1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
---
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
---- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________to _____________
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 - Area Code 908-582-8500
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 ....
At April 30, 1998 1,311,974,043 common shares were outstanding.
<PAGE>
2 Form 10-Q - Part I
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
LUCENT TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Millions Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
For the Three For the Six
Months Ended Months Ended
March 31, March 31,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Revenues............................. $ 6,157 $ 5,149 $ 14,881 $13,087
Costs................................ 3,433 2,981 7,952 7,277
Gross margin......................... 2,724 2,168 6,929 5,810
Operating Expenses
Selling, general and
administrative expenses ........... 1,487 1,287 3,042 2,746
Research and development expenses ... 929 738 1,758 1,372
In-process research
and development expenses............ 157 - 584 79
Total operating expenses............. 2,573 2,025 5,384 4,197
Operating income..................... 151 143 1,545 1,613
Other income - net .................. 47 40 210 49
Interest expense..................... 74 77 153 156
Income before income taxes........... 124 106 1,602 1,506
Provision for income taxes........... 101 40 787 581
Net income........................... $ 23 $ 66 $ 815 $ 925
Earnings per common share - basic.... $ 0.02 $ 0.05 $ 0.63 $ 0.73
Earnings per common share - diluted.. $ 0.02 $ 0.05 $ 0.62 $ 0.72
Dividends declared
per common share................... $ 0.00 $ 0.00 $ 0.075 $ 0.0375
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
3 Form 10-Q - Part I
LUCENT TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Millions Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
March 31, September 30,
1998 1997
<S> <C> <C>
ASSETS
Cash and cash equivalents.............. $ 969 $ 1,350
Accounts receivable less
allowances of $369 at
March 31, 1998 and $352 at
September 30, 1997 ................... 5,576 5,373
Inventories............................ 2,874 2,926
Contracts in process, net of contract
billings of $2,606 at
March 31, 1998 and $2,003 at
September 30, 1997.................... 1,332 1,046
Deferred income taxes - net............ 1,477 1,333
Other current assets................... 481 473
Total current assets................... 12,709 12,501
Property, plant and equipment, net
of accumulated depreciation of
$6,132 at March 31, 1998 and
$6,407 at September 30, 1997......... 4,805 5,147
Prepaid pension costs.................. 3,462 3,172
Deferred income taxes - net............ 1,002 1,262
Capitalized software development costs. 279 293
Other assets........................... 2,407 1,436
TOTAL ASSETS........................... $24,664 $23,811
</TABLE>
See Notes to Consolidated Financial Statements.
(CONT'D)
<PAGE>
4 Form 10-Q - Part I
LUCENT TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONT'D)
(Dollars in Millions Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
March 31, September 30,
1998 1997
<S> <C> <C>
LIABILITIES
Accounts payable....................... $ 1,659 $ 1,931
Payroll and benefit-related
liabilities.......................... 2,048 2,178
Postretirement and postemployment
benefit liabilities.................. 195 239
Debt maturing within one year.......... 1,898 2,538
Other current liabilities.............. 3,618 3,852
Total current liabilities.............. 9,418 10,738
Postretirement and postemployment
benefit liabilities.................. 6,249 6,073
Long-term debt ........................ 1,918 1,665
Other liabilities...................... 2,043 1,948
Total liabilities ..................... 19,628 20,424
SHAREOWNERS' EQUITY
Preferred stock-par value $1.00 per share
Authorized shares: 250,000,000
Issued and outstanding shares: none... - -
Common stock-par value $.01 per share
Authorized shares: 3,000,000,000
Issued and outstanding shares:
1,310,223,404 at March 31, 1998
1,284,125,312 at September 30, 1997... 13 13
Additional paid-in capital............. 4,076 3,047
Guaranteed ESOP obligation............. (63) (77)
Foreign currency translation........... (304) (191)
Retained earnings...................... 1,314 595
Total shareowners' equity............... 5,036 3,387
TOTAL LIABILITIES AND
SHAREOWNERS' EQUITY................... $24,664 $23,811
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
5 Form 10-Q - Part I
LUCENT TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Millions)
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months
Months Ended March 31,
1998 1997
<S> <C> <C>
Operating Activities
Net income............................... $ 815 $ 925
Adjustments to reconcile net income
to net cash provided by
operating activities:
Business restructuring charge......... (33) (54)
Asset impairment and other charges.... - (46)
Depreciation and amortization......... 647 681
Provision for uncollectibles.......... 84 63
Deferred income taxes................. 78 (11)
Purchased in-process research and
development......................... 584 79
(Increase)decrease in
accounts receivable ................ (615) 111
(Increase)decrease in inventories
and contracts in process............ (245) 390
Decrease in accounts payable.......... (226) (679)
Changes in other operating assets
and liabilities..................... (494) (869)
Other adjustments for noncash
items - net......................... (295) (71)
Net cash provided by
operating activities.................... 300 519
Investing Activities
Capital expenditures .................... (602) (681)
Proceeds from the sale or disposal of
property, plant and equipment.......... 42 36
Purchases of equity investments.......... (68) (89)
Sales of equity investments.............. 25 -
Acquisitions, net of cash acquired....... (15) (135)
Dispositions............................. 265 181
Other investing activities - net......... (45) (36)
Net cash used in investing activities.... (398) (724)
Financing Activities
Repayments of long-term debt ............ (62) (7)
Issuance of long-term debt............... 335 42
Proceeds of issuance of common stock..... 228 128
Dividends paid........................... (97) (96)
Decrease in short-term
borrowings - net....................... (645) (84)
Net cash used in financing activities.... (241) (17)
</TABLE>
See Notes to Consolidated Financial Statements.
(CONT'D)
<PAGE>
6 Form 10-Q - Part I
LUCENT TECHNOLOGIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONT'D)
(Dollars in Millions)
(Unaudited)
For the Six
Months Ended March 31,
1998 1997
Effect of exchange rate
changes on cash........................ (42) (6)
Net decrease in cash and
cash equivalents....................... (381) (228)
Cash and cash equivalents
at beginning of year................... 1,350 2,241
Cash and cash equivalents
at end of period....................... $ 969 $ 2,013
See Notes to Consolidated Financial Statements.
<PAGE>
7 Form 10-Q - Part I
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Millions Except Per Share Amounts)
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
by Lucent Technologies Inc. ("Lucent" or the "Company") pursuant to the rules
and regulations of the Securities and Exchange Commission ("SEC") and, in the
opinion of management, include all adjustments necessary for a fair presentation
of the results of operations, financial position and cash flows for each period
shown.
The financial statement results for interim periods are not necessarily
indicative of financial results for the full year. These unaudited consolidated
financial statements should be read in conjunction with the audited consolidated
financial statements and notes thereto included in the Company's Annual Report
on Form 10-K for the year ended September 30, 1997 and the unaudited
consolidated financial statements and notes thereto included in the Company's
quarterly report on Form 10-Q for the quarterly period ended December 31, 1997.
The financial statements presented have been restated to reflect the two-for-one
split of Lucent's common stock which became effective on April 1, 1998.
2. ACQUISITIONS
Prominet Corporation
- ---------------------
In January 1998, Lucent completed the purchase of Prominet Corporation
("Prominet"), a participant in the emerging Gigabit Ethernet networking
industry, in a merger involving $164 of Lucent stock and options. Under the
terms of the agreement, there are contingent obligations to pay $35 in stock,
which Lucent expects to pay in the current fiscal year upon resolution of the
related contingencies. In that event, goodwill will be recorded under the
purchase method of accounting. The fair market value of Prominet's assets and
liabilities, which were independently determined, has been included in the
balance sheet as of March 31, 1998.
Included in the purchase price was $157 of purchased in-process research and
development which was a one-time, non-cash, non-tax deductible charge to
earnings as this technology had not reached technological feasibility and has no
alternative use. This technology will require varying additional development,
coding and testing efforts over the next year before technological feasibility
can be determined. The remaining purchase price was allocated to tangible assets
and acquired technology, less liabilities assumed.
Livingston Enterprises
- ----------------------
In December 1997, Lucent completed the purchase of Livingston Enterprises, Inc.
("Livingston"), a provider of remote access networking solutions, in a merger
involving $610 of Lucent stock and options. The acquisition was accounted for
using the purchase method of accounting. The fair market value of Livingston's
assets and liabilities, which were independently determined, has been included
in the balance sheet as of March 31, 1998.
The acquired technology valuation included both existing technology and
in-process research and development. The valuation of these technologies was
made by applying the income forecast method which considers the present value of
cash flows by product lines.
<PAGE>
8 Form 10-Q - Part I
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Millions Except Per Share Amounts)
(Unaudited)
The fair value of existing technology products was valued at $69 and is being
amortized over eight years. In-process research and development valued at $427
was a one-time, non-cash, non-tax deductible charge to earnings as this
technology had not reached technological feasibility and has no alternative use.
This technology will require varying additional development, coding and testing
efforts over the next year before technological feasibility can be determined.
Goodwill was valued at $114 and is being amortized over five years.
3. SUPPLEMENTARY BALANCE SHEET INFORMATION
Inventories at March 31, 1998 and September 30, 1997 were as follows:
<TABLE>
<CAPTION>
March 31, September 30,
1998 1997
<S> <C> <C>
Completed goods ............... $ 1,463 $ 1,611
Work in process and
raw materials................ 1,411 1,315
Total inventories ............. $ 2,874 $ 2,926
</TABLE>
4. BUSINESS RESTRUCTURING AND OTHER CHARGES
Cash payments of $64 and $90 were made for the three months and six month
periods ended March 31, 1998, respectively, for the 1995 business restructuring
charge of $2,801 (pre-tax). The reserve for business restructuring as of March
31, 1998 was $432.
For the three months ended March 31, 1998 and December 31, 1996, Lucent reversed
$33 and $54, respectively, of business restructuring and other charges primarily
related to employee separations.
<PAGE>
9 Form 10-Q - Part I
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Millions Except Per Share Amounts)
(Unaudited)
5. EARNINGS PER COMMON SHARE
Basic earnings per common share was calculated by dividing net income by the
weighted average number of common shares outstanding during the period. Diluted
earnings per share was calculated by dividing net income by the sum of the
weighted average number of common shares outstanding plus all additional common
share that would have been outstanding if potentially dilutive common shares had
been issued.
Earnings per share amounts for the periods presented have been restated to
reflect the two-for-one split of Lucent's common stock which became effective on
April 1, 1998. The following table reconciles the number of shares utilized in
the earnings per share calculations for the three and six month periods ended
March 31, 1998 and 1997:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
1998 1997 1998 1997
------------------------------------------------
<S> <C> <C> <C> <C>
Net income $ 23 $ 66 $ 815 $ 925
Earnings per common share - basic $ 0.02 $ 0.05 $ 0.63 $ 0.73
Earnings per common share - diluted $ 0.02 $ 0.05 $ 0.62 $ 0.72
Number of Shares (in millions)
- ---------------------------------
Common shares - basic 1,304.0 1,276.2 1,295.7 1,275.2
Effect of dilutive securities:
Stock options 23.6 4.4 20.9 3.5
Other 1.2 0.2 0.9 0.1
Common shares - diluted 1,328.8 1,280.8 1,317.5 1,278.8
Shares excluded from the
computation of earnings per
share - diluted since option
exercise price was greater than
the average market price of the
common shares for the period 0.1 3.2 0.2 7.7
</TABLE>
<PAGE>
10 Form 10-Q - Part I
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Millions Except Per Share Amounts)
(Unaudited)
6. 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 March 31, 1998 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 March 31, 1998 would not
be material to the annual consolidated financial statements.
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 numerous current and former facilities. In
addition, Lucent was named a successor to AT&T Corp. ("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 ("Separation and Distribution Agreement"), among Lucent, AT&T and NCR
Corporation ("NCR"), dated as of February 1, 1996 as amended and restated,
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 from AT&T of the businesses and operations transferred to form
Lucent (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 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 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 March 31, 1998 cannot be determined.
<PAGE>
11 Form 10-Q - Part I
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Millions Except Per Share Amounts)
(Unaudited)
7. SECURITIZED CUSTOMER FINANCING ARRANGEMENT
Lucent has a wholly owned subsidiary, L.T. Funding, LLC, ("L.T. Funding") which
is a separate legal entity from Lucent and its other subsidiaries and which has
its own assets and liabilities. L.T. Funding purchases customer financing
obligations from Lucent and its other subsidiaries, and sells these obligations
to Global Telecom Funding Trust (the "Trust"), which is an unaffiliated entity
established pursuant to a securitized vendor financing program with Citicorp. As
of March 31, 1998, about $135 of these customer financing obligations had been
sold to the Trust with recourse to Lucent in the event of failure to pay by the
customer.
8. SUBSEQUENT EVENTS
Yurie Systems, Inc.
- -------------------
On April 27, 1998, Lucent announced that it commenced a tender offer to acquire
Yurie Systems, Inc. ("Yurie") for about $1,000 in cash. Lucent plans to pay for
the acquisition from its general funds which consist of cash from operations and
proceeds from short-term borrowings. Yurie is a provider of asynchronous
transfer mode ("ATM") access technology and equipment for data, voice and video
networking. The transaction is expected to be completed by the end of the
quarter ending June 30, 1998, subject to completion of customary legal
requirements. The acquisition will be accounted for using the purchase method of
accounting.
The purchase is expected to result in a one-time, non-tax deductible, non-cash
charge to earnings for purchased in-process research and development of
approximately $620 when the acquisition is completed. The remaining purchase
price will be allocated to tangible assets and intangible assets, including
goodwill and acquired technology, less liabilities assumed.
Optimay GmbH
- -------------
On April 17, 1998, Lucent acquired Optimay GmbH ("Optimay") for approximately
$65 in cash. Optimay specializes in the development of software products and
services for chip sets to be used for Global System for Mobile communications
cellular phones. The acquisition was accounted for using the purchase method of
accounting.
The purchase resulted in a one-time, non-tax deductible, non-cash charge to
earnings for purchased in-process research and development of about $48 in the
quarter ending June 30, 1998. The remaining purchase price will be allocated to
tangible assets and intangible assets, including goodwill and acquired
technology, less liabilities assumed.
<PAGE>
12 Form 10-Q - Part I
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
OVERVIEW
Lucent reported net income of $23 million, or $0.02 per share(diluted) for the
quarter ended March 31, 1998. The year-ago quarterly net income was $66 million,
or $0.05 per share(diluted). For the current six month period, Lucent reported
net income of $815 million, or $0.62 per share(diluted) compared with net income
of $925 million, or $0.72 per share(diluted) in the same prior period. Net
income for the three and six months periods ended March 31, 1998 include a $33
million, pre-tax (or $21 million, after-tax) reversal of the 1995 business
restructuring charges. Excluding the in-process research and development charge
associated with the acquisition of Prominet, Lucent's net income was $180
million, or $0.14 per share(diluted) for the three months ended March 31, 1998.
Excluding the in-process research and development charges associated with the
acquisitions of Prominet and Livingston as well as the gain on the sale of
Lucent's Advanced Technology Systems ("ATS") business, Lucent's net income was
$1,304 million, or $0.99 per share(diluted) for the six months ended March 31,
1998.
Gross margin increased $556 million and $1,119 million for the quarter and six
month periods ended March 31, 1998, respectively, compared with the year-ago
periods. These increases in gross margin were primarily due to an improved mix
of products and services as well as higher sales volume compared with the same
periods of the prior year.
Operating income of $151 million reflects an increase of $8 million in the
quarter compared with the same quarter in 1997 and was 2.5% percent of revenues.
For the six months ended March 31, 1998, operating income of $1,545 million
reflects a decrease of $68 million, largely due to the in-process research and
development charges associated with the acquisitions of Livingston and Prominet.
During the current quarter, Lucent completed its acquisition of Prominet.
During the current six month period, Lucent sold it ATS business, contributed
its Consumer Products business to a new venture formed by Lucent and Philips
Electronics N.V. ("Philips"), and completed its acquisitions of Livingston and
Prominet.
Lucent is one of the world's leading designers, developers and manufacturers of
communications systems, software and products. Lucent is a global leader in the
sale of public communications systems, and is a supplier of systems and/or
software to the world's largest network operators. Lucent is also a global
leader in the sale of business communications systems and in the sale of
microelectronic components for communications applications to manufacturers of
communications systems and computer manufacturers. Lucent was formed from the
systems and technology units that were formerly part of AT&T Corp. ("AT&T").
Lucent's research and development activities are conducted through Bell
Laboratories, one of the world's foremost industrial research and development
organizations.
KEY BUSINESS CHALLENGES
Lucent continues to face significant competition and expects that the level of
competition on pricing and product offerings will increase. Lucent expects that
new and different competitors will enter its markets as a result of both the
trend toward global expansion by foreign and domestic competitors as well as
continued changes in technology and public policy. These competitors may include
entrants from the telecommunications, software, data networking and
semiconductor industries. Existing competitors have, and new competitors may
have, strong financial capability, technological expertise and well-recognized
brand names.
<PAGE>
13 Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Lucent's sales continue to be 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. 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. However, Lucent has taken steps to manage the
seasonality by changing its year-end and its compensation programs for its
employees.
The purchasing behavior of Lucent's large customers has increasingly been
characterized by the use of fewer, but larger contracts, which contributes to
the variability of Lucent's results. To manage this fluctuation caused by the
buying behaviors of large customers, Lucent continues to seek out new types of
customers globally, such as competitive local exchange carriers, cable
television network operators and computer manufacturers.
Historically, Lucent has relied on a limited number of customers for a
substantial portion of its total revenues. Lucent is seeking to diversify its
customer base; nevertheless, 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.
REVENUES - THREE MONTHS ENDED MARCH 31, 1998 VERSUS THREE MONTHS ENDED
MARCH 31, 1997
Total revenues increased 19.6% to $6,157 million in the quarter compared with
the same quarter of 1997, primarily due to gains in sales from Systems for
Network Operators, Microelectronic Products and Business Communications Systems.
The overall revenue growth was impacted by the elimination of the Consumer
Products sales as a component of total revenue as well as lower revenues from
Other Systems and Products. The decline in Other Systems and Products was due
primarily to the sale of Lucent's ATS business in October 1997. Revenue growth
was driven by sales increases globally. Total revenue growth for the quarter was
driven by sales within the United States which grew by 20.2% compared with the
same quarter in 1997, and sales outside the United States which increased 17.5%
compared with the same quarter last year.
The following table presents Lucent's revenues by product line, and the
approximate percentage of total revenues for the three months ended March 31,
1998 and 1997:
<TABLE>
<CAPTION>
Three Months
Ended
March 31,
Dollars in Millions --------------------------------
1998 1997
------- -------
<S> <C> <C> <C> <C>
Systems for Network Operators........ $3,654 59% $2,930 57%
Business Communications Systems...... 1,730 28 1,308 25
Microelectronic Products............. 705 12 615 12
Consumer Products.................... - - 174 4
Other Systems and Products........... 68 1 122 2
Total................................ $6,157 100% $5,149 100%
</TABLE>
Revenues from SYSTEMS FOR NETWORK OPERATORS increased $724 million, or 24.7% in
1998 compared with the same quarter in 1997. The increase resulted from higher
sales of switching and wireless systems with associated software, optical
networking systems, professional services, and data networking systems for
service providers including those provided by recently-acquired Livingston.
Demand for those products was driven in part by second line subscriber growth in
businesses and residences for Internet services and data traffic.
<PAGE>
14 Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Revenues from Systems for Network Operators in the United States increased by
30.0% over the year-ago quarter. The revenue increase in the United States was
led by sales to Regional Bell Operating Companies ("RBOC's"), competitive local
exchange carriers, wireless service providers and long distance carriers.
Revenues generated outside the United States increased 8.5% compared with the
same quarter in 1997 due to revenue growth in Europe/Middle East/Africa,
Caribbean/Latin America and Canada. Revenues generated outside the United States
represented 21.3% of revenues for the quarter compared with 24.5% for the same
quarter of 1997.
On April 27, 1998, Lucent announced that it commenced a tender offer to acquire
Yurie Systems, Inc. ("Yurie") for about $1,000 million in cash. Yurie is a
provider of asynchronous transfer mode ("ATM") access technology and equipment
for data, voice and video networking. The transaction is expected to be
completed during the quarter ending June 30, 1998 (Also see Note 8 above).
Revenues from BUSINESS COMMUNICATIONS SYSTEMS increased $422 million, or 32.3%
compared with the year-ago quarter. This increase was led by sales of
DEFINITY(R) enterprise communication servers, messaging systems, including
systems provided by recently-acquired Octel Communications Corporation
("Octel"), services, SYSTIMAX(R) structured cabling and enterprise data
networking systems. Revenues generated outside the United States increased by
67.5%, due to growth in all major international regions. Revenues generated
outside the United States represented 19.4% of revenues for the quarter compared
with 15.3% in the same period in 1997. Sales within the United States increased
25.9% for the quarter compared with the same quarter of 1997.
Revenues from MICROELECTRONIC PRODUCTS increased $90 million, or 14.6% compared
with the year-ago quarter due to higher sales of customized chips for computing
and communications, including components for wireless telephones, local area
networks, power systems, optoelectronic components, data networking, high-end
computer workstations and the licensing of intellectual property. Sales within
the United States increased 22.9% compared to the same quarter in 1997, led by
sales to original equipment manufacturers ("OEMs"). Revenues generated outside
the United States increased 7.1%. The growth in revenues outside the United
States was driven by sales in the Europe/Middle East/Africa and Caribbean/Latin
America regions. Revenues generated outside the United States represented 49.1%
sales for the quarter compared with 52.5% for the same quarter of 1997.
On April 17, 1998, Lucent acquired Optimay GmbH ("Optimay") for approximately
$65 million in cash. Optimay specializes in the development of software products
and services for chip sets to be used for Global System for Mobile
communications cellular phones. (Also see Note 8 above).
On October 1, 1997, Lucent contributed its CONSUMER PRODUCTS unit to a venture
formed with Philips. Lucent has an equity interest of 40% in the venture which
is called Philips Consumer Communications, L.P.("PCC").
Revenues from OTHER SYSTEMS AND PRODUCTS decreased $54 million, or 44.3%
compared with the year-ago quarter. The decrease is largely due to the sale of
Lucent's ATS business.
Total costs increased $452 million, or 15.2% compared with the year-ago quarter
resulting primarily from the increase in sales volume. Gross margin percentage
increased to 44.2% from 42.1% in the year-ago quarter reflecting a favorable mix
of higher margin product sales.
- --------------------------------------
(R) Registered trademark of Lucent
<PAGE>
15 Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
OPERATING EXPENSES - THREE MONTHS ENDED MARCH 31, 1998 VERSUS THREE MONTHS ENDED
MARCH 31, 1997
Selling, general and administrative expenses as a percentage of revenues were
24.2% for the quarter compared with 25.0% for the same quarter in 1997.
Selling, general and administrative expenses increased $200 million, or 15.5%
compared with the same year-ago quarter. This increase was attributed to an
increase in sales volume and investment in growth initiatives, offset by the
reversal of $33 million of 1995 business restructuring charges.
Research and development expenses represented 15.1% of revenues for the quarter
compared with 14.3% of revenues for the same quarter of 1997.
Research and development expenses increased $191 million during the quarter
compared with the same year-ago quarter. This was primarily due to increased
expenditures in support of wireless, data networking, optical networking,
switching and access and microelectronic products.
The purchased in-process research and development expenses for the quarter were
$157 million reflecting charges associated with the acquisition of Prominet.
OTHER INCOME, INTEREST EXPENSE AND PROVISION FOR INCOME TAXES - THREE
MONTHS ENDED MARCH 31, 1998 VERSUS THREE MONTHS ENDED MARCH 31, 1997
Other income -- net increased $7 million to $47 million for the quarter compared
with the same quarter in 1997.
Interest expense for the quarter decreased $3 million to $74 million compared
with the same quarter in 1997.
The effective income tax rate of 81.5% for the quarter increased from the
effective income tax rate of 38.1% in the same quarter of 1997. The increase was
due to the write-off of non-tax deductible purchased in-process research and
development expenses associated with the acquisition of Prominet. Excluding the
impact of the purchased in-process research and development expenses associated
with the Prominet acquisition, the effective income tax rate was 36.0%. This
decrease was primarily due to the tax impact of foreign activity.
REVENUES - SIX MONTHS ENDED MARCH 31, 1998 VERSUS SIX MONTHS ENDED MARCH 31,
1997
Total revenues increased to $14,881 million, or 13.7% compared with the same six
month period in 1997, primarily due to increases in sales from Systems for
Network Operators, Microelectronic Products and Business Communications Systems.
The overall revenue growth was impacted by the elimination of the Consumer
Products sales as a component of total revenue as well as lower revenues from
Other Systems and Products. The decline in Other Systems and Products was due
primarily to the sale of Lucent's ATS in October 1997 and Custom Manufacturing
Services ("CMS") businesses in December 1996. Revenue growth was driven by sales
increases globally. Total revenue growth for the six month period was driven by
sales within the United States which grew 14.5% compared with the same period in
1997, and sales outside the United States which increased 11.3% compared with
the same period in 1997.
<PAGE>
16 Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The following table presents Lucent's revenues by product line, and the
approximate percentage of total revenues for the six months ended March 31, 1998
and 1997:
<TABLE>
<CAPTION>
Six Months
Ended
March 31,
Dollars in Millions --------------------------------
1998 1997
------- -------
<S> <C> <C> <C> <C>
Systems for Network Operators........ $ 9,597 64% $ 7,956 61%
Business Communications Systems...... 3,660 25 3,041 23
Microelectronic Products............. 1,480 10 1,286 10
Consumer Products.................... - - 504 4
Other Systems and Products........... 144 1 300 2
Total................................ $ 14,881 100% $ 13,087 100%
</TABLE>
Revenues from SYSTEMS FOR NETWORK OPERATORS increased $1,641 million, or 20.6%
compared with the same six month period in 1997. The increase resulted from
higher sales of switching and wireless systems with associated software, optical
networking systems, professional services, data networking systems for service
providers including those provided by recently-acquired Livingston. Demand for
those products was driven in part by second line subscriber growth in businesses
and residences for Internet services and data traffic.
Revenues from Systems for Network Operators in the United States increased by
27.1% over the year-ago six month period. The revenue increase in the United
States was led by sales to RBOC's, competitive local exchange carriers, wireless
service providers and long distance carriers. Revenues generated outside the
United States for 1998 increased 3.9% compared with the same six month period in
1997 due to revenue growth in the Caribbean/Latin America and Canada regions.
Revenues generated outside the United States represented 24.0% of revenues for
1998 compared with 27.9% in same six month period of 1997.
Revenues from BUSINESS COMMUNICATIONS SYSTEMS increased $619 million, or 20.4%
compared with the same six month period in 1997. This increase was led by sales
of messaging systems, including systems provided by recently acquired Octel,
SYSTIMAX(R) structured cabling, services, DEFINITY(R) enterprise communication
servers, and enterprise data networking systems. Revenues generated outside the
United States increased by 54.4%, due to growth in all major international
regions. Revenues generated outside the United States represented 19.0% of the
revenue for 1998 compared with 14.8% in the same six month period of 1997. For
1998, sales within the United States increased 14.4% compared with the same six
month period of 1997.
Revenues from MICROELECTRONIC PRODUCTS increased $194 million, or 15.1% for 1998
compared with the same six month period in 1997 due to higher sales of
customized chips for computing and communications, including components for
wireless telephones, local area networks, power systems, optoelectronic
components, data networking, high-end computer workstations, and the licensing
of intellectual property. Sales within the United States increased 23.9%
compared with the same period in 1997, led by sales to OEMs. Revenues generated
outside the United States increased 7.1% compared with the same period in 1997.
The growth in revenues generated outside the United States was driven by sales
in the Europe/Middle East/Africa and Caribbean/Latin America regions. Revenues
generated outside the United States represented 48.9% of sales compared with
52.6% for the same six month period of 1997.
- --------------------------------------
(R) Registered trademark of Lucent
<PAGE>
17 Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
On October 1, 1997, Lucent contributed its CONSUMER PRODUCTS unit to PCC. Lucent
has an equity interest of 40% in PCC.
Revenues from sales of OTHER SYSTEMS AND PRODUCTS decreased $156 million, or
52.0% compared with the same quarter in 1997. The reduction in revenues was
primarily due to the sale of Lucent's ATS and CMS businesses.
Total costs increased $675 million, or 9.3% compared with the same six month
period in 1997 due to the increase in sales volume. Gross margin percentage
increased to 46.6% from 44.4% in the year-ago period. The increase in gross
margin percentage for the current six months was due to overall favorable mix of
higher margin product sales.
OPERATING EXPENSES - SIX MONTHS ENDED MARCH 31, 1998 VERSUS SIX MONTHS ENDED
MARCH 31, 1997
Selling, general and administrative expenses as a percentage of revenues were
20.4% for 1998, a decrease of 0.6 percentage points from the same period in
1997.
Selling, general and administrative expenses increased $296 million, or 10.8%
compared with the same period in 1997. This increase is attributed to the higher
sales volume, investment in growth initiatives as well as the implementation of
SAP, an integrated software platform, offset by the reversal of $33 million of
1995 business restructuring charges. In addition, the 1997 period included a $54
million reversal of 1995 business restructuring charges.
Research and development expenses represented 11.8% of revenues for the period
as compared with 11.1% of revenues from the same period in 1997.
Research and development expenses increased $386 million compared with the same
period in 1997. This was primarily due to increased expenditures in support of
wireless, data networking, optical networking, switching and access and
microelectronic products.
The purchased in-process research and development expenses for 1998 were $584
million reflecting the charges associated with the acquisitions of Livingston
and Prominet, compared with $79 million related to the acquisition of Agile
Networks, Inc. for the same period in 1997.
<PAGE>
18 Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
OTHER INCOME, INTEREST EXPENSE AND PROVISION FOR INCOME TAXES - SIX
MONTHS ENDED MARCH 31, 1998 VERSUS SIX MONTHS ENDED MARCH 31, 1997
Other income -- net increased $161 million for 1998 compared with the same
period in 1997. This increase was primarily due to the pre-tax gain of $149
million associated with the sale of Lucent's ATS business.
Interest expense was $153 million for the first six months of 1998, a decrease
of $3 million compared with the same period in 1997.
The effective income tax rate of 49.1% for 1998 increased from the effective
income tax rate of 38.6% in the same year-ago period. The increase was due to
the write-off of non-tax deductible purchased in-process research and
development expenses associated with the acquisitions of Livingston and
Prominet. Excluding the impact of the purchased in-process research and
development expenses associated with the Livingston and Prominet acquisitions,
the effective income tax rate was 36.0% for 1998. This decrease was primarily
due to the tax impact of foreign activity.
TOTAL ASSETS, WORKING CAPITAL AND LIQUIDITY
Total assets increased $853 million, or 3.6%, from fiscal year-end 1997. This
overall increase was due to an increase in other assets of $971 million and an
increase of receivables of $203 million, offset by a decrease in cash and cash
equivalents of $381 million. The increase in other assets was largely due to the
receipt of notes issued by customers under certain long-term contracts, as well
as due to Lucent's contribution of its Consumer Products business to PCC. The
decrease in cash and cash equivalents was largely due to the repayment of
commercial paper and vendor payments.
Total liabilities decreased $796 million, or 3.9% from fiscal year-end 1997.
This decrease was largely due to the paydown of commercial paper and the
reduction of accounts payable.
Working capital, defined as current assets less current liabilities, increased
$1,528 million from fiscal year-end 1997 primarily resulting from the increase
in accounts receivable as discussed above and the issuance of $300 million of 30
year debentures and use of the proceeds to pay down a portion of commercial
paper.
Lucent expects that, from time to time, outstanding commercial paper balances
may be replaced with short- or long-term borrowings as market conditions permit.
At March 31, 1998, Lucent maintained approximately $5,200 million in credit
facilities of which a portion is used to support Lucent's commercial paper
program. At March 31, 1998, approximately $5,000 million was 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 plans to pay for the acquisition of Yurie from its general funds which
consist of cash from operations and proceeds from short-term borrowings.
<PAGE>
19 Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Network operators, inside and outside the United States, 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.
Lucent has increasingly provided or arranged long-term financing for customers.
In this regard, Lucent entered into a credit agreement in October 1996 to
provide Sprint Spectrum* Holdings L.P. ("Sprint PCS") long-term financing of
$1,800 million for purchasing equipment and services for its personal
communications services ("PCS") network.
In May 1997, under the $1,800 million credit facility provided by Lucent to
Sprint PCS, Lucent closed transactions to lay off $500 million of loans and
undrawn commitments and $300 million of undrawn commitments to a group of
institutional investors and Sprint Corporation (a partner in Sprint PCS),
respectively. As of March 31, 1998, all of these commitments were drawn down by
Sprint PCS. Of Lucent's remaining commitment of $1,000 million, approximately
$500 million was drawn down by Sprint PCS as of March 31, 1998.
As part of the revenue recognition process, Lucent has assessed the
collectibility of the accounts receivable relating to the Sprint PCS purchase
contract in light of its financing commitment to Sprint PCS. Lucent has
determined that the receivables under the contract are reasonably assured of
collection based on various factors among which was the ability of Lucent to
sell the loans and commitments without recourse. Lucent intends to continue
pursuing opportunities for the sale of the $500 million of loans, and the future
loans and commitments to Sprint PCS.
In addition, as of March 31, 1998, Lucent had made commitments or entered into
an agreement to extend credit of up to an aggregate of approximately $1,200
million to five other PCS or wireless network operators for possible future
sales. As of March 31, 1998, $188 million had been advanced under one of these
arrangements. Lucent has provided, or proposed or committed to provide,
financing where appropriate for its business, in addition to the above
arrangements. (Also see Note 7 above, regarding a securitized customer financing
arrangement.) The ability of Lucent to arrange or provide financing for network
operators will depend on a number of factors, including Lucent's capital
structure and level of available credit.
Lucent believes that it will be able to access the capital markets on terms and
in amounts that will be satisfactory to Lucent 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.
RISK MANAGEMENT
Lucent is exposed to market risk from changes in foreign currency exchange rates
and interest rates, which could impact its results of operations and financial
condition. Lucent manages its exposure to these market risks through its regular
operating and financing activities and, when deemed appropriate, through the use
of derivative financial instruments. Derivative financial instruments are viewed
as risk management tools and are not used for speculative or trading purposes.
In addition, derivative financial instruments are entered into with a
diversified group of major financial institutions in order to manage Lucent's
exposure to nonperformance on such instruments.
- -------------------------
*Sprint Spectrum is a service mark of Sprint Communications Company, LP.
<PAGE>
20 Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Lucent manages its ratio of fixed to floating rate debt with the objective of
achieving a mix that management believes is appropriate. To manage this mix in a
cost effective manner, Lucent, from time to time, enters into interest rate swap
agreements, in which it agrees to exchange various combinations of fixed and/or
variable interest rates based on agreed upon notional amounts. Lucent had no
material interest rate swap agreements in effect as of March 31, 1998 and 1997.
Management does not foresee or expect any significant changes in its exposure to
interest rate fluctuations or in how such exposure is managed in the near
future.
CASH FLOWS
Cash provided by operating activities for the six months ended March 31, 1998
was $300 million compared with $519 million in the same year-ago period. This
decrease was due to the receipt of notes issued by customers under certain
long-term contracts, increases in accounts receivable and inventories and
contracts in process, offset by decreases in accounts payable and payroll and
benefits-related liabilities.
Cash payments of $64 million and $90 million were made for the three-month and
six-month periods ended March 31, 1998, respectively, for the business
restructuring charge recorded in the quarter ended December 31, 1995. Of the
23,000 positions that Lucent announced it would eliminate in connection with the
restructuring charges, approximately 19,600 positions have been eliminated as of
March 31, 1998.
Comparing the six months ended March 31, 1998 and 1997, cash used in investing
activities decreased to $398 million from $724 million primarily due to a
decrease in cash used in acquisitions and an increase in cash provided by
dispositions. The acquisitions of Livingston and Prominet in 1998 were completed
through issuance of stock and options and did not require the use of cash.
Lucent disposed of its ATS business in 1998. During the six months ended March
31, 1997, Lucent acquired Agile and disposed of its interconnect products and
custom manufacturing services businesses
Capital expenditures, the largest component of investing activities, were $602
million and $681 million for the six month periods ended March 31, 1998 and
1997, respectively. Capital expenditures relate to expenditures for equipment
and facilities used in manufacturing and research and development, including
expansion of manufacturing capacity, and expenditures for cost reduction efforts
and international growth.
Cash used in financing activities for the six months ended March 31, 1998 was
$241 million compared with $17 million in the same period a year-ago. This
increase in cash used was primarily due to the paydown of commercial paper.
<PAGE>
21 Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The ratio of total debt to total capital (debt plus equity) was 43.1% at March
31, 1998 compared to 55.4% on at September 30, 1997.
OTHER
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 numerous current and former facilities. In
addition, Lucent was named a successor to AT&T as PRP at numerous "Superfund"
sites pursuant to the CERCLA or comparable state statutes. Under the Separation
and Distribution Agreement, among AT&T, Lucent and NCR dated as of February 1,
1996, as amended and restated, 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 that 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 March 31, 1998 cannot be determined.
<PAGE>
22 Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
FORWARD-LOOKING STATEMENTS
This Management's Discussion and Analysis of Results of Operations and Financial
Condition and other sections of this report contain forward-looking statements
that are based on current expectations, estimates, forecasts and projections
about the industries in which Lucent operates, management's beliefs and
assumptions made by management. In addition, other written or oral statements
which constitute forward-looking statements may be made by or on behalf of the
Company. 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 and the Company's 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.
For a further description of Future Factors that could cause actual results to
differ materially from such forward-looking statements, see below in this report
including the other sections referred to and also see the discussion in the
Company's Form 10-K for the year ended September 30, 1997 in Item 1 in the
section entitled "OUTLOOK-Forward Looking Statements" and the remainder of the
OUTLOOK section.
Competition:
See discussion above under KEY BUSINESS CHALLENGES.
<PAGE>
23 Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
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 communications
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, products, software and services successfully on a timely
basis and to reduce costs of existing systems, products, 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:
See discussion above under KEY BUSINESS CHALLENGES.
Readiness for Year 2000:
Lucent has taken actions to understand the nature and extent of the work
required to make its systems, products, factories and infrastructure Year 2000
ready. Lucent began work several years ago to prepare its products and its
financial, information and other computer-based systems for the Year 2000,
including replacing and/or updating existing legacy systems. Lucent has been
contacting customers who are operating product versions that are not Year 2000
ready to present them with evolution plans to update or migrate to Year 2000
ready product versions. In addition, where Lucent determines that critical
suppliers are not Year 2000 ready, Lucent will monitor their progress and take
appropriate actions. Lucent believes it is taking the necessary steps to resolve
Year 2000 issues, however, given the uncertain consequences of failure to
resolve significant Year 2000 issues, there can be no assurance that any one or
more such failures would not have a material adverse effect on Lucent. Lucent
continues to evaluate the estimated costs associated with the efforts to prepare
for Year 2000 based on actual experience. While the efforts will involve
additional costs, Lucent believes, based on available information, that it will
be able to manage its total Year 2000 transition without any material adverse
effect on its business operations, products or financial prospects.
Employee Relations:
On March 31, 1998, Lucent employed approximately 131,000 persons, of whom 79.3%
were located in the United States. Of these domestic employees, 41.1% are
represented by unions, primarily the Communications Workers of America
("CWA")and the International Brotherhood of Electrical Workers ("IBEW").
Lucent's labor agreements with these unions expire on May 30, 1998. Lucent is
currently negotiating with its unions for new collective bargaining agreements.
Multi-Year Contracts:
Lucent has 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 uncertainties affecting recognition
of revenues, stringent acceptance criteria, implementation of new technologies
and possible significant initial cost overruns and losses. See also discussion
above under TOTAL ASSETS, WORKING CAPITAL AND LIQUIDITY, and KEY BUSINESS
CHALLENGES.
Seasonality:
See discussion above under KEY BUSINESS CHALLENGES.
Future Capital Requirements:
See discussion above under TOTAL ASSETS, WORKING CAPITAL AND LIQUIDITY.
<PAGE>
24 Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Growth Outside the U.S., Foreign Exchange and Interest Rates: Lucent intends to
continue to pursue growth opportunities in markets outside the U.S. In many
markets outside the U.S., long-standing relationships between potential
customers of Lucent and their local providers, and protective regulations,
including local content requirements and type approvals, create barriers to
entry. In addition, pursuit of such growth opportunities outside the U.S. 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.
Difficulties in foreign financial markets and economies, and of foreign
financial institutions, could adversely affect demand from customers in the
affected countries.
See discussion above under RISK MANAGEMENT with respect to foreign exchange and
interest rates. A significant change in the value of the dollar against the
currency of one or more countries where Lucent sells products to local customers
or makes purchases from local suppliers may materially adversely affect Lucent's
results. Lucent 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.
While Lucent hedges transactions with non-U.S. customers, the decline in value
of the Asia/Pacific currencies, or declines in currency values in other regions,
may, if not reversed, adversely affect future product sales because Lucent's
products may become more expensive to purchase for local customers doing
business in the countries of the affected currencies.
Legal Proceedings and Environmental:
See discussion above in Note 6 - COMMITMENTS AND CONTINGENCIES.
RECENT PRONOUNCEMENTS
In February 1998, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial accounting Standards ("SFAS") No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits" ("SFAS 132"). SFAS
132 revises employers' disclosures about pension and other postretirement
benefit plans but does not change the measurement or recognition of these plans.
SFAS 132 is effective for fiscal years beginning after December 15, 1997.
Restatement of disclosures for earlier periods provided for comparative purposes
is required unless the information is not readily available. Lucent is in the
process of evaluating the disclosure requirements. The adoption of SFAS No. 132
will have no impact on Lucent's consolidated results of operations, financial
position or cash flows.
In October 1997, the American Institute of Certified Public Accountants (the
"AICPA") issued Statement of Position 97-2, "Software Revenue Recognition" ("SOP
97-2"). SOP 97-2 provides guidance on when revenue should be recognized and in
what amounts for licensing, selling, leasing, or otherwise marketing computer
software. SOP 97-2 is effective for financial statements for fiscal years
beginning after December 15, 1997. Earlier application for financial statements
or information that has not been issued is encouraged. Lucent is in the process
of evaluating if the adoption of SOP 97-2 will have an impact on its software
revenue recognition practices. During March 1998, the AICPA issued Statement of
Position 98-4, " Deferral of the Effective Date of a Provision of SOP 97-2,
Software Revenue Recognition",("SOP 98-4"). SOP 98-4 defers for one year the
requirement of vendor- specific objective evidence of the fair value of the
various elements in a multiple- element arrangement as a condition to recognize
revenue for elements delivered early in the arrangement.
<PAGE>
25 Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
In March 1998, the AICPA issued Statement of Position 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use" ("SOP 98-1").
SOP 98-1 provides guidance on accounting for the costs of computer software
developed or obtained for internal use. This pronouncement identifies the
characteristics of internal use software and provides guidance on new cost
recognition principles. SOP 98-1 is effective for financial statements for
fiscal years beginning after December 15, 1998. Earlier application for
financial statements that have not been issued is encouraged. Lucent is
evaluating the impacts of adopting SOP 98-1.
In April 1998, the AICPA issued Statement of Position 98-5, "Reporting on the
Costs of Start-Up Activities" ("SOP 98-5"). SOP 98-5 provides guidance on the
financial reporting of start-up costs and organization costs by requiring these
costs to be expenses as incurred. SOP 98-5 is effective for financial statements
for fiscal years beginning after December 15, 1998. Earlier application for
financial statements or information that has not been issued is encouraged. The
adoption of SOP 98-5 is not expected to have a material impact on Lucent's
consolidated results of operations, financial position or cash flows.
<PAGE>
26 Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
SHARE RESTATEMENT
Effective on April 1, 1998, Lucent split its common stock in a two-for-one split
through the issue of one additional share for each outstanding share. As result,
the tables below represent a retroactive restatement of the earnings(loss) per
share as reported in the Company's Annual Report on Form 10-K for the year ended
September 30, 1997 and the Form 10-Q for the quarter ended December 31, 1997:
Five Year Summary
(Dollars in millions, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Twelve Months
Ended Nine Months Ended Twelve Months
September 30, September 30, Ended December 31,
--------------- ------------------ -----------------------
1997 1996 1996 1995 1995 1994 1993
(1) (4) (1)
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings(loss) per common
share - basic (2) 0.42 (0.69) 0.19 0.14 (0.83) n/a n/a
Earnings(loss) per common
share - diluted (2) 0.42 (0.69) 0.19 0.14 (0.83) n/a n/a
Earnings(loss) per common
share - Pro Forma (3) n/a (0.62) 0.18 0.12 (0.68) n/a n/a
Dividends per common share 0.1125 0.075 0.075 - - n/a n/a
</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(loss) per common share - basic and
earnings(loss) per common share - diluted includes the retroactive
recognition to January 1, 1995 of the 1,049,249,788 shares (524,624,894
shares on a pre-split basis) owned by AT&T on April 10, 1996.
(3) The calculation of earnings(loss) per common share on a pro forma basis
assumes that all 1,273,323,862 common shares (636,661,931 shares on a
pre-split basis) 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 of Lucent common stock in April 1996 ("IPO").
(4) Beginning September 30, 1996, Lucent changed its fiscal year-end from
December 31 to September 30, and reported results for the nine-month
transition period ended September 30, 1996.
<PAGE>
27 Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
QUARTERLY INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
FISCAL YEAR QUARTERS
FIRST SECOND THIRD FOURTH TOTAL
------- -------- ------- -------- ---------
<S> <C> <C> <C> <C> <C>
Year Ended
September 30, 1997
Earnings(loss) per
common share - basic....... $ 0.67 $ 0.05 $ 0.17 $(0.47)(b) $ 0.42 (b)
Earnings(loss) per
common share - diluted..... $ 0.67 $ 0.05 $ 0.17 $(0.47) $ 0.42
Dividends per share......... $ 0.0375 $ 0.000 $ 0.0375 $ 0.0375 $ 0.1125
Stock price:(d)
High..................... 26 9/16 30 5/16 37 3/32 45 3/8 45 3/8
Low...................... 21 1/16 22 3/8 24 15/16 36 3/32 21 1/16
Quarter-end close........ 23 1/8 26 1/4 36 1/32 40 11/16 40 11/16
Year Ended
September 30, 1996
Earnings(loss) per
common share - basic(c).... $(0.97)(a) $(0.10) $ 0.06 $ 0.20 $ (0.69)(a)
Earnings(loss) per
common share - diluted(c).. $(0.97) $(0.10) $ 0.06 $ 0.20 $ (0.69)
Dividends per share......... $ 0.00 $ 0.00 $ 0.0375 $ 0.0375 $ 0.075
Stock price:(d)
High..................... n/a n/a 19 5/8 22 15/16 22 15/16
Low...................... n/a n/a 14 7/8 15 5/16 14 7/8
Quarter-end close........ n/a n/a 18 15/16 22 15/16 22 15/16
</TABLE>
(a) 1996 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.
(b) As a result of the 1997 acquisition of Octel, Lucent took a charge of $979
($966 after tax) in the fourth quarter for acquired in-process research and
development and other charges.
(c) 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 common share amounts for 1996 does not equal
the earnings per common share for the year. The calculation of earnings per
common share on a historical basis includes the retroactive recognition to
January 1, 1995 of the 1,049,249,788 shares (524,624,894 shares on a
pre-split basis) owned by AT&T.
(d) Obtained from the Composite Tape. Stock prices have been restated to
reflect the two-for-one split of the Company's common stock effective April
1, 1998.
<PAGE>
28 Form 10-Q - Part II
Part II - Other Information
Item 4. Submission of Matters to a Vote of Security Holders.
Lucent held its 1998 Annual Meeting of Shareowners on February 18, 1998. At that
meeting, shareowners elected three individuals as Directors of the Company for
terms to expire at the Annual Meeting to be held in the year 2001. In addition,
shareowners approved two Company proposals and rejected two shareowner
proposals. The persons elected and the results of the voting are as follows:
<TABLE>
<CAPTION>
Votes Votes
For Withheld
<S> <C> <C>
Richard A. McGinn 509,478,034 6,916,688
Paul H. O'Neill 509,257,605 7,137,117
Franklin A. Thomas 509,666,970 7,727,752
</TABLE>
<TABLE>
<CAPTION>
Votes Votes Broker
For Against Abstain Non-votes
<S> <C> <C> <C> <C>
Company proposal
number 1 - Approval
of Amended Short
Term Incentive Plan. . 490,826,851 19,309,477 6,258,394 0
Company proposal
number 2 - Approval
of Amended 1996 Long
Term Incentive Plan. . 473,111,545 36,864,080 6,419,097 0
Shareowner proposal
number 1 - Eliminate
classified board . . . 185,553,493 221,145,652 9,943,245 99,752,332
Shareowner proposal
number 2 - Anti-
slave labor policy . . 31,804,616 336,566,152 48,271,622 99,752,332
</TABLE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
<TABLE>
<CAPTION>
Exhibit Number
<S> <C>
(10) (iii) (A)1 Lucent Technologies Inc. 1996 Long Term Incentive Program *
(10) (iii) (A)2 Lucent Technologies Inc. Short Term Incentive Program *
(10) (iii) (A)3 Lucent Technologies Inc. Officer Life Insurance Option Plan *
(10) (iii) (A)4 Lucent Technologies Inc. Deferred Compensation Plan *
(10) (iii) (A)5 Consulting Agreement of Mr. Schacht effective March 1, 1998 *
(12) Computation of Ratio of Earnings to Fixed Charges
(27) Financial Data Schedule
</TABLE>
* Management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K:
Not applicable
<PAGE>
29 Form 10-Q
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Lucent Technologies Inc.
Date May 12, 1998
By James S. Lusk
Vice President and Controller
(Principal Accounting Officer)
<PAGE>
30 Form 10-Q
Exhibit Index
<TABLE>
<CAPTION>
Exhibit
Number
<S> <C>
(10) (iii) (A)1 Lucent Technologies Inc. 1996 Long Term Incentive Program *
(10) (iii) (A)2 Lucent Technologies Inc. Short Term Incentive Program *
(10) (iii) (A)3 Lucent Technologies Inc. Officer Life Insurance Option Plan *
(10) (iii) (A)4 Lucent Technologies Inc. Deferred Compensation Plan *
(10) (iii) (A)5 Consulting Agreement of Mr. Schacht effective March 1, 1998 *
(12) Computation of Ratio of Earnings to Fixed Charges
(27) Financial Data Schedule
</TABLE>
* Management contract or compensatory plan or arrangement.
1 EXHIBIT (10) (iii) (A)1
LUCENT TECHNOLOGIES INC. 1996 LONG TERM INCENTIVE PROGRAM
Amended and Restated effective February 18, 1998
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 shareowners, 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 depend.
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 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, or (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
(ii) A change in the composition of the Board during any two year period
such that the individuals who, as of the beginning of such two year period,
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, any individual
who becomes a member of the Board subsequent to the beginning of the two year
period, whose election, or nomination for election by the Company's shareowners,
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
<PAGE>
2 EXHIBIT (10) (iii) (A)1
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 shareowners 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 shareowners, 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 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 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 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, (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
(iv) The approval by the shareowners 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) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time, and any successor thereto.
(h) "Committee" shall mean the Corporate Governance and
Compensation Committee of the Board (or any successor committee).
(i) "Company" shall mean Lucent Technologies Inc., a Delaware
corporation.
<PAGE>
3 EXHIBIT (10) (iii) (A)1
(j) "Covered Employee" shall mean a "covered employee" within the
meaning of Section 162(m)(3) of the Code.
(k) "Dividend Equivalent" shall mean any right granted pursuant to
Section 14(h) hereof.
(l) "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.
(m) "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended from time to time, and any successor thereto.
(n) "Fair Market Value" shall mean, (i) with respect to Shares, the
average of the highest and lowest reported sales prices, regular way, of Shares
in transactions reported on the New York Stock Exchange on the date of
determination of Fair Market Value, or if no sales of Shares are reported on the
New York Stock Exchange for that date, the comparable average sales price for
the last previous day for which sales were reported on the New York Stock
Exchange, and (ii) with respect to any other 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.
(o) "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.
(p) "Net Income" shall mean the net income of the Company as
determined under generally accepted accounting principles, excluding (a)
extraordinary items (net of applicable taxes); (b) cumulative effects of changes
in accounting principles; (c) securities gains and losses (net of applicable
taxes); and (d) nonrecurring items (net of applicable taxes) including, but not
limited to, gains or losses on asset dispositions and sales of divisions,
business units or subsidiaries, restructuring charges, gains and losses from
qualified benefit plan curtailments and settlements, and income or expenses
related to deferred tax assets.
(q) "Nonstatutory Stock Option" shall mean an Option granted under
Section 6 hereof that is not intended to be an Incentive Stock Option.
(r) "Officer" shall mean any manager of the Company or any
Affiliate holding a position above the executive level (E band) or any future
salary grade that is the equivalent thereof.
(s) "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.
(t) "Other Stock Unit Award" shall mean any right granted to a
Participant by the Committee pursuant to Section 10 hereof.
(u) "Participant" shall mean an Employee who is selected by the
Committee to receive an Award under the Plan.
(v) "Performance Award" shall mean any Award of Performance Shares
or Performance Units pursuant to Section 9 hereof.
(w) "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.
<PAGE>
4 EXHIBIT (10) (iii) (A)1
(x) "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.
(y) "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.
(z) "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.
(aa) "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.
(bb) "Restricted Stock Award" shall mean an award of Restricted Stock
under Section 8 hereof.
(cc) "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.
(dd) "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.
(ee) "Substitute Award" is defined in Section 4(a).
(ff) "Term" shall mean the period beginning on February 18, 1998, and
ending on February 28, 2003.
<PAGE>
5 EXHIBIT (10) (iii) (A)1
SECTION 3. ADMINISTRATION. The Plan shall be administered by the
Committee. The Committee shall have full power and authority, subject to such
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 shareowner, and any employee of the Company or of any
Affiliate.
SECTION 4. SHARES SUBJECT TO THE PLAN.
(a) Subject to adjustment as provided in Section 4(b), the total number
of Shares available for Awards granted under the Plan on and after February 18,
1998 and on or prior to February 28, 2003 shall be thirty-two million
(32,000,000) Shares; PROVIDED, that if any Shares are subject to an Award
granted hereunder that is forfeited, settled in cash, expires, or otherwise is
terminated without issuance of Shares, the Shares subject to such Award shall
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 ten million (10,000,000) Shares shall be available for the
grant of Incentive Stock Options under the Plan during the Term; and PROVIDED
FURTHER, that no more than ten million (10,000,000) Shares shall be available
for the grant of Awards in the form of Stock Appreciation Rights pursuant to
Section 7 (excluding for this purpose any Stock Appreciation Right granted in
relation to an Incentive Stock Option or a Nonstatutory Stock Option),
Restricted Stock pursuant to Section 8, Performance Shares pursuant to Section
9, and Other Stock Unit Awards pursuant to Section 10 that are valued by
reference to Shares during the Term; and PROVIDED FURTHER, that no Participant
may be granted Awards with respect to more than five million (5,000,000) Shares
in the aggregate during the Term. In addition, Awards granted or Shares issued
by the Company 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 ("Substitute Awards") shall not reduce the Shares available for
grants under the Plan or to a Participant. 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 dis cretion 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.
<PAGE>
6 EXHIBIT (10) (iii) (A)1
SECTION 6. STOCK OPTIONS. Options may be granted hereunder to
Participants either alone or in addition to other Awards granted under the Plan.
Options may be granted for no consideration or for such consideration as the
Committee may determine. 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 exercise price per Share 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 a 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 ap plicable 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
estab lished 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 Partici pant 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.
(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.
<PAGE>
7 EXHIBIT (10) (iii) (A)1
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. Restricted Stock Awards may be issued
hereunder to Participants, for no cash consideration or for such minimum
consideration as may be re quired 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. Any Restricted Stock
Award 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 a Restricted Stock
Award, 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. Except as otherwise determined by the
Committee, upon termination of employment for any reason during the restriction
period, any portion of a Restricted Stock Award still subject to restriction
shall be forfeited by the Participant and reacquired by the Company.
SECTION 9. PERFORMANCE AWARDS. Performance Awards in the form of
Performance Units or Performance Shares 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 or at any time thereafter. 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.
<PAGE>
8 EXHIBIT (10) (iii) (A)1
SECTION 10. OTHER STOCK UNIT AWARDS. 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. 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
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. 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 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.
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.
(ii) The restrictions and deferral limitations applicable to any Re
stricted Stock Awards shall lapse, and such Restricted Stock Awards shall become
free of all restrictions and limitations and become fully vested and
transferable.
(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 Unit Awards or any other Awards shall lapse, and
such Other Stock Unit Awards or such other Awards shall become free of all
restrictions, limitations or conditions and become fully vested and
transferable.
(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 pur suant to this Plan would make a Change in Control transaction
ineligible for pooling-of-interests accounting under APB No. 16 (or other
relevant accounting literature), which transaction (after giving effect to any
other actions taken to cause such transaction to be eligible for such
pooling-of-interests accounting 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 an equivalent Fair Market Value.
<PAGE>
9 EXHIBIT (10) (iii) (A)1
SECTION 12. CODE SECTION 162(m) PROVISIONS.
(a) Notwithstanding any other provision of this Plan, if the Committee
deter mines at the time Restricted Stock, a Performance Award or an Other Stock
Unit Award is granted to a Participant that such Participant is, or may be as of
the end of the tax year for which the Company would claim a tax deduction in
connection with such Award, a Covered Employee, then the Committee may provide
that this Section 12 is applicable to such Award under such terms as the
Committee shall determine.
(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 Company having a level
of Net Income for the fiscal year preceding lapse or distribution set by the
Committee within the time prescribed by Section 162(m) of the Code or the
regulations thereunder in order for the level to be considered
"pre-established". The Committee may, in its discretion, reduce the amount of
any Performance Award or Other Stock Unit Award subject to this Section 12 at
any time prior to payment based on such criteria as it shall determine,
including but not limited to individual merit and the attainment of specified
levels of one or any combination of the following: net cash provided by
operating activities, 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 shareowner 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.
(c) Notwithstanding any contrary provision of the Plan other than
Section 11, the Committee may not adjust upwards the amount payable pursuant to
any Award subject to this Section 12, nor may it waive the achievement of the
Net Income requirement contained in Section 12(b), except in the case of the
death or disability of a Participant.
(d) Prior to the payment of any Award subject to this Section 12, the
Committee shall certify in writing that the Net Income requirement applicable to
such Award was met.
(e) 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)(C) of the Code, the
regulations promulgated thereunder, and any successors thereto.
SECTION 13. AMENDMENTS AND TERMINATION. The Board may amend, alter or
dis continue the Plan, but no amendment, alteration, or discontinuation shall be
made that would impair the rights of an optionee or Participant under an Award
theretofore granted, without the optionee's or Participant's consent, or that
without the approval of the shareowners 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. Except as provided in Section 4(b) and
Section 14(e), the Committee shall not have the authority to cancel any
outstanding Option and issue a new Option in its place with a lower exercise
price.
<PAGE>
10 EXHIBIT (10) (iii) (A)1
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
and all Awards 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; 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.
(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.
(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. 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, engages in any activity which is in competition with the Company, as
determined by the Committee, one or more Officers of the Company or a committee
of Officers of the Company 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.
<PAGE>
11 EXHIBIT (10) (iii) (A)1
(h) 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.
(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) To the extent permitted by law, the Committee may delegate to one or
more directors of the Company (who need not be members of the Committee) the
right to grant Awards to Employees who are not officers of the Company for
purposes of Section 16 of the Exchange Act or directors of the Company and to
amend, administer, interpret, waive conditions with respect to, cancel or
suspend Awards to Employees who are not such officers.
(k) The Committee is authorized to establish procedures pursuant to
which the payment of any Award may be deferred.
(l) The maximum value of the property, including cash, that may be paid
or distributed to any Participant pursuant to grants of Performance Units and/or
Other Stock Unit Awards that are valued with reference to property other than
Shares made in any one calendar year is $9,000,000.
(m) The Company is 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.
(n) Nothing contained in this Plan shall prevent the Board of Directors
from adopting other or additional compensation arrangements, subject to
shareowner approval if such approval is otherwise required; and such
arrangements may be either generally applicable or applicable only in specific
cases.
(o) The validity, construction, and effect of the Plan and any rules and
regu lations relating to the Plan shall be determined in accordance with the
laws of the State of Delaware and applicable Federal law.
(p) 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.
(q) 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 first became effective on
October 1, 1996 and this amendment and restatement shall be effective on
February 18, 1998, subject to shareowner approval.
SECTION 16. TERM OF PLAN. No Award shall be granted pursuant to the Plan
after February 28, 2003, but any Award theretofore granted may extend beyond
that date.
1 EXHIBIT (10) (iii) (A)2
LUCENT TECHNOLOGIES INC.
SHORT TERM INCENTIVE PLAN
as Amended July 18, 1997
1. PURPOSE. The purpose of the Lucent Short Term Incentive Plan (the
"Plan") is to provide Officers of Lucent Technologies Inc. (the "Company") and
its affiliates with incentive compensation based upon the level of achievement
of financial and other performance criteria. The Plan will enhance the ability
of the Company and its affiliates to attract individuals of exceptional
managerial talent upon whom, in large measure, the sustained progress, growth
and profitability of the Company depends.
2. DEFINITIONS. As used in the Plan, the following terms shall have the
meanings set forth below:
(a) "Award" shall mean a cash payment.
(b) "Board" shall mean the Board of Directors of the Company.
(C) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time and any successor thereto.
(d) "Committee" shall mean the Corporate Governance and Compensation
Committee of the Board (or any successor committee).
(e) "Covered Employee" shall mean a "covered employee" within the
meaning of Section 162(m) of the Code.
(f) "Net Income" shall mean the net income of the Company as determined
under generally accepted accounting principles, excluding (a) extraordinary
items (net of applicable taxes); (b) cumulative effects of changes in accounting
principles; (c) securities gains and losses (net of applicable taxes); and (d)
nonrecurring items (net of applicable taxes) including, but not limited to,
gains or losses on asset dispositions and sales of divisions, business units or
subsidiaries, restructuring charges, gains and losses from qualified benefit
plan curtailments and settlements, and income or expenses related to deferred
tax assets.
(g) "Officer" shall mean any manager of the Company or any affiliate
holding a position above the executive ("E Band") level or any salary grade
level that the Committee determines, in its sole discretion, is the equivalent
thereof.
(h) "Outside Directors" shall mean those members of the Board who are
"outside directors" within the meaning of Section 162(m) of the Code.
(i) "Participant" shall mean any person selected by the Committee to
participate in the Plan.
(j) "Performance Year" shall mean the fiscal year in which a
Participant provides services on account of which the Award is made.
(k) "Person" shall mean any individual, corporation, partnership,
association, joint-stock company, trust, unincorporated organization, or
government or political subdivision thereof.
(l) "Target Award" shall mean an Award level that may be paid if
certain performance criteria are achieved in the Performance Year.
<PAGE>
2 EXHIBIT (10) (iii) (A)2
3. ELIGIBILITY. Persons employed by the Company or any of its affiliates
during a Performance Year in active service at an Officer level are eligible to
be Participants under the Plan for such Performance Year (whether or not so
employed or living at the date an Award is made) and may be considered by the
Committee for an Award. An Officer is not rendered ineligible to be a
Participant by reason of being a member of the Board.
4. AWARDS-GENERAL. The Committee will establish Target Awards for
Participants at the beginning of each Performance Year and the performance
criteria to be applicable to Awards for such Performance Year. The performance
criteria utilized by the Committee may be based on individual performance,
earnings per share, other Company and business unit financial objectives,
customer satisfaction indicators, operational efficiency measures, and other
measurable objectives tied to the Company's success or such other criteria as
the Committee shall determine. Awards will be made by the Committee following
the end of each Performance Year. Awards shall be paid as soon as practicable
after the Performance Year, except to the extent that a Participant has made an
election to defer the receipt of such Award pursuant to the Lucent Technologies
Inc. Deferred Compensation Plan or any successor plan having a similar function.
The Award amount with respect to a Participant shall be determined in the sole
discretion of the Committee, or, in the case of an Award to a Participant who is
not a Covered Employee, in the sole discretion of such person or committee
empowered by the Committee or Board. The determination of the Award amount for
each Participant shall be made at the end of each Performance Year and may be
less than (including no Award) or, in the case of a Participant who is not a
Covered Employee, greater than the Target Award.
5. AWARDS TO COVERED EMPLOYEES. (a) If the Committee determines at the
time a Target Award is established for a Participant that such Participant is,
or may be as of the end of the tax year for which the Company would claim a tax
deduction in connection with such Award, a Covered Employee, then the Committee
may provide that this Section 5 is applicable to such Award under such terms as
the Committee shall determine.
(b) If an Award is subject to this Section 5, then the payment of cash
pursuant thereto shall be subject to the Company having a level of Net Income
for the applicable Performance Year set by the Committee within the time
prescribed by Section 162(m) of the Code or the regulations thereunder in order
for the level to be considered "pre-established". The Committee may, in its
discretion, reduce the amount of such an Award at any time prior to payment
based on such criteria as it shall determine, including but not limited to
individual merit and the attainment of specified levels of one or any
combination of the following: net cash provided by operating activities,
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 shareowner 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.
(c) Notwithstanding any contrary provision of this Plan, the Committee
may not adjust upwards the amount payable pursuant to any Award subject to this
Section 5, nor may it waive the achievement of the Net Income requirement
contained in Section 5(b), except in the case of the death or disability of the
Participant.
(d) Prior to the payment of any Award subject to this Section 5, the
Committee shall certify in writing that the Net Income requirement applicable to
such Award was met.
(e) The Committee shall have the power to impose such other
restrictions on Awards subject to this Section 5 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)(C) of
the Code, the regulations promulgated thereunder, and any successors thereto.
6. OTHER CONDITIONS. (a) No person shall have any claim to an Award under
the Plan and there is no obligation for uniformity of treatment of Participants
under the Plan. Awards under the Plan may not be assigned or alienated.
<PAGE>
3 EXHIBIT (10) (iii) (A)2
(b) Neither the Plan nor any action taken hereunder shall be construed
as giving to any Participant the right to be retained in the employ of the
Company or any affiliate.
(c) The Company or any affiliate shall have the right to deduct from
any Award to be paid under the Plan any federal, state or local taxes required
by law to be withheld with respect to such payment.
(d) Awards under the Plan will, to the extent provided therein, be
included in base compensation or covered compensation under the retirement
programs of the company for purposes of determining pensions, retirement and
death related benefits.
(e) In the event an Award under the Plan is deferred under the Lucent
Technologies Inc. Deferred Compensation Plan or any successor thereto, it will
be reflected in the calculations of the above benefit plans as if it had been
paid as scheduled and not deferred.
(f) Notwithstanding any contrary provision of the Plan, the maximum
amount which may be paid to a Participant in any Performance Year is $9 million.
7. DESIGNATION OF BENEFICIARIES. A Participant may, if the Committee
permits, designate a beneficiary or beneficiaries to receive all or part of the
Award which may be made to the Participant, or may be payable, after such
Participant's death. A designation of beneficiary shall be made in accordance
with procedures specified by the Company and may be replaced by a new
designation or may be revoked by the Participant at any time. In case of the
Participant's death, an Award with respect to which a designation of beneficiary
has been made (to the extent it is valid and enforceable under applicable law)
shall be paid to the designated beneficiary or beneficiaries. Any Award granted
or payable to a Participant who is deceased and not subject to such a
designation shall be distributed to the Participant's estate. If there shall be
any question as to the legal right of any beneficiary to receive an Award under
the Plan, the amount in question may be paid to the estate of the Participant,
in which event the Company or its affiliates shall have no further liability to
anyone with respect to such amount.
8. PLAN ADMINISTRATION. (a) The Committee shall have full discretionary
power to administer and interpret the Plan and to establish rules for its
administration (including the power to delegate authority to others to act for
and on behalf of the Committee) subject to such resolutions, not inconsistent
with the Plan, as may be adopted by the Board, except that the Committee (or any
subcommittee thereof) shall have the exclusive authority to exercise any such
power with respect to Awards to which Section 5 is applicable. In making any
determinations under or referred to in the Plan, the Committee (and its
delegates, if any) shall be entitled to rely on opinions, reports or statements
of employees of the Company and its affiliates and of counsel, public
accountants and other professional or expert persons.
(b) The Plan shall be governed by the laws of the State of Delaware and
applicable Federal law.
9. MODIFICATION OR TERMINATION OF PLAN. The Board may modify or terminate
the Plan at any time, effective at such date as the Board may determine. The
Senior Vice President - Human Resources of the Company or his delegate with the
concurrence of the General Counsel of the Company or his delegate (or, in each
case, any successor to either of such officer's responsibilities), shall be
authorized to make minor or administrative changes in the Plan or changes
required by or made desirable by law or government regulation. Such a
modification may affect present and future Participants. For purposes of this
Section, a change to the Plan that affects any Award to a Covered Employee shall
not be a minor or administrative change.
1 (10) (iii) (A)3
LUCENT TECHNOLOGIES INC.
OFFICER LIFE INSURANCE OPTION PLAN
1. PURPOSE
The purpose of the Lucent Technologies Inc. Officer Life Insurance
Option Plan (the "Plan") is to provide Officers of Lucent Technologies
Inc. (the "Company") insurance coverage pursuant to a split-dollar life
insurance arrangement.
2. DEFINITIONS
For purposes of this Plan, the following terms have the meanings set
forth below:
2.01 AGREEMENT means the Agreement executed by Participant (or
Assignee) and Company implementing the terms of this Plan.
2.02 ALTERNATIVE DEATH BENEFIT AMOUNT means, with respect to a
Participant, an amount that, after subtracting any Company
federal, state, and local income tax savings resulting from the
deductibility of the payment for corporate tax purposes, is
equal to the Participant's Coverage Amount. The Alternative
Death Benefit Amount shall be determined at the time the payment
is to be made, based on Company's federal, state and local
income tax rate (calculated at the highest marginal tax rate
then applicable to Company, but net of any federal deduction for
state and local taxes) at the time of the payment, and shall be
determined by Company.
2.03 ASSIGNEE means that person or entity to whom the Participant has
assigned his/her interest in the Policy by designating said
Assignee on forms provided by Company. If the Participant's
Policy is a Survivorship Policy and if the Participant has not
designated an Assignee, then, after the Participant's death, if
the Participant's spouse survives, the Assignee shall be that
person or entity who succeeds to the Participant's interest in
the Participant's Policy after the death of the Participant.
2.04 CHANGE IN CONTROL means a Change in Control of Company, as such
term is defined in the Lucent Technologies Inc. 1996 Long Term
Incentive Program, as amended from time to time, or any
successor plan to such Program.
2.05 COMMITTEE means the Corporate Governance and Compensation
Committee of the Board of Directors of Company.
2.06 EFFECTIVE DATE means December 18, 1996.
2.07 EMPLOYEE means an employee or former employee of Company who is
eligible to participate in the Plan.
2.08 COMPANY means Lucent Technologies Inc., a Delaware corporation.
2.09 COMPANY DEATH BENEFIT means the portion of the Policy's death
benefit payable to Company as indicated in the Participant's
Agreement.
2.10 INSURER means, with respect to a Participant's Policy, the
insurance company issuing the Policy on the Participant's life
(or on the lives of the Participant and a Participant's spouse,
in the case of a Survivorship Policy pursuant to the provisions
of the Plan).
2.11 PARTICIPANT means an eligible Employee who elects to participate
in the Plan.
<PAGE>
2 (10) (iii) (A)3
2.12 PARTICIPANT'S COVERAGE AMOUNT means the portion of the Policy's
death benefit payable to the beneficiary(ies) of the Participant
(or Assignee).
2.13 POLICY means the life insurance coverage acquired on the life of
the Participant (or on the lives of the Participant and a
Participant's spouse, in the case of a Survivorship Policy) by
Company.
2.14 POLICY OWNER means the Company.
2.15 POLICY VESTING DATE means the date the Participant completes
his/her commitment to forego the amount of compensation
specified in the Participant's Election to Forego Compensation.
2.16 PREMIUM means, with respect to a Policy on the life of any
Participant (and/or the lives of any Participant and a
Participant's spouse, as the case may be), the amount Company is
obligated, pursuant to the terms of the Agreement, to pay to the
Insurer with respect to such Policy.
2.17 SURVIVORSHIP POLICY means a Policy insuring the lives of the
Participant and a Participant's spouse, with the death benefit
payable at the death of the last survivor of the Participant and
his/her spouse.
3. PARTICIPATION
3.01 ELIGIBILITY. All Officers of Company deemed eligible by the
Committee shall be eligible to participate in the Plan.
3.02 ELECTION TO FOREGO COMPENSATION. As a condition of participating
in the Plan, each Participant will be required to make an
election in which the Participant will commit to forego the
receipt of a specified dollar amount of compensation for a
period of up to four years beginning on the Policy's effective
date (as specified in the Agreement), with such election to
remain in effect until the first to occur of: (a) the completion
of the commitment to forego compensation; (b) the date on which
the Participant terminates employment with Company for any
reason; (c) the date on which the Participant is demoted to a
position ineligible to participate in the Plan; or (d) the date
on which the Agreement terminates. The Participant shall make
such election by execution of an "Election to Forego
Compensation" prior to the Policy's effective date. Any foregone
compensation will, depending upon the Participant's election,
reduce the payout to the Participant under the Lucent
Technologies Inc. Short Term Incentive Plan or successor to such
Plan and/or the Participant's salary during that period. A
Participant's election to forego compensation shall be
irrevocable, provided, however, that the election may be
modified at anytime with respect to compensation not yet earned
by a written document delivered to the Company. The amounts that
a Participant agrees to forego pursuant to such election, unless
precluded by tax or other laws to the contrary, shall be
included in determining a Participant's compensation for
purposes of any benefit plans maintained by the Company.
4. AMOUNT AND TYPE OF COVERAGE
The amount and type of coverage provided under the Policy shall be that
amount and type specified in the Agreement.
5. PAYMENT OF PREMIUMS
5.01 COMPANY PAYMENTS. The amount, timing, and duration of Premiums
to be paid by Company shall be specified in the Agreement.
<PAGE>
3 (10) (iii) (A)3
5.02 PARTICIPANT PAYMENTS. Unless otherwise provided in an Agreement,
a Participant (or Assignee) shall not be required to pay any
portion of the Premium due on the Policy. However, if the
Participant's Election to Forego Compensation is no longer in
effect under Section 3.02 because of the Participant's
termination of employment, then the Participant (or Assignee)
may, within thirty (30) days of the Participant's termination of
employment, elect to pay to Company as a premium payment the
difference (or some portion thereof) between the compensation
the Participant elected to forego and the premiums paid by
Company up to such date (hereinafter referred to as the
"Participant Special Contribution").
5.03 TERMINATION EVENTS. Except as provided in Section 5.04,
Company's obligation to pay Premiums with respect to a Policy
shall terminate:
a. Automatically upon the death of the Participant (or upon
the death of the survivor of the Participant and the
Participant's spouse, if the Policy is a Survivorship
Policy).
b. Upon the written action of the Committee, if the
Participant terminates employment with Company for any
reason other than death prior to the Policy Vesting
Date.
c. Upon the mutual written agreement of Company and
Participant (or Assignee).
5.04 IRREVOCABLE OBLIGATION. Notwithstanding any other provision of
the Plan, (a) Company's obligation to pay Policy Premiums,
unless the Participant is demoted to a position ineligible to
participate in the Plan, shall be irrevocable while such person
is employed by Company, and shall remain irrevocable thereafter
unless the Participant terminates employment with Company for
any reason other than death prior to the Policy Vesting Date and
(b) Company's obligation to pay Policy Premiums for a
Participant who obtains an irrevocable right pursuant to the
provisions of Section 9 hereof relating to Change in Control
thereafter shall be irrevocable.
6. POLICY OWNERSHIP
6.01 OWNERSHIP. Company shall be the owner of any Policy and shall be
entitled to exercise the rights of ownership, except that the
following rights shall be exercisable by the Participant (or
Assignee): (i) the right to designate the beneficiary(ies) to
receive payment of that portion of the death benefit under such
Policy equal to the Participant's Coverage Amount unless there
is an election for Alternative Death Benefit in effect; (ii) the
right to increase or decrease the face amount of the Policy
(subject to any conditions or restrictions imposed by the
Insurer); and (iii) the right to assign any part or all of the
Participant's rights under the Policy to any person, entity or
trust by the execution of a written instrument prescribed by
Company that is delivered to Company. Company shall not borrow
from, hypothecate, withdraw cash value from, surrender in whole
or in part, cancel, or in any other manner encumber a Policy
without the prior written consent of the Participant (or
Assignee). Company shall not take any other action with respect
to a Policy that may reduce the Participant's Coverage Amount
without the prior written consent of the Participant (or
Assignee). The claim of the Participant, Assignee, or any
beneficiary to the portion of the death benefit under the
Policy, up to but not in excess of the amount of the Company
Death Benefit, which is attributable to the cash values of the
Policies shall be an unsecured claim against the general assets
of the Company and no provision contained in the Plan shall be
construed to give any Participant, Assignee, or beneficiary a
security interest in such cash values. If the Company becomes
insolvent, the Company's creditors shall have the right to
exercise all rights of ownership of the Policy conferred on the
Company. Company shall be
<PAGE>
4 (10) (iii) (A)3
considered "insolvent" for purposes of this Plan if (i) Company
is unable to pay its debts as they become due, or (ii) Company
is subject to a pending proceeding as a debtor under the United
States Bankruptcy Code.
6.02 POSSESSION OF POLICY. Company shall keep possession of the
Policy. Company agrees to make the Policy available to the
Participant (or Assignee) or to the Insurer at such times, and
on such terms as Company determines for the sole purposes of
endorsing or filing any change of beneficiary or assignment on
the Policy.
6.03 INVESTMENT OF CASH VALUES. If the Policy provides the Policy
owner with a choice of investment funds for the cash values,
Company shall invest the cash values in the funds selected by
and in the proportions specified by the Participant (or
Assignee). Company agrees to make any investment election within
30 days of receipt of a written investment request by the
Participant (or Assignee).
7. TERMINATION OF EMPLOYMENT
7.01 IMPACT OF TERMINATION OR DEMOTION. If, prior to the Policy
Vesting Date, a Participant (i) terminates employment with
Company or (ii) is demoted to a position ineligible to
participate in the Plan, then:
a. Company's obligation to pay premiums with respect to a
Participant's Policy shall terminate as provided in
Sections 5.03 and 5.04.
b. Participant's obligation to forego compensation pursuant
to an election made under Section 3.02 shall terminate.
c. The Policy's face amount shall be reduced to an amount
determined by multiplying the initial face amount and
Company Death Benefit by a fraction, the numerator of
which is the amount of premiums paid by Company plus any
Participant Special Contribution under Section 5.02, and
the denominator of which is the total premium payments
Company agreed to pay under the terms of the Agreement.
The Participant (or Assignee) and Company agree to
execute an amendment to the Agreement and to complete
any forms required by the Insurer to implement these
changes.
7.02 NON-COMPETITIVE PROVISION. Notwithstanding any other provisions
of this Plan or Agreement to the contrary, if a participant
terminates employment with Company (including a termination
after the Policy Vesting Date) and without consent of the
Committee, establishes a relationship with a competitor of
Company or engages in any competitive activity as provided in
the Lucent Technologies Inc. Non-Competition Guideline, then:
a. The Agreement with the Participant (or Assignee) shall
immediately terminate.
b. Company shall withdraw from the cash values of the
Policy an amount equal to its cumulative premium
payments and, following the withdrawal, shall transfer
ownership of the Policy to the Participant (or
Assignee).
7.03 ALLOCATION OF DEATH BENEFIT. In the event of a termination due
to the death of the Participant (or the death of the survivor of
the Participant and the Participant's spouse, if the Policy is a
Survivorship Policy), the death benefit under the Policy shall
be divided as follows:
<PAGE>
5 (10) (iii) (A)3
a. Company shall be entitled to receive an amount equal to
the Company Death Benefit. If the Policy provides for a
death benefit equal to the sum of the face amount of the
Policy and any account or accumulation value, any
Company Death Benefit should first be paid from the
account or accumulation value portion of the death
benefit.
b. The beneficiary(ies) of the Participant (or Assignee)
shall be entitled to receive the Participant's Coverage
Amount, which shall consist of the excess, if any, of
the Policy's death benefit over the Company Death
Benefit.
Company agrees to execute an endorsement to the Policy issued to
it by the Insurer providing for the division of the Policy's
death benefit in accordance with the provisions of this Section.
Notwithstanding the provisions of this Section, if the Policy's
death benefit becomes payable while there is an Alternative
Death Benefit Election in effect for the Participant (or
Assignee) pursuant to Section 8, then the entire Policy's death
benefit shall be paid to Company.
8. ALTERNATIVE DEATH BENEFIT ELECTION.
A Participant (or Assignee) may elect to receive an Alternative Death
Benefit in lieu of the insurance benefit provided under the Plan. The
Alternative Death Benefit shall be paid by Company from the general
funds of Company, and shall not constitute an insurance benefit. It
shall be paid by Company to Participant's (or Assignee's)
beneficiary(ies) at the time Participant's death benefit would have been
paid (at Participant's death for single life coverage, or at the death
of the survivor of the Participant and the Participant's spouse for
survivorship coverage). The amount of the payment shall be equal to the
Alternative Death Benefit Amount. As long as an Alternative Death
Benefit Election is in effect, the beneficiary(ies) of the Participant
(or Assignee) shall receive only the Alternative Death Benefit, and
shall not be entitled to receive any portion of any death benefits that
would become payable under the Participant's Policy, and the Participant
(or Assignee) shall cooperate with Company in effecting a change of
beneficiary of the Participant's Policy to achieve such result.
9. CHANGE IN CONTROL
If there is a Change in Control:
a. the Plan and Company's obligation to pay Policy Premiums
hereunder shall become irrevocable for all Participants in the
plan at the time of the Change in Control;
b. Company immediately shall transfer the ownership of all
Participants' Policies to an irrevocable trust to: (i) pay any
premiums projected to be payable on all Policies after the
Change in Control and (ii) pay any Alternative Death Benefit
that becomes payable under Section 8 of this Plan; and
c. Company immediately shall fund such irrevocable trust with an
amount sufficient to pay all necessary projected future premiums
for all Participants' Policies.
<PAGE>
6 (10) (iii) (A)3
Notwithstanding the creation and funding of an irrevocable trust in
accordance with the provisions of this Section, Company or its successor
shall continue to be responsible for the Premium costs associated with
the Participants' Policies and any Alternative Death Benefits payable
under Section 8 if such amounts are not paid by the trust for any
reason, or if the trust's assets become insufficient to pay any required
amounts.
10. COMPANY DEFAULT
10.01 COMPANY DEFAULT. A Company Default shall be deemed to have
occurred with respect to a Policy if Company fails to pay a
Premium on the Policy as required under the terms of the
Agreement within 30 days after the due date for such Premium, or
if Company processes or attempts to process a policy loan, or a
complete or partial surrender, or a cash value withdrawal
without prior written approval from Participant (or Assignee).
10.02 RIGHTS UPON COMPANY DEFAULT. In the event of Company Default as
described in Section 10.01, the Participant (or Assignee) shall
have the right to require Company to transfer its interest in
the Participant's Policy to Participant (or Assignee). The
Participant (or Assignee) may exercise this right by notifying
Company, in writing, within sixty (60) days after the Company
Default occurs. Upon receipt of such notice, Company shall
immediately transfer its rights in the Policy to the Participant
(or Assignee) and Company shall thereafter have no rights with
respect to such Policy. A Participant's (or Assignee's) failure
to exercise its rights under this Section shall not be deemed to
release Company from any of its obligations under the Plan, and
shall not preclude the Participant (or Assignee) from seeking
other remedies with respect to the Company Default. Also, a
Participant's (or Assignee's) failure to exercise its rights
under this Section will not preclude the Participant (or
Assignee) from exercising such rights upon later Company
Default.
11. GOVERNING LAWS & NOTICES
11.01 GOVERNING LAW.
This Plan shall be governed by and construed in accordance with
the substantive law of the State of New Jersey without giving
effect to the choice of law rules of the State of New Jersey.
11.02 NOTICES. All notices hereunder shall be in writing and sent by
first class mail with postage prepaid. Any notice to Company
shall be addressed to the Attention of Senior Vice President
Human Resources at Lucent Technologies Inc., 600 Mountain
Avenue, Murray Hill, NJ 07929. Any notice to the Participant (or
Assignee) shall be addressed to the Participant (or Assignee) at
the address following such party's signature on his/her
Agreement. Any party may change its address by giving written
notice of such change to the other party pursuant to this
Section.
12. MISCELLANEOUS PROVISIONS
12.01 This Plan and any Agreement executed hereunder shall not be
deemed to constitute a contract of employment between an
Employee and Company, or a Participant and Company, nor shall
any provision restrict the right of Company to discharge an
Employee or Participant, or to restrict the right of an Employee
or Participant to terminate employment.
12.02 The masculine pronoun includes the feminine and the singular
includes the plural where appropriate for valid construction.
<PAGE>
7 (10) (iii) (A)3
12.03 In order to be eligible to participate in this Plan, the
Participant (and, in the case of a Survivorship Policy, the
Participant's spouse) shall cooperate with the Insurer by
furnishing any and all information requested by the Insurer in
order to facilitate the issuance of the policy, including
furnishing such medical information and taking such physical
examinations as the Insurer may deem necessary. In the absence
of such cooperation, Company shall have no further obligation to
the Participant to allow him/her to participate in the Plan.
12.04 If a Participant (or a Participant's spouse, if the Policy is a
Survivorship Policy) commits suicide within two years of the
Participant's Policy's issue, or if the Participant (or
Participant's spouse, if the Policy is a Survivorship Policy)
makes any material misstatement of information or nondisclosure
of medical history pertaining to the Policy's issue and dies
within two years of the Policy's issue, then no benefits will be
payable to the beneficiary(ies) of such Participant (or
Assignee, where applicable).
12.05 In the event of any inconsistency between the terms of this Plan
as described herein and the terms of any Policy purchased
hereunder or any related Agreement, the terms of such Policy or
Agreement shall be controlling as to that Participant, his/her
Assignee (if any), his successor-in-interest (if any) and
his/her beneficiary or beneficiaries.
13. AMENDMENT, TERMINATION, ADMINISTRATION, AND SUCCESSORS
13.01 AMENDMENT. The Plan may be modified or amended by Company at any
time, but an amendment which is adverse to a Participant (or
Assignee) will not apply to such Participant (or Assignee)
unless such Participant (or Assignee) consents, in writing, to
the amendment.
13.02 TERMINATION. Company may terminate the Plan at any time, but any
such termination will not affect the rights of any Participant
(or Assignee) unless such Participant (or Assignee) consents, in
writing, to such termination.
13.03 ADMINISTRATION. This Plan shall be administered by the
Committee. The Committee, in its sole discretion, shall have the
authority to make, amend, interpret, and enforce all rules and
regulations for the administration of the Plan, and to decide or
resolve all questions, including interpretation of the Plan, as
may arise in connection with the Plan. In the administration of
this Plan, the Committee may employ agents and delegate to them
or to others (including Employees) such administrative duties as
it sees fit. The Committee may consult with counsel, who may be
counsel to Company. The decision or action of the Committee (or
its designee) with respect to any question arising out of, or in
connection with, the administration, interpretation and
application of this Plan shall be final and conclusive and
binding upon all persons having any interest in the Plan.
13.04 SUCCESSORS. The terms and conditions of this Plan shall inure to
the benefit of and bind Company and the Participant and their
successors, assignees (including any Assignee), and
representatives. The Employer shall have the right to absolutely
and irrevocably assign its rights, title and interest in a
Policy without the consent of the Participant (or Assignee).
<PAGE>
8 (10) (iii) (A)3
14. CLAIMS PROCEDURE
Any controversy or claim arising out of or relating to this Plan shall
be filed with the Committee which shall make all determinations
concerning such claim. Any decision by the Committee denying such claim
shall be in writing and shall be delivered to all parties in interest in
accordance with the notice provisions of Section 11.02 herein. Such
decision shall set forth the reasons for denial in plain language.
Pertinent provisions of the Plan shall be cited and, where appropriate,
an explanation as to how the claimant can perfect the claim will be
provided. This notice of denial of benefits will be provided within
ninety (90) days of the Committee's receipt of the claim for benefits.
If the Committee fails to notify the claimant of its decision regarding
the claim, the claim shall be considered denied, and the claimant then
shall be permitted to proceed with an appeal as provided for in this
Section.
A claimant who has been completely or partially denied a benefit shall
be entitled to appeal this denial of his/her claim by filing a written
statement of his/her position with the Committee no later than sixty
(60) days after receipt of the written notification of such denial. The
Committee shall schedule an opportunity for a full and fair review of
the issue within thirty (30) days of receipt of the appeal. The decision
on review shall set forth specific reasons for the decision, and shall
cite specific references to the pertinent Plan provisions on which the
decision is based.
Following the review of any additional information submitted by the
claimant, either through the hearing process or otherwise, the Committee
shall render a decision on the review of the denied claim in the
following manner:
a. The Committee shall make its decision regarding the merits of
the denied claim within sixty (60) days following receipt of the
request for review (or within 120 days after such receipt, in a
case where there are special circumstances requiring extension
of time for reviewing the appealed claim). The Committee shall
deliver the decision to the claimant in writing. If an extension
of time for reviewing the appealed claim is required because of
special circumstances, written notice of the extension shall be
furnished to the claimant prior to the commencement of the
extension. If the decision on review is not furnished within the
prescribed time, the claim shall be deemed denied on review.
b. The decision on review shall set forth specific reasons for the
decision, and shall cite specific references to the pertinent
Plan provisions on which the decision is based.
<PAGE>
9 (10) (iii) (A)3
IN WITNESS WHEREOF, the Company has caused this Plan to be effective on December
18, 1996 and to be executed on this day of December, 1996.
For Lucent Technologies Inc.
/S/ Curt R. Artis
By:
Curt R. Artis
Senior Vice President, Human Resources
/S/ Pamela F. Craven
Attest:
Pamela F. Craven
Vice President - Law
Assistant Secretary
1 (10) (iii) (A)4
LUCENT TECHNOLOGIES INC.
DEFERRED COMPENSATION PLAN
Revised through May 8, 1998
PREAMBLE
Effective October 1, 1996, Lucent Technologies Inc. (the "Company") established
the Lucent Technologies Inc. Officer Incentive Award Deferral Plan and the
Lucent Technologies Inc. Deferred Compensation Plan for Non-Employee Directors,
each of which was merged into the Lucent Technologies Inc. Deferred Compensation
Plan (the "Plan") in July 1997. The Plan is intended to constitute an unfunded,
deferred compensation plan maintained primarily for a select group of management
or highly compensated employees and for members of the Board of Directors who
are not employees of the Company. The purpose of the Plan is to provide a means
by which eligible employees and non-employee Directors may defer the receipt of
certain forms of compensation while at the same time giving the Company the
present use of the compensation so deferred. The Plan is intended to be an
employee pension benefit plan within the meaning of Section 3(2) of the Employee
Retirement Income Security Act of 1974, as amended. The Plan is not a qualified
plan under Section 401(a) of the Internal Revenue Code of 1986, as amended.
Benefits under the Plan are paid directly by the Company out of its general
assets when due.
<PAGE>
2 (10) (iii) (A)4
SECTION 1. DEFINITIONS.
As used in the Plan, the following terms shall have the meanings set forth
below:
(a) "1996 Program" shall mean the Lucent Technologies Inc. 1996 Long Term
Incentive Program.
(b) "Account" shall mean, for each Participant, such Participant's Deferred Cash
Equivalent Account and Deferred Share Equivalent Account.
(c) "Administrator" shall mean the Senior Vice President - Human Resources of
the Company.
(d) "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.
(e) "Beneficiary Election" shall mean a written instrument, in a form prescribed
by the Administrator, relating to elections under Section 5.
(f) "Board" shall mean the Board of Directors of the Company.
(g) "Change in Control" shall mean the happening of any of the following events:
(1) 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
employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled
by the Company, or (4) any acquisition by any
corporation pursuant to a transaction which complies
with clauses (A), (B) and (C) of subsection (3) of this
Section 1(g); or
<PAGE>
3 (10) (iii) (A)4
(2) A change in the composition of the Board during any two
year period such that the individuals who, as of the
beginning of such two year period, 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, any individual who
becomes a member of the Board subsequent to the
beginning of the two year period, whose election, or
nomination for election by the Company's shareowners,
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
(3) The approval by the shareowners 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 shareowners, 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 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 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 of the corporation resulting from such
Corporate Transaction (including, without imitation, 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, (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 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
<PAGE>
4 (10) (iii) (A)4
for purposes of determining whether clause (A) above is
satisfied in connection with the applicable Corporate
Transaction, of the Parent Company); or
(4) The approval by the shareowners of the Company of a
complete liquidation or dissolution of the Company.
(h) "Change in Control Election" shall mean a written instrument, in a
form prescribed by the Administrator, relating to elections under Section 7.
(i) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(j) "Committee" shall mean the Corporate Governance and Compensation
Committee of the Board (or any successor committee).
(k) "Company" shall mean Lucent Technologies Inc.
(l) "Deferral Election" shall mean a written election, in a form
prescribed by the Administrator, to defer receipt of Incentive Awards, Retainer
Payments or salary otherwise payable to a Participant.
(m) "Deferred Cash Equivalent Account" shall mean a book-entry account
in the name of a Participant maintained in the Company's records with entries
denominated in dollars.
(n) "Deferred Share Equivalent Account" shall mean a book-entry account
in the name of a Participant maintained in the Company's records with entries
denominated in Share equivalents.
(o) "Director" shall mean any non-employee member of the Board.
(p) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(q) "Eligible Member" shall mean an Officer, a Director, Other
Participant or a participant in either Predecessor Plan or another person who is
designated by the Administrator as an Eligible Member.
(r) "Fiscal Year" shall mean the period commencing October 1 and ending
on the next succeeding September 30, or such other period as the Company may
from time to time adopt as its fiscal year.
(s) "Incentive Award" shall mean any award under the Short Term Plan,
any other bonus payment, any performance awards, stock unit awards or other
awards under the 1996 Program (other than options) and any dividend equivalent
payment under the 1996 Program.
(t) "NYSE" shall mean the New York Stock Exchange, Inc.
(u) "Officer" shall mean any employee of the Company or any of its
Affiliates holding a position evaluated or classified above the executive
("E-band") level or its equivalent, and identified in the Company's records as
an officer of the Company (including an Officer who was a participant in any
Predecessor Plan).
<PAGE>
5 (10) (iii) (A)4
(v) "Other Participant" shall mean any employee of the Company or any
of its Affiliates (1) holding a position evaluated or classified at or above the
"D-Band" level or its equivalent, and identified in the Company's records as
affected by the limitations on covered compensation described in Section
401(a)(17) of the Code or the limitations on benefits described in Section 415
of the Code or who has an Account with a positive balance, or (2) holding a
position evaluated or classified at or above the "E-Band" level or its
equivalent, in either case, only if the Administrator determines that such group
of employees shall be eligible to participate in the Plan.
(w) "Participant" shall mean an Eligible Member who delivers a Deferral
Election to the Company or who receives a Savings Plan Make-Up Credit. A person
shall not cease being a Participant if the person ceases being an Eligible
Member, if the person has an Account with a positive balance.
(x) "Participating Company" shall mean the Company and any of its
Affiliates.
(y) "Payment Election" shall have the meaning set forth in Section
6(a).
(z) "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.
(aa) "Plan" shall mean this Lucent Technologies Inc. Deferred
Compensation Plan. (bb) "Plan Year" shall mean each twelve (12) consecutive
month period commencing January 1 and ending on December 31 of the same calendar
year.
(cc) "Potential Change in Control" shall mean:
(1) the commencement of a tender or exchange offer by any
third person which, if consummated, would result in a
Change in Control;
(2) the execution of an agreement by the Company, the
consummation of which would result in the occurrence of
a Change in Control;
(3) 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
in Control other than through a contested election for
directors of the Company; or
(4) 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 a Potential Change in
Control has occurred.
A Potential Change in Control shall be deemed to be pending until the earliest
of (i) the second anniversary thereof, (ii) the occurrence of a Change in
Control and (iii) the occurrence of a subsequent Potential Change in Control.
(dd) "Predecessor Plans" shall mean the Lucent Technologies Inc.
Officer Incentive Award Deferral Plan and the Lucent Technologies Inc. Deferred
Compensation Plan for Non-Employee Directors.
(ee) "Retainer Payments" shall mean any amounts payable to a Director
for service as a Director.
(ff) "Savings Plan" shall mean the Lucent Technologies Inc. Long Term
Savings Plan for Management Employees.
<PAGE>
6 (10) (iii) (A)4
(gg) "Savings Plan Make-Up Credit" shall mean, for any Eligible Member
and any Plan Year, an amount equal to the excess, if any, of the value of the
contribution that would have been made by the Company for the applicable Plan
Year on behalf of the Eligible Member under Section 4.4 of the Savings Plan
(based upon the Pay Reduction Agreement (as defined in the Savings Plan) made by
the Eligible Member pursuant to Section 4.5(a) of the Savings Plan) or any
similar provision under any similar plan of the Company, without regard to any
limitation imposed by Sections 401(a)(17), 401(m)(2)(A) or 415 of the Code, over
the contribution actually made to the Savings Plan pursuant to such Section 4.4,
or to such other plan pursuant to such similar provision, for the applicable
Plan Year.
(hh) "Shares" shall mean the shares of common stock, $.01 par value, of
the Company.
(ii) "Short Term Plan" shall mean the Lucent Technologies Inc. Short
Term Incentive Plan.
SECTION 2. DEFERRAL ELECTIONS.
(a) DELIVERY AND EFFECTIVENESS OF DEFERRAL ELECTIONS. A Participant may
elect to defer receipt of Incentive Awards, Retainer Payments or salary
otherwise payable to the Participant in future Fiscal Years by delivering a
Deferral Election to the Participant's employing Participating Company not later
than June 30 preceding the Fiscal Year in which the Deferral Election is to
become effective or such other time as the Administrator shall determine. A
Deferral Election shall become irrevocable for a Fiscal Year at the end of the
last day of the preceding Fiscal Year or, if later, on the date made. A deferral
election under a Predecessor Plan that has not been terminated shall be deemed a
Deferral Election for purposes of the Plan. During the period that a Deferral
Election is effective, the Participant shall not be entitled to receive
currently payments covered by such Deferral Election. The Company shall instead
make credits to the Participant's Account in accordance with Section 3.
(b) CONTENTS OF DEFERRAL ELECTIONS. Each Deferral Election shall
specify the types of compensation which shall be subject to such Deferral
Election and the effective date of the Deferral Election and shall contain the
Participant's Payment Election. A Deferral Election may also contain the date on
which the Deferral Election is to terminate.
(c) MODIFICATION AND RENEWAL OF DEFERRAL ELECTIONS. A Deferral Election
shall remain effective until the Participant terminates or modifies such
election by written notice to the Company. Any such termination or modification
shall become effective immediately following the end of the Fiscal Year in which
such notice is given. A Participant who has terminated a Deferral Election may,
so long as such Participant remains an Eligible Member or has an Account with a
positive balance, thereafter file a new Deferral Election in accordance with
Section 2(a).
(d) DEFERRAL OF INCENTIVE AWARDS. A Deferral Election may relate to all
or any portion of the Incentive Awards otherwise payable to a Participant. If
the amount of the part of any Incentive Award (other than dividend equivalent
payments) subject to a Deferral Election is less than $1,000 (based on a
valuation at the time the award would otherwise be paid), that Incentive Award
will be paid currently and no credit relating to such Incentive Award will be
made under the Plan.
(e) DEFERRAL OF SALARY. A Deferral Election may relate to all or part
of a Participant's salary; PROVIDED, HOWEVER, that a Participant may not elect
to defer salary in any Fiscal Year unless the Participant has elected to defer
all of his or her awards under the Short Term Plan and any other bonus payments
for such Fiscal Year.
<PAGE>
7 (10) (iii) (A)4
(f) DEFERRAL OF RETAINER PAYMENTS. A Director's Deferral Election may
relate to all or part of the Retainer Payments otherwise payable to the
Director. Notwithstanding Section 2(a), a newly-elected Director may deliver a
Deferral Election to the Company within 30 days after his or her election, which
Deferral Election shall be effective for all Retainer Payments after the date on
which the Deferral Election is delivered to the Company.
SECTION 3. PARTICIPANT ACCOUNTS.
(a) DEFERRED CASH EQUIVALENT ACCOUNT. (i) There shall be credited to a
Participant's Deferred Cash Equivalent Account the following:
(A) portions of Incentive Awards otherwise payable in cash
and for which a Deferral Election specifies crediting
under the Plan;
(B) that portion of a Director's Retainer Payment for which
a Deferral Election specifies crediting to the
Participant's Deferred Cash Equivalent Account;
(C) amounts related to salary for which a Deferral Election
specifies crediting under the Plan;
(D) amounts previously deferred into cash equivalent
accounts under the Predecessor Plans and credited under
this Plan, and
(E) Savings Plan Make-Up Credits.
(ii) If the Savings Plan Make-up Credit for an Eligible
Member for any Plan Year shall be greater than zero, the Deferred Cash
Equivalent Account of such Eligible Member shall be credited with an amount
equal to such Savings Plan MakeUp Credit at such time as the Administrator shall
determine.
(iii) Amounts credited to the Participant's Deferred
Cash Equivalent Account shall bear interest as provided in Section 4 from the
date the Incentive Award, Retainer Payment, salary or Savings Plan Make-Up
Credits would otherwise have been paid to the Participant or paid or credited to
the Savings Plan, as applicable. Interest shall be credited to Deferred Cash
Equivalent Accounts at the end of each fiscal quarter of the Company.
(b) DEFERRED SHARE EQUIVALENT ACCOUNT. (i) There shall be credited to a
Participant's Deferred Share Equivalent Account the following:
(A) portions of Incentive Awards otherwise payable in Shares
and for which a Deferral Election specifies crediting
under the Plan;
(B) that portion of a Director's Retainer Payment for which
a Deferral Election specifies crediting to the
Participant's Deferred Share Equivalent Account; and
(C) amounts previously deferred into share equivalent
accounts under the Predecessor Plans and credited under
this Plan.
<PAGE>
8 (10) (iii) (A)4
(ii) Cash amounts credited to a Participant's Deferred
Share Equivalent Account shall be converted to the number of Share equivalents
determined by dividing such cash amount by the Conversion Price. In addition,
the Participant's Deferred Share Equivalent Account shall be credited on each
dividend payment date for Shares, with an amount equal to the number of Shares
that could be purchased at the Conversion Price with dividends that would have
been payable on the number of Shares equal to the number of Share equivalents in
the Participant's Deferred Share Equivalent Account on the record date for such
dividend. "Conversion Price" means the average of the daily high and low sale
prices of Shares on the NYSE for the period of five trading days ending on the
date such amount otherwise would have been paid to the Participant or, in the
case of a dividend equivalent, on the dividend payment date, or the period of
five trading days immediately preceding such applicable date if the NYSE is
closed on such applicable date.
(iii) In the event of any change in outstanding Shares
by reason of any stock dividend or stock split, recapitalization, merger,
consolidation, combination or exchange of shares or other similar corporate
change, the Board shall make such adjustments, if any, that it deems appropriate
in the number of Share equivalents then credited to Participants' Deferred Share
Equivalent Accounts. Any and all such adjustments shall be within the sole
discretion of the Board and its decision in regard to such adjustments shall be
conclusive, final and binding upon all parties concerned.
SECTION 4. DEFERRED CASH EQUIVALENT ACCOUNT INTEREST RATE.
(a) INTEREST RATE GENERALLY. The interest rate to be accrued on a
Participant's Deferred Cash Equivalent Account shall be such rate as is
determined, from time to time, by the Board. Such rate may be applied by the
Board to a Participant's existing balance in a Deferred Cash Equivalent Account
or to amounts subsequently credited to such Participant's Account. The
determination by the Board pursuant to this Section 4 shall be within its sole
discretion and its decision shall be conclusive, final and binding upon all
parties concerned.
(b) INTEREST RATE FOLLOWING TERMINATION WITHOUT THE COMPANY'S
CONSENT. Notwithstanding Section 4(a), with respect to amounts credited to the
Deferred Cash Equivalent Accounts of Officers and Other Participants who
terminate employment (other than by death or disability) under circumstances
that the Administrator determines are not in the interests of the Company, the
effective annual rate of interest following the date of such termination of
employment shall be the one-year U.S. Treasury note rate.
SECTION 5. PAYMENTS FOLLOWING DEATH.
(a) FORM OF PAYMENT. A Participant may deliver a Beneficiary
Election to the Administrator electing that, in the event the Participant should
die before full payment of all amounts credited to the Participant's Account,
the balance of the Account shall be distributed in one payment or in some other
number of approximately equal annual installments (not exceeding five (5)) to
the person(s) designated in the Beneficiary Election. In the event that a
Participant fails to designate such a beneficiary, or the beneficiary(ies)
predecease(s) him, payment following the death of the Participant shall be made
to the Participant's surviving spouse or, if there is no surviving spouse, to
the Participant's estate. The first installment (or the single payment if the
Participant has so elected) shall be paid on the first day of the calendar
quarter next following the month of death; PROVIDED, HOWEVER, that the
Administrator may, in his or her sole discretion, direct that the first
installment (or the single payment) shall be paid on the first day of the Fiscal
Year next following the date of death.
<PAGE>
9 (10) (iii) (A)4
(b) CHANGE OF BENEFICIARY DESIGNATION. The elections referred to in
Section 5(a), including the designation of a beneficiary or beneficiaries, may
be changed by a Participant at any time by delivering a new Beneficiary Election
to the Administrator.
SECTION 6. PAYMENTS.
(a) COMMENCEMENT OF BENEFITS. (i) At the time a Participant makes a
Deferral Election, the Participant shall also make an election under Section
6(a)(ii) with respect to the distribution of the amounts credited to such
Participant's Account pursuant to such Deferral Election (each such election, a
"Payment Election"). Any similar election related to the distribution of
deferred amounts under the Predecessor Plans which has not been modified or
terminated shall be deemed a Payment Election under this Plan. A Participant
may, at any time earlier than twelve (12) months prior to the date on which a
distribution of a portion (or all) of a Participant's Account would be payable
under the terms of such Payment Election, submit a written election to the
Company requesting that the initial distribution date be further deferred
(hereinafter a "Redeferral Election"). A Participant may make a single
Redeferral Election with respect to each Payment Election, and the Redeferral
Election shall supersede the Payment Election and be irrevocable upon delivery
to the Administrator.
(ii) Each Payment Election shall specify whether payments related
to Account balances other than Savings Plan Make-Up Credits shall commence (i)
on the first day of the calendar quarter next following the month in which the
Participant attains the age specified in such election, which age shall not be
earlier than 55 or later than 70, (ii) on the first day of the calendar quarter
next following the month in which the Participant retires from a Participating
Company or otherwise terminates employment (including termination of service as
a member of the Board) with any Participating Company (except for a transfer to
another Participating Company); PROVIDED, HOWEVER, that the Administrator may,
in his or her sole discretion, direct that the Participant's benefits shall
commence on the first day of the Fiscal Year next following the date of
retirement or other termination of employment, or (iii) on the first day (the
"First Day") of the calendar year next following the calendar year in which the
Participant retires from a Participating Company or otherwise terminates
employment (including termination of service as a member of the Board) with any
Participating Company (except for a transfer to another Participating Company) ;
PROVIDED, HOWEVER, that the Administrator may, in his or her sole discretion,
direct that the Participant's benefits shall commence on the first day of the
Fiscal Year next following the First Day.
(iii) Notwithstanding the foregoing, amounts credited to a
Participant's Account as Savings Plan Make-Up Credits or earnings thereon shall
be distributed in one payment following the Participant's termination of
employment.
(b) FORM OF DISTRIBUTIONS. Amounts credited to a Participant's Deferred
Cash Equivalent Account shall be distributed in cash. Amounts credited to a
Participant's Deferred Share Equivalent Account as Share equivalents shall be
distributed in the form of an equal number of Shares, unless the Company shall
determine that payment of an equivalent cash amount is necessary or convenient
for its purposes.
(c) PAYMENT PERIOD. (i) A Participant may elect in a Payment Election
to receive the amounts credited to the Participant's Account other than Savings
Plan MakeUp Credits in one payment or in some other number of approximately
equal annual installments (not exceeding ten (10) or such longer period as
approved by the Committee, in individual cases), PROVIDED, HOWEVER, that the
number of annual installments may not extend beyond the life expectancy of the
Participant, determined as of the date the first installment is paid.
<PAGE>
10 (10) (iii) (A)4
(ii) Installments subsequent to the first installment to the
Participant, or to a beneficiary or to the Participant'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 Participant's Account shall have
been paid. Prior to distribution, Accounts shall continue to receive credits
under Section 3(a)(ii) and Section 3(b)(ii).
(d) ACCELERATION OF PAYMENT FOR SEVERE FINANCIAL HARDSHIP. In the event
a Participant, or the Participant's beneficiary after the Participant's death,
incurs a severe financial hardship, the Administrator may, in his or her sole
discretion, accelerate or otherwise revise the payment schedule for the
Participant's Account to the extent reasonably deemed necessary to eliminate or
alleviate the severe financial hardship. For the purpose of this Section 6(d) a
severe financial hardship must have been caused by an accident, illness or other
event beyond the control of the Participant or, if applicable, the beneficiary.
(e) IMMEDIATE DISTRIBUTION OF DEFERRED CASH EQUIVALENT ACCOUNT BALANCE.
A Participant may at any time elect to receive a distribution of all or any
portion of the balance in his or her Deferred Cash Equivalent Account. Amounts
credited to Deferred Share Equivalent Accounts shall not be available for
distribution under this Section 6(e). Requests for distributions shall be
submitted in writing (on a form prescribed by the Administrator for such
purpose) to the Administrator. Distributions from the Participant's Deferred
Cash Equivalent Account pursuant to this Section 6(e) will at all times be
subject to (i) reduction for applicable tax withholdings pursuant to Section
9(h), and (ii) a reduction in the amount paid equal to six percent (6%) of the
amount requested. Distributions pursuant to this Section 6(e) shall be payable
in a single lump sum, in cash, within thirty (30) days of submission of the
completed form.
(f) IMMEDIATE DISTRIBUTION OF ACCOUNT BALANCE FOLLOWING CERTAIN
TERMINATIONS OF EMPLOYMENT. Notwithstanding any contrary election pursuant to
this Section 6, the entire amount then credited to a Participant's Account shall
be paid immediately in a single payment (A) if the Participant is discharged for
cause by his or her Participating Company, (B) if the Administrator determines
that the Participant engaged in misconduct in connection with the Participant's
employment with the Participating Company, (C) if the Participant terminates
employment under circumstances that the Administrator determines are not in the
interest of the Company, or (D) if the Participant without the consent of the
board of directors of his or her Participating Company, during either the
Participant's period of employment with a Participating Company or the nine (9)
month period following termination for any reason of the Participant's
employment with a Participating Company, on behalf of any competitor of the
Company (x) renders any services relating to: (1) strategic planning, research
and development, manufacturing, marketing, or selling with respect to any
product, process, material or service which resembles, competes with, or is the
same as a product, process, material or service of the Company about which the
Participant gained any proprietary or confidential information or on which the
Participant worked during the three (3) years prior to termination of
employment, or (2) any actual or potential customer of Lucent about whom the
Participant gained any proprietary or confidential knowledge or with whom the
Participant worked during the three (3) years prior to termination of
employment, or (y) solicits or offers, or induces or encourages others to
solicit or offer, employment to any employee of the Company.
<PAGE>
11 (10) (iii) (A)4
SECTION 7. CHANGE IN CONTROL.
(a) Notwithstanding any Payment Election, a Participant may, prior to
the earlier of a Change in Control or September 30, 1998, deliver a Change in
Control Election to the Administrator, electing to have the aggregate amount
credited to the Participant's Account both before and after the filing of such
Change in Control Election paid in one lump-sum payment as soon as practicable
following a Change in Control, but in no event later than 90 days after such
Change in Control. Notwithstanding any Payment Election, any person who becomes
a Participant after September 30, 1998, may file a written notice with the
Administrator within 90 days of becoming a Participant, electing to have the
aggregate amount credited to the Participant's Account paid in one lump-sum
payment as soon as practicable following a Change in Control, but in no event
later than 90 days after such Change in Control.
(b) A Participant may, prior to the earlier of a Change in Control or
the beginning of the Fiscal Year in which the election is to take effect,
deliver a Change in Control Election to the Administrator, electing to have the
aggregate amount credited to the Participant's Account, in all Fiscal Years
commencing with the first Fiscal Year beginning after the date the Change in
Control Election is delivered to the Administrator, paid in one lump-sum payment
as soon as practicable following a Change in Control, but in no event later than
90 days after such Change in Control. Amounts credited to the Participant's
Account prior to the effective date of such Change in Control Election shall not
be affected by such Change in Control Election and shall be distributed
following a Change in Control in accordance with any prior Change in Control
Election or, if the Participant has not made a Change in Control Election, in
accordance with the Plan.
(c) A Participant may, prior to the earlier of a Change in Control or
the beginning of any Fiscal Year, deliver a written notice to the Administrator
revoking any Change in Control Election with respect to amounts credited to the
Participant's Account in Fiscal Years commencing after the written notice is
delivered. Amounts credited to the Participant's Account prior to the effective
date of the written notice delivered pursuant to this Section 7(c) shall not be
affected by such written notice and shall be distributed following a Change in
Control in accordance with any existing Change in Control Election or, if the
Participant has not made a Change in Control Election, in accordance with the
Plan.
SECTION 8. ADMINISTRATION.
(a) ADMINISTRATION. The Administrator shall have the authority to
administer and to interpret the Plan.
(b) RESPONSIBILITES AND POWERS OF THE ADMINISTRATOR. In administering
the Plan, the Administrator shall have the following responsibilities:
(1) To administer the Plan in accordance with the terms
hereof, and to exercise all powers specifically
conferred upon the Administrator hereby or necessary to
carry out the provisions hereof;
(2) To construe this Plan, which construction shall be
conclusive, correct any defects, supply omissions, and
reconcile inconsistencies to the extent necessary to
effectuate the Plan;
(3) To determine in his or her sole discretion the amount of
benefits payable to Participants under the Plan. Any
interpretation or determination made by the Plan
Administrator pursuant to its discretionary authority
shall be final and binding on the Company, any
Participant, and any other affected party; and
<PAGE>
12 (10) (iii) (A)4
(4) To keep all records relating to Participants and such
other records as are necessary for proper operation of
the Plan.
(c) ACTIONS OF THE ADMINISTRATOR. In carrying out the
responsibilities set forth in Section 8(b):
(1) The Administrator may adopt rules and regulations
necessary for the administration of the Plan which are
consistent with the provisions hereof.
(2) All acts and decisions of the Administrator shall apply
uniformly to all Participants in like circumstances.
Written records shall be kept of all acts and decisions.
(3) The Administrator may delegate, in writing, any of his
or her responsibilities and powers with respect to the
Plan to another individual or individuals.
(d) The Administrator shall have the right to hire, at the expense of
the Company, such professional assistants and consultants as he or she, in his
or her sole discretion, deems necessary or advisable, including but not limited
to accountants, actuaries, consultants, counsel and such clerical assistance as
is necessary for proper discharge of his or her duties hereunder.
SECTION 9. MISCELLANEOUS.
(a) BENEFITS PAYABLE BY THE COMPANY. All benefits payable under this
Plan constitute an unfunded obligation of the Company. Payments shall be made,
as due, from the general funds of the Company or, in the case of Share payments,
from newly issued Shares, Shares purchased in the market, treasury Shares or
otherwise. The Company may, at its option, maintain one or more bookkeeping
reserve accounts to reflect its obligations under the Plan and may make such
investments as it may deem desirable to assist it in meeting its obligations.
Any such investments shall be assets of the Company subject to the claims of its
general creditors. No person eligible for a benefit under this Plan shall have
any right, title to, or interest in any such investments. Nothing contained in
this Section 9(a) shall limit the ability of the Company to pay benefits through
one or more grantor trusts as provided in Section 9(b). Participants are
general, unsecured creditors of the Company. This Plan constitutes a mere
promise to pay benefits in the future.
(b) GRANTOR TRUSTS. (i) The Company shall create a grantor trust or
utilize an existing grantor trust to assist it in accumulating the shares of
Common Stock and cash needed to fulfill its obligations under this Plan to
Directors (including former Directors), to which it shall be obligated to make
contributions, no later than the date upon which any Potential Change in Control
occurs, of a number of Shares and an amount of cash such that the assets of such
trust are sufficient to discharge all of the Company's obligations under this
Plan to Directors (including former Directors) accrued as of the date of the
Potential Change in Control. While a Potential Change in Control is pending and
after any Change in Control, 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 such trust remain sufficient to discharge all such
obligations accrued as of the last day of such fiscal quarter. If a Potential
Change in Control occurs but ceases to be pending without the occurrence of a
Change in Control or a subsequent Potential Change in Control then the Company
shall be permitted (but not required) to cause the trustee of such trust to
distribute any or all of the assets of the Trust to the Company.
<PAGE>
13 (10) (iii) (A)4
(ii) The Company may create a grantor trust or utilize an existing
grantor trust to assist it in accumulating the Shares and cash needed to fulfill
its obligations under this Plan to Participants who are not Directors (or former
Directors). The Board shall determine whether it is necessary or desirable to
create such a trust and to deposit Shares and cash in such trust to enable the
Company to meets its obligations under this Plan and the extent of any such
deposit to such trust.
(iii) Participants shall have no beneficial or other interest in
any trust referred to in this Section 9(b) and the assets thereof, and their
rights under the Plan shall be as general creditors of the Company, unaffected
by the existence of any trust, except that payments to Participants from any
such trust shall, to the extent thereof, be treated as satisfying the Company's
obligations under this Plan.
(c) OBLIGATION FOR PAYMENT OF BENEFITS. The obligation to make a
distribution of amounts credited to a Participant's Account shall be borne by
the Participating Company which otherwise would have paid such amounts
currently. However, the obligation to make a distribution with respect to
Accounts which are related to amounts credited under a 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 was assigned on October 1, 1996.
(d) AMENDMENT OR TERMINATION. (i) The Board may amend the Plan or
terminate the Plan at any time, but such amendment or termination shall not
adversely affect the rights of any Participant, without his or her consent, to
any benefit under the Plan to which such Participant may have previously become
entitled prior to the effective date of such amendment or termination. The
Administrator with the concurrence of the General Counsel of the Company or his
delegate 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). Any amendment to the Plan by the
Board shall be made in writing, with or without a meeting, or shall be made in
writing by the Administrator, to the extent of the aforementioned authorization.
(ii) If the Plan is terminated, a valuation shall be made of each
Participant's Account balance as of the Plan termination date. The amount of
such Account balance shall be payable to the Participant at the time it would
have been payable under Section 5 and Section 6 had the Plan not been
terminated; PROVIDED, HOWEVER, that the Committee may elect instead to
immediately distribute all Participants' Account balances in lump sums upon
termination of the Plan.
(e) ENTIRE AGREEMENT. This Plan constitutes the entire agreement of the
Company with respect to the benefits provided herein and cannot be modified
orally or in any writing other than as set forth in Section 9(d).
(f) PAYMENTS TO INCOMPETENTS. If a Participant entitled to receive any
benefits hereunder is adjudged to be legally incapable of giving valid receipt
and discharge for such benefits, they will be paid to the duly appointed
guardian of such Participant or to such other legally appointed person as the
Administrator may designate. Such payment shall, to the extent made, be deemed a
complete discharge of any liability for such payment under the Plan.
(g) BENEFITS NOT TRANSFERABLE. The right of any person to any benefit
or payment under the Plan shall not be subject to voluntary or involuntary
transfer, alienation or assignment and, to the fullest extent permitted by law,
shall not be subject to attachment, execution, garnishment, sequestration or
other legal or equitable process. In the event a person who is receiving or is
entitled to receive benefits under the Plan attempts to assign, transfer or
dispose of such right, or if an attempt is made to subject said right to such
process, such assignment, transfer, or disposition shall be null and void.
<PAGE>
14 (10) (iii) (A)4
(h) TAX WITHHOLDING. The Company is authorized to withhold from any
Account or payment due under the Plan the amount of applicable withholding taxes
in respect of such payment or Account 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 federal, state or other governmental entity tax obligation.
(i) GOVERNING LAW. The provisions of the Plan shall be construed in
accordance with the laws of the State of Delaware.
Approved:
/s/ Curtis R. Artis
- ---------------------------------------
Curtis R. Artis
Senior Vice President - Human Resources
1 (10) (iii) (A)5
Consulting Agreement of Mr. Schacht effective March 1, 1998
March 1, 1998
Mr. Henry B. Schacht
Dear Henry,
I am writing this letter to set out the details of our agreement with respect to
your retention by Lucent Technologies Inc. (the "Company") as an independent
consultant and the benefits to be provided to you by the Company after your
retirement as Chairman of the Board of the Company.
Because of the contributions which you have made to the Company since its
formation and your extensive knowledge and contacts concerning the Company's
business both within and outside the United States, the Company wishes to have
the opportunity to consult with you in the future with respect to various
matters within your expertise. Accordingly, we have offered, and you have
accepted, a consulting arrangement on the terms and conditions set forth below.
1. Scope of Engagement
(a) Your termination of employment with the Company will become
effective February 28, 1998, and shall not affect your status as a member of the
Board of Directors of the Company.
(b) Commencing March 1, 1998, and continuing for twelve months until
February 28, 1999, the Company shall retain you in the capacity of an
independent contractor to provide it with consulting services as follows:
i. The Company agrees to cause you to be elected as, and you
agree to serve as, Chairman of the Board of Lucent Venture Partners Inc.
("LVPI"), a wholly-owned subsidiary of the Company formed in February 1998 for
the purpose of making venture capital investments in enterprises in the
Company's field of business. As Chairman of the Board of LVPI, you will attend
such number of meetings and perform such other duties as the Board of LVPI shall
determine, such duties to be customary with those normally associated with the
office of chairman of the Board of a venture capital fund of comparable size and
scope.
ii. The Company agrees to retain you, and you agree to provide
services to the Company, at such times as you and the Company shall mutually
agree, with respect to the development, for the benefit of the Company's
business, of opportunities in the communications equipment markets of India and
Russia. Such consultation shall include, as reasonably requested by the Company,
travel, to one or both such markets or to other destinations in furtherance of
the Company's opportunities in such markets. The Company agrees to give you
reasonable notice of its requests for travel outside the United States.
iii. Although the Company reserves the right to determine when
and if to seek to consult with you, this agreement is understood by you to
require your personal services and is not assignable.
(c) As consideration for your services pursuant to the consulting
arrangements, as well as the other terms of this agreement, the Company will pay
you compensation as described in subparagraphs i and ii and, in conjunction with
such services, the Company will provide you with the accommodations described in
paragraphs iii and iv.
<PAGE>
2 (10) (iii) (A)5
i. For your service as Chairman of the Board of LVPI from March
1, 1998 through February 28, 1999, you shall receive the amount of $150,000,
payable in cash, in quarterly installments of $37,500, beginning March 1,1998;
ii. For your services as consultant in connection with developing
the Company's business opportunities in India and Russia for the period from
March 1, 1998 through February 28, 1999, you shall receive the amount of
$200,000, also payable in cash, in quarterly installments of $50,000, beginning
March 1, 1998.
iii. You will be entitled to First Class airline accommodations
while traveling on Company business in connection with either of your consulting
assignments and will receive reimbursement for your associated travel and
out-of-pocket business expenses according to the Company's policies for expense
reimbursement for members of the Company's Office of the Chief Executive. In
addition, you may make use of the Company's aircraft when such aircraft is
available in connection with the performance of your services in either capacity
according to the same policies as apply to members of the Company's Office of
the Chief Executive.
iv. In order to facilitate your consulting services, the Company
shall make available to you at no cost to you, (A) office space at the Company's
facility at 32 Old Slip, New York, New York or at another Company location in
New York, New York determined by the Company. Such office space shall include
accommodations for yourself and a secretary, including access to conference
rooms available at such facility, and shall be equipped with personal computers,
electronic mail and Internet access capability, and reproduction, facsimile and
other customary office equipment and services as are also made available
generally at such facility and (B) secretarial service mutually satisfactory to
you and the Company as is required to support your consulting assignments. Also,
you may use both the office and secretarial support in connection with your
other business and investment activities. In addition, after the conclusion of
your consulting assignment, and notwithstanding the termination of this
agreement, the Company agrees to furnish you as a former Chairman of the Board
of the Company with office space and secretarial support at a mutually agreed
location for the period during which you have an active need for such space and
support.
2. Compensation and Benefit Plans
Attachment A summarizes your treatment under the various Company
compensation and benefit programs upon your termination of employment. Reference
should be made to the benefit plan documents and your award agreements for the
complete description of your benefits. Nothing contained in this agreement
affects your compensation or benefits as a member of the Company's Board of
Directors, which shall be administered in accordance with the benefit plans,
policies and practices applicable to directors of the Company from time to time
in effect, as approved by the Board of Directors.
<PAGE>
3 (10) (iii) (A)5
3. Non-Compete and Confidentiality
At the same time, because the employment relationship between you and
the Company will terminate, we are also asking, as part of the consideration for
receipt of the compensation described in this letter, that you agree: (i) that
the terms of Paragraph 4 of your Non-Statutory Stock Option Agreement dated
October 6, 1997, with respect to activities in competition with the Company will
apply during the term of this agreement; (ii) to treat any proprietary or
confidential information that relates to the Company's business in accordance
with the Company's policies for handling confidential and proprietary
information; and (iii) to promptly bring to the Company's attention for its
consideration and action any corporate opportunities that you identify during
your consulting, such as new businesses, acquisitions, joint ventures, and the
like, in areas of present or anticipated interest to the Company.
4. Early Termination of Agreement
This agreement may be terminated by you or the Company at any time for
any reason whatsoever and will be terminated in the event of your death, and in
either event your compensation under this agreement shall terminate. Your
obligations under paragraph 3, however, will survive any termination of this
agreement, as set forth therein. Termination of the agreement will not affect
your rights or the rights of any beneficiary under any benefit plan of the
Company.
5. Severability
In the event that any one or more of the provisions of this agreement is
or are held to be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions will not in any way be affected or
impaired thereby.
6. Entire Agreement/Choice of New Jersey Law
This letter sets forth the entire agreement between us with respect to
the terms and conditions of your becoming a consultant to the Company but does
not supersede any Company benefit plan or award agreement between you and the
Company except as expressly agreed herein. When signed by you and a duly
authorized representative of the Company, this agreement shall become legally
binding on all parties hereto. In the case of a dispute as to its meaning, this
agreement shall be governed by and construed in accordance with the laws of the
State of New Jersey.
After you have carefully reviewed this letter, please sign the enclosed
copy and return it to me.
My best,
/s/ Richard A. McGinn
Richard A. McGinn
Chairman and Chief Executive Officer
The above Letter Agreement is Agreed to:
/s/ Henry B. Schacht
Henry B. Schacht
<PAGE>
4 (10) (iii) (A)5
Att. A
Private
LUCENT OFFICER COMPENSATION AND BENEFIT SUMMARY
FOR
HENRY SCHACHT
EFFECTIVE 02/28/98
<TABLE>
<S> <C>
Benefit Programs/Plans
Health Insurance Plans:
Medical and Dental Coverage will continue under the medical and
dental care plans for management employees
for an indefinite period. Lucent will bill
you for the full cost of the premiums, and
such coverage will be secondary to your
coverage through Cummins Engine Company and
Medicare.
Long Term Disability Coverage will terminate 2/28/98.
Short Term Incentive Lucent Award: Will be prorated for time on
payroll. Payable December 1998.
Individual Award: Will be prorated for time
on payroll. Payable December 1998.
Long Term Awards
Stock Options Fully vested for the remainder of the term.
Special Equity Grant Fully vested for the remainder of the term.
325,000 options remaining
Performance Cash
1997-1999 Cycle Payout, December 1999
1998-2000 Cycle Payout, December 2000
Stock Units (1996-1998) Payout, January 1999
24,903 units
Deferred Compensation Long Term Deferral: Current Value $7,866.65.
(Dividends on long term
incentive from the
1996-1998 three year
cycle).
</TABLE>
Lucent Technologies - Proprietary (Restricted)
Solely for Authorized Persons Having a Need to Know Pursuant to Company
Instructions
Private
<PAGE>
5 (10) (iii) (A)5
LUCENT OFFICER COMPENSATION AND BENEFIT SUMMARY
FOR
HENRY SCHACHT
EFFECTIVE 02/28/98
Benefit Programs/Plans
Insurances:
Officer Basic Life Insurance agents will be notified of
Insurance termination date (2/28/98). Agents will
forward an analysis for continuation of
coverage. May continue policy by paying
premiums based on alternatives of
continuation. The Trust will have to act on
the continuation of the policy.
Officer Individual Life Insurance agents will be notified of
Insurance termination date (2/28/98). Agents will
forward an analysis for continuation of
coverage. May continue policy by paying
premiums based on alternatives of
continuation. The Trust will have to act on
the continuation of the policy.
Officer Life Insurance Premiums are fully paid. Will receive
Option Plan (estate imputed income each year for the lifetime of
enhancement plan) both himself and Mrs. Schacht.
Accidental Life The Company paid coverage (1X salary) will
Insurance terminate at end of month (2/28/98). No
conversion policy available.
Financial Counseling Coverage will continue for one year.
Long Term Savings Plan
(401k) May elect distribution at time of
termination; or may leave in 401k account
until 70 1/2 years of age, when the minimum
distribution is required.
Telephone Reimbursement Coverage terminates at end of month
(2/28/98).
Vacation Will receive pay in-lieu of 31 unused
vacation days.
Lucent Technologies - Proprietary (Restricted)
Solely for Authorized Persons Having a Need to Know Pursuant to Company
Instructions
Exhibit 12
Form 10-Q
For the Six
Months Ended
March 31, 1998
Lucent Technologies Inc.
Computation of Ratio of Earnings to Fixed Charges
(Dollars in Millions)
(Unaudited)
<TABLE>
<CAPTION>
For the Six
Months Ended
March 31, 1998
<S> <C>
Earnings Before Income Taxes........................... $ 1,602
Less Interest Capitalized during
the Period........................................... 9
Less Undistributed Earnings of Less than 50%
Owned Affiliates..................................... 8
Add Fixed Charges...................................... 233
Total Earnings ........................................ $ 1,818
Fixed Charges
Total Interest Expense Including Capitalized Interest.. $ 168
Interest Portion of Rental Expense..................... 65
Total Fixed Charges................................ $ 233
Ratio of Earnings to Fixed Charges..................... 7.8
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited balance sheet of Lucent at March 31, 1998 and the unaudited
consolidated statement of income for the six month period ended March 31, 1998
and is qualified in its entirety by reference to such financial statements. The
financial data schedule reflects the two-for-one split of Lucent's common stock
which became effective on April 1, 1998.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-1-1997
<PERIOD-END> MAR-31-1998
<CASH> 969
<SECURITIES> 0
<RECEIVABLES> 5,945
<ALLOWANCES> 369
<INVENTORY> 2,874
<CURRENT-ASSETS> 12,709
<PP&E> 10,937
<DEPRECIATION> 6,132
<TOTAL-ASSETS> 24,664
<CURRENT-LIABILITIES> 9,418
<BONDS> 1,918
0
0
<COMMON> 13
<OTHER-SE> 5,023
<TOTAL-LIABILITY-AND-EQUITY> 24,664
<SALES> 14,881
<TOTAL-REVENUES> 14,881
<CGS> 7,952
<TOTAL-COSTS> 7,952
<OTHER-EXPENSES> 5,384
<LOSS-PROVISION> 84
<INTEREST-EXPENSE> 153
<INCOME-PRETAX> 1,602
<INCOME-TAX> 787
<INCOME-CONTINUING> 815
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 815
<EPS-PRIMARY> 0.63
<EPS-DILUTED> 0.62
</TABLE>
