TOTAL(1)
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nine Months Ended
September 30, 1996
Revenues $4,577 $5,364 $5,918 n/a $15,859
Gross margin 1,824 2,170 2,575 n/a 6,569
Net income(loss) (103) 72 255 n/a 224
Earnings(loss) per
weighted average share(2) $(0.20) $ 0.11 $ 0.40 n/a $ 0.38
Dividends per share 0.00 0.075 0.075 n/a 0.15
Stock price:(4)
High n/a 39 1/4 45 7/8 n/a n/a
Low n/a 29 3/4 30 5/8 n/a n/a
Quarter-end close n/a 37 7/8 45 7/8 n/a n/a
- -----------------------------------------------------------------------------
1995 Calendar Year
Revenues $4,159 $ 5,083 $4,744 $ 7,427 $21,413
Gross margin 1,850 2,251 2,042 2,325 8,468
Net income(loss) (22) 159 13 (1,017) (867)
Earnings(loss) per
weighted average share(3) $(0.04) $ 0.30 $ 0.02 $ (1.93) $(1.65)
Dividends per share 0.00 0.00 0.00 0.00 0.00
- -----------------------------------------------------------------------------
</TABLE>
(1) 1995 includes a pretax charge of $2,801 ($1,847 after taxes), to cover
restructuring costs of $2,613 and asset impairment and other charges of
$188.
(2) The number of weighted average shares outstanding increased in 1996 as new
common shares were issued through the IPO. For this reason, the sum of the
quarterly earnings(loss) per weighted average share amounts for 1996 does
not equal the earnings per weighted average share for the year.
(3) The calculation of earnings per share on a historical basis includes the
retroactive recognition to January 1, 1995 of the 524,624,894 shares owned
by AT&T.
(4) Obtained from the Composite Tape.
Pro forma earnings(loss) per share was calculated by dividing the net
income(loss) by the 636,661,931 shares that were outstanding on April 10, 1996
subsequent to the IPO of 112,037,037 shares and gives no effect to the use of
proceeds from the IPO. Amounts calculated are as follows:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH TOTAL
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nine Months Ended
September 30, 1996
Pro forma earnings(loss)
per share $(0.16) $ 0.11 $ 0.40 n/a $ 0.35
- -----------------------------------------------------------------------------
1995 Calendar Year
Pro forma earnings(loss)
per share $(0.03) $ 0.25 $ 0.02 $(1.60)* $(1.36)*
- -----------------------------------------------------------------------------
</TABLE>
* See Note (1) above.
50
<PAGE> 51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LUCENT TECHNOLOGIES INC. AND SUBSIDIARIES
(Dollars In Millions, Except Per Share Amounts)
14. SUBSEQUENT EVENTS
COMMITMENTS
Lucent has entered into a credit agreement with Sprint Spectrum LP to provide
long-term financing of $1,800 for its purchase of equipment and services from
Lucent for its nationwide personal communication services ("PCS") wireless
network. It is expected that most of the financing under the credit agreement
will be utilized by December 31, 1998. Loans made under this credit agreement
defer any principal payment for up to four years. Repayment of principal will
occur over a subsequent five-year period. Payment of quarterly interest on each
borrowing may be deferred at the borrower's option for up to two years. Lucent
is currently discussing with financial institutions potential alternatives to
sell loans it may make under the credit agreement, which will depend, among
other things, on market conditions and requirements at the time. The credit
agreement provides for certain restrictive covenants applicable to the borrower,
and for a pledge of the equity ownership of the borrower's affiliates who will
hold the PCS radio licenses and title to the equipment purchased with the
financing (shared jointly with other creditors); transfer of control of PCS
licenses is subject to Federal Communications Commission approval.
BENEFIT PLANS
SPECIAL OWNERSHIP GRANT
Lucent's Board of Directors approved a special plan under which each employee
was awarded 100 fixed stock options effective October 1, 1996. The options vest
in three years and will be exercisable for a term of ten years from the date of
the grant. The exercise price was determined by the average of Lucent's high and
low per share trading price on the New York Stock Exchange on the date of the
grant.
EMPLOYEE STOCK PURCHASE PLAN
Lucent's Board of Directors approved the Lucent Technologies Inc. 1996 Employee
Stock Purchase Plan (the "Plan"), which gives employees of Lucent, or
subsidiaries designated by the Employee Stock Purchase Plan Committee, the
opportunity to purchase shares of Lucent's common stock through payroll
deductions beginning on October 1, 1996, and ending on June 30, 2001. Employees
can elect to participate in the Plan by designating from 1% to 10% of eligible
compensation to be deducted from pay. On the date of exercise, which is the last
day of each month that Lucent's stock is traded on the New York Stock Exchange,
the per share purchase price will be 85% of the average high and low per-share
trading price of Lucent's common stock on the New York Stock Exchange on that
date. The shares may be newly issued shares, treasury shares or shares bought in
the market. The amount that may be offered pursuant to this Plan is 50 million
shares.
51
<PAGE> 52
INVESTOR INFORMATION
Corporate Headquarters
Lucent Technologies
600 Mountain Avenue
Murray Hill, NJ 07974
1-888-4LUCENT
Shareowners Meeting
The First Lucent Shareowners Meeting will assemble at
10 a.m. on Feb. 19, 1997, in the Meadowlands Exposition
Center, 355 Plaza Drive, Secaucus, NJ 07094.
Shareowner Services
Questions about stock-related matters should be directed
to Lucent's shareowner services and transfer agent,
The Bank of New York, at 1-888-LUCENT6, or by writing to
Lucent Technologies
c/o The Bank of New York
P.O. Box 11009
Church Street Station
New York, NY 10286-1009
Shareowners can send inquiries electronically. The Bank of
New York's e-mail address is
[email protected]
Persons outside the U.S. may call:
201-845-1430
The Bank of New York address to which banks and brokers
may deliver certificates for transfer is:
101 Barclay Street
New York, NY 10007
To hear information or ask questions about Lucent's Products
and Services, call our special toll-free number:
1-888-4LUCENT
52
<PAGE> 53
Dividend Reinvestment Plan
The Buy Direct(SM) dividend reinvestment and stock purchase
plan provides owners of common stock a convenient way to
purchase additional shares. You may write or call
The Bank of New York for a plan brochure and an
enrollment form
(SM) Buy Direct is a service mark of The Bank of New York
Stock Data
Lucent Technologies (ticket symbol "LU") is listed on the
New York Stock Exchange.
Shares outstanding as of Oct. 1, 1996
636,724,471
Lucent Technologies' Web Site
Visit us at http://www.lucent.com.
[GRAPHIC]
Environment, Health and Safety
For a copy of Lucent Technologies' 1996 Environment,
Health and Safety Report, write to:
Environment, Health and Safety Report
Lucent Technologies
Room D3B47
283 King George Road
Warren, NJ 07059
Back cover: Employees celebrate
Lucent's first day as an independent
company on Oct. 1, 1996.
53
<PAGE> 1
Exhibit 21
LUCENT TECHNOLOGIES INC. SUBSIDIARIES
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
NAME JURISDICTION OF ORGANIZATION
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Lucent Technologies Argentina S.A. Argentina
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies Australia Pty. Ltd. Australia
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies Austria Ges.m.b.H. Austria
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies Middle East W.L.L. Bahrain
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies Foreign Sales Corporation Barbados
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies Belgium S.A./N.V. Belgium
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies Network Systems Belgium S.A./N.V. Belgium
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies (Bermuda) Ltd. Bermuda
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies Brasil Ltda. Brazil
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies World Services, Inc. Brunei
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies Eurasia Ltd. Bulgaria
- ------------------------------------------------------------------------------------------------------------------------------
Telecommunications Radioelectriques et Telephoniques (TRT) Cameroon
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies Canada Inc. Canada
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies (Chile) Limitada Chile
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies Colombia S.A. Colombia
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies de Costa Rica S.A. Costa Rica
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies s.r.o. Czech Republic
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies EMEA B.V. Czech. Republic
- ------------------------------------------------------------------------------------------------------------------------------
LYCOM A/S Denmark
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies Hispaniola C. por A. Dominican Republic
- ------------------------------------------------------------------------------------------------------------------------------
EcuaLucent Technologies S.A. Ecuador
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies International Inc. Egypt
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies El Salvador S.A. de C.V. El Salvador
- ------------------------------------------------------------------------------------------------------------------------------
AST Electronique S.A. France
- ------------------------------------------------------------------------------------------------------------------------------
Barphone Services S.A. France
- ------------------------------------------------------------------------------------------------------------------------------
Distrimatel S.A.R.L. France
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies BCS S.A. France
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies Holding France S.A. France
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies Network Systems France S.A. France
- ------------------------------------------------------------------------------------------------------------------------------
Telecommunications Radioelectriques et Telephoniques (TRT) France
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 1
<PAGE> 2
<TABLE>
<CAPTION>
NAME JURISDICTION OF ORGANIZATION
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Lucent Technologies Business Communications Systems
and Microelectronics GmbH Germany
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies Holding GmbH Germany
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies Network Fibre Cables GmbH Germany
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies EMEA B.V. Greece
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies de Guatemala S.A. Guatemala
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies de Honduras S.A. Honduras
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies World Services, Inc. (Honduras Branch Office) Honduras
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies Asia/Pacific (H.K.) Ltd. Hong Kong
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies Asia/Pacific Inc. Hong Kong
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies Korea Ltd. Hong Kong
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies Business Communications Systems Hungary Kft. Hungary
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies India Pvt. Ltd. India
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies Asia/Pacific Inc. Indonesia
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies Network Systems Nederland B.V. Indonesia
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies World Services Inc. Indonesia
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies Ireland Ltd. Ireland
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies Network Systems Ireland Ltd. Ireland
- ------------------------------------------------------------------------------------------------------------------------------
Microwave Radio Ltd. Ireland
- ------------------------------------------------------------------------------------------------------------------------------
Telectron na Farraige Moire Teoranta Ireland
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies Belgium S.A./N.V. Israel
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies Italia S.p.A. Italy
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies Japan Ltd. Japan
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies EMEA B.V. Kazakstan
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies Eurasia Ltd. Kazakstan
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies World Services Inc. Kenya
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies Korea Ltd. Korea
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies World Services Inc. Kuwait
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies Eurasia Ltd. Lithuania
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies (Malaysia) Sdn. Bhd. Malaysia
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 2
<PAGE> 3
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
NAME JURISDICTION OF ORGANIZATION
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C>
ATTEL del Norte, S.A. de C.V. Mexico
- ------------------------------------------------------------------------------------------------------------------------------
Informatica y Telecomunicaciones, S.A. de C.V. Mexico
- ------------------------------------------------------------------------------------------------------------------------------
Integradora de Telecomunicaciones, S.A. de C.V. (INTELSA) Mexico
- ------------------------------------------------------------------------------------------------------------------------------
ITSA Servicios S.A. de C.V. Mexico
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies Business Communication Systems de Mexico, S.A. de C.V. Mexico
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies Consumer Products Mexico, S.A. de C.V. Mexico
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies de Mexico S.A. de C.V. Mexico
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies Holdings de Mexico S.A. de C.V. Mexico
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies International Inc. Mexico
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies Microelectronica de Mexico S. A. de C. V. Mexico
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies Productos de Consumo de Mexico S.A. de C.V. Mexico
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies Productos de Consumo de Monterrey S.A. de C.V. Mexico
- ------------------------------------------------------------------------------------------------------------------------------
Soporte a Sistemas de Informatica Y Telecomunicaciones S.A. de C.V. Mexico
- ------------------------------------------------------------------------------------------------------------------------------
Virmar Telecomunicaciones S.A. de C.V. Mexico
- ------------------------------------------------------------------------------------------------------------------------------
Bedrijvencomplex Huizen/Hilversum C.V. Netherlands
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies BCS Nederland B.V. Netherlands
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies EMEA B.V. Netherlands
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies EMEA Services B.V. Netherlands
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies EMEA Trading B.V. Netherlands
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies Network Systems Nederland B.V. Netherlands
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies WCND Utrecht B.V. Netherlands
- ------------------------------------------------------------------------------------------------------------------------------
PTS Software B.V. Netherlands
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies (NZ) Limited New Zealand
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies Nicaragua S.A. Nicaragua
- ------------------------------------------------------------------------------------------------------------------------------
Telecommunications Radioelectriques et Telephoniques (TRT) Oman
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies (China) Co., Ltd. People's Republic of China
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies (Shanghai) International Enterprises, Ltd. People's Republic of China
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 3
<PAGE> 4
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
NAME JURISDICTION OF ORGANIZATION
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C>
AT&T Qingdao Power Systems Company, Ltd. People's Republic of China
- ------------------------------------------------------------------------------------------------------------------------------
AT&T Qingdao Telecommunications Systems Ltd. People's Republic of China
- ------------------------------------------------------------------------------------------------------------------------------
Telecommunications Radioelectriques et Telephoniques (TRT) Pakistan
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies World Services, Inc. Panama
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies del Peru S.A. Peru
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies Philippines Inc. Philippines
- ------------------------------------------------------------------------------------------------------------------------------
Telecommunications Radioelectriques et Telephoniques (TRT) Philippines
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies BCS Polska Sp. z o.o Poland
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies Network Systems Poland S.A. Poland
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies Sp. z o.o. Poland
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies Puerto Rico Inc. Puerto Rico
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies World Services Inc. Puerto Rico
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies Eurasia B.V. Romania
- ------------------------------------------------------------------------------------------------------------------------------
A/O Lucent Technologies Russian Federation
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies EMEA B.V. Russian Federation
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies Eurasia Ltd. Russian Federation
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies International Inc. Saudi Arabia
- ------------------------------------------------------------------------------------------------------------------------------
Telecommunications Radioelectriques et Telephoniques (TRT) Saudi Arabia
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies Consumer Products Pte. Ltd. Singapore
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies Investment Asia Pte. Ltd. Singapore
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies Investments Pte. Ltd. Singapore
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies Microelectronics Pte. Ltd. Singapore
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies Singapore Pte. Ltd. Singapore
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies EMEA B.V. (Slovak Rep. office) Slovak Republic
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies Slovensko s.r.o. Slovak Republic
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies South Africa (Proprietary) Ltd. South Africa
- ------------------------------------------------------------------------------------------------------------------------------
AT&T Microelectronica de Espana, S.A. Spain
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies Microelectronica S.A. Spain
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies Network Systems Espana S.A. Spain
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies World Services, Inc. Spain
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies Asia/Pacific Inc. Sri Lanka
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies Sweden A.B. Sweden
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 4
<PAGE> 5
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
NAME JURISDICTION OF ORGANIZATION
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Lucent Technologies A.G. Switzerland
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies International Purchasing Company Taiwan
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies Taiwan Inc. Taiwan
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies Microelectronics Thailand Ltd. Thailand
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies Thailand Inc. Thailand
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies International Inc. UAE (United Arab Emirates)
- ------------------------------------------------------------------------------------------------------------------------------
AP Telecommunications UK Ltd. United Kingdom
- ------------------------------------------------------------------------------------------------------------------------------
AT&T Business Communications Europe Ltd. United Kingdom
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies Network Systems UK Ltd. United Kingdom
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies UK Limited United Kingdom
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies Wireless Ltd. United Kingdom
- ------------------------------------------------------------------------------------------------------------------------------
Telectron Systems Ltd. United Kingdom
- ------------------------------------------------------------------------------------------------------------------------------
Western Electric Company, Ltd. United Kingdom
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies EMEA B.V. Ukraine
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies EMEA Services B.V. Ukraine
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies Eurasia Ltd. Ukraine
- ------------------------------------------------------------------------------------------------------------------------------
AT&T Kazakstan Ltd. Delaware
- ------------------------------------------------------------------------------------------------------------------------------
AT&T Systems & Technology Africa Inc. Delaware
- ------------------------------------------------------------------------------------------------------------------------------
ATOR Corporation New York
- ------------------------------------------------------------------------------------------------------------------------------
Bell Laboratories, Inc. Delaware
- ------------------------------------------------------------------------------------------------------------------------------
Bell Telephone Laboratories Inc. Delaware
- ------------------------------------------------------------------------------------------------------------------------------
Litespec, Inc. Delaware
- ------------------------------------------------------------------------------------------------------------------------------
Loose Tube Inc. Delaware
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies Americas Inc. Delaware
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies Asia/Pacific Inc. Delaware
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies Construction Services, Inc. Delaware
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies Eastern Ventures Inc. Delaware
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies Engineering Inc. Delaware
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies Eurasia Ltd. Delaware
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies Holdings Inc. Delaware
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies International Inc. Delaware
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies International Purchasing Company Delaware
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 5
<PAGE> 6
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
NAME JURISDICTION OF ORGANIZATION
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Lucent Technologies Management Services Inc. Delaware
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies Maquiladoras Inc. Delaware
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies of Tampa Inc. Delaware
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies Realty Inc. New Jersey
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies Services Company Inc. Delaware
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies Taiwan Inc. Delaware
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies Technical Services Company Inc. Delaware
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies Thailand Inc. Delaware
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies Western Investments Inc. Delaware
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies World Services Inc. Delaware
- ------------------------------------------------------------------------------------------------------------------------------
MRAC, Inc. Delaware
- ------------------------------------------------------------------------------------------------------------------------------
Nassau Metals Corporation Delaware
- ------------------------------------------------------------------------------------------------------------------------------
NCS OSP Development Corp. Delaware
- ------------------------------------------------------------------------------------------------------------------------------
NCS Ventures, Inc. Delaware
- ------------------------------------------------------------------------------------------------------------------------------
Telecommunications Technology Middle East Inc. Delaware
- ------------------------------------------------------------------------------------------------------------------------------
Western Electric Company, Inc. Delaware
- ------------------------------------------------------------------------------------------------------------------------------
Western Electric International Incorporated North Carolina
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies Ventures Inc. Delaware
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies Venezuela S.A. Venezuela
- ------------------------------------------------------------------------------------------------------------------------------
Lucent Technologies Asia/Pacific Inc. Vietnam
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 6
<PAGE> 1
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
Lucent Technologies Inc. on (1) Form S-3 (File No. 333-01223) and (2) Forms S-8
(File No.'s 333-08789, 333-08793, 333-08901, 333-08775 and 333-08783 and on
Forms S-8 relating to the 1997 Annual Long Term Incentive Plan and Global
Founders Grant Stock Option Plan) of our reports dated October 24, 1996, on our
audits of the consolidated financial statements and financial statement schedule
of Lucent Technologies Inc. and subsidiaries as of September 30, 1996 and
December 31, 1995, and for the nine-month period ended September 30, 1996 and
the years ended December 31, 1995 and 1994, which reports are included or
incorporated by reference in this Transition Report on Form 10-K.
Coopers & Lybrand L.L.P.
New York, New York
December 27, 1996
<PAGE> 1
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, Lucent Technologies Inc., a Delaware corporation
(hereinafter referred to as the "Company"), proposes to file with the
Securities and Exchange Commission, under the provisions of the Securities
Exchange Act of 1934, as amended, a Form 10-K for the transition period from
January 1, 1996 to September 30, 1996; and
WHEREAS, the undersigned is a Director and/or Officer of the
Company, as indicated below following the signature:
NOW, THEREFORE, the undersigned hereby constitutes and appoints
Donald K. Peterson, Florence L. Walsh, and James S. Lusk and each of them, as
attorneys for, and in the name, place and stead of the undersigned, and in the
capacity of the undersigned as a Director and/or Officer of the Company, to
execute and file such Form 10-K and any amendments or supplements thereto,
hereby giving and granting to said attorneys, and each of them, full power and
authority to do and perform each and every act and thing whatsoever requisite
and necessary to be done in and about the premises, as fully, to all intents
and purposes, as the undersigned might or could do if personally present at the
doing thereof, hereby ratifying and confirming all that said attorneys may or
shall lawfully do, or cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of
Attorney this 13th day of December, 1996.
By: /s/ HENRY B. SCHACHT
---------------------------------
Name: Henry B. Schacht
Title: Chairman of the Board and
Chief Executive Officer
<PAGE> 2
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, Lucent Technologies Inc., a Delaware corporation
(hereinafter referred to as the "Company"), proposes to file with the
Securities and Exchange Commission, under the provisions of the Securities
Exchange Act of 1934, as amended, a Form 10-K for the transition period from
January 1, 1996 to September 30, 1996; and
WHEREAS, the undersigned is a Director and/or Officer of the
Company, as indicated below following the signature:
NOW, THEREFORE, the undersigned hereby constitutes and appoints
Donald K. Peterson, Florence L. Walsh, and James S. Lusk and each of them, as
attorneys for, and in the name, place and stead of the undersigned, and in the
capacity of the undersigned as a Director and/or Officer of the Company, to
execute and file such Form 10-K and any amendments or supplements thereto,
hereby giving and granting to said attorneys, and each of them, full power and
authority to do and perform each and every act and thing whatsoever requisite
and necessary to be done in and about the premises, as fully, to all intents
and purposes, as the undersigned might or could do if personally present at the
doing thereof, hereby ratifying and confirming all that said attorneys may or
shall lawfully do, or cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of
Attorney this 13th day of December, 1996.
By: /s/ RICHARD A. MCGINN
-----------------------------------
Name: Richard A. McGinn
Title: Director and President and
Chief Operating Officer
<PAGE> 3
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, Lucent Technologies Inc., a Delaware corporation
(hereinafter referred to as the "Company"), proposes to file with the
Securities and Exchange Commission, under the provisions of the Securities
Exchange Act of 1934, as amended, a Form 10-K for the transition period from
January 1, 1996 to September 30, 1996; and
WHEREAS, the undersigned is a Director and/or Officer of the
Company, as indicated below following the signature:
NOW, THEREFORE, the undersigned hereby constitutes and appoints
Donald K. Peterson, Florence L. Walsh, and James S. Lusk and each of them, as
attorneys for, and in the name, place and stead of the undersigned, and in the
capacity of the undersigned as a Director and/or Officer of the Company, to
execute and file such Form 10-K and any amendments or supplements thereto,
hereby giving and granting to said attorneys, and each of them, full power and
authority to do and perform each and every act and thing whatsoever requisite
and necessary to be done in and about the premises, as fully, to all intents
and purposes, as the undersigned might or could do if personally present at the
doing thereof, hereby ratifying and confirming all that said attorneys may or
shall lawfully do, or cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of
Attorney this 13th day of December, 1996.
By: /s/ CARLA A. HILLS
-----------------------------
Name: Carla A. Hills
Title: Director
<PAGE> 4
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, Lucent Technologies Inc., a Delaware corporation
(hereinafter referred to as the "Company"), proposes to file with the
Securities and Exchange Commission, under the provisions of the Securities
Exchange Act of 1934, as amended, a Form 10-K for the transition period from
January 1, 1996 to September 30, 1996; and
WHEREAS, the undersigned is a Director and/or Officer of the
Company, as indicated below following the signature:
NOW, THEREFORE, the undersigned hereby constitutes and appoints
Donald K. Peterson, Florence L. Walsh, and James S. Lusk and each of them, as
attorneys for, and in the name, place and stead of the undersigned, and in the
capacity of the undersigned as a Director and/or Officer of the Company, to
execute and file such Form 10-K and any amendments or supplements thereto,
hereby giving and granting to said attorneys, and each of them, full power and
authority to do and perform each and every act and thing whatsoever requisite
and necessary to be done in and about the premises, as fully, to all intents
and purposes, as the undersigned might or could do if personally present at the
doing thereof, hereby ratifying and confirming all that said attorneys may or
shall lawfully do, or cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of
Attorney this 13th day of December, 1996.
By: /s/ DREW LEWIS
---------------------------------
Name: Drew Lewis
Title: Director
<PAGE> 5
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, Lucent Technologies Inc., a Delaware corporation
(hereinafter referred to as the "Company"), proposes to file with the
Securities and Exchange Commission, under the provisions of the Securities
Exchange Act of 1934, as amended, a Form 10-K for the transition period from
January 1, 1996 to September 30, 1996; and
WHEREAS, the undersigned is a Director and/or Officer of the
Company, as indicated below following the signature:
NOW, THEREFORE, the undersigned hereby constitutes and appoints
Donald K. Peterson, Florence L. Walsh, and James S. Lusk and each of them, as
attorneys for, and in the name, place and stead of the undersigned, and in the
capacity of the undersigned as a Director and/or Officer of the Company, to
execute and file such Form 10-K and any amendments or supplements thereto,
hereby giving and granting to said attorneys, and each of them, full power and
authority to do and perform each and every act and thing whatsoever requisite
and necessary to be done in and about the premises, as fully, to all intents
and purposes, as the undersigned might or could do if personally present at the
doing thereof, hereby ratifying and confirming all that said attorneys may or
shall lawfully do, or cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of
Attorney this 13th day of December, 1996.
By: /s/ DONALD S. PERKINS
----------------------------------
Name: Donald S. Perkins
Title: Director
<PAGE> 6
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, Lucent Technologies Inc., a Delaware corporation
(hereinafter referred to as the "Company"), proposes to file with the
Securities and Exchange Commission, under the provisions of the Securities
Exchange Act of 1934, as amended, a Form 10-K for the transition period from
January 1, 1996 to September 30, 1996; and
WHEREAS, the undersigned is a Director and/or Officer of the
Company, as indicated below following the signature:
NOW, THEREFORE, the undersigned hereby constitutes and appoints
Donald K. Peterson, Florence L. Walsh, and James S. Lusk and each of them, as
attorneys for, and in the name, place and stead of the undersigned, and in the
capacity of the undersigned as a Director and/or Officer of the Company, to
execute and file such Form 10-K and any amendments or supplements thereto,
hereby giving and granting to said attorneys, and each of them, full power and
authority to do and perform each and every act and thing whatsoever requisite
and necessary to be done in and about the premises, as fully, to all intents
and purposes, as the undersigned might or could do if personally present at the
doing thereof, hereby ratifying and confirming all that said attorneys may or
shall lawfully do, or cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of
Attorney this 13th day of December, 1996.
By: /s/ FRANKLIN A. THOMAS
-----------------------------------
Name: Franklin A. Thomas
Title: Director
<PAGE> 7
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, Lucent Technologies Inc., a Delaware corporation
(hereinafter referred to as the "Company"), proposes to file with the
Securities and Exchange Commission, under the provisions of the Securities
Exchange Act of 1934, as amended, a Form 10-K for the transition period from
January 1, 1996 to September 30, 1996; and
WHEREAS, the undersigned is a Director and/or Officer of the
Company, as indicated below following the signature:
NOW, THEREFORE, the undersigned hereby constitutes and appoints
Donald K. Peterson, Florence L. Walsh, and James S. Lusk and each of them, as
attorneys for, and in the name, place and stead of the undersigned, and in the
capacity of the undersigned as a Director and/or Officer of the Company, to
execute and file such Form 10-K and any amendments or supplements thereto,
hereby giving and granting to said attorneys, and each of them, full power and
authority to do and perform each and every act and thing whatsoever requisite
and necessary to be done in and about the premises, as fully, to all intents
and purposes, as the undersigned might or could do if personally present at the
doing thereof, hereby ratifying and confirming all that said attorneys may or
shall lawfully do, or cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of
Attorney this 13th day of December, 1996.
By: /s/ PAUL A. ALLAIRE
----------------------------------
Name: Paul A. Allaire
Title: Director
<PAGE> 8
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, Lucent Technologies Inc., a Delaware corporation
(hereinafter referred to as the "Company"), proposes to file with the
Securities and Exchange Commission, under the provisions of the Securities
Exchange Act of 1934, as amended, a Form 10-K for the transition period from
January 1, 1996 to September 30, 1996; and
WHEREAS, the undersigned is a Director and/or Officer of the
Company, as indicated below following the signature:
NOW, THEREFORE, the undersigned hereby constitutes and appoints
Donald K. Peterson, Florence L. Walsh, and James S. Lusk and each of them, as
attorneys for, and in the name, place and stead of the undersigned, and in the
capacity of the undersigned as a Director and/or Officer of the Company, to
execute and file such Form 10-K and any amendments or supplements thereto,
hereby giving and granting to said attorneys, and each of them, full power and
authority to do and perform each and every act and thing whatsoever requisite
and necessary to be done in and about the premises, as fully, to all intents
and purposes, as the undersigned might or could do if personally present at the
doing thereof, hereby ratifying and confirming all that said attorneys may or
shall lawfully do, or cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of
Attorney this 13th day of December, 1996.
By: /s/ JOHN A. YOUNG
----------------------------------
Name: John A. Young
Title: Director
<PAGE> 9
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, Lucent Technologies Inc., a Delaware corporation
(hereinafter referred to as the "Company"), proposes to file with the
Securities and Exchange Commission, under the provisions of the Securities
Exchange Act of 1934, as amended, a Form 10-K for the transition period from
January 1, 1996 to September 30, 1996; and
WHEREAS, the undersigned is a Director and/or Officer of the
Company, as indicated below following the signature:
NOW, THEREFORE, the undersigned hereby constitutes and appoints
Donald K. Peterson, Florence L. Walsh, and James S. Lusk and each of them, as
attorneys for, and in the name, place and stead of the undersigned, and in the
capacity of the undersigned as a Director and/or Officer of the Company, to
execute and file such Form 10-K and any amendments or supplements thereto,
hereby giving and granting to said attorneys, and each of them, full power and
authority to do and perform each and every act and thing whatsoever requisite
and necessary to be done in and about the premises, as fully, to all intents
and purposes, as the undersigned might or could do if personally present at the
doing thereof, hereby ratifying and confirming all that said attorneys may or
shall lawfully do, or cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of
Attorney this 13th day of December, 1996.
By: /s/ PAUL H. O'NEILL
----------------------------------
Name: Paul H. O'Neill
Title: Director
<PAGE> 10
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, Lucent Technologies Inc., a Delaware corporation
(hereinafter referred to as the "Company"), proposes to file with the
Securities and Exchange Commission, under the provisions of the Securities
Exchange Act of 1934, as amended, a Form 10-K for the transition period from
January 1, 1996 to September 30, 1996; and
WHEREAS, the undersigned is a Director and/or Officer of the
Company, as indicated below following the signature:
NOW, THEREFORE, the undersigned hereby constitutes and appoints
Florence L. Walsh and James S. Lusk and each of them, as attorneys for, and in
the name, place and stead of the undersigned, and in the capacity of the
undersigned as a Director and/or Officer of the Company, to execute and file
such Form 10-K and any amendments or supplements thereto, hereby giving and
granting to said attorneys, and each of them, full power and authority to do
and perform each and every act and thing whatsoever requisite and necessary to
be done in and about the premises, as fully, to all intents and purposes, as
the undersigned might or could do if personally present at the doing thereof,
hereby ratifying and confirming all that said attorneys may or shall lawfully
do, or cause to be done, by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of
Attorney this 13th day of December, 1996.
By: /s/ DONALD K. PETERSON
----------------------------------
Name: Donald K. Peterson
Title: Executive Vice President and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
balance sheet of Lucent at September 30, 1996 and the consolidated statement of
operations for the nine-month period ended September 30, 1996 and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<CASH> 2,241
<SECURITIES> 1,834
<RECEIVABLES> 5,187
<ALLOWANCES> 273
<INVENTORY> 3,288
<CURRENT-ASSETS> 12,781
<PP&E> 11,020
<DEPRECIATION> 2,333
<TOTAL-ASSETS> 22,626
<CURRENT-LIABILITIES> 10,713
<BONDS> 1,623
6
0
<COMMON> 0
<OTHER-SE> 2,680
<TOTAL-LIABILITY-AND-EQUITY> 22,626
<SALES> 15,859
<TOTAL-REVENUES> 15,859
<CGS> 9,290
<TOTAL-COSTS> 9,290
<OTHER-EXPENSES> 6,082
<LOSS-PROVISION> 54
<INTEREST-EXPENSE> 216
<INCOME-PRETAX> 367
<INCOME-TAX> 143
<INCOME-CONTINUING> 224
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 224
<EPS-PRIMARY> 0.38
<EPS-DILUTED> 0
</TABLE>
