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 September 30, 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 1-1105
AT&T CORP.
A New York I.R.S. Employer
Corporation No. 13-4924710
32 Avenue of the Americas, New York, New York 10013-2412
Telephone - Area Code 212-387-5400
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 October 31, 1998, 1,753,577,000 common shares were outstanding
<PAGE> AT&T Form 10-Q - Part I
PART I - FINANCIAL INFORMATION
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Millions Except Per Share Amounts)
(Unaudited)
For the Three For the Nine
Months Ended Months Ended
September 30, September 30,
1998 1997 1998 1997
Revenues................................... $13,653 $13,090 $39,695 $38,674
Operating Expenses
Access and other interconnection........... 3,819 3,975 11,649 12,488
Network and other
communications services................... 2,515 2,455 7,268 7,067
Depreciation and amortization ............. 1,194 1,019 3,388 2,927
Selling, general and administrative ....... 3,330 3,894 10,419 11,347
Restructuring and other charges............ (517) - 2,827 -
Total operating expenses .................. 10,341 11,343 35,551 33,829
Operating income........................... 3,312 1,747 4,144 4,845
Other income - net ........................ 156 132 1,169 371
Interest expense .......................... 114 75 322 241
Income from continuing operations
before income taxes ...................... 3,354 1,804 4,991 4,975
Provision for income taxes ................ 1,258 726 1,840 1,977
Income from continuing operations ......... 2,096 1,078 3,151 2,998
Income from discontinued operations
(net of taxes of $0, $6, $6, and $49)..... - 20 10 89
Gain on sale of discontinued operations
(net of taxes of $0, $43, $799 and $43)... - 66 1,290 66
Income before extraordinary loss........... 2,096 1,164 4,451 3,153
Extraordinary loss (net of taxes of $80)... 137 - 137 -
Net income ................................ $ 1,959 $ 1,164 $ 4,314 $ 3,153
Weighted average common shares and
potential common shares (millions)*....... 1,804 1,787 1,810 1,784
Per common share - basic:
Income from continuing operations ........ $ 1.17 $ 0.60 $ 1.76 $ 1.69
Income from discontinued operations....... - 0.01 0.01 0.04
Gain on sale of discontinued operations... - 0.04 .71 0.04
Extraordinary loss........................ (0.08) - (0.08) -
Net income ............................... $ 1.09 $ 0.65 $ 2.40 $ 1.77
Per common share - diluted:
Income from continuing operations ........ $ 1.16 $ 0.60 $ 1.74 $ 1.69
Income from discontinued operations....... - 0.01 - 0.04
Gain on sale of discontinued operations... - 0.04 0.71 0.04
Extraordinary loss........................ (0.07) - (0.07) -
Net income ............................... $ 1.09 $ 0.65 $ 2.38 $ 1.77
Dividends declared per common share........ $ 0.33 $ 0.33 $ 0.99 $ 0.99
*Amounts represent the weighted-average shares assuming dilution from the
potential exercise of stock options. Amounts are reduced by 13 million, 2
million, 15 million, and 5 million for the three month and nine month periods
ended September 30, 1998, and 1997, respectively, assuming no dilution.
See Notes to Consolidated Financial Statements
<PAGE> AT&T Form 10-Q - Part I
CONSOLIDATED BALANCE SHEETS
(Dollars in Millions Except Share Amounts)
(Unaudited)
September 30, December 31,
1998 1997
ASSETS
Cash and cash equivalents .............. $ 4,190 $ 318
Marketable securities................... - 307
Receivables, less allowances
of $1,029 and $988
Accounts receivable................... 8,979 8,675
Other receivables..................... 404 5,684
Deferred income taxes................... 1,398 1,252
Other current assets.................... 592 541
Total current assets.................... 15,563 16,777
Property, plant and equipment, net
of accumulated depreciation of
$24,718 and $22,233 .................. 25,093 24,203
Licensing costs, net of accumulated
amortization of $1,219 and $1,076..... 8,079 8,368
Investments............................. 3,430 3,866
Long-term receivables................... 671 1,794
Prepaid pension costs................... 2,022 2,156
Other assets............................ 3,303 2,830
Net assets of discontinued operation.... - 1,101
TOTAL ASSETS............................ $58,161 $61,095
(CONT'D)
<PAGE> AT&T Form 10-Q - Part I
CONSOLIDATED BALANCE SHEETS (CONT'D)
(Dollars in Millions Except Share Amounts)
(Unaudited)
September 30, December 31,
1998 1997
LIABILITIES
Accounts payable....................... $ 5,768 $ 6,402
Payroll and benefit-related
liabilities.......................... 1,571 2,390
Debt maturing within one year.......... 1,009 4,085
Dividends payable...................... 581 538
Other current liabilities.............. 5,794 3,902
Total current liabilities.............. 14,723 17,317
Long-term debt......................... 6,079 7,857
Long-term benefit-related liabilities.. 4,825 3,142
Deferred income taxes.................. 5,075 5,711
Other long-term liabilities and
deferred credits..................... 3,392 3,390
Total liabilities ..................... 34,094 37,417
SHAREOWNERS' EQUITY
Common shares - par value $1 per share. 1,754 1,789
Authorized shares: 6,000,000,000
Outstanding shares:
1,753,668,000 at September 30, 1998;
1,789,013,000 at December 31, 1997
Additional paid-in capital............. 15,170 17,121
Guaranteed ESOP obligation............. (44) (70)
Retained earnings...................... 7,253 4,876
Accumulated other comprehensive
income............................... (66) (38)
Total shareowners' equity.............. 24,067 23,678
TOTAL LIABILITIES & SHAREOWNERS' EQUITY $58,161 $61,095
See Notes to Consolidated Financial Statements
<PAGE> AT&T Form 10-Q - Part I
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREOWNERS' EQUITY
(Dollars in Millions)
(Unaudited)
For the Nine Months Ended
September 30,
1998 1997
Common Shares
Balance at beginning of year.............. $ 1,789 $ 1,774
Shares issued(acquired), net:
Under employee plans.................... 2 2
Under shareowner plans.................. - -
For acquisitions........................ (37) 5
Balance at end of period.................... 1,754 1,781
Additional Paid-In Capital
Balance at beginning of year.............. 17,121 16,624
Shares issued(acquired), net:
Under employee plans.................... 65 49
Under shareowner plans.................. - 9
For acquisitions........................ (2,110) 89
Other................................... 94 24
Balance at end of period.................... 15,170 16,795
Guaranteed ESOP Obligation
Balance at beginning of year.............. (70) (96)
Amortization.............................. 26 25
Balance at end of period.................... (44) (71)
Retained Earnings
Balance at beginning of year.............. 4,876 2,790
Net income................................ 4,314 $4,314 3,153 $3,153
Dividends declared........................ (1,651) (1,609)
Treasury shares issued at less than cost.. (289) (86)
Other changes............................. 3 5
Balance at end of period.................... 7,253 4,253
Accumulated Other Comprehensive Income
Balance at beginning of year.............. (38) -
Other comprehensive income
(net of taxes of ($57) and ($6)) ....... (28) (28) (22) (22)
Total Comprehensive Income................ $4,286 $3,131
Balance at end of period.................... (66) (22)
Total Shareowners' Equity................... $24,067 $22,736
See Notes to Consolidated Financial Statements
<PAGE> AT&T Form 10-Q - Part I
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Millions)
(Unaudited)
For the Nine
Months Ended
September 30,
1998 1997
Operating Activities
Net income ............................... $ 4,314 $ 3,153
Deduct: Income from discontinued
operations ..................... 10 155
Gain on sale of discontinued
operation....................... 1,290 -
Add: Extraordinary loss on retirement
of debt, net.................... 137 -
Income from continuing operations ........ 3,151 2,998
Adjustments to reconcile net income to
net cash provided by operating
activities of continuing operations:
Restructuring and other charges........ 2,732 -
Gains on sales......................... (770) (97)
Depreciation and amortization.......... 3,388 2,927
Provision for uncollectibles........... 1,050 1,185
Increase in accounts receivable........ (1,414) (974)
(Decrease)increase in accounts payable. (366) 173
Net increase in other operating
assets and liabilities............... (65) (439)
Other adjustments for noncash
items - net.......................... (865) (76)
Net cash provided by operating
activities of continuing operations..... 6,841 5,697
Investing Activities
Capital expenditures.................... (4,979) (5,088)
Proceeds from sale of
property, plant and equipment......... 56 78
Decrease in other receivables........... 6,403 434
Acquisitions of licenses, net........... (53) (402)
Decrease in marketable securities....... 307 291
Net decrease(increase) in investments... 1,186 (160)
Net dispositions, net of cash acquired.. 4,119 1,507
Other investing activities - net........ (74) (97)
Net cash provided by(used in) investing
activities of continuing operations..... 6,965 (3,437)
(CONT'D)
<PAGE> AT&T Form 10-Q - Part I
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONT'D)
(Dollars in Millions)
(Unaudited)
For the Nine
Months Ended
September 30,
1998 1997
Financing Activities
Proceeds from long-term debt issuance.. 17 -
Retirements of long-term debt.......... (2,230) (631)
Acquisition of common shares - net..... (3,203) (11)
Dividends paid......................... (1,608) (1,605)
(Decrease)increase in short-term
borrowings - net..................... (3,030) 126
Other financing activities - net....... 28 45
Net cash used in financing activities
of continuing operations............... (10,026) (2,076)
Net cash provided by(used in)
discontinued operations................ 92 (12)
Net increase in cash and
cash equivalents....................... 3,872 172
Cash and cash equivalents
at beginning of year................... 318 196
Cash and cash equivalents
at end of period....................... $ 4,190 $ 368
See Notes to Consolidated Financial Statements
<PAGE> AT&T Form 10-Q - Part I
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Millions Except Per Share Amounts)
(Unaudited)
(a) BASIS OF PRESENTATION
The consolidated financial statements have been prepared by AT&T
Corp. ("AT&T" 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 statement of the consolidated results of operations,
financial position and cash flows for each period presented. The
consolidated results for interim periods are not necessarily
indicative of results for the full year. These financial results
should be read in conjunction with AT&T's Form 8-K filed on
October 16, 1998, which includes AT&T's restated consolidated
financial results for the year ended December 31, 1997, as well as
for the six months ended June 30, 1998. These financial results
were restated to reflect the July 23, 1998, merger with Teleport
Communications Group Inc. (TCG) which was accounted for as a
pooling of interests. In addition, these financial statements
should be read in conjunction with AT&T's Form 10-K for the year
ended December 31, 1997.
(b) RESTRUCTURING AND OTHER CHARGES
During the first quarter 1998 AT&T recorded a pre-tax charge of
$601 related to the Company's decision not to pursue Total
Service Resale (TSR) as a local service strategy. The Company's
in-market experiences and results have proven that the TSR
solution is not economically viable for the short-term or the
long-term. The pre-tax charge includes a $543 write-down of
software, $42 primarily related to equipment associated with the
software platform and $16 for the termination of certain
contracts. The impact was a reduction of approximately $0.21 per
diluted share.
AT&T continues its financial and operational review of the various
alternatives for entering the local market, including the impacts
associated with the merger with TCG and the pending merger with
Tele-Communications, Inc. (TCI). In addition, certain fixed assets
which were purchased as part of the local initiative are currently
being evaluated in conjunction with the TCG merger to determine if
any assets are impaired. Management expects to complete this
review by the end of the fourth quarter.
<PAGE> AT&T Form 10-Q - Part I
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Millions Except Per Share Amounts)
(Unaudited)
During the second quarter 1998 AT&T recorded restructuring charges
of $2,743 primarily in connection with a plan, announced on
January 26, 1998, to reduce headcount by 15,000 to 18,000 over two
years as part of the Company's overall cost reduction program. In
connection with this plan, a voluntary retirement incentive
program (VRIP) was offered to eligible management employees.
Approximately 15,300 management employees accepted the VRIP offer.
The restructuring charges of $2,743 include a pre-tax charge of
$2,724 comprised of $2,412 for pension special termination
benefits and other costs and $312 for postretirement special
termination benefits and curtailment losses. AT&T originally
expected this amount to be partially offset by approximately $1.1
billion of gains to be recognized in the third and fourth quarters
of this year as employees' pension benefit obligations are
settled. In the third quarter 1998 we recognized a $602 gain
associated with the settlement of a portion of the pension
obligations. The amount of the gain to be recognized in the fourth
quarter is subject to market fluctuations, and therefore, the
initial amount forecasted for this gain is likely to change.
The second quarter restructuring charges of $2,743 also include
pre-tax charges of $125 for related facility costs and $150 for
executive separation costs. The second quarter charges were
partially offset by the reversal of $256 (pre-tax) of 1995
business restructuring reserves resulting from the overlap of the
VRIP acceptance rate on certain 1995 projects. The impact was a
reduction to diluted earnings per share of approximately $0.94.
In addition to the $602 gain mentioned above, AT&T recorded $85 of
TCG merger related expenses in the third quarter. The net pre-tax
benefit to AT&T was $517, or approximately $0.16 per share.
In the first three quarters of 1998 the net restructuring and
other charges discussed above totaled $2,827 pre-tax, or a net
reduction to diluted earnings per share of approximately $0.98.
<PAGE> AT&T Form 10-Q Part I
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Millions Except Per Share Amounts)
(Unaudited)
(c) DISCONTINUED OPERATIONS
Pursuant to Accounting Principles Board Opinion No. 30 "Reporting
the Results of Operations - Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions" (APB 30) the consolidated
financial statements of AT&T reflect the dispositions of AT&T's
submarine systems business (SSI) which was sold to Tyco
International Ltd. on July 1, 1997 for $850, and the sale of AT&T
Universal Card Services, Inc. (UCS) which was sold to Citibank on
April 2, 1998 for $3,500, as discontinued operations. The
after-tax gains resulting from the disposals were $66, or $0.04
per share for SSI and $1,290, or $0.71 per share for UCS.
Accordingly, the revenues, costs and expenses, assets and
liabilities, and cash flows of SSI and UCS have been excluded from
the respective captions in the Consolidated Statements of Income,
Consolidated Balance Sheets and Consolidated Statements of Cash
Flows, and have been reported through their respective dates of
disposition as "Income from discontinued operations," net of
applicable income taxes; as "Net assets of discontinued
operations"; and as "Net cash provided by discontinued
operations."
Summarized financial information for discontinued operations
is as follows:
For the Three For the Nine
Months Ended Months Ended
September 30, September 30,
1998 1997 1998 1997
Revenues $ - $ 376 $ 365 $1,564
Income before
income taxes - 26 16 138
Net income $ - $ 20 10 89
At September At December
30, 1998 31, 1997
Current assets $ - $7,734
Total assets - 7,808
Current liabilities* - 5,602
Total liabilities* - 6,707
Net assets of discontinued
operations $ - $1,101
*Current liabilities include $5,224 of debt maturing within one
year and total liabilities include an additional $1,093 of
long-term debt at December 31, 1997, both of which were payable
to AT&T. On April 2, 1998, we received $5,722 as settlement of
these receivables from UCS.
No interest expense was allocated to discontinued operations in
1998 or 1997 due to the immateriality of the amounts; however,
UCS recorded
<PAGE> AT&T Form 10-Q - Part I
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Millions Except Per Share Amounts)
(Unaudited)
direct interest expense of $85 for the nine month period ended
September 30, 1998 and $75 and $216 for the three and nine month
periods ended September 30, 1997, respectively.
(d) RECLASSIFICATION
We have reclassified certain prior period amounts to conform
with our current presentation.
(e) TELEPORT COMMUNICATIONS GROUP INC. MERGER
On July 23, 1998, AT&T completed the merger with TCG, pursuant to
an agreement and plan of merger dated January 8, 1998. Each share
of TCG common stock was exchanged for 0.943 of AT&T common stock
resulting in the issuance of 181.6 million shares in the
transaction. The merger was accounted for as a pooling of
interests, and accordingly, AT&T's results of operations,
financial position and cash flows have been restated to reflect
the merger. In the third quarter of 1998, we recognized $85 of
merger related expenses.
(f) TELE-COMMUNICATIONS, INC. ACQUISITION
On June 24, 1998, AT&T signed a definitive merger agreement with
TCI for an all-stock transaction. Under the agreement, AT&T will
issue 0.7757 shares of AT&T common stock for each share of TCI
Group Series A common stock and 0.8533 shares of AT&T common stock
for each share of TCI Group Series B stock. The transaction, which
is subject to regulatory, shareowner and other approvals, is
expected to be completed in the first half of 1999. Also
announced was TCI's intention to combine Liberty Media Group,
its programming arm, and TCI Ventures Group, its technology
investments unit, to form the new Liberty Media Group. Upon
closing of the AT&T/TCI merger, the shareowners of the new
Liberty Media Group will be issued separate tracking stock by
AT&T in exchange for the shares currently held in Liberty Media
Group and TCI Ventures Group.
<PAGE> AT&T Form 10-Q - Part I
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Millions Except Per Share Amounts)
(Unaudited)
(g) JOINT VENTURE WITH BRITISH TELECOMMUNICATIONS PLC (BT)
AT&T and BT announced on July 26, 1998, that they will create a
global venture to serve the complete communications needs of
multinational companies and the international calling needs of
individuals and businesses around the world. The venture, which
will be owned equally by AT&T and BT, will combine trans-border
assets and operations of each company, including their existing
international networks, all of their international traffic, all
of their trans-border products for business customers --
including an expanding set of Concert services -- and AT&T and
BT's multinational accounts in selected industry sectors. The
formation of the venture is subject to certain conditions,
including receipt of regulatory approvals. The transaction is
expected to be completed by mid 1999. As a result of the joint
venture agreement, AT&T will be required to exit certain
operations which may be determined to compete directly with BT. A
full review is currently underway to determine the size and scope
of any related international restructuring charges. Management
expects to have definitive plans in place by the end of 1998, and
accordingly, a restructuring charge associated with this review
will be forthcoming in the fourth quarter.
(h) EXTRAORDINARY LOSS
In August 1998, AT&T extinguished $1,046 of debt associated with
the TCG pooling. This early extinguishment of debt was recorded as
an extraordinary loss and resulted in a $217 pre-tax loss. The
after-tax impact was $137, or $0.07 per diluted share. This debt
reduction will produce significant savings in interest expense
over time.
<PAGE> AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
OVERVIEW
On July 23, 1998, AT&T Corp. ("AT&T" or the "Company") completed the merger with
Teleport Communications Group Inc. (TCG). Each share of TCG common stock was
exchanged for 0.943 of AT&T common stock resulting in an issuance of 181.6
million shares in the transaction. The merger was accounted for as a pooling of
interests, and accordingly, AT&T's historical financial statements have been
restated to reflect the combined results of AT&T and TCG.
Pursuant to Accounting Principles Board Opinion No. 30 "Reporting the Results of
Operations - Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions" (APB
30) the consolidated financial statements of AT&T reflect the dispositions of
AT&T's submarine systems business (SSI), which was sold to Tyco International
Ltd. on July 1, 1997, and the sale of Universal Card Services, Inc. (UCS) which
was sold to Citibank on April 2, 1998, as discontinued operations. Accordingly,
the revenues, costs and expenses, assets and liabilities, and cash flows of SSI
and UCS have been excluded from the respective captions in the Consolidated
Statements of Income, Consolidated Balance Sheets and Consolidated Statements of
Cash Flows, and have been reported through their respective dates of disposition
as "Income from discontinued operations", net of applicable income taxes; as
"Net assets of discontinued operations"; and as "Net cash provided by
discontinued operations."
AT&T's results of operations are discussed and analyzed for consolidated AT&T,
as well as by business segment: business services, consumer services, wireless
services, and other and corporate. Supplemental information is also included for
local services, new wireless services businesses, AT&T Solutions, WorldNet and
other on-line services, and international operations and ventures. Earnings
before interest and taxes (EBIT), including other income, total assets and other
related information is discussed for the consolidated results of AT&T and by
business segment.
<PAGE> AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Three months
ended
September 30, Change
$ in millions, except per share amounts 1998 1997 $ %
Total revenues.............................$13,653 $13,090 $ 563 4.3%
OTHER INCOME STATEMENT ITEMS
Operating income........................... 3,312 1,747 1,565 89.7%
Operating margin........................... 24.3% 13.3%
Operating income, adjusted for
third quarter 1998 net gain*............. 2,795 1,747 1,048 60.0%
Operating margin, adjusted for
third quarter 1998 net gain*............. 20.5% 13.3%
EBIT....................................... 3,468 1,879 1,589 84.6%
EBIT, adjusted for third quarter
1998 net gain*........................... 2,951 1,879 1,072 57.0%
EBITDA**................................... 4,676 2,914 1,762 60.5%
EBITDA, adjusted for third quarter
1998 net gain*........................... 4,159 2,914 1,245 42.7%
Diluted earnings per share,
continuing operations....................$ 1.16 $ 0.60 $ 0.56 93.3%
Diluted earnings per share,
continuing operations, adjusted for
third quarter 1998 net gain*.............$ 1.00 $ 0.60 $ 0.40 66.7%
Nine months
ended
September 30, Change
$ in millions, except per share amounts 1998 1997 $ %
Total revenues.............................$39,695 $38,674 $ 1,021 2.6%
OTHER INCOME STATEMENT ITEMS
Operating income........................... 4,144 4,845 (701) (14.5)%
Operating margin........................... 10.4% 12.5%
Operating income, adjusted for net charges,
gains and reserve reversal*.............. 6,971 4,905 2,066 42.1%
Operating margin, adjusted for net charges,
gains and reserve reversal*.............. 17.6% 12.7%
EBIT....................................... 5,313 5,216 97 1.9%
EBIT, adjusted for net charges,
gains and reserve reversal*.............. 7,370 5,179 2,191 42.3%
EBITDA**................................... 8,744 8,193 551 6.7%
EBITDA, adjusted for net charges,
gains and reserve reversal*.............. 10,801 8,076 2,725 33.7%
Diluted earnings per share,
continuing operations....................$ 1.74 $ 1.69 $ 0.05 3.0%
Diluted earnings per share,
continuing operations, adjusted for
net charges, gains and reserve reversal*.$ 2.45 $ 1.68 $ 0.77 45.8%
<PAGE> AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
* Operating income in the third quarter of 1998 included a net pre-tax
benefit of $517 million, or approximately $0.16 per diluted share, which
consisted of a $602 million gain from pension settlements related to the
voluntary retirement incentive program (VRIP), partially offset by $85
million of TCG merger related expenses.
Operating income for the first nine months of 1998 included $2,827
million of restructuring and other charges, with an after-tax diluted
earnings per share reduction of approximately $0.98. The year to date
charges include a $601 million first quarter asset impairment charge, a
$2,743 million second quarter net restructuring charge and a $517 million
third quarter net benefit as described above. EBIT for the nine months
ended September 30, 1998, also included pre-tax gains on the sales of LIN
Television Corporation (LIN-TV) of $317 million, AT&T Solutions Customer
Care of $350 million and AT&T's investment in SmarTone Telecommunications
Holdings Limited (SmarTone) of $103 million. After taxes, these gains
totaled approximately $0.27 per diluted share.
Operating income for the nine months ended September 30, 1997, contained
a $160 million charge, or a reduction of approximately $0.05 per diluted
share, for exiting the two-way messaging business and a $100 million
benefit, or approximately $0.03 per diluted share, from the reversal of
pre-1995 restructuring charges. In addition, EBIT also included a $97
million pre-tax gain, or approximately $0.03 per diluted share, on the
sale of AT&T Skynet Satellite Services (Skynet).
** Earnings before interest, taxes, depreciation and amortization
The following discussion, unless noted, excludes the items mentioned above and
presents all earnings per share amounts on a diluted basis.
Revenues from continuing operations increased $563 million, or 4.3%, in the
third quarter of 1998 compared with the same period in 1997. Long-distance
services revenues were essentially flat compared with the third quarter of 1997,
while calling volume increased 3.1%. Revenues from continuing operations
increased $1,021 million, or 2.6%, for the nine months ended September 30, 1998,
compared with the same period in 1997. Long-distance services revenues were
essentially flat compared with the first nine months of 1997, while calling
volume increased 4.1%.
<PAGE> AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Operating income increased $1,048 million, or 60.0%, to $2,795 million in the
third quarter of 1998 compared with the same period in 1997. For the third
quarter of 1998, operating margin showed improvement of 720 basis points
compared with the third quarter of 1997. EBIT increased $1,072 million, or
57.0%, to $2,951 million from $1,879 million in the third quarter of 1997. The
year over year increases in both operating income and EBIT were primarily due to
the Company's cost reduction efforts as well as the effect of higher revenues.
Operating income increased $2,066 million, or 42.1%, to $6,971 million for the
nine months ended September 30, 1998, compared with the same period in 1997. For
the nine months ended September 30, 1998, operating margin increased 490 basis
points compared with the first nine months of 1997. EBIT increased $2,191
million, or 42.3%, to $7,370 million, from $5,179 million in the in the first
nine months of 1997. The year over year increases in both operating income and
EBIT were primarily due to the net impact of higher revenues, the Company's cost
reduction efforts, and lower access and other interconnection expenses,
partially offset by higher depreciation and amortization expenses, which reflect
our continued high levels of capital expenditures.
<PAGE> AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
In the third quarter of 1998 EBITDA increased 42.7% to $4,159 million, from
$2,914 million in the third quarter of 1997. The improvement was primarily the
result of our cost reduction efforts and the effect of higher revenues.
For the nine months ended September 30, 1998, EBITDA increased 33.7% to $10,801
million from $8,076 million for the first nine months of 1997. The improvement
was primarily due to the net impact of higher revenues, cost reduction efforts
and lower access and interconnection expenses.
In the third quarter of 1998 earnings per share from continuing operations was
approximately $1.00, an increase of approximately $0.40, or 66.7%, compared with
earnings per share of approximately $0.60 for the same period in 1997. For the
nine months ended September 30, 1998, earnings per share from continuing
operations was approximately $2.45, an increase of approximately $0.77, or
45.8%, compared with earnings per share of approximately $1.68 for the same
period in 1997.
RESULTS OF OPERATIONS
Three months
ended
September 30, Change
$ in millions 1998 1997 $ %
REVENUES
Business services..........................$ 5,823 $ 5,561 $ 262 4.7%
Consumer services.......................... 5,806 5,977 (171) (2.9)%
Wireless services.......................... 1,420 1,190 230 19.4%
Other and corporate........................ 913 692 221 31.8%
Eliminations............................... (309) (330) 21 6.4%
Total revenues.............................$13,653 $13,090 $ 563 4.3%
Nine months
ended
September 30, Change
$ in millions 1998 1997 $ %
REVENUES
Business services..........................$17,196 $16,545 $ 651 3.9%
Consumer services.......................... 17,089 17,778 (689) (3.9)%
Wireless services.......................... 3,897 3,461 436 12.6%
Other and corporate........................ 2,462 1,891 571 30.1%
Eliminations............................... (949) (1,001) 52 5.2%
Total revenues.............................$39,695 $38,674 $1,021 2.6%
<PAGE> AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
REVENUES
Revenue from continuing operations increased $563 million, or 4.3%, in the third
quarter of 1998 compared with the third quarter of 1997. Revenue growth for
business services, wireless services and corporate and other were partially
offset by a decline in revenue from consumer services. Long-distance services
revenues were essentially flat as calling volume increased 3.1%.
For the first nine months of 1998, revenues from continuing operations increased
$1,021 million, or 2.6%, compared with the same period in 1997. Increases in
business services, other and corporate and wireless services revenues were
partially offset by a decline in consumer services revenue. Long-distance
services revenues were essentially flat for the nine months ended September 30,
1998, compared with the same period in 1997 as calling volume increased 4.1%.
OPERATING EXPENSES
Access and other interconnection expenses decreased $156 million, or 3.9%, to
$3,819 million in the third quarter of 1998 compared with the third quarter of
1997. Access and other interconnection expenses for the nine months ended
September 30, 1998, decreased $839 million, or 6.7%, to $11,649 million compared
with the same period in 1997. The declines relate primarily to reductions in per
minute access expenses and AT&T's continuing efforts to manage access costs, and
to declines in international settlement rates. These reductions were largely
offset by Primary Interexchange Carrier Charges (PICC), AT&T's contribution to
the Universal Service Fund (USF) and volume increases. Access and other
interconnection expenses as a percentage of long-distance services revenues were
33.0% in the third quarter of 1998 and 34.5% in the third quarter of 1997.
Access and other interconnection expenses as a percentage of long-distance
services revenues were 34.1% for the first nine months of 1998 and 36.4% for the
first nine months of 1997.
Network and other communication expenses increased $60 million, or 2.4%, to
$2,515 million in the third quarter of 1998 compared with the same period last
year. The increase was due primarily to higher wireless costs and higher
expenditures for wireless handsets primarily as a result of demand for Digital
One Rate plans. In addition, the increase reflects higher costs due to growth of
AT&T Solutions' services. These increases were partially offset by reduced rates
for payphone compensation and a lower provision for uncollectible expenses.
<PAGE> AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Network and other communications services expenses increased $201 million, or
2.9%, to $7,268 million for the first nine months of 1998 compared with the same
period of 1997. The increase was due primarily to higher wireless costs and
higher expenditures for wireless handsets primarily as a result of demand for
Digital One Rate plans. In addition, the increase reflects higher costs due to
growth in AT&T Solutions' services. These increases were partially offset by a
lower provision for uncollectibles, lower costs as a result of the sale of AT&T
Solutions Customer Care in the first quarter of 1998, reduced rates for payphone
compensation and the two-way messaging charge recorded in the first quarter of
1997.
Depreciation and amortization expenses for the third quarter of 1998 increased
$175 million, or 17.2%, from the third quarter of 1997. For the nine month
period ended September 30, 1998, depreciation and amortization expenses
increased $461 million, or 15.7%, from the same period in 1997. Excluding the
$80 million impact of the two-way messaging charge in the first quarter of 1997,
depreciation expense increased $541 million, or 19.0%, for the nine months ended
September 30, 1998, compared with the same period in 1997. The increases for the
quarter and the year to date periods were primarily due to continued high levels
of capital expenditures.
<PAGE> AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Selling, general and administrative (SG&A) expenses decreased $564 million, or
14.5%, in the third quarter of 1998 compared with the third quarter of 1997. For
the nine months ended September 30, 1998, SG&A expenses decreased $928 million,
or 8.2%, compared with the same period in 1997. The reduced level of expenses
reflects AT&T's efforts to achieve a best-in-class cost structure, including the
removal of $1.6 billion in SG&A expenses from the business in 1998 (excluding
TCG) and a 22% ratio of SG&A expenses to revenues by the end of 1999. Excluding
TCG, SG&A expenses declined $626 million, or 16.3%, for the quarter and $1,061
million, or 9.5%, for the first nine months of 1998 compared with the same
periods last year. The decreases were due primarily to savings from cost control
initiatives such as headcount reductions. Also contributing to the decrease in
SG&A expenses was a decline in marketing and sales costs relating to lower
customer acquisition costs. These declines were partially offset by increases in
wireless customer acquisition and migration costs and increased costs associated
with the year 2000 initiative. SG&A expenses as a percentage of total revenues
decreased to 24.4% in the third quarter of 1998 compared with 29.8% in the third
quarter of 1997. For the nine months ended September 30, 1998, SG&A expenses as
a percentage of total revenues decreased to 26.2% for the first nine months of
1998 compared with 29.3% for the first nine months of 1997.
<PAGE> AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
During the third quarter of 1998 AT&T recorded a net pre-tax benefit of $517
million, or approximately $0.16 per share, which consisted of a $602 million
gain from pension settlements related to VRIP, partially offset by $85 million
of TCG merger related expenses.
During the second quarter of 1998 AT&T recorded restructuring and other charges
of $2,743 million, or approximately $0.94 per share, primarily in connection
with a plan, announced on January 26, 1998, to reduce headcount by 15,000 to
18,000 over two years as part of the Company's overall cost reduction program.
In connection with this plan, a voluntary retirement incentive program (VRIP)
was offered to eligible management employees. Approximately 15,300 management
employees accepted the VRIP offer. The restructuring charges of $2,743 million
include a pre-tax charge of $2,724 million, comprised of $2,412 million for
pension special termination benefits and other costs and $312 million for
postretirement special termination benefits and curtailment losses. AT&T
originally estimated this amount to be partially offset by approximately $1.1
billion of gains to be recognized in the third and fourth quarters of this year
as employees' pension benefit obligations are settled. The amount of gains to be
recognized in future periods is subject to market fluctuations, and therefore,
the initial amount forecasted for this gain is likely to change.
The second quarter restructuring charges of $2,743 million also include pre-tax
charges of $125 million for facility costs and $150 million for executive
separation costs. The second quarter charges were partially offset by the
reversal of $256 million (pre-tax) of 1995 business restructuring reserves
primarily resulting from the overlap of VRIP on certain 1995 projects.
In the first quarter of 1998 AT&T recorded a $601 million charge, or a reduction
of approximately $0.21 per share, related to the Company's decision not to
pursue Total Service Resale (TSR) as a local service strategy. The pre-tax
charge includes a $543 million write-down of software, $42 million primarily
related to equipment associated with the software platform and $16 million for
the termination of certain contracts. The Company's in-market experiences and
results have proven that the TSR solution is not economically viable for the
short-term or the long-term.
In the first three quarters of 1998, the net restructuring and other charges
discussed above totaled $2,827 million pre-tax, or a net reduction to earnings
per share of approximately $0.98.
AT&T continues its financial and operational review of the various alternatives
for entering the local market, including the impacts associated with the merger
with TCG and the pending merger with Tele-Communications, Inc. (TCI). In
addition, certain fixed assets which were purchased as part of the local
initiative are currently being evaluated in conjunction with the TCG merger to
determine if any assets are impaired. Management expects to complete this review
by the end of the fourth quarter.
<PAGE> AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
OTHER INCOME STATEMENT ITEMS
Other income-net increased $24 million, or 18.4%, to $156 million in the third
quarter of 1998 compared with the same period in 1997. The increase was due
primarily to an increase in interest income on temporary cash investments,
partially offset by decreases in net equity earnings from investments and other
miscellaneous transactions, none of which are individually significant. The
increase in interest income is due to cash received from Citibank on April 2,
1998, related to the sale of UCS.
For the nine months ended September 30, 1998, other income-net increased $798
million, or 214.9%, to $1,169 million compared with the same period in 1997. The
increase was due primarily to pre-tax gains associated with the strategy of
exiting non-strategic businesses. In 1998, we recorded gains on the sales of
AT&T Solutions Customer Care of $350 million, LIN-TV of $317 million and
SmarTone of $103 million, as well as an increase in interest income on temporary
cash investments due to the cash received from Citibank for the sale of UCS.
These increases were partially offset by the $97 million pre-tax gain on the
sale of Skynet in 1997.
Interest expense increased $39 million, or 53.9%, in the third quarter of 1998
compared with the same period in 1997. Interest expense increased $81 million,
or 33.9%, for the nine months ended September 30, 1998, compared with the same
period in 1997. These increases were mainly due to the reclassification of
interest expense from discontinued operations to continuing operations resulting
from AT&T not retiring all of the UCS related debt upon the sale of UCS. The
$1,046 million debt reduction in the third quarter of 1998 will produce
significant savings in interest expense over time.
The provision for income taxes increased $532 million, or 73.3%, to $1,258
million in the third quarter of 1998 compared with the third quarter of 1997
primarily due to the increase in earnings before taxes partially offset by a
lower effective tax rate. The effective income tax rate decreased to 37.5% in
the third quarter of 1998 from 40.3% in the third quarter of 1997. The third
quarter 1997 effective tax rate was impacted by the tax impacts of certain 1997
investment dispositions and the pooling of TCG's historical operating results.
The restructuring and other charges for the third quarter of 1998 did not have a
significant impact on the overall effective tax rate.
The provision for income taxes decreased $137 million, or 6.9%, to $1,840
million for the nine months ended September 30, 1998, compared with the same
period in 1997. The decrease was due primarily to a lower effective tax rate.
The effective tax rate for the nine months ended September 30, 1998, was 36.9%,
a decrease of 280 basis points from 39.7% for the nine months ended September
30, 1997. The decrease in the effective tax rate was principally due to the tax
impacts of certain investment dispositions and certain foreign legal entity
restructurings. For the first nine months of 1998 the restructuring and other
charges did not have a significant impact on the overall effective tax rate.
<PAGE> AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Income from discontinued operations decreased $20 million and $79 million for
the three month and nine month periods ended September 30, 1998, compared with
the same periods of 1997. In 1998 the results of discontinued operations
included the results of UCS. In 1997 the results of discontinued operations
included the results of both UCS and SSI. On July 1, 1997, AT&T sold SSI for
$850 million, resulting in a after-tax gain of $66 million, or $0.04 per share.
On April 2, 1998, AT&T sold UCS for $3,500 million, resulting in an after-tax
gain of $1,290 million, or $0.71 per share.
In August 1998, AT&T extinguished $1,046 million of debt associated with the TCG
pooling. This early extinguishment of debt was recorded as an extraordinary loss
and resulted in a $217 million pre-tax loss. The after-tax impact was $137
million, or $0.07 per share. This debt reduction will produce significant
savings in interest expense over time.
SEGMENT RESULTS
AT&T's results are segmented according to the Company's primary lines of
business: business services, consumer services, and wireless services. A fourth
segment, identified as other and corporate, includes the results of AT&T
Solutions, TCG, international operations and ventures, on-line services such as
AT&T WorldNet Internet access, and various other items. The results of these
four segments plus the impact of the elimination of internal business sum to
AT&T's total results. The following is a discussion of each of these segments,
as well as supplemental information on local services, new wireless services
businesses, AT&T Solutions, WorldNet and other on-line services, and
international operations and ventures.
Total assets for each segment include all assets, except interentity
receivables. Deferred taxes, prepaid pension assets, and corporate-owned or
leased real estate are held at the corporate level and therefore are included in
the other and corporate segment. Shared network assets are allocated to the
segments based on the prior three years' volumes and are reallocated each
January.
BUSINESS SERVICES
Business services results reflect sales of long-distance services (domestic and
international, inbound and outbound, inter- and intraLATA toll services, calling
card and operator-handled services, data services, messaging and other network
enabled services), local services and web hosting and other electronic commerce
services.
<PAGE> AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Three months
ended
September 30, Change
$ in millions 1998 1997 $ %
Revenue..............................$ 5,823 $ 5,561 $ 262 4.7%
EBIT................................. 1,471 1,110 361 32.5%
EBITDA............................... 2,042 1,565 477 30.5%
OTHER ITEMS
Capital additions....................$ 1,292 $ 1,144 $ 148 13.0%
Nine months
ended
September 30, Change
$ in millions 1998 1997 $ %
Revenue..............................$17,196 $ 16,545 $ 651 3.9%
EBIT................................. 3,850 3,354 496 14.8%
EBIT, excluding gain on Skynet....... 3,850 3,257 593 18.2%
EBITDA............................... 5,451 4,636 815 17.6%
EBITDA, excluding gain on Skynet..... 5,451 4,539 912 20.1%
OTHER ITEMS
Capital additions....................$ 3,009 $ 2,448 $ 561 22.9%
At Sept. 30, At Dec. 31, Change
1998 1997 $ %
Total assets*........................$16,782 $ 15,030 $1,752 11.7%
* Includes allocated shared network assets of $11,417 and $10,246 at September
30, 1998, and December 31, 1997, respectively.
REVENUE
Business services revenue in the third quarter increased $262 million, or 4.7%,
compared with the third quarter of 1997. Business services revenue grew to
$17,196 million in the nine months ended September 30, 1998, compared with
$16,545 million for the nine months ended September 30, 1997, an increase of
$651 million, or 3.9%. Adjusted for the sales of Tridom and Skynet, revenue grew
4.3%, for the nine months ended September 30, 1998, compared with the same
period in 1997, although growth was tempered by an outage in AT&T's frame relay
network in April 1998. Data services led the growth in business services revenue
with an increase in the high-teens for the three month period and in the
mid-teens for the nine month period ended September 30, 1998.
<PAGE> AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Long-distance services revenue for the third quarter of 1998 increased 4.4%
compared with the third quarter of 1997. Long-distance calling volume increased
at a mid-single digit rate for the quarter. For the nine months ended September
30, 1998, long-distance services revenue increased 3.7% compared with the same
period in 1997 with a high-single digit increase in long-distance calling
volume. The volume increases for both periods were led by growth in inbound
calling.
Voice-related revenue for the three and nine months ended September 30, 1998,
was essentially flat compared with the same periods last year, as volume growth
continued to be offset by declines in average revenue per minute. For the third
quarter, price declines have occurred due primarily to changes in product mix,
competitive forces and growth in lower-priced minutes. For the nine months ended
September 30, 1998, price declines have occurred due primarily to competitive
forces, changes in product mix and growth in lower-priced minutes. Lower volumes
of higher priced card and operator-handled services, which are increasingly
being replaced by wireless services, also contributed to the decline in average
revenue per minute.
<PAGE> AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
EBIT/EBITDA
The following discussion excludes the first quarter 1997 gain on the sale of
Skynet.
EBIT increased to $1,471 million, or 32.5%, in the third quarter of 1998 from
$1,110 million in the same period of 1997. EBITDA increased to $2,042 million,
or 30.5%, in the third quarter of 1998 from $1,565 in the same period last year.
EBIT increased to $3,850 million, or 18.2%, for the nine months ended September
30, 1998, from $3,257 million in the same period in 1997. EBITDA increased to
$5,451 million, or 20.1%, for the first nine months of 1998 from $4,539 million
for the nine months ended September 30, 1997. The increases were driven by
growth in revenues as well as progress toward AT&T's company-wide cost reduction
goals. In particular, streamlining of customer care and sales support functions,
including significant headcount reductions contributed to the increases.
OTHER ITEMS
Capital additions increased $148 million, or 13.0%, in the third quarter of 1998
compared with the third quarter of 1997. For the nine months ended September 30,
1998, capital additions increased $561 million, or 22.9%, compared with the same
period in 1997. Capital additions for the first nine months of 1998 include
investments in AT&T's SONET program, data networks, and the AT&T Digital Link
product for local service.
Total assets increased $1,752 million, or 11.7%, to $16,782 million at September
30, 1998, from December 31, 1997. The increase was primarily due to 1998 capital
expenditures and the reallocation of shared network assets, partially offset by
current year depreciation.
CONSUMER SERVICES
Consumer services results reflect sales of long-distance services (including
domestic and international, inter- and intraLATA toll services, calling card and
operator handled calling, and prepaid calling cards) and local service to
certain residential customers.
<PAGE> AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Three months
ended
September 30, Change
$ in millions 1998 1997 $ %
Revenue.............................$ 5,806 $ 5,977 $ (171) (2.9)%
EBIT................................ 1,755 1,330 425 32.0%
EBITDA.............................. 1,930 1,550 380 24.7%
OTHER ITEMS
Capital additions...................$ 103 $ 239 $ (136) (56.9)%
Nine months
ended
September 30, Change
$ in millions 1998 1997 $ %
Revenue.............................$17,089 $17,778 $ (689) (3.9)%
EBIT................................ 4,647 3,572 1,075 30.1%
EBITDA.............................. 5,166 4,158 1,008 24.3%
OTHER ITEMS
Capital additions...................$ 243 $ 558 $ (315) (56.5)%
At September 30, At Dec. 31, Change
1998 1997 $ %
Total assets*.......................$ 6,743 $ 7,923 $(1,180) (14.9)%
* Includes allocated shared network assets of $2,969 and $4,168 at September 30,
1998, and December 31, 1997, respectively.
REVENUE
Consumer services revenue for the three months ended September 30, 1998,
deceased $171 million, or 2.9%, compared with the same period last year. For the
nine months ended September 30, 1998, revenues decreased $689 million, or 3.9%.
Calling volume decreased at a low-single-digit rate for both periods. The
decline in revenue for the three and nine months ended September 30, 1998,
reflected the impact of AT&T's strategy to focus on high value customers and
actively migrate them to more favorable calling plans. Revenue also continued to
be pressured as AT&T flowed through access charge reductions to customers. In
the third quarter, as part of the ongoing effort to pass through access charge
reductions, AT&T introduced a first minute free on Saturday program.
The controlled migration of customers to more favorable calling plans is a key
part of AT&T's strategy to attract and retain profitable customers in a cost
efficient manner. As a result of this strategy, AT&T now has over 25 million
customers on its One Rate plans, including more than 12 million on One Rate
Plus. In the quarter more than 75% of AT&T's consumer long-distance minutes were
generated by customers on optional calling plans. Also, the Company's emphasis
on high-value customers results in fewer customer acquisitions and a lower cost
structure. While this approach continues to restrain revenue and volume growth,
it is key to AT&T's strategy of optimizing its customer base.
<PAGE> AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Competition in domestic and international long-distance markets, including the
impact of dial around, contributed to the negative revenue and volume growth
rates, as did substitution of calling card and other higher-priced long-distance
services for wireless services. Reductions in international long-distance
pricing consistent with falling international settlement rates also contributed
to the decrease in revenue.
EBIT/EBITDA
For the three months ended September 30, 1998, EBIT increased $425 million, or
32.0%, to $1,755 million and EBITDA increased $380 million, or 24.7%, to $1,930
million. For the nine months ended September 30, 1998, EBIT increased $1,075
million, or 30.1%, to $4,647 million and EBITDA increased $1,008 million, or
24.3%, to $5,166 million. These increases were driven primarily by reduced SG&A
expenses. AT&T's focus on high-value customers has led to lower, yet more
productive customer acquisition and retention program spending. Simplification
and consolidation of marketing messages had also generated substantial
efficiencies, and consumer services has increased its use of alternate, more
efficient distribution channels. For example, One Rate On-line offers
activation, customer care and billing over the Internet with payment via credit
card.
OTHER ITEMS
Total assets decreased $1,180 million, or 14.9%, to $6,743 million at September
30, 1998, from December 31, 1997. The decrease was due primarily to the January
reallocation of shared network assets.
<PAGE> AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
WIRELESS SERVICES
Wireless services results include sales of wireless services and products to
customers in 850 MHz cellular markets and 1.9 GHz markets. Also included are the
results of the messaging, aviation communications, and wireless data divisions,
as well as the costs associated with the development of fixed wireless
technology. The impact of the new 1.9 GHz markets, wireless data, two-way
messaging and fixed wireless development are discussed as "new wireless services
businesses"; all other wireless results are reflected as "core" businesses.
TOTAL WIRELESS SERVICES
Three months
ended
September 30, Change
$ in millions 1998 1997 $ %
Revenue..............................$ 1,420 $ 1,190 $ 230 19.4%
EBIT................................. 33 142 (109) (76.9)%
EBITDA............................... 324 367 (43) (11.6)%
OTHER ITEMS
Capital additions....................$ 221 $ 419 $(198) (47.2)%
Nine months
ended
September 30, Change
$ in millions 1998 1997 $ %
Revenue..............................$ 3,897 $ 3,461 $ 436 12.6%
EBIT................................. 215 270 (55) (20.3)%
EBIT excluding SmarTone gain
and two-way messaging charge........ 112 430 (318) (74.0)%
EBITDA............................... 1,035 990 45 4.6%
EBITDA excluding SmarTone gain
and two-way messaging charge........ 932 1,070 (138) (12.8)%
OTHER ITEMS
Capital additions....................$ 634 $ 1,542 $(908) (58.9)%
At Sept. 30, At Dec. 31, Change
1998 1997 $ %
Total assets.........................$18,047 $18,540 $(493) (2.7)%
<PAGE> AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
REVENUE
Wireless services revenue grew $230 million, or 19.4%, in the third quarter of
1998 and $436 million, or 12.6%, for the nine months ended September 30, 1998,
compared with the same periods of 1997. The increases in both periods were
driven in part by the response to AT&T's Digital One Rate offer and new 1.9 GHz
markets. Interest in Digital One Rate helped generate 325 thousand net
subscriber additions during the third quarter of 1998, a 73.7% increase compared
with the same period last year, and slightly above the previous record set in
the second quarter of 1998. This was achieved in spite of the multi-network
phone shortage experienced during much of the third quarter.
Digital One Rate is one key element of our ongoing efforts to acquire and retain
profitable, high-value customers. Since the program's launch in May of this
year, over 500 thousand subscribers have signed on to this service. AT&T has
continued to add customers at a rate of approximately 100 thousand per month.
Over two thirds of these customers have represented new subscribers to AT&T. The
program was partially responsible for AT&T's higher revenue per user and minutes
of use per subscriber. In AT&T's 850 MHz markets, average revenue per user
(ARPU) increased to $58.0 in the third quarter of 1998 from $57.5 in the second
quarter of 1998. ARPU has now increased in two successive quarters.
Year-over-year ARPU declined 4.0%. Minutes of use per subscriber increased
within our 850 MHz markets to a 36% growth rate over the third quarter of 1997;
well above the 4% and 16% growth rates achieved in the first and second quarters
of 1998, respectively.
Migration of customers to digital service is another key element of AT&T's
wireless strategy. Digital service generates lower network costs and improves
customer retention. As of September 30, 1998, 53% of AT&T's 6.809 million
consolidated subscribers used digital service, up from 45% one quarter ago and
up from 24% at September 30, 1997. Including partnership markets, the Company
had 4.2 million digital subscribers at the end of the third quarter of 1998.
Total cellular customers served by companies in which AT&T has or shares a
controlling interest increased 17.4% to 9.148 million at September 30, 1998,
from 7.789 million at September 30, 1997.
<PAGE> AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
EBIT/EBITDA
The following discussion excludes the second quarter 1998 gain on the sale of
SmarTone and the first quarter 1997 charge to exit the two-way messaging
business.
EBIT and EBITDA were $33 million and $324 million, respectively, in the third
quarter of 1998, a decrease of $109 million and $43 million, or 76.9% and 11.6%,
from $142 million and $367 million, in the third quarter of 1997. EBIT and
EBITDA were $112 million and $932 million for the first nine months of 1998, a
decrease of $318 million and $138 million, or 74.0% and 12.8%, from $430 million
and $1,070 million for the first nine months of 1997. The decreases for both
EBIT and EBITDA were due primarily to higher losses for new wireless services
businesses in the current periods compared with the prior year periods.
EBIT and EBITDA for new wireless services businesses were negative $143 million
and negative $91 million for third quarter of 1998, compared with negative $97
million and negative $80 million for the third quarter of 1997. EBIT and EBITDA
for new wireless services businesses were negative $458 million and negative
$317 million for first nine months of 1998, compared with negative $196 million
and negative $163 million for the first nine months of 1997. The declines in
both EBIT and EBITDA for new wireless businesses were due primarily to the
roll-out of additional markets over the past twelve months.
Core EBIT and EBITDA were $176 million and $415 million in the third quarter of
1998, compared with $239 million and $447 million for the same period last year.
For the nine months ended September 30, 1998, core EBIT and EBITDA were $570
million and $1,249 million, compared with $626 million and $1,233 million for
the same period last year. The decreases in EBIT and EBITDA for the three months
ended September 30, 1998, compared with September 30, 1997, were primarily due
to incremental acquisition and migration costs associated with higher subscriber
additions and digital migrations. The decrease in core EBIT for the nine months
ended September 30, 1998, compared with the same period last year was due
primarily to an increase in network and other communication services expenses,
depreciation and amortization expenses and lower equity earnings from
non-consolidated subsidiaries, partially offset by higher revenue. The increase
in core EBITDA for the nine months ended September 30, 1998, compared with the
same period last year was due primarily to higher revenue partially offset by an
increase in network and other communication services expenses and lower equity
earnings from non-consolidated subsidiaries.
<PAGE> AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
OTHER ITEMS
Capital additions decreased $198 million to $221 million in the third quarter of
1998 compared with the same period last year. Capital additions decreased $908
million to $634 million for the nine month period ended September 30, 1998,
compared with $1,542 million for the same period in 1997. These decreases were
primarily due to the substantial completion of the majority of AT&T's 1.9 GHz
market buildouts in 1997. Capital spending for the year-to-date period ended
September 30, 1998, was directed primarily at expanding coverage in new and
traditional markets.
Total assets decreased $493 million, or 2.7%, from December 31, 1997. The
decrease was due primarily to a decrease in investments as a result of asset
dispositions in 1998 as well as a decrease in licensing costs due to the current
year amortization.
NEW WIRELESS SERVICES BUSINESSES
Three months
ended
September 30, Change
$ in millions 1998 1997 $ %
Revenue..............................$ 121 $ 6 $ 115 NMF
EBIT................................. (143) (97) (46) (47.2)%
EBITDA............................... (91) (80) (11) (14.5)%
OTHER ITEMS
Capital additions....................$ 94 $ 248 $(154) (62.2)%
Nine months
ended
September 30, Change
$ in millions 1998 1997 $ %
Revenue..............................$ 214 $ 11 $ 203 NMF
EBIT................................. (458) (356) (102) (28.6)%
EBIT excluding two-way messaging
charge............................. (458) (196) (262) (133.6)%
EBITDA............................... (317) (243) (74) (30.4)%
EBITDA excluding two-way messaging
charge............................. (317) (163) (154) (94.5)%
OTHER ITEMS
Capital additions....................$ 293 $1,031 $(738) (71.5)%
At Sept. 30, At Dec. 31, Change
1998 1997 $ %
Total assets.........................$4,459 $4,417 $ 42 1.0%
<PAGE> AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
CORE WIRELESS SERVICES
Three months
ended
September 30, Change
$ in millions 1998 1997 $ %
Revenue..............................$ 1,299 $ 1,184 $ 115 9.7%
EBIT................................. 176 239 (63) (26.2)%
EBITDA............................... 415 447 (32) (6.9)%
OTHER ITEMS
Capital additions....................$ 127 $ 171 $ (44) (25.2)%
Nine months
ended
September 30, Change
$ in millions 1998 1997 $ %
Revenue..............................$ 3,683 $ 3,450 $ 233 6.8%
EBIT................................. 673 626 47 7.5%
EBIT excluding gain on SmarTone...... 570 626 (56) (8.9)%
EBITDA............................... 1,352 1,233 119 9.7%
EBITDA excluding gain on SmarTone.... 1,249 1,233 16 1.3%
OTHER ITEMS
Capital additions....................$ 341 $ 511 $ (170) (33.3)%
At Sept. 30, At Dec. 31, Change
1998 1997 $ %
Total assets.........................$13,588 $14,123 $ (535) (3.8)%
<PAGE> AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
OTHER AND CORPORATE
Other and corporate includes TCG, AT&T Solutions, international operations and
ventures, AT&T WorldNet, other businesses, and corporate operations.
Three months
ended
September 30, Change
$ in millions 1998 1997 $ %
Revenue................................$ 913 $ 692 $ 221 31.8%
EBIT................................... 218 (702) 920 131.5%
EBIT, excluding third quarter
1998 net gain........................ (299) (702) 403 57.3%
EBITDA................................. 389 (567) 956 169.2%
EBITDA, excluding third quarter
1998 net gain........................$ (128) $ (567) $ 439 77.2%
OTHER ITEMS
Capital additions......................$ 347 $ 330 $ 17 4.9%
Nine months
ended
September 30, Change
$ in millions 1998 1997 $ %
Revenue................................$ 2,462 $ 1,891 $ 571 30.1%
EBIT................................... (3,379) (1,977) (1,402) (71.0)%
EBIT, excluding certain net charges,
gains and reserve reversal........... (1,219) (2,077) 858 41.2 %
EBITDA................................. (2,888) (1,588) (1,300) (82.0)%
EBITDA, excluding certain net charges,
gains and reserve reversal...........$ (728) $(1,688) $ 960 56.7%
OTHER ITEMS
Capital additions......................$ 986 $ 1,039 $ (53) (5.0)%
At Sept. 30, At Dec. 31, Change
1998 1997 $ %
Total assets...........................$ 16,589 $18,501 $(1,912) (10.3)%
REVENUE
In the third quarter of 1998, other and corporate revenue increased $221
million, or 31.8%, from the third quarter of 1997. The revenue growth in the
third quarter was driven by increased revenue from TCG and AT&T Solutions.
Revenue growth was partially offset by a decrease in revenue from AT&T Solutions
Customer Care, which was sold on March 3, 1998.
For the nine months ended September 30, 1998, other and corporate revenue
increased $571 million, or 30.1%, compared with the same period of 1997. The
revenue growth in the first nine months of 1998 compared with the same period in
1997 was primarily due to increases in TCG, AT&T Solutions, international
operations and ventures, and AT&T WorldNet. These increases were partially
offset by a decrease in revenue from AT&T Solutions Customer Care, which was
sold on March 3, 1998.
<PAGE> AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
EBIT/EBITDA
The following discussion excludes the impact of the 1998 restructuring and other
charges, the 1998 gains on the sales of LIN-TV and AT&T Solutions Customer Care,
as well as the first quarter 1997 reversal of pre-1995 restructuring reserves.
EBIT and EBITDA improved by $403 million, or 57.3%, and $439 million, or 77.2%,
respectively, in the third quarter of 1998 compared with the third quarter of
1997. The quarter over quarter improvements in both EBIT and EBITDA were
primarily due to increased interest income from temporary cash investments, an
improvement at AT&T Solutions, reductions in corporate overhead, and an
improvement at international operations and ventures.
EBIT and EBITDA improved by $858 million, or 41.2%, and $960 million, or 56.7%,
respectively, in the first nine months of 1998 compared with the nine months
ended September 30, 1997. The improvements for the nine months ended September
30, 1998, compared with the same period in 1997, were primarily due to increased
interest income on temporary cash investments, improvements at both
international operations and ventures and AT&T Solutions, reductions in
corporate overhead and an improvement at AT&T WorldNet.
OTHER ITEMS
Total assets at September 30, 1998 were $16,589 million. This represents a
decrease of $1,912 million, or 10.3%, from December 31, 1997. The decrease is
due primarily to a decrease in other receivables due primarily to the repayment
of loans by UCS as part of the settlement for our April 2, 1998 sale of UCS to
Citicorp, partially offset by an increase in cash resulting from the remaining
proceeds from the sale of UCS.
ELIMINATIONS
Eliminations reflects the elimination of revenue and profit generated by the
sale of services between business segments. The sale of business long-distance
services to other AT&T units generates nearly all of the eliminated revenue.
Revenue eliminations for the third quarter of 1998 were $309 million, a 6.4%
decrease in eliminated revenues from the third quarter of 1997, due primarily to
the sale of AT&T Solutions Customer Care. EBIT and EBITDA were both negative $9
million for the third quarter of 1998.
Revenue eliminations for the nine months ended September 30, 1998, were $949
million, a 5.2% decrease in eliminated revenues from the same period last year,
due primarily to the sale of AT&T Solutions Customer Care. EBIT and EBITDA were
both negative $20 million for the nine months ended September 30, 1998.
SUPPLEMENTAL DISCLOSURES
LOCAL SERVICES
Local services for business and residential customers are included as part of
AT&T's business services, consumer services, and other and corporate segments.
Other and corporate includes TCG's local business (but excludes ACC Corp. (ACC))
and the costs associated with corporate staff dedicated to AT&T's local services
effort.
<PAGE> AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Three months
ended
September 30, Change
$ in millions 1998 1997 $ %
Revenue..............................$ 247 $ 147 $ 100 67.4%
EBIT................................. (227) (248) 21 8.6%
EBIT excluding TCG merger related
costs.............................. (142) (248) 106 42.9%
EBITDA............................... (150) (187) 37 20.5%
EBITDA excluding TCG merger related
costs.............................. (65) (187) 122 65.9%
OTHER ITEMS
Capital additions....................$ 283 $ 334 $ (51) (15.0)%
Nine months
ended
September 30, Change
$ in millions 1998 1997 $ %
Revenue..............................$ 682 $ 372 $ 310 83.1%
EBIT................................. (1,261) (652) (609) (93.3)%
EBIT excluding TCG merger related
expenses and asset
impairment charge.................. (575) (652) 77 11.9%
EBITDA............................... (1,028) (499) (529) (105.6)%
EBITDA excluding TCG merger related
expenses and asset
impairment charge.................. (342) (499) 157 31.7%
OTHER ITEMS
Capital additions....................$ 919 $ 779 $ 140 18.1%
At Sept. 30, At Dec. 31, Change
1998 1997 $ %
Total assets.........................$ 3,402 $4,068 $(666) (16.4)%
REVENUE
For the three months ended September 30, 1998, revenue increased $100 million,
or 67.4%, compared with the same period in 1997. For the nine months ended
September 30, 1998, revenue increased $310 million, or 83.1%, compared with the
same period in 1997. These increases were due to continued growth in the local
operations of TCG and AT&T Digital Link. Revenue growth for local operations of
TCG was driven by growth in private line, switch usage and facilities,
interconnection and data/Internet services.
<PAGE> AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
EBIT/EBITDA
The following discussion excludes the impact of the first quarter 1998 asset
impairment charge and the third quarter 1998 TCG merger related expenses.
For the three months ended September 30, 1998, EBIT improved $106 million, or
42.9%, compared with the same period in 1997. For the three months ended
September 30, 1998, EBITDA improved $122 million, or 65.9%, compared with the
same period in 1997. These improvements were primarily due to revenue growth in
TCG and AT&T Digital Link combined with an improved cost structure.
For the nine months ended September 30, 1998, EBIT improved $77 million, or
11.9%, compared with the same period in 1997. For the nine months ended
September 30, 1998, EBITDA improved $157 million, or 31.7%, compared with the
same period in 1997. These increases were driven by revenue growth, primarily in
TCG, partially offset by higher local connectivity costs due to increasing
volume with more access and subscriber lines than in 1997.
OTHER ITEMS
Capital additions were $283 million for the three months ended September 30,
1998, compared with $334 million in the same period last year. Capital additions
increased $140 million for the nine month period ended September 30, 1998,
compared with the same period last year. Capital spending for local services was
primarily related to expansion, development and construction of TCG's local
network.
Total assets were $3,402 million at September 30, 1998, a decrease of $666
million, or 16.4%, compared with December 31, 1997. The decrease was due
primarily to the first quarter write-down of software.
NEW WIRELESS SERVICES BUSINESSES
Information related to AT&T's new wireless services businesses is included in
the wireless services' segment discussion.
AT&T SOLUTIONS
AT&T Solutions is the Company's outsourcing and network management business. The
results of AT&T Solutions are included in the other and corporate segment.
<PAGE> AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Three months
ended
September 30, Change
$ in millions 1998 1997 $ %
Revenue..............................$ 273 $ 204 $ 69 34.5%
EBIT................................. 16 (37) 53 142.7%
EBITDA............................... 53 1 52 NMF
OTHER ITEMS
Capital additions....................$ 42 $ 28 $ 14 52.3%
Nine months
ended
September 30, Change
$ in millions 1998 1997 $ %
Revenue..............................$ 732 $ 546 $ 186 34.2%
EBIT................................. 3 (140) 143 101.9%
EBITDA............................... 109 (28) 137 488.8%
OTHER ITEMS
Capital additions....................$ 92 $ 65 $ 27 42.6%
At Sept. 30, At Dec. 31, Change
1998 1997 $ %
Total assets.........................$ 569 $ 576 $ (7) (1.2)%
REVENUE
For the three months ended September 30, 1998, revenue increased $69 million, or
34.5%, to $273 million, compared with the same period in 1997. For the nine
months ended September 30, 1998, revenue increased $186 million, or 34.2%, to
$732 million, compared with the same period in 1997. These increases were
primarily due to growth in outsourcing. During the third quarter we announced
the signing of a six year contract with Banc One, valued at $1.4 billion over
the contract term. The unit currently has more than $4 billion under contract to
be recognized over the related contract terms.
Although not included in the unit's revenue, AT&T Solutions also manages AT&T's
information technology infrastructure -- an operation that is valued at an
estimated $1.6 billion in internal billings annually. Total internal billings
for the quarter were $402 million and year-to-date were $1,182 million.
<PAGE> AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
EBIT/EBITDA
For the three months ended September 30, 1998, EBIT increased $53 million, or
142.7%, to $16 million, compared with the same period in 1997. EBITDA increased
$52 million, to $53 million, in the third quarter of 1998, compared with the
same period in 1997. For the nine months ended September 30, 1998, EBIT
increased $143 million, or 101.9%, to $3 million, compared with the same period
in 1997. EBITDA increased $137 million, or 488.8%, to $109 million, in the first
nine months of 1998, compared with the same period in 1997. The increases in
both EBIT and EBITDA for the quarter and year to date periods were due to the
net impact of revenue growth and cost reductions.
OTHER ITEMS
Total assets were $569 million at September 30, 1998. Approximately 50% of total
assets at September 30, 1998 were related to servicing the internal network
infrastructure of AT&T.
<PAGE> AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
WORLDNET AND OTHER ON-LINE SERVICES
WorldNet and other on-line services includes AT&T WorldNet Internet access
service for residential and business consumers (included in other and corporate)
as well as Worldwide Web site hosting and other electronic commerce services
(included in business services).
Three months
ended
September 30, Change
$ in millions 1998 1997 $ %
Revenue..............................$ 100 $ 61 $ 39 65.1%
EBIT................................. (104) (124) 20 16.2%
EBITDA............................... (88) (117) 29 24.5%
OTHER ITEMS
Capital additions....................$ 13 $ 51 $(38) (73.5)%
Nine months
ended
September 30, Change
$ in millions 1998 1997 $ %
Revenue..............................$ 262 $ 152 $110 72.7%
EBIT................................. (328) (435) 107 24.6%
EBITDA............................... (287) (414) 127 30.7%
OTHER ITEMS
Capital additions....................$ 32 $ 78 $(46) (58.4)%
At Sept. 30, At Dec. 31, Change
1998 1997 $ %
Total assets.........................$ 354 $ 334 $ 20 5.9%
REVENUE
For the three months ended September 30, 1998, revenue increased $39 million, or
65.1%, to $100 million compared with the same period in 1997. For the nine
months ended September 30, 1998, revenue increased $110 million, or 72.7%, to
$262 million compared with the nine months ended September 30, 1997. The
increases were primarily due to continued growth in AT&T WorldNet's residential
subscriber base and higher average revenue per subscriber, which was primarily
due to the expiration of AT&T WorldNet's free-pricing promotion that was offered
in 1997. WorldNet had 1.156 million subscribers at September 30, 1998, up from
.963 million at September 30, 1997. This is an increase of 20.0% compared with
the prior year. Average revenue per customer continued to increase due to the
expiration of AT&T WorldNet's initial promotional price programs in favor of
regular monthly rates of $9.95 and $19.95. AT&T Web Site Services had
approximately 9 thousand hosted sites at the end of the third quarter of 1998
compared with 5 thousand at the end of the third quarter of 1997.
<PAGE> AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
AT&T continues to explore new ways of growing its Internet access business,
primarily through AT&T WorldNet and other on-line businesses.
EBIT/EBITDA
For the three months ended September 30, 1998, EBIT improved $20 million, or
16.2%, to negative $104 million, compared with the same period in 1997. For the
three months ended September 30, 1998, EBITDA improved $29 million, or 24.5%, to
negative $88 million, compared with the same period in 1997. These increases
were driven by revenue growth in AT&T WorldNet, partially offset by higher
network costs which were driven by an increase in the residential subscriber
base.
For the nine months ended September 30, 1998, EBIT improved $107 million, or
24.6%, to negative $328 million compared with the same period last year. This
improvement was driven by AT&T WorldNet revenue growth and decreased marketing
and sales expense in EasyLink, partially offset by higher depreciation expense
as a result of the expansion of the WorldNet network. For the nine months ended
September 30, 1998, EBITDA improved $127 million, or 30.7%, to negative $287
million compared with the same period last year. The improvement was driven by
revenue growth in AT&T WorldNet and decreased marketing and sales expense in
EasyLink.
<PAGE> AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
INTERNATIONAL OPERATIONS AND VENTURES
International operations and ventures includes AT&T's consolidated foreign
operations, the Company's transit and reorigination businesses, on-line services
in the Asia/Pacific region, as well as the equity earnings/losses of AT&T's
non-consolidated joint ventures. International operations and ventures does not
include bilateral international long-distance traffic. (The results of
international operations and ventures are included in other and corporate.)
Three months
ended
September 30, Change
$ in millions 1998 1997 $ %
Revenue..............................$ 218 $ 178 $ 40 22.7%
EBIT................................. (40) (82) 42 51.3%
EBITDA............................... (28) (71) 43 60.5%
OTHER ITEMS
Capital additions....................$ 37 $ 69 $ (32) (46.1)%
Nine months
ended
September 30, Change
$ in millions 1998 1997 $ %
Revenue..............................$ 598 $ 494 $ 104 21.2%
EBIT................................. (161) (343) 182 53.0%
EBITDA............................... (116) (299) 183 61.3%
OTHER ITEMS
Capital additions....................$ 86 $ 377 $(291) (77.3)%
At Sept. 30, At Dec. 31, Change
1998 1997 $ %
Total assets.........................$1,432 $1,837 $(405) (22.0)%
<PAGE> AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
REVENUE
For the three months ended September 30, 1998, revenue increased $40 million, or
22.7%, to $218 million compared with the same period in 1997. For the nine
months ended September 30, 1998, revenue increased $104 million, or 21.2%, to
$598 million, compared with the same period last year. These revenue increases
were driven by growth in reorigination and AT&T Communications Services UK,
partially offset by declines in certain non-strategic businesses. Revenue from
continuing strategic international operations grew approximately 53% and 55% for
the three and nine months ended September 30, 1998, respectively, compared with
the same periods in 1997 primarily as a result of growth in AT&T Communications
UK and increased reorigination traffic.
EBIT/EBITDA
For the three months ended September 30, 1998, EBIT improved $42 million, or
51.3%, to negative $40 million compared with the same period in 1997. EBITDA
improved $43 million, or 60.5%, to negative $28 million compared with the same
period in 1997. For the nine months ended September 30, 1998, EBIT improved $182
million, or 53.0%, to negative $161 million compared with the same period in
1997. EBITDA improved $183 million, or 61.3%, to negative $116 million, compared
with the first nine months of 1997. The EBIT and EBITDA improvements continued
in the quarter and year to date as revenues increased and the Company continued
to streamline its international operations and exit non-strategic and
unprofitable businesses. Revenue grew 22.7% in the quarter and 21.2% year to
date despite the exit of these businesses.
Management is currently assessing the impact of the announcement
regarding the joint venture to be formed with British Telecommunications PLC
(BT) on international operations and ventures. As a result of the joint venture
agreement, AT&T will be required to exit certain operations which may be
determined to compete directly with BT. A full review is currently underway to
determine the size and scope of any related international restructuring charges.
Management expects to have definitive plans in place by the end of 1998, and
accordingly, a restructuring charge associated with this review will be
forthcoming in the fourth quarter.
OTHER ITEMS
Capital additions decreased $291 million for the nine months ended September 30,
1998, compared with the same period last year. The decrease was primarily due to
a decrease in investments in non-consolidated subsidiaries.
Total assets were $1,432 million at September 30, 1998, compared with $1,837
million at December 31, 1997. The decrease is due primarily to a decrease in
cash resulting from a loan to an affiliated entity and due to a reduction in
receivables due primarily to the settlement of the receivable relating to the
sale of SSI.
<PAGE> AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
FINANCIAL CONDITION
SEPTEMBER 30, 1998 VERSUS DECEMBER 31, 1997
September 30, December 31, Change
$ in millions 1998 1997 $ %
Total assets.........................$58,161 $61,095 $(2,934) (4.8)%
Total assets-continuing operations...$58,161 $59,994 $(1,833) (3.1)%
Total assets decreased $2,934 million, or 4.8%, primarily due to divestments of
non-strategic assets partially offset by investments in strategic businesses.
Declines in other and long-term receivables, net assets from discontinued
operations, and investments were partially offset by increases in cash,
property, plant and equipment and other assets. The decrease in other and
long-term receivables is due primarily to the repayment of loans by UCS as part
of the settlement for our April 2, 1998, sale to Citicorp while the decrease in
net assets from discontinued operations also reflects the sale of UCS. The
decline in investments is primarily due to the sales of LIN-TV and SmarTone. The
increase in cash is mainly due to the cash received from Citibank in the second
quarter of 1998 related to the sale of UCS partially offset by cash used to
repurchase common stock and to extinguish $1,046 million in debt. The increase
in property, plant and equipment primarily reflects the investment in the
expansion of the long-distance, local communications and wireless networks
partially offset by the local asset impairment charge and the sale of AT&T
Solutions Customer Care. The increase in other assets is primarily due to
goodwill associated with our purchase of ACC.
Total liabilities decreased $3,323 million, or 8.9%, primarily due to declines
in debt, payroll and benefit-related liabilities, deferred income taxes, and
accounts payable. These decreases were partially offset by increases in other
current liabilities and long-term benefit-related liabilities. The decreases in
both short-term and long-term debt reflect the paydown of debt with the proceeds
from the sales of UCS, LIN-TV and AT&T Solutions Customer Care as well as the
early extinguishment of debt, mentioned above. The decline in payroll and
benefit- related liabilities primarily reflects the payout of the year-end
payroll accrual and employee bonuses, and the reversal of a portion of the 1995
business restructuring reserve. The decrease in deferred income taxes primarily
reflects the impact of the restructuring and other charges while the decline in
accounts payable is primarily due to a decrease in payables associated with our
high year-end capital expenditures. The increase in other current liabilities is
mainly due to an increase in accrued income taxes primarily associated with the
sale of UCS. The increase in long-term benefit-related liabilities is primarily
due to the second quarter charges associated with the VRIP which resulted in the
establishment of a liability for the Management Pension Plan.
Total shareowners' equity increased $389 million, or 1.6%, to $24,067 million,
primarily due to current year's net income partially offset by the AT&T share
re-purchase program, as discussed in the cash flows narrative, and dividends
declared.
The ratio of total debt to total capital at September 30, 1998, was 22.8%
compared with 33.5% at December 31, 1997. The decrease was primarily the result
of lower debt. The ratio of total debt, net of cash, to total capital was 10.7%
at September 30, 1998.
<PAGE> AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
In the normal course of business AT&T uses certain derivative financial
instruments, mainly interest rate swaps and foreign currency exchange rate
contracts. The interest rate swaps and foreign currency contracts and options
allow the Company to manage its exposures to changing interest rates and
currency exchange rates. AT&T does not use derivative financial instruments for
speculative purposes. Credit policies are designed to limit the risks of dealing
with other parties to these instruments. In management's view, the risks to AT&T
from using these derivative financial instruments are small and the benefits
include more stable earnings in periods when interest rates and currency
exchange rates are changing.
The Company has revolving credit facilities of $1.0 billion at September 30,
1998. The credit facilities are intended for general corporate purposes, which
include support for AT&T's commercial paper, and were unused at September 30,
1998.
<PAGE> AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1998,VERSUS NINE MONTHS ENDED SEPTEMBER 30, 1997
Cash flows provided by operating activities of continuing operations for the
nine months ended September 30, 1998, were $6,841 million. This represents an
increase of $1,144 million compared with the first nine months of 1997. The
increase in operating cash flow was driven primarily by the approximately $1,400
million increase in income from continuing operations excluding the
restructuring and other charges and the gains on sales which have essentially no
impact on operating cash flows.
For the nine months ended September 30, 1998, cash provided by investing
activities of $6,965 million increased $10,402 million from a $3,437 million use
of cash for the nine months ended September 30, 1997, due primarily to the UCS
sale on April 2, 1998, for which we received $5,722 million in settlement of
receivables as well as $3,500 million in proceeds from the sale. Additionally,
in 1998 we received $742 million, $625 million and $183 million from the sales
of LIN-TV, AT&T Solutions Customer Care and SmarTone, respectively.
Net cash used in financing activities of $10,026 million increased $7,950
million from $2,076 million for the first nine months of 1997. This primarily
reflects the use of cash received from 1998 asset dispositions to paydown
commercial paper and the repurchase of approximately $3 billion of AT&T common
stock in connection with the Company's share repurchase program described below.
In addition, we used cash to retire $1,046 million of long-term debt obligations
associated with the TCG pooling as well as repay approximately $900 million of
scheduled debt maturities. The Company paid a premium of approximately $200
million associated with the early extinguishment resulting in an after tax
charge of $137 million which was recorded as an extraordinary loss.
In July 1998, AT&T's Board of Directors authorized an open market share
repurchase program to repurchase up to $3 billion of AT&T common stock. Between
July 23 and September 30, 1998, AT&T repurchased approximately 53 million
shares. As announced previously, AT&T expects to reissue the repurchased shares
as part of the shares to be issued in connection with the TCI merger.
<PAGE> AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RECENT PRONOUNCEMENTS
Beginning with the 1998 annual report we will adopt Statement of Financial
Accounting Standards (SFAS) No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS No. 131 establishes the standards for
the manner in which public enterprises are required to report financial and
descriptive information about their operating segments. The standard defines
operating segments as components of an enterprise for which separate financial
information is available and evaluated regularly as a means for assessing
segment performance and allocating resources to segments. A measure of profit or
loss, total assets and other related information are required to be disclosed
for each operating segment. In addition, this standard requires the annual
disclosure of: information concerning revenues derived from the enterprise's
products or services; countries in which it earns revenues or holds assets, and
major customers.
In February 1998, the Financial Accounting Standards Board (FASB) issued SFAS
No. 132, "Employers' Disclosure about Pensions and Other Postretirement
Benefits." Among other provisions, it standardizes certain disclosure
requirements for pension and other postretirement benefits, requires additional
information on changes in the benefit obligations and fair values of plan
assets, and eliminates certain other disclosures. The standard is effective for
fiscal years beginning after December 15, 1997. For AT&T this means that the
standard is effective for the 1998 annual report. Since the standard applies
only to the presentation of pension and other postretirement benefit
information, it will not have any impact on AT&T's results of operations,
financial position or cash flows.
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use. " Among other provisions, the SOP
requires that entities capitalize certain internal-use software costs once
certain criteria are met. The SOP is effective for financial statements for
fiscal years beginning after December 15, 1998, though early adoption is
encouraged. For AT&T this means that it must be adopted no later than January 1,
1999. If AT&T elects to adopt the SOP earlier than the effective date,
restatement of interim periods during the year of adoption is required.
Management is currently assessing the impact on AT&T's consolidated financial
statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities. " Among other provisions, it requires that
entities recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
Gains and losses resulting from changes in the fair values of those derivatives
would be accounted for depending on the use of the derivative and whether it
qualifies for hedge accounting. This standard is effective for fiscal years
beginning after June 15, 1999, though earlier adoption is encouraged and
retroactive application is prohibited. For AT&T this means that the standard
must be adopted no later than January 1, 2000. Management does not expect the
adoption of this standard to have a material impact on AT&T's results of
operations, financial position or cash flows.
<PAGE> AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
OTHER DEVELOPMENTS
On July 23, 1998, AT&T completed the merger with TCG, pursuant to an agreement
and plan of merger dated January 8, 1998. Each share of TCG common stock was
exchanged for 0.943 of AT&T common stock resulting in the issuance of
approximately 181.6 million shares in the transaction. The merger was accounted
for as a pooling of interests, and accordingly, AT&T's results of operations,
financial position and cash flows have been restated to reflect the merger. In
the third quarter of 1998, we recognized $85 of merger related expenses.
On March 3, 1998, AT&T agreed to sell WOOD-TV, its television station in Grand
Rapids, Michigan, for approximately $123 million, subject to certain
adjustments, which is expected to close in the fourth quarter of 1998.
On June 24, 1998, AT&T signed a definitive merger agreement with TCI for an
all-stock transaction. Under the agreement, AT&T will issue 0.7757 shares of
AT&T common stock for each share of TCI Group Series A common stock and 0.8533
shares of AT&T common stock for each share of TCI Group Series B stock. The
transaction, which is subject to regulatory, shareowner and other approvals, is
expected to be completed in the first half of 1999. Also announced was TCI's
intention to combine Liberty Media Group, its programming arm, and TCI Ventures
Group, its technology investments unit, to form the new Liberty Media Group.
Upon closing of the AT&T/TCI merger, the shareowners of the new Liberty Media
Group will be issued separate tracking stock by AT&T in exchange for the shares
currently held in Liberty Media Group and TCI Ventures Group.
AT&T and BT announced on July 26, 1998 that they will create a global venture to
serve the communications needs of multinational companies and the international
calling needs of individuals and businesses around the world. The venture, which
will be owned equally by AT&T and BT, will combine trans-border assets and
operations of each company, including their existing international networks, all
of their international traffic, all of their trans-border products for business
customers - including an expanding set of Concert services - and AT&T and BT's
multinational accounts in selected industry sectors. The formation of the
venture is subject to certain conditions, including receipt of regulatory
approvals. The transaction is expected to be completed by mid 1999. As a result
of the joint venture agreement, AT&T will be required to exit certain operations
which may be determined to compete directly with BT. A full review is currently
underway to determine the size and scope of any related international
restructuring charges. Management expects to have definitive plans in place by
the end of 1998, and accordingly, a restructuring charge associated with this
review will be forthcoming in the fourth quarter.
<PAGE> AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
YEAR 2000
AT&T is preparing its systems and applications for the year 2000 (Y2K). The
problem the Y2K program addresses is the use of two-digit instead of four-digit
year fields in computer systems. If the computer systems cannot distinguish
between the year 1900 and the year 2000, system failures or other computer
errors could result. The potential for failures and errors spans all aspects of
our business, including computer systems, voice and data networks, and building
infrastructures. We are also faced with addressing our interdependencies with
our suppliers and connecting carriers and our major customers, which all face
the same problem.
The AT&T Y2K Program is enterprise-wide and is focused on four inter-related
categories which are critical to maintaining uninterrupted service to our
customers: AT&T networks, AT&T-developed applications, and their external
interfaces and the information technology (IT) platforms that support the
applications. Additionally, the Company has a Y2K program in place for its
non-IT infrastructure, which is essential to conduct our business, but is less
critical to serving the needs of AT&T's customers. The key milestones common to
each category are: assessment, repair/remediation, testing and certification.
AT&T monitors and tracks the progress of the Y2K program through a series of
scorecards which capture the activities related to the Y2K process phases. AT&T
has a target of December 31, 1998 for the completion of assessment, revision and
testing of all customer-affecting systems that were part of AT&T's inventory as
of January 1, 1998. The Y2K plans for AT&T Local Services (including TCG) are
being integrated into the overall AT&T plan and have targeted completion of
assessment by year-end 1998, with revision and testing scheduled for completion
by the end of the first quarter of 1999. AT&T is also evaluating TCI's Y2K
program to understand the potential impact on the existing AT&T program. All
numbers cited in this Form 10-Q, Part I exclude information regarding those
recent and pending acquisitions, whose programs are still being evaluated and
planned for integration into the overall AT&T year 2000 program planning.
<PAGE> AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Program Status
AT&T has approximately 3,000 internally developed applications that (1) directly
support AT&T's voice and data telecommunications services (including wired and
wireless); (2) are critical to the provisioning, administration, maintenance and
customer service/support related to our telecommunications services; and (3)
support our sales and marketing organizations, other AT&T services and internal
administrative functions. These applications represent 350 million lines of code
that must be assessed, repaired and tested. As of September 30, 1998, AT&T has
completed 99% of the assessment, approximately 91% of the repair, and about 67%
of the application testing. The Company expects to have completed the assessment
phase for the Company as a whole in 1998 and to be about 97% and 90% complete in
the repair and certification phases, respectively, in 1998, and 100% complete in
1999.
The AT&T network is critical to providing top quality, reliable service to AT&T
customers. AT&T's goal is to maintain this quality, and provide uninterrupted
service at the turn of the century. In addition to the AT&T-developed
applications supporting the network, AT&T has inventoried over 800 externally
purchased network elements (NE) including switches, routers, network control
points and signal transfer points. All of the NEs have been assessed: 80% are
non-impacted, and plans are in place regarding Y2K-certification of the
remaining 20% by the end of 1998. Additional Y2K testing is conducted to
independently verify supplier claims of compliance. After operating system (OS)/
NE component testing and certification is complete, AT&T will perform
integration testing to verify Y2K-certification of NEs in conjunction with
associated OS/applications. At September 30, 1998, the assessment of the OS
applications was 100% complete, and 99% and 96% complete for the repair and
certification phases, respectively. At September 30, 1998, NE certification was
approximately 64% complete. AT&T expects to complete all phases of OS/NE
certification by year-end 1998, with full deployment by midyear 1999. AT&T
plans to conduct interoperability testing with other carriers during 1999 after
the involved networks have achieved Y2K-compliance.
<PAGE> AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
With respect to external (third party) interface assessment, formal letters have
been sent to about 2,000 domestic telecommunications companies and international
telecommunications authorities to request information on their Y2K plans and
targets for compliance. The Company has identified about 1,000 different types
of third party interfaces and about 10,000 total instances of those types, and
are in the process of assessing the Y2K impacts. At September 30, 1998, AT&T
assessed approximately 52% of third party interface types and approximately 48%
were Y2K compliant. The Company expects to complete Y2K certification for
approximately 75% of external interface types by year-end 1998, with 100%
expected to be complete by mid-year 1999.
The IT infrastructure category addresses not only the computing platforms that
are critical to the AT&T-developed applications, but also the common modules,
communications protocols, the internal AT&T wide-area and local-area networks,
desktop hardware/software and the internal voice network. The largest part of
this effort has been focused on the inventory and assessment of the products and
components, with much of the deployment scheduled for the latter part of the
year. As of September 30, 1998, AT&T was approximately 44% compliant in
computing platforms, 4% compliant in desktops, 70% compliant in voice systems
and adjuncts, and 46% compliant in data networks. AT&T expects substantial
completion of IT infrastructure certification by the end of 1998, with 100%
completion during 1999.
<PAGE> AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The non-IT infrastructure focuses on the energy and environment management
systems that are critical to various computer systems, as well as the
fundamental need to assure continuing safety, security and operations. The Y2K
program encompasses over 8,000 sites, as well as about 11,000 cell sites. The
majority of the effort to date for Y2K compliance within the non-IT
infrastructure is in inventory and assessment. At September 30, 1998,
approximately 54% of all sites completed inventory, 27% completed assessment and
26% are Y2K compliant (or non-impacted). AT&T expects to complete 60% of its
sites by year-end 1998, with 100% to be Y2K-compliant by year-end 1999.
Costs
We have expended approximately $300 million since inception in 1997 on all
phases of the Y2K project. Total costs for the nine months ended September 30,
1998, were approximately $189 million, which included approximately $10 million
of capital spending for upgrading and replacing non-compliant computer systems.
The Company anticipates the total cost of the project to be approximately $375
million for the full year 1998, which includes approximately $75 million of
capitalized fixed assets. More than half of these costs represent internal
information technology resources that have been redeployed from other projects
and are expected to return to these projects upon completion of the Y2K project.
We anticipate total costs for 1999 to be approximately $225 million, which
includes approximately $15 million of capitalized fixed assets.
Risk Assessment
We have assessed our business exposure that would result from a failure of our
Y2K Program, as well as those of our suppliers, connecting carriers and major
customers. Such failures would result in business consequences that could
include failure to be able to serve customers, loss of network functionality,
inability to render accurate bills, lost revenue, harm to the AT&T brand, legal
and regulatory exposure, and failure of management controls. Although the
Company believes that internal Y2K compliance will be achieved by December 31,
1999, there can be no assurance that the Y2K problem will not have a material
adverse affect on the Company's business, financial condition and results of
operations.
<PAGE> AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Contingency Plans
AT&T is in the process of establishing Y2K contingency plans. AT&T's contingency
plan initiatives include the following:
Business resumption teams to be on call during the millennium change to
monitor the network, critical systems, operations centers and business
processes and - positioned to react immediately to facilitate repairs,
alternate process activation and/or re-prioritization of work processes and
associated resources.
Alternate processes to be developed to support critical customer functions in
the event information systems or mechanized processes experience Y2K
disruptions.
Time zone "quiet period" to de-activate non-mission-critical systems and
processes during the 24-hour transition period when regional time zones pass
through the millennium change; these systems/processes would be re-activated
once they are all switched over to 2000.
Network capacity expansion to be engineered to accommodate demand peaks.
Replacement/repair parallel paths to be established that provide for repair
and readiness of existing systems and components that are scheduled for
replacement by the year 2000, in the event the replacement schedules are not
met.
Alternate suppliers and implementation plans to be in place for third-party
products/services that fail to meet Y2K compliance commitment schedules.
Data retention and recovery procedures to be in place for customer and
critical business data to provide pre-millennium backups with on-site
(primary) as well as off-site (secondary) data copies.
<PAGE> AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
FORWARD LOOKING STATEMENTS
Except for the historical statements and discussions contained herein,
statements contained in this Report on Form 10-Q constitute "forward looking
statements" within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. Any Form 10-K, Annual Report
to Shareowners, Form 10-Q or Form 8-K of AT&T may include forward looking
statements, including statements concerning future operating performance, Y2K
compliance, AT&T's share of new and existing markets, AT&T's short- and
long-term revenue and earnings growth rates, and general industry growth rates
and AT&T's performance relative thereto. These forward looking statements rely
on a number of assumptions concerning future events, including the adoption and
implementation of balanced and effective rules and regulations by the FCC and
the state public regulatory agencies, and AT&T's ability to achieve a
significant market penetration in new markets. These forward looking statements
are subject to a number of uncertainties and other factors, many of which are
outside AT&T's control, that could cause actual results to differ materially
from such statements.
For a more complete discussion of the factors that could cause actual results to
differ materially from such forward looking statements, see the discussion
thereof contained under the heading "Forward Looking Statements" in the
Company's Form 10-K for the year ended December 31, 1997. Readers should also
consider the factors discussed under the headings "Results of Operations" and
"Financial Condition" included in this Form 10-Q. AT&T disclaims any intention
or obligation to update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise.
<PAGE> AT&T Form 10-Q - Part II
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Millions)
(Unaudited)
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit Number
10 Framework Agreement, dated October 23, 1998,
among AT&T Corp., VLT Corporation, British
Telecommunications plc, BT (Netherlands) Holdings
B.V. and Thistle B.V.
12 Computation of Ratio of Earnings to Fixed Charges
27 Financial Data Schedule
(b) Reports on Form 8-K
No report on Form 8-K was filed during the quarter ended
September 30, 1998.
<PAGE> AT&T 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.
AT&T Corp.
/s/ M. B. Tart
------------------------------
By: M. B. Tart
Vice President and Controller
(Principal Accounting Officer)
Date: November 12, 1998
<PAGE> AT&T Form 10-Q
Exhibit Index
Exhibit
Number
10 Framework Agreement, dated October 23, 1998,
among AT&T Corp., VLT Corporation, British
Telecommunications plc, BT (Netherlands) Holdings
B.V. and Thistle B.V.
12 Computation of Ratio of Earnings to Fixed Charges
27 Financial Data Schedule
FRAMEWORK AGREEMENT
by and among
AT&T CORP.,
VLT CORPORATION,
BRITISH TELECOMMUNICATIONS PLC,
BT (NETHERLANDS)
HOLDINGS B.V.
and
THISTLE B.V.
As of October 23, 1998
<PAGE>
FRAMEWORK AGREEMENT (this "Agreement"), dated as of October 23, 1998, by
and among AT&T Corp., a corporation incorporated under the laws of the State of
New York, United States of America ("AT&T"), VLT Corporation, a corporation
incorporated under the laws of the State of Delaware, United States of America
("VLT", and together with AT&T, the "AT&T Parties"), British Telecommunications
plc, a company organized under the laws of England and Wales ("BT"), BT
(Netherlands) Holdings B.V., a Besloten Vennootschap organized under the laws of
The Netherlands ("BT Holdings", and together with BT, the "BT Parties"), and
Thistle B.V., a Besloten Vennootschap organized under the laws of The
Netherlands ("Thistle BV").
R E C I T A L S :
A. The parties wish to establish a joint venture to (i) develop and offer
Global Communications Services (as defined below), (ii) offer Communications
Services (as defined below) to specified customers in the global market, and
(iii) collaborate on the other activities specified herein, all as more fully
set forth herein and in the Exhibits, Schedules and Annexes hereto and subject
to the terms and conditions hereof.
B. The parties agree that the joint venture will be implemented through
Thistle BV and separate Subsidiaries (as defined below) of Thistle BV organized
or incorporated in the United States (as defined below), England and, if
necessary or appropriate, elsewhere (the "Newco Subsidiaries").
<PAGE>
NOW, THEREFORE, in consideration of the mutual promises and agreements set
forth herein, the adequacy and sufficiency of which are hereby acknowledged, the
parties agree as follows:
ARTICLE 1
DEFINITIONS; INTERPRETATION
1.1 Definitions. For the purposes of this Agreement, the following terms
shall have the following meanings, unless the context requires otherwise:
"Accounting Rates" shall mean the contractual consideration for the
termination of the inbound/outbound communications traffic of AT&T or BT and
their Subsidiaries through the International Settlement Process (substantially
as such regime is in effect as of the date hereof).
"Action" shall mean any action, suit, arbitration, inquiry, proceeding or
investigation by or before any Governmental Body, whether civil, criminal,
administrative or regulatory.
"Affiliate" of any Person shall mean a Person that Controls, is Controlled
by, or is under common Control with, such Person.
"Affiliate Transaction," with respect to either parent, shall mean any
agreement, arrangement or understanding between such parent or one or more of
its Affiliates (other than Thistle BV or one or more of its Controlled
Affiliates), on the one hand, and Thistle BV or one or more of its Controlled
Affiliates, on the other hand.
"Agreement Officers" shall mean the CEO, the CFO, and the most senior
executive officer of each of the MNC Unit, the Product Unit and the
International Carrier Services Unit.
"AOPB" shall mean an annual operating plan and budget contemplated by
Section 6.1 for a fifteen month period, comprised of each Fiscal Year and the
immediately following fiscal quarter or, in the case of the first AOPB, the
period until the end of the fiscal quarter immediately following the first full
Fiscal Year.
"Applicable Law" shall mean any foreign or domestic law, statute, code,
ordinance, rule or regulation promulgated or enacted, or any order, judgment,
writ, stipulation, award, injunction or decree entered, by a Governmental Body.
"Approvals" shall mean any consent, approval, license, permit or
authorization.
"Asset Contribution Agreement (BT)" shall mean the share and asset purchase
agreement substantially in the form attached hereto as Exhibit A, comprising the
arrangements required for the contribution of assets by the BT Sellers to the
Newco Group.
"Asset Contribution Agreement (AT&T)" shall mean the share and asset
contribution agreement substantially in the form attached hereto as Exhibit B.
<PAGE>
"Asset Contribution Agreements" shall mean the Asset Contribution Agreement
(BT) and the Asset Contribution Agreement (AT&T) and "Asset Contribution
Agreement" shall mean either of them.
"Assets" shall mean assets, properties and rights (including goodwill and
including stock, securities or interests of legal Persons), wherever located
(including in the possession of vendors or other third parties or elsewhere),
whether real, personal or mixed, tangible, intangible or contingent, in each
case whether or not recorded or reflected or required to be recorded or
reflected on the books and records or financial statements of any Person.
"AT&T GCS Business" shall mean the Global Business Communications Services
business and the business of owning and operating Global Network Facilities
conducted by the AT&T Sellers in which the AT&T Assets are used or by the
Contributed AT&T Subsidiaries, including the business of the Contributed AT&T
Subsidiaries.
"AT&T Seller"shall mean AT&T and each Subsidiary of AT&T that
owns any Assets to be contributed pursuant to the Asset Contribution Agreement
(AT&T) or is subject to any Assumed AT&T Liabilities to be assumed pursuant to
such Agreement.
"Bankruptcy" shall mean:
(a) with respect to a Person other than a U.K. Person: (i) a court having
competent jurisdiction in the premises entering a decree or order for (A) relief
in respect of such Person in an involuntary case under any applicable Bankruptcy
Law, (B) appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator or similar official of such Person or for all or substantially all
of the property and assets of such Person, or (C) the winding up or liquidation
of the affairs of such Person and, in each case, such decree or order remaining
unstayed and in effect for a period of 60 consecutive days; (ii) such Person (A)
commencing a voluntary case under any applicable Bankruptcy Law, or consenting
to the entry of an order for relief in an involuntary case under any Bankruptcy
Law, (B) consenting to the appointment of or taking possession by a receiver,
liquidator, assignee, custodian, trustee, sequestrator or similar official of
such Person or for all or substantially all of the property and assets of such
Person, or (C) effecting any general assignment for the benefit of creditors; or
(iii) such Person becoming or being declared insolvent; and
(b) with respect to a U.K. Person: (i) an administrative receiver or
receiver being validly appointed over the whole of or a substantial part of the
undertaking, property or assets of such Person; (ii) an administration order
being made in respect of such Person; (iii) an order being made or an effective
resolution being passed for the winding up of such Person other than as part of
a solvent reorganization or amalgamation effected by a scheme of arrangement
under sections 425 to 427 of the U.K. Companies Act 1985; (iv) such Person
compounding or entering into any reorganization or other special arrangement
with a class of its creditors or its creditors generally; or (v) such Person
being unable to pay its debts within the meaning of section 123(1)(e) or 123(2)
of the U.K. Insolvency Act 1986 but so that, in each case, the words "it is
proved to the satisfaction of the Court" are deleted.
<PAGE>
"Bankruptcy Law" shall mean (a) with respect to a U.S. Person, Title 11,
United States Bankruptcy Code of 1978, as amended, (b) with respect to a U.K.
Person, the U.K. Insolvency Act 1986 and any statutory instrument, rules or
regulations made thereunder, and (c) with respect to Thistle BV or BT Holdings,
The Netherlands Faillissementswet, as amended, and, with respect to each Person
referred to in the preceding clauses (a), (b) and (c), and with respect to other
Persons, any similar federal, state or other law or regulation relating to
bankruptcy, insolvency, receivership, winding-up, liquidation, reorganization or
relief of debtors or any amendment to, successor to or change in any such law.
"Best Efforts" shall mean that the obligated Person shall make all efforts
to accomplish the applicable objective. Such obligation, however, does not
require the obligated Person to incur any liabilities or relinquish any assets
or rights if the aggregate burden thereof would either have a Material Adverse
Effect on such Person and its Subsidiaries taken as a whole or would represent a
cost, loss or other liability in an amount exceeding 25% of the fair market
value of the Newco Group on a going concern basis. The fact that the objective
is not actually accomplished is no indication that the obligated Person did not
in fact utilize its Best Efforts in attempting to accomplish the objective.
"Broadcast Services" shall mean the non-interactive (except for purposes of
control) transmission and related support activities of signals and data
comprising:
(b) images, television (including business television), radio and cinema
programming and other audio-visual productions (including entertainment,
information, news and sports) for point to multipoint simultaneous distribution;
or
(c) content which is intended to be incorporated ultimately into television
(including business television), radio and cinema programming and other
audio-visual productions (including entertainment, information, news and sports)
(irrespective of whether distribution is point to multipoint or point to point).
"BT GCS Business" shall mean the Global Business Communications Services
business and the business of owning and operating Global Network Facilities
conducted by the BT Sellers in which the BT Assets are used or by the
Contributed BT Subsidiaries, including the business of Concert and the other
Contributed BT Subsidiaries.
"BT Seller" shall mean BT and each Subsidiary of BT that owns any Assets to
be contributed pursuant to the Asset Contribution Agreement (BT) or is subject
to any Assumed BT Liabilities to be assumed pursuant to such an Agreement.
"Business Combination" shall have the meaning defined in paragraph (c) of
the definition of "Change of Control."
"Business Day" shall mean any day other than a day (a) on which commercial
banks in the City of New York, United States or Amsterdam, The Netherlands are
required or authorized by Applicable Law to be closed or (b) which is a public
holiday in London, England.
"Business Units" shall mean the International Carrier Services Unit, the
MNC Unit, the Network and Systems Unit, the Product Unit and the Technology
Unit, and a "Business Unit" shall mean any of them.
<PAGE>
"Carrier Services" shall mean the provision of carriage, including hubbing,
routing, transit, reorigination and least cost routing on Global Network
Facilities primarily between two or more countries to other International
Carriers.
"CEO" shall mean the chief executive officer of Thistle BV.
"CFO" shall mean the chief financial officer of Thistle BV.
"Change of Control" with respect to any Person shall mean the occurrence of
any of the following:
(b) The acquisition by any Person or group of Persons of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act)
of 45% or more of either (i) the then outstanding shares of common stock of the
Person or, in the case of BT, voting rights carried by issued shares at a
general meeting of the shareholders (the "Outstanding Company Common Stock") or
(ii) the combined voting power of the then outstanding voting securities of the
Person entitled to vote generally in the election of directors of such Person
(the "Outstanding Company Voting Securities"); provided, however, that for
purposes of this paragraph (a), any acquisition by any Person pursuant to a
transaction that complies with clauses (i), (ii) and (iii) of paragraph (c) of
this definition shall not be a Change of Control; or
(c) Individuals who, as of the date of this Agreement, constitute the board
of directors or other similar governing body of such Person or, with respect to
any Person organized or formed after the date hereof, the individuals who
constitute the members of such body at its first meeting (the "Incumbent Board")
cease for any reason to constitute at least a majority of the board or other
similar governing body of such Person; provided, however, that any individual
becoming a director, or having similar management supervisory functions (a
"director") subsequent to the date of this Agreement or date of such meeting
whose election, or nomination for election by such Person's shareholders, was
approved by a vote of at least a majority of the directors then comprising the
Incumbent Board shall be considered as though such individual were a member of
the Incumbent Board, but excluding, for this purpose, any such individual whose
initial assumption of office occurs as a result of an actual or threatened
election contest with respect to the election or removal of directors or other
actual or threatened solicitation of proxies or consents by or on behalf of a
Person other than the Incumbent Board of such Person; or
(d) Consummation of a reorganization, amalgamation, merger or
consolidation, scheme of arrangement under sections 425 to 427 of the U.K.
Companies Act 1985, sale or other disposition of all or substantially all of the
assets or shares of such Person or any similar transaction (a "Business
Combination"), in each case, unless, following such Business Combination, (i)
all or substantially all of the Persons who were the beneficial owners,
respectively, of the Outstanding Company Common Stock and Outstanding Company
Voting Securities of the applicable Person immediately prior to such Business
Combination beneficially own, directly or indirectly, 55% or more of,
respectively, the then Outstanding Company Common Stock and the then Outstanding
Company Voting Securities, as the case may be, of the Person resulting from such
Business Combination (including a Person which as a result of such transaction
<PAGE>
owns the applicable Person or all or substantially all of the applicable
Person's assets either directly or through one or more Subsidiaries) (such
resulting Person, a "Resulting Corporation") in substantially the same
proportions as their ownership, immediately prior to such Business Combination
of the Outstanding Company Common Stock and Outstanding Company Voting
Securities of the applicable Person, as the case may be, (ii) no Person or group
of Persons (excluding any Resulting Corporation) beneficially owns, directly or
indirectly, 45% or more of, respectively, the then Outstanding Company Common
Stock of the Resulting Corporation or the then Outstanding Company Voting
Securities of the Resulting Corporation, and (iii) at least a majority of the
members of the board of directors or other similar governing body of the
Resulting Corporation were members of the Incumbent Board or were approved by a
majority of the Incumbent Board at the time of the execution of the initial
agreement, or of the action of the board or other similar governing body,
providing for such Business Combination; or
(e) Approval by the shareholders of such Person of a complete liquidation
or dissolution of such Person, except with respect to a U.K. Person, pursuant to
a scheme of arrangement that does not otherwise constitute a Change of Control
pursuant to paragraph (a), (b), (c) or (e) of this definition or an actual
complete liquidation or dissolution of such U.K. Person; or
(f) Another Person or group of Persons shall otherwise obtain effective
Control of such Person. "Charter Documents" shall mean the Thistle BV Charter
Documents, the DirectorCo Charter Documents, the Newco Services Company Charter
Documents and the Newco Subsidiary Charter Documents.
"Check the Box Entity" shall mean any Person designated as such on Schedule
2.2 and, with respect to Persons not so designated, any such Person that AT&T
elects to be treated as a partnership for U.S. federal income tax purposes
pursuant to the procedure set forth in Annex 3.
"Class" shall mean the class of Class A Representatives, the class of Class
B Representatives or the class of the Class C Representative.
"Class A Representative" shall mean a member of the DirectorCo Board
appointed by AT&T or the Affiliate of AT&T that is a member of DirectorCo.
"Class B Representative" shall mean a member of the DirectorCo Board
appointed by BT or the Affiliate of BT that is a member of DirectorCo.
"Class C Representative" shall mean the then CEO, who shall be a member of
the DirectorCo Board.
"Code" shall mean the United States Internal Revenue Code of 1986, as
amended, and any successor legislation.
"Communications Services" shall mean any services and applications,
including enhanced services and applications, that involve the transmission of
voice, data, sound, music, still and moving image or video and other elements by
fixed media (such as wire, cable or fiber), or radio or other wave signal, and
any similar or substitute service available or offered from time to time, and
the business of developing, designing or offering content-based applications.
<PAGE>
"Concert" shall mean Concert Communications Company, an unlimited company
incorporated in England and Wales.
"Consolidated Group" shall mean an affiliated group of corporations (within
the meaning of section 1504(a) of the Code) filing a consolidated U.S. federal
Income Tax Return, and a group of corporations filing a consolidated, combined
or unitary Tax Return for state, local or foreign Tax purposes.
"Contributed AT&T Contracts" shall mean the contracts and agreements to
which any of the AT&T Sellers or Contributed AT&T Subsidiaries is a party set
forth or described in Schedule 15.1A.
"Contributed AT&T Subsidiaries" shall mean the Subsidiaries of AT&T set
forth in Schedule 15.1A.
"Contributed BT Contracts" shall mean the contracts and agreements to which
any of the BT Sellers or Contributed BT Subsidiaries is a party set forth or
described in Schedule 15.1B.
"Contributed BT Subsidiaries" shall mean the Subsidiaries of BT set forth
in Schedule 15.1B and shall include BT IntermediateCo, Concert Holdings and
their Subsidiaries.
"Contribution" shall mean the contribution and transfer by the AT&T Sellers
or the BT Sellers, respectively, to the Newco Group of the AT&T Assets and BT
Assets, respectively, and the assumption by the Newco Group of the Assumed AT&T
Liabilities and Assumed BT Liabilities from the AT&T Sellers or the BT Sellers,
respectively, as contemplated by this Agreement and the Asset Contribution
Agreements.
"Control" shall mean the direct or indirect power affirmatively to direct
the management and policies of a Person, whether through the ownership of voting
securities, by agreement or otherwise. "Controls," "Controlled" and
"Controlling" shall have corresponding meanings.
"Covered Investor" with respect to any Person shall mean any "person" or
"group" (within the meaning of Section 13(d)(3) of the Exchange Act) that
either, directly or indirectly (a) has effective Control of such Person or (b)
has beneficial ownership of 45% or more of either the Outstanding Company Common
Stock or Outstanding Company Voting Securities of such Person.
"CTO" shall mean the chief technology officer of Thistle BV.
"Current Subsidiaries" shall mean the Subsidiaries of Concert Holdings as
of the date hereof.
"Default" shall mean an occurrence or circumstance that constitutes a
violation, breach or default, which gives another Person or Persons the right to
accelerate the defaulting Person's performance of, or the right to cancel or
terminate, or which results in the loss of any benefit under or the creation or
imposition of any Lien on a Person's Assets under, an organizational document,
or any contract, order or other commitment or obligation, whether following the
expiration of any applicable grace period or the giving of any required notice
and where there has not been any cure or waiver of, or consent to, such
violation, breach or default.
<PAGE>
"DirectorCo" shall mean a limited liability company to be established by
AT&T or one of its Affiliates and BT or one of its Affiliates under the laws of
the State of Delaware.
"DirectorCo Board" shall mean the management board of DirectorCo.
"DirectorCo Charter Documents" shall mean the certificate of formation and
the operating agreement of DirectorCo substantially in the form attached hereto
as Exhibit E-1 and Exhibit E-2, respectively.
"Disregarded Entity" shall mean a Person designated as such on Schedule 2.2
and, with respect to Persons not so designated, any such Person that elects to
be treated as a disregarded entity for U.S. federal income tax purposes pursuant
to the procedure set forth in Annex 3.
"Distribution Agreement (Newco Products)" shall mean the distribution
agreements between Thistle BV and AT&T and between Thistle BV and BT
substantially in the form attached hereto as Exhibit F-1 and Exhibit F-2,
respectively.
"Distribution Agreement (Parent Products)" shall mean the Distribution
Agreement (BT Services) and Distribution Agreement (AT&T Services) substantially
in the form attached hereto as Exhibit G-1 and Exhibit G-2, respectively.
"Distribution Agreements" shall mean the Distribution Agreements (Newco
Products) and the Distribution Agreements (Parent Products), and "Distribution
Agreement" shall mean any of them.
"Distributor" shall mean any Person that engages in the marketing, sale or
other distribution of Global Business Communications Services to end user
customers and resellers.
"Dollars" and the sign "$" shall mean dollars in the lawful currency of the
United States.
"Domestic Network Facilities" shall mean all facilities that support
bandwidth, transmission, signaling, routing, network service intelligence,
network control intelligence, switching and Operational Systems Support
(including any related software support) in connection with the transmission of
voice, data, sound, music, still and moving image, or video and other elements
by fixed media (such as wire, cable or fiber), or radio or other wave signal,
other than Global Network Facilities.
"EBITDA" shall mean, with respect to any Person for any period, the net
income after Taxes of such Person for such period, plus, to the extent deducted
from revenues in calculating net income after Taxes for such period, the sum of
(i) all interest expense, including the interest component or equivalent under
capital leases, (ii) all expense and provision for any current and deferred
federal, state or other domestic or foreign Income Taxes, and (iii)
depreciation, amortization and other similar non-cash charges, in each case as
determined in accordance with the GAAP of the applicable jurisdiction of such
Person applied on a consistent basis.
<PAGE>
"Environmental Law" shall mean any federal, state, local or foreign
statute, ordinance, rule, regulation, code, common law (including tort and
environmental nuisance law), legal doctrine, order, judgment, decree,
injunction, requirement or agreement with any Governmental Body, relating to
pollution, human health or safety, or the environment (including ambient air,
surface water, groundwater, land surface or subsurface strata) or to emissions,
discharges, releases or threatened releases of any hazardous substances or
otherwise relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of any such hazardous substances.
"Environmental Liabilities" shall mean Liabilities relating to, arising out
of or resulting from any Environmental Law (including all removal, remediation
or cleanup costs, investigatory costs, governmental response costs, natural
resources damages, property damages, personal injury damages, settlement
amounts, costs of compliance with any settlement, judgment or other
determination of Liability and indemnity, contribution or similar obligations)
and all costs and expenses (including reasonable fees, charges and disbursements
of attorneys, consultants and experts), interest, fines, penalties or other
monetary sanctions in connection therewith, whether arising from negligence,
strict liability or any other theory of recovery at law or in equity.
"Environmental Permit" shall mean any Permit required or issued pursuant to
any Environmental Law.
"European Region" shall mean all countries listed on Schedule 1.1A hereto.
"Exchange Act" shall mean the United States Securities Exchange Act of
1934, as amended.
"Excluded AT&T Liabilities" shall mean:
(b) Environmental Liabilities relating to any or all of the AT&T Assets,
the Assets of the Contributed AT&T Subsidiaries and the AT&T GCS Business
incurred, accrued or resulting from any fact, event or circumstance occurring or
existing prior to the Closing Date;
(c) Any Liabilities of the AT&T Sellers relating to Taxes; and
(d) Other Liabilities that arise or result from or relate to the management
and operations of the AT&T GCS Business, to the extent related to periods prior
to the Closing.
"Excluded BT Liabilities" shall mean:
(b) Environmental Liabilities relating to any or all of the BT Assets, the
Assets of the Contributed BT Subsidiaries and the BT GCS Business incurred,
accrued or resulting from any fact, event or circumstance occurring or existing
prior to the Closing Date;
(c) Any Liabilities of the BT Sellers relating to Taxes; and
<PAGE>
(d) Other Liabilities that arise or result from or relate to the management
and operations of the BT GCS Business, to the extent related to periods prior to
the Closing (other than, in the case of Concert, (i) the Assumed Concert
Purchase Debt, less any amount cancelled in accordance with the terms hereof,
(ii) the Indebtedness of Concert as contemplated by Section 15.7(a) and (iii)
Liabilities of Concert that are reflected in the Concert Financials or that
arise or have arisen in the ordinary course of business from April 1, 1998 to
the Closing Date, but excluding any material Liabilities associated with
material Actions that arise or occur prior to the Closing Date).
"FCC" shall mean the Federal Communications Commission of the United
States.
"FCC Order" shall mean either:
(a) A written order or other determination from the staff of the FCC
(either in the first instance or upon review, reconsideration or other action
subsequent to an order or other determination of the staff) either approving the
consummation of the transactions contemplated by this Agreement and the other
Transaction Agreements or stating that no such approval is required (or, in the
case of such review, reconsideration or other subsequent action, a written order
or other determination to the effect set forth above or affirming or upholding,
or having the effect of affirming or upholding, whether by dismissing or denying
a petition for reconsideration or terminating the consideration thereof or
otherwise, a previous order or determination to the effect set forth in this
paragraph (a)), which order or determination shall no longer be subject to
further administrative review by the FCC; or
(b) A written order or other determination from the FCC itself (either in
the first instance or upon review, a reconsideration pursuant to section
1.106(a)(i) of the FCC's rules, or other action subsequent to an order or other
determination of the staff of the FCC) either approving the consummation of the
transactions contemplated by this Agreement and the other Transaction Agreements
or stating that no such approval is required (or, in the case of such review,
reconsideration or other action subsequent to an order or determination of the
staff of the FCC, a written order or other determination from the FCC itself to
the effect set forth above or affirming, upholding or having the effect of
affirming or upholding, whether by dismissing or denying a petition for
reconsideration or application for review or terminating the consideration
thereof or otherwise, an order or other determination of the staff of the FCC to
the effect set forth in paragraph (a)).
For purposes of this definition, an order or other determination of the
staff shall be deemed no longer subject to further administrative review by the
FCC:
(x) If no petition for reconsideration or application for review by the FCC
of the order or determination of the staff has been filed within 30 days after
the date of public notice of the order or determination, as such 30-day period
is computed and as such date is defined in sections 1.104 and 1.4, as
applicable, of the FCC's rules, and the FCC has not initiated review of the
order or determination of the staff on its own motion within 40 days after the
date of public notice of the order or determination, as such 40-day period is
computed and as such date is defined in sections 1.117 and 1.4 of the FCC's
rules, or
<PAGE>
(y) If any such petition for reconsideration or application for review has
been filed, or, if the FCC has initiated review of the order or determination of
the staff on its own motion, the FCC itself has issued a written order or other
determination or taken other action to the effect set forth in paragraph (b)
above.
"Five Year Business Plan" shall mean a five year business plan contemplated
by Section 6.1.
"GAAP" shall mean generally accepted accounting principles.
"global," when used with respect to Communications Services, shall mean
Communications Services between or among two or more countries.
"Global Business Communications Services" shall mean Global Communications
Services provided or targeted to businesses and to their employees in their
capacity as employees.
"Global Communications Services" shall mean current or future global
end-to-end managed and all other global Communications Services of a type
intended for use by end user customers and resellers, but excluding Satellite &
Radio Services, basic switched voice and basic telex.
"Global Network Facilities" shall mean all facilities that support
bandwidth, transmission, signaling, routing, network service intelligence,
network control intelligence, switching and Operational Systems Support
(including any related software support) in connection with the transmission of
voice, data, sound, music, still and moving image, or video and other elements
by fixed media (such as wire, cable or fiber), or radio or other wave signal,
exclusively or predominantly between or among two or more countries (it being
understood that facilities that are predominantly designed to support such
transmission between or among two or more countries may also support, as a
non-predominant use, transmission within one or more of such countries). Global
Network Facilities shall not include backhaul facilities, except AT&T's
U.S.-based international SDH backhaul facilities. Except as expressly agreed by
the parties, Global Network Facilities shall not include any system or systems
that provide Communications Services exclusively within a given country (in each
case, whether or not a Home Country).
"Governmental Approval" shall mean any consent, approval, authorization,
waiver, grant, concession, license, permit, exemption or order of, registration,
certificate, declaration or filing with, or report or written notice to, any
Governmental Body and any expiration or termination of any waiting period
requirement (including pursuant to the HSR Act) of any Governmental Body.
"Governmental Body" shall mean any court or any national, federal, state,
municipal, or local government or any political subdivision, governmental
department, commission, board, bureau, agency, official or instrumentality of
any thereof, domestic or foreign, and shall include the European Commission.
"group" or "Group" shall mean two or more persons within the meaning of
Section 13(d)(3) of the Exchange Act.
<PAGE>
"Hazardous Substances" shall mean any pollutants, contaminants, toxic or
hazardous or extremely hazardous substances, materials, wastes, constituents,
compounds, chemicals (including petroleum or any by-products or fractions
thereof, any form of natural gas, lead, asbestos and asbestos-containing
materials, polychlorinated biphenyls ("PCBs") and PCB-containing equipment,
radon and other radioactive elements, ionizing radiation, electromagnetic field
radiation and other non-ionizing radiation, infectious, carcinogenic, mutagenic,
or etiologic agents, pesticides, defoliants, explosives, flammables, corrosives
and urea formaldehyde foam insulation) that are regulated by any applicable
Environmental Laws.
"Home Country" when used with respect to BT shall mean the U.K., and its
Crown dependencies, trusts, territories and possessions listed on Schedule 1.1B,
and when used with respect to AT&T shall mean the United States, and its trusts,
territories and possessions listed on Schedule 1.1C.
"Home Territory" when used with respect to BT shall mean the European
Region and BT's Home Country, and when used with respect to AT&T shall mean the
NAFTA Region and AT&T's Home Country.
"HSR Act" shall mean the United States Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
"Income Tax" shall mean any federal, state, local or foreign Tax (a) based
upon, measured by, or calculated with respect to net income or profits
(including capital gains Taxes, alternative minimum Taxes and Taxes on items of
Tax preference), or (b) based upon, measured by, or calculated with respect to
multiple bases (including corporate franchise Taxes), if one or more of the
principal bases on which such Tax may be based, measured by, or calculated with
respect to is described in clause (a).
"Indebtedness" shall mean, as applied to any Person, without duplication
(a) all indebtedness for borrowed money, whether obtained from third parties or
Affiliates of such Person, (b) that portion of obligations with respect to any
lease of any property by that Person as a lessee that, in conformity with the
GAAP applicable in the jurisdiction of such Person, is accounted for as a
capital lease on the balance sheet of such Person and that is properly
classified as a liability on a balance sheet in conformity with such GAAP, (c)
all guarantees of indebtedness of third Persons, (d) all indebtedness of third
Persons secured by Liens on any of the Assets of such Person, (e) all letters of
credit or similar instruments, and (f) the deferred and unpaid purchase price of
property, other than trade payables arising in the ordinary course of business.
"Influence Test" shall be deemed to be met with respect to a Person (the
"Investor") investing in a party (the "Investee"), other than by way of
commercial or other bona fide lending arrangements, if any one of the following
tests is satisfied:
(b) The Investor has, as a practical matter, effective negative veto rights
in fact on major business decisions taken by the board of directors or other
similar governing body or management of the Investee or on major strategic
transactions of the Investee, whether by contract or by agreement with the
Investee or any of its Affiliates (but excluding any such rights that arise by
statute); or
<PAGE>
(c) The Investor has achieved material influence on the policies, direction
or operation of the Investee; or
(d) The Investor has the right or power to nominate, or has designees
representing, more than 25% of the members of the board of directors or other
similar governing body of the Investee; provided that if 25% of such members or
other similar governing body is not a whole number, 25% of such members shall be
deemed to be the next higher whole number; or
(e) The Investor (together with its Affiliates and any Persons with whom it
is acting in concert) has acquired in one transaction or a series of
transactions beneficial ownership of at least 20% of the Outstanding Company
Common Stock or the Outstanding Company Voting Securities of the Investee from
the Investee; provided, however, that if the relevant securities are issued by
the Investee in exchange for assets (other than cash) or a business of a third
party, and the Influence Test shall not otherwise be met, the Influence Test
shall be deemed to have been met with a limitation (a "Limitation") for purposes
of Article 13; or
(f) The Investor has the right, by contract, to veto significant decisions
affecting the Investee.
"Intellectual Property Rights" or "IPR" shall have the meaning set forth in
the IPR Agreement.
"International Carrier" shall mean a Person which (a) is licensed or
authorized, or is otherwise permitted to provide, or operates where no license
or authorization is required, crossborder Communications Services to the public,
or (b) owns or operates, or is licensed to own or operate, the underlying
facilities used to provide crossborder Communications Services to the public.
"International Carrier Services" shall mean Carrier Services and
International Traffic Termination Services.
"International Carrier Services Unit" shall mean the Business Unit
contemplated by Section 2.1(b).
"International Settlement Process" shall mean the system of accounting and
settlement rates for the exchange of international traffic of a type referred to
in Section 64.1001 of the regulations of the FCC and any subsequent regime for
arranging and managing inbound/outbound traffic termination terms and conditions
with an International Carrier.
"International Traffic Service Agreement (AT&T)" shall mean the Newco
International Traffic Service Agreement substantially in the form attached
hereto as Exhibit D-2.
"International Traffic Service Agreement (BT)" shall mean the Newco
International Traffic Service Agreement substantially in the form attached
hereto as Exhibit D-1.
"International Traffic Service Agreements" shall mean the International
Traffic Service Agreement (AT&T) and the International Traffic Service Agreement
(BT), and "International Traffic Service Agreement" shall mean either of them.
<PAGE>
"International Traffic Termination Services" shall mean the arrangement,
management and delivery of inbound/outbound traffic termination of all the
communications traffic, including voice and Internet Protocol traffic, of AT&T
or BT and their Subsidiaries, including through the International Settlement
Process and least cost routing alternatives, but excluding all Global Business
Communications Services.
"Internet Protocol" or "IP" shall mean internet protocol.
"IPR Agreement" shall mean the IPR Agreement substantially in the form
attached hereto as Exhibit H.
"Level 1 Customers" shall mean MNCs that are limited buyers of Global
Communications Services that primarily buy Global Communications Services on a
local basis, and which are not Qualifying MNC Customers.
"Level 2 Customers" shall mean MNCs that are significant buyers of Global
Communications Services but which do not buy Communications Services in a fully
integrated global manner, and which are not Qualifying MNC Customers.
"Liability" or "Liabilities" shall mean any and all losses, claims,
charges, debts, actions, causes of action, suits, damages, obligations,
payments, costs and expenses, indemnities and similar obligations, and other
liabilities, including all contractual obligations, whether absolute or
contingent, matured or unmatured, liquidated or unliquidated, accrued or
unaccrued, known or unknown, whenever arising, and including those arising under
any law, rule, regulation, Action, threatened, contemplated or completed Action
(including the costs and expenses of demands, awards, assessments, judgments,
fines, penalties, settlements and compromises relating thereto, court costs,
fees, charges and disbursements of attorneys, and any and all costs and
expenses, whatsoever reasonably incurred in investigating, preparing or
defending against any such Actions or threatened or contemplated Actions), order
or consent decree of any Governmental Body or any award of any arbitrator or
mediator of any kind, and those arising under any contract, commitment or
undertaking, in each case whether or not recorded or reflected or required to be
recorded or reflected on the books and records or financial statements of any
Person.
"Liberty Media Group" shall mean Liberty Media/Ventures Corporation, any of
its direct or indirect current or future Subsidiaries, any Person in which it
has or acquires any direct or indirect equity investment and any other Person
directly or indirectly Controlled by any of the foregoing.
"LIBOR" shall mean the arithmetic average rounded up to the nearest 1/16th
of 1% of the London interbank offered rates of major banks for Dollar deposits
for a three-month period that are displayed on page "LIBO" on the Reuters
Monitor Money Rate Service or such other page as may replace the "LIBO" page and
displays London interbank offered rates for Dollar deposits, in each case, as
relevant, determined on a particular date or from time to time.
"Lien" shall mean any lien, pledge, mortgage, security interest, claim,
lease, charge, option, right of first refusal, easement, servitude,
right-of-way, encroachment or other encumbrance affecting title, limited right
(beperkt recht), transfer, voting or other similar restriction under any
agreement or any similar lien or encumbrance.
"Local Purchase Agreements" shall have the meaning set forth in Section 1.2
of the Asset Contribution Agreement (AT&T).
"Major Competitor" of AT&T or BT shall mean (a) when used with reference to
AT&T, any Person that, together with all of its Affiliates, has revenues derived
in AT&T's Home Territory from the provision of Communications Services that
constitute at least 10% of the aggregate revenues of AT&T derived from the
provision of Communications Services in such Home Territory; and (b) when used
with reference to BT, any Person that, together with all of its Affiliates, has
revenues derived in BT's Home Territory from the provision of Communications
Services that constitute at least 10% of the aggregate revenues of BT derived
from the provision of Communications Services in such Home Territory, in each
case determined by reference to the most recently completed full fiscal year of
any Person with respect to which the measurement is being made.
"Managed Network Services" shall mean the provision of service to a
customer consisting of the management of the logical and physical elements of a
customer's end-to-end communications network, including network transport and
equipment, and incremental, directly related network systems and applications
planning, design, integration and migration, and customer support functions.
"Managed Network Services Facilities" shall mean all facilities, systems
and software that are used predominantly in the provision of Managed Network
Services.
"Management Board" shall mean the management board of Thistle BV.
"Material Adverse Effect" shall mean, with respect to a Person, any change,
circumstance or effect that, individually or in the aggregate with all other
changes, circumstances and effects, is or is reasonably likely to be materially
adverse to the business, operations, assets, liabilities (including contingent
liabilities), financial condition or results of operations of such Person and
its Subsidiaries taken as a whole. For the avoidance of doubt, any regulatory
proceedings or class of proceedings currently in process shall not be deemed to
have or contribute to a Material Adverse Effect as to the scope of proposals
currently contemplated by such proceedings or class of proceedings.
"MCI" shall mean MCI Communications Corporation, a corporation formerly
incorporated under the laws of the State of Delaware, and a constituent company
which was merged with and into MCI-WorldCom.
<PAGE>
"MCI-WorldCom" shall mean MCI WorldCom, Inc., a corporation incorporated
under the laws of the State of Delaware. "MNC Newco Subsidiaries" shall mean the
Newco Subsidiaries and any other members of the Newco Group to the extent that
any of the foregoing engages in the business and activities of the MNC Unit.
"MNCs" shall mean any Person that (a) has annual revenues in excess of $1
billion, (b) has annual international revenues in excess of $200 million, (c)
has operations on two or more continents and in four or more countries, (d) is
not a Governmental Body, (e) is not a carrier or a Person purchasing
Communications Services primarily for the purpose of resale to others, and (f)
buys Global Communications Services.
"MNC Unit" shall mean the Business Unit contemplated by Section 2.1(c).
"Multimedia Content" shall mean only the creation and organization of
content relating to any combination of text, voice, graphic, audio, video or
similar communication media distributed by means of, or capable of being
distributed by means of, Communication Services. For the avoidance of doubt, it
does not include the distribution, including transmission and ancillary caching,
or management of the distribution of such material by means of Communication
Services.
"NAFTA Region" shall mean Mexico and Canada.
"Netco" or "Netcos" shall mean the Newco Subsidiaries identified on
Schedule 2.2, and "Netco 1" shall mean the Newco Subsidiary identified as such
on Schedule 2.2.
"Network and Systems Unit" shall mean the business unit contemplated by
Section 2.1(d).
"Newco Group" shall mean Thistle BV, the Newco Subsidiaries and the Newco
Services Company.
"Newco Services Company" shall mean the Delaware limited liability company
to be established and owned equally by AT&T or one of its Affiliates and BT or
one of its Affiliates, which will, for compensation on an arm's length basis,
manage certain of the operations of the Newco Group in or from the United
States.
"Newco Services Company Charter Documents" shall mean the certificate of
formation and the limited liability company agreement substantially in the form
attached hereto as Exhibit J-1 and Exhibit J-2, respectively.
"Newco Subsidiary Charter Documents" shall mean constitutive or equivalent
documents of material Newco Subsidiaries, including certificates of formation
and limited liability company agreements in the case of a material Newco
Subsidiary that is a limited liability company organized under the laws of the
State of Delaware, and memorandum and articles of association in the case of a
material Newco Subsidiary that is a U.K. Person.
"Non-Concert Product Contributions" shall mean (a) with respect to the AT&T
GCS Business, wholesale revenue in respect of GSDN, International 0800, VNS,
International Private Line, Frame Relay, ATM, Managed Network Services and IP,
and (b) with respect to the BT GCS Business, wholesale revenue in respect of
International 0800, International Featurenet, International Private Leased
Circuits, Correspondent ATM, IPSS (X.75) and VSAT.
<PAGE>
"Non-Exclusive Content Services" shall mean the business of developing,
designing or offering content-based applications, excluding Special Content
Services.
"Operational Support Systems" shall mean the computer systems on which a
Person depends for providing management support of all of its operations,
including service delivery and provision, network usage and control, billing of
customers, network planning, fraud identification, resource planning and
facility management.
"Outsourcing Professional Services" shall mean the provision of
professional services relating to network architecture validation,
implementation, operations and life cycle management, including business process
consulting, migration planning and implementation, but excluding Managed Network
Services, and may include the ownership and acquisition of assets from and on
behalf of customers related to the provision of Outsourcing Professional
Services.
"Outsourcing Services" shall mean Outsourcing Professional Services and
Managed Network Services.
"parent" shall mean either AT&T or BT and "parents" shall mean AT&T and BT,
and in either case any successor corporations thereto and, pursuant to any
future reorganizations, any holding companies owning, directly or indirectly,
substantially all of the issued and outstanding Voting Securities thereof.
"party" shall mean any of AT&T, VLT, BT, BT Holdings or Thistle BV, and
"parties" shall mean AT&T, VLT, BT, BT Holdings and Thistle BV.
"Performance Test Shortfall" shall have the meaning set forth in Schedule
1.1D.
"Performance Test Shortfall for the ICS Unit" shall have the meaning set
forth in Schedule 1.1E.
"Permits" shall mean any permit, license, registration, franchise,
authorization or approval issued by any Governmental Body.
"Permitted Liens" shall mean statutory liens for Taxes and other charges or
costs not yet due and payable and Liens imposed in the ordinary course of
business, in each case which do not materially adversely affect the full use,
occupancy, operation or enjoyment of the Asset subject thereto.
"Person" shall mean any individual, general or limited partnership,
association, joint stock company, limited liability company, joint venture,
corporation, trust, unincorporated organization, Governmental Body or other
legal person.
"Pre-Closing Taxes" shall mean (a) any and all Taxes for or attributable to
any taxable period ending (or deemed to end) on or prior to the Closing Date (a
"Pre-Closing Period"), limited, with respect to Concert Holdings and its Current
Subsidiaries, to an amount in excess of the amount of the Concert Deductible,
that are due and payable by Thistle BV or any of the Newco Subsidiaries in
<PAGE>
respect of, in the case of Section 25.5(b), the BT Assets, the BT GCS Business
or the Contributed BT Subsidiaries (the "BT Pre-Closing Taxes"), and in the case
of Section 25.5(a), the AT&T Assets, the AT&T GCS Business or the Contributed
AT&T Subsidiaries (the "AT&T Pre-Closing Taxes"); and (b) any and all Taxes of a
Consolidated Group or similar group of companies, including a value added tax
group or subgroup of which any Contributed BT Subsidiary or Contributed AT&T
Subsidiary, respectively, was a member prior to the Closing Date for which such
entity is liable by reason of Treasury Regulation Section 1.1502-6 or any
similar provision of state, local or foreign law (such Pre-Closing Taxes
described in this clause (b) referred to herein as "BT Consolidated Group Taxes"
and "AT&T Consolidated Group Taxes," as applicable). Taxes arising in the
ordinary course of business of Concert Holdings and the Subsidiaries of Concert,
for the period ending on the Closing, to the extent originally reflected on
filed Returns, shall be BT Pre-Closing Taxes to the extent paid after the
Closing and shall constitute the Concert Deductible to the extent unpaid at the
Closing. The "Concert Deductible" shall mean the sum of (x) the amount of the
Tax reserve set forth on the Concert Financials, and (y) the amount set forth in
the preceding sentence. For the avoidance of doubt, any audit adjustments with
respect to such Taxes shall be BT Pre-Closing Taxes. In the case of any Taxes
that are payable with respect to a period that begins before the Closing Date
and ends after the Closing Date (a "Straddle Period"), the portion of such Tax
that shall be deemed to be payable for the portion of the period ending on the
Closing Date shall be deemed equal to the amount which would be payable if the
taxable year ended on the close of business on the Closing Date; provided, that,
in the case of an entity that owns an interest in an entity that is treated as a
partnership for U.S. federal income tax purposes, the determination shall be
made as if the partnership's taxable year ended on the Closing Date; and
provided, further, that in the case of any Taxes other than Income Taxes for
which such an interim closing of the books method is not practicable, such as in
the case of property Taxes, the portion of such Tax that shall be deemed to be
payable for the portion of the period ending on the Closing Date shall be deemed
to be the amount of such Taxes for the entire period (or, in the case of such
Taxes determined on an arrears basis, the amount of such Taxes for the
immediately preceding period), whether actually paid before, during, or after
such period, multiplied by a fraction the numerator of which is the number of
calendar days in the period ending on (and including) the Closing Date and the
denominator of which is the number of calendar days in the entire period. Any
credits for Taxes in the proviso of the preceding sentence shall be prorated
based upon the fraction employed in such proviso. Such proviso shall be applied
with respect to Taxes for a Straddle Period relating to capital (including net
worth or long-term debt) or intangibles by reference to the level of such items
at the close of business on the day before Closing Date.
"Product Unit" shall mean the Business Unit contemplated by Section 2.1(a).
"Qualifying MNC Customers" shall mean any MNC that is primarily engaged in
a Selected Industry Sector and that meets the objective criteria set forth in
Schedule 1.1F, subject to the exceptions set forth therein, and, except as
provided in Section 7.8, shall include such Person=s Subsidiaries.
"Reasonable Best Efforts" shall mean that the obligated Person shall make
diligent, reasonable and good faith efforts to accomplish the applicable
objective. Such obligation, however, does not require the incurrence of any
liabilities, or the relinquishment of any assets or rights, on the part of the
obligated Person that in the aggregate are material when measured by reference
to the benefits anticipated to be obtained from the Newco Group by the Person or
otherwise by reference to the applicable objective, as the context may require.
The fact that the objective is not actually accomplished is no indication that
the obligated Person did not in fact utilize its Reasonable Best Efforts in
attempting to accomplish the objective.
<PAGE>
"Representative" shall mean any Class A Representative or Class B
Representative or the Class C Representative.
"Rest of World" and "RoW" shall mean those countries and territories not in
either Home Territory. "Return" or "Tax Return" shall mean any report or return,
including any supporting schedules that constitute a part of such report or
return, required to be supplied to any Governmental Body with respect to Taxes
including, where required or actually filed, a return of a Consolidated Group.
"Satellite & Radio Services" shall mean Communications Services (other than
VSAT services) delivered through:
(a) satellites using existing and future satellite constellations and
associated ground networks and equipment through (i) services, in the case of
BT, provided by Eutelsat, Intelsat and Inmarsat and any successors thereto and,
in the case of AT&T, provided by Comsat and Panamsat and any successors thereto,
and (ii) any other satellite business; provided, that, in the case of clause
(ii), the aggregate annual revenues derived by any parent and its Group
Companies providing such services shall not exceed the higher of $250 million or
5% of the aggregate annual revenues of the Newco Group for the most recently
completed Fiscal Year; and
(b) terrestrial radio solutions targeted at maritime and aeronautical
applications using existing and future long, medium and short-range radio
systems.
"Selected Industry Sectors" shall mean (a) the financial services,
information and electronics technologies sectors, (b) subject to the
satisfaction of the objective criteria specified in Schedule 1.1F, the petroleum
sector, and (c) in the case of customers headquartered in the RoW or the
European Region, subject to the satisfaction of the objective criteria specified
in Schedule 1.1F, and in accordance with the timetables and priorities set forth
in such Schedule 1.1F, the other nine industry sectors listed in Schedule 1.1F.
"Special Content Services" shall mean data aggregation and communications
data-based applications, and other communications data applications, such as
directory assistance or the generation of routing or billing information, that
are designed to facilitate or enable the effective use of Communications
Services and that are provided in connection with the provision of
Communications Services by the provider of such Communications Services or by an
Affiliate thereof.
"Subsidiary" of any Person shall mean any corporation or other organization
whether incorporated or unincorporated of which at least a majority of the
securities or interests having by the terms thereof ordinary voting power to
elect at least a majority of the board of directors or other similar governing
body of such corporation or other organization is directly or indirectly owned
or Controlled by such Person or by any one or more of its Subsidiaries, or by
such Person and one or more of its Subsidiaries. Notwithstanding anything in
this Agreement to the contrary, no Person that is not Controlled by another
Person shall be deemed to be a Subsidiary of such other Person.
"Supply Agreement (Parent Components)" shall mean (a) the Non Regulated
Services Agreement between Thistle BV and BT, (b) the agreement for the Supply
of Regulated Services between BT and Thistle BV, (c) the Services Agreement
between Thistle BV and AT&T and (d) the AT&T Master Carrier Agreement,
substantially in the form attached hereto as Exhibit K-1, Exhibit K-2, Exhibit
K-3 and Exhibit K-4, respectively.
<PAGE>
"Systems Integration" shall mean advising clients on how best to use
information technology to achieve their ends, to reengineer business processes
to make organizations work more effectively, specifying, designing or building
or specifying, designing and building integrated business systems for or on
behalf of clients, managing the change to such systems for or on behalf of
clients, supporting, maintaining, enhancing, operating or further developing
such systems for or on behalf of clients, providing program or project
management and integration of customer defined individual customer solutions and
providing other related services required or requested by clients in connection
with any of the foregoing. Systems Integration does not include (a) the
underlying capability to provide Communications Services or (b) Outsourcing
Services.
"Tax" and "Taxes" shall mean (a) any and all United States, United Kingdom,
or other federal, state, local or foreign income, gross receipts, net worth,
license, payroll, employment, excise, severance, stamp, occupation, premium,
customs duties, capital stock, franchise, profits, gains, withholding (including
with respect to any Person, any Tax of another Person, required to be withheld
from a payment by such first Person for which such first Person therefore
becomes liable), social security (or similar), unemployment, disability, real
property, personal property, intangibles, sales, use, transfer, registration,
value added, ad valorem, alternative or add-on minimum, estimated or other tax
or governmental charge in the nature of a tax of any kind whatsoever, from time
to time imposed by or required to be paid to the United States, the United
Kingdom, or another country or any state or local or other political subdivision
of any thereof, or to any other Governmental Body ("Taxing Authority")
(including interest, penalties and additions to tax thereon, penalties for
failure to file a return or report, and interest on any of the foregoing) and
(b) any amounts payable under any tax sharing, indemnification or similar
agreements with respect to any Taxes described in clause (a) above.
"Taxing Authority" shall have the meaning set forth in the definition of
"Tax" or "Taxes."
"TCGA" shall mean the U.K. Taxation of Chargeable Gains Act 1992, as
amended, and any successor legislation.
"TCI" shall mean Tele-Communications, Inc., a corporation organized under
the laws of the State of Delaware.
"Technology Unit" shall mean the Business Unit contemplated by Section
2.1(e).
"Third Party Approval" shall mean the Approval of any Person other than a
Governmental Body, a party or any of its Affiliates.
"Thistle BV Charter Documents" shall mean the constitutive documents of
Thistle BV substantially in the form attached hereto as Exhibit I.
"Transaction Agreements" shall mean (a) this Agreement, (b) the Thistle BV
Charter Documents, (c) the DirectorCo Charter Documents, (d) the Newco Services
Company Charter Documents, (e) the Newco Subsidiary Charter Documents, (f) the
Asset Contribution Agreements, (g) the IPR Agreement, (h) Exhibit P, (i) the
International Traffic Service Agreements, (j) the Distribution Agreements (Newco
Products), (k) the Distribution Agreements (Parent Products), (l) the Supply
Agreements (Parent Components), (m) the Investment Fund Agreement, and (n) the
Employee Matters Agreement.
<PAGE>
"Transaction Gains Taxes" shall mean Income Taxes and transfer Taxes
(including stamp duty, value added, Netherlands capital duty and sales Taxes)
imposed on the parents, their Affiliates, Thistle BV or the Newco Subsidiaries,
resulting from: (a) the transfer by the BT Sellers of any or all of the BT
Assets or Contributed BT Subsidiaries (the "BT Transaction Gains Taxes"); or (b)
the transfer by the AT&T Sellers of any or all of the AT&T Assets or Contributed
AT&T Subsidiaries (the "AT&T Transaction Gains Taxes"), in each case, directly
or indirectly, to Thistle BV or any Newco Subsidiaries or arising out of or
relating to the transactions contemplated by this Agreement (including Schedule
2.2) or by any other Transaction Agreement or agreement contemplated hereby or
thereby; Transaction Gains Taxes that would not have been incurred but for
transfers of assets to Netco 1 shall constitute "Excluded Taxes" except to the
extent that the parents agree otherwise pursuant to Schedule 2.2. Without
prejudice to the generality of the foregoing, if the provisions of section 179
of the TCGA apply to any company as a result of it ceasing to be a member of the
BT U.K. group of companies, or any AT&T U.K. group of companies, any corporation
Tax arising on the application of that section shall be a BT Transaction Gains
Tax or an AT&T Transaction Gains Tax, respectively.
"U.K." or "United Kingdom" shall mean the United Kingdom of Great Britain
and Northern Ireland.
"U.K. Person" shall mean a Person established, organized or incorporated
under the laws of England and Wales.
"United States" or "U.S." shall mean the United States of America.
"U.S. Person" shall mean a Person established, organized or incorporated
under the laws of the United States or any political subdivision thereof.
"Venture Business" shall mean, subject to Section 3.3(c), the businesses to
be conducted by the Business Units of Thistle BV through the Newco Subsidiaries
as described in Section 2.1. For the avoidance of doubt, but subject to Section
2.1(f), the definition of "Venture Business" does not include the origination
and termination of Communications Services that begin and end in the same Home
Country even if a portion of the transmission thereof includes a second country.
"VSAT" shall mean very small aperture transmitters.
"WorldCom" shall mean WorldCom Inc. a corporation organized under the laws
of the State of Georgia.
1.2 Additional Definitions. The following terms shall have the meanings
defined in the Section indicated:
Defined Term Section Reference
- ------------ -----------------
Accountants' Statement Section 15.2
Accounting Principles Section 15.2(a)
Acquisition Cost Section 19.1(b)
<PAGE>
Acquisition Proposal Section 14.2(b)
Acquisition Transaction Section 19.1(a)
Advantaged Party Section 20.3(c)
Affected Party Section 23.6(a)
Agreement Preamble
Applicable Notice Annex 2
Appraiser Annex 2
Asserted Liability Section 25.6(a)
Assumed AT&T Liabilities Section 15.1(b)(i)
Assumed BT Liabilities Section 15.1(b)(ii)
Assumed Concert Purchase Debt Section 15.5(b)
Assumed Liabilities Section 15.1(b)(ii)
AT&T Preamble
AT&T Assets Section 15.3(a)(i)
AT&T GCS Business Financials Section 17.1(h)
AT&T GCS Business MAE Section 17.1(e)(ii)
AT&T Guarantees Section 15.3(d)
AT&T Indemnified Parties Section 25.3
AT&T Initial Valuation Section 15.2(a)
AT&T Leases Section 17.1(j)(i)
AT&T Minimum Contribution Section 15.4(a)
AT&T Parties Preamble
AT&T Property Assets Section 17.1(j)(i)
AT&T Specified Contracts Section 17.1(n)(i)
Bankrupt Parent Section 27.1(a)
Breach Notice Section 23.5(b)
breaching party Section 23.4(a)
<PAGE>
BT Preamble
BT Assets Section 15.3(a)(ii)
BT GCS Business Financials Section 17.2(h)
BT GCS Business MAE Section 17.2(e)(ii)
BT Guarantees Section 15.3(e)
BT Holdings Preamble
BT Indemnified Parties Section 25.2
BT Initial Valuation Section 15.2(a)
BT Leases Section 17.2(j)(i)
BT Minimum Contribution Section 15.4(a)
BT Parties Preamble
BT Property Assets Section 17.2(j)(i)
BT Specified Contracts Section 17.2(n)(i)
Burdensome Condition Section 18.4(a)
Business Unit Information Section 6.7(a)(i)
Call Section 23.4(a)
Call Shares Section 23.4(a)
Cap Section 15.5(b)
Capital Call Section 16.2(a)
Capital Call Date Section 16.3
Capital Call Notice Section 16.3
Claim Section 24.3(a)
Claims Notice Section 25.6(a)
Closing Section 20.1(a)
Closing Date Section 20.1(a)
College of Wise Counselors Section 24.1(a)
complying party Section 23.4(a)
<PAGE>
Concert Financials Section 17.2(h)(ii)
Concert Holdings Section 15.5(a)
Confidentiality Agreements Section 18.10(a)
Consumer Price Index Section 11.16
ConsumerCo Section 1.7
Contracts Annex 1
Covered Investor Breach Section 22.3(f)
Covered Transaction Section 23.6(a)
deadlock Section 6.3(a)
Defaulting Shareholder Section 16.4(a)
Designated Accountants Section 15.4(b)
Disadvantaged Party Section 20.3(c)
Distribution of Netco Section 13.2(b)
District Court Section 24.3(a)
Effective Date Section 23.6(a)
Election Notice Section 23.4(a)
Employee Matters Agreement Section 18.8(c)
engaging party Section 19.3(b)
EU Merger Regulations Section 18.3
Event of Default Section 22.3
fair market value Annex 2
Farland Section 11.18(a)
Farland Equity Stake Section 11.18(b)
Fiduciary Duty Standard Section 11.2(b)
Fiscal Year Section 6.5
Funding Breach Section 16.4(a)
GBCS Alliance Section 11.5(a)
<PAGE>
Group Companies Section 11.1
Indemnifying Party Section 25.6(a)
Indemnitee Section 25.6(a)
Indemnity Payment Section 25.8(c)
Independent Auditor Section 6.8
Initial Contributed Assets Section 15.1(a)
Initial Valuations Section 15.2(a)
Investment Fund Agreement Section 18.8(a)
Key Employee Annex 1
Key Governmental Approvals Section 18.4(a)
Leverage Ratio Section 6.4(a)
Losses Section 25.2
Management Board Valuation Section 15.2
Master Outsourcing Agreement Section 7.3(d)
Material Acquisition Transaction Section 19.3(a)
MCI-WorldCom Distribution Agreement Section 9.2(b)
Minimum Contribution Section 15.4(a)
New Assets Section 19.1(a)
Newco Subsidiaries Recital B
Non-Bankrupt Parent Section 27.1(a)
Non-Competition Undertakings Section 11.2(a)
Non-Defaulting Shareholder Section 16.4(a)
non-engaging party Section 19.3(b)
Non-Indemnifying Party Section 25.5(e)
non-subject party Section 23.3(b)
Other Parent Section 13.2(a)
Other Party Annex 2
<PAGE>
Peering Arrangements Section 2.1(g)
Performance Notice Section 23.2(a)
Post-Closing Tax Benefit Section 25.5(a)
preferred supplier Section 10.1(b)
Preferred Supplier Section 10.1(b)
Pro Rata Basis Section 11.4(b)
Proposing Party Annex 2
Provisional AOPB Section 6.3(a)
Purchased Shares Section 15.5(b)
Purchaser Section 10.1(b)
Put Section 23.3(b)
Put Notice Section 23.3(b)
Put Shares Section 23.3(b)
Qualified Holding Company Section 5.5
Recipient Section 18.10(b)
Reduction Section 20.3(b)
Retail Price Index Section 11.16
Revenue Limitation Section 11.4(b)
RTP Acts Section 28.1(b)
Special Efforts Section 11.2(a)
Specified Entity Section 11.2(a)
Specified Person Section 11.2(a)
subject party Section 23.3(b)
target parent Section 14.2(a)
Tax Distribution Schedule 6.9
Tax Indemnifying Party Section 25.5(e)
Tax Proceeding Section 25.5(e)
<PAGE>
Term Sheet Section 17.1(r)(vi)
Third Party Supplier Section 10.1(b)
Thistle BV Preamble
Transfer Section 12.1(a)
Transition Period Section 23.2(b)
Transition Plan Section 18.8(e)
Triggering Person Section 13.1
Triggering Transaction Section 13.1
Venture Business Material Adverse Effect Section 17.1(a)
VLT Preamble
Voting Securities Section 14.1(a)
WIP Section 15.4(a)
Wise Counselor Section 24.1(a)
1.3 General Principles of Construction. Unless otherwise specified,
references herein to Articles, Sections, Exhibits, Schedules and Annexes refer
to the Articles, Sections, Exhibits, Schedules and Annexes to this Agreement.
The words "hereof," "herein" and "hereunder," and words of like import, refer to
this Agreement as a whole and not to any particular Article or Section of this
Agreement. References to this Agreement herein shall, unless the context
otherwise requires, include the Exhibits, Schedules and Annexes hereto. The
words "without limitation" shall be deemed to follow any use of the word
"include" or "including" herein. References to amounts preceded by the "$" sign
shall refer to Dollars but shall also be deemed to include the equivalent in
other currencies (it being agreed that, where the context requires, the actual
currency of transactions will be mutually agreed by the parties thereto). The
parties acknowledge that the Schedules to this Agreement (i) are not admissions
as to the validity of any claim by any third Person and (ii) are not intended to
constitute and shall not be construed as indicating that such matter is required
to be disclosed, nor shall such disclosure be construed as an admission that
such information is material or that it would have a Material Adverse Effect.
Disclosure of the information contained in one section or part of a parent's
Schedules shall be deemed as proper disclosure for all sections or parts of such
parent's Schedules to the extent its relevance to another section or part is
clearly apparent from the face of such Schedule.
1.4 Variations in Pronouns. All pronouns and any variations thereof refer
to the masculine, feminine or neuter, singular or plural, as the context may
require.
1.5 Headings. The headings in this Agreement are for reference only and
shall not affect the interpretation of this Agreement.
<PAGE>
1.6 Liberty Media Group.
(a) For the avoidance of doubt, notwithstanding anything in this Agreement
or the other Transaction Agreements to the contrary, (i) no member of the
Liberty Media Group shall be deemed to be Controlled by (or an Affiliate,
Subsidiary or Group Company of) AT&T, any of its Covered Investors or any of
their Affiliates or Subsidiaries, (ii) no determination that is to be made with
reference to AT&T, any of its Affiliates, Subsidiaries, Covered Investors or
Group Companies shall include any member of the Liberty Media Group, and (iii)
none of AT&T or any of its Affiliates or Liberty Media Group or any of its
Affiliates shall be required to propose, negotiate, commit to or effect, by
consent decree, hold separate order or otherwise, the sale, divestiture or
disposition of, or any limitation or restriction with respect to, any property,
business, assets, licenses, franchises or other rights of any member of the
Liberty Media Group.
(b) If AT&T shall amend, modify, restrict, limit or waive any provisions of
Section 7.18 of, or Schedule 7.18 to, the Agreement and Plan of Restructuring
and Merger dated as of June 23, 1998 among AT&T, Italy Merger Corp. and TCI (or
the corresponding provisions thereof in any successor documentation) and the
effect of any such amendment, modification, restriction, limitation or waiver
would, in BT's judgment, significantly delay or preclude the receipt of the Key
Governmental Approvals required for the consummation of the transactions
contemplated by the Transaction Agreements, then, on the expiration of the
18-month period provided in Section 20.2(a), if the Key Governmental Approvals
shall not have been obtained for the transactions contemplated by the
Transaction Agreements, BT shall have the right to decide, by giving notice in
writing to AT&T on or before the nineteenth month anniversary of the date of
this Agreement, whether or not it wishes to require both the AT&T Parties and
the BT Parties to continue to be bound by the terms of this Agreement and the
other Transaction Agreements for a period specified by it of up to an additional
12 months after the expiration of the 18-month period provided in Section
20.2(a) or to terminate this Agreement and the other Transaction Agreements. If
BT shall not have exercised its right to terminate the Transaction Agreements
prior to the end of the 30-month period following the date hereof, and if the
Key Governmental Approvals have still not been obtained by the end of such
30-month period and such failure was in some meaningful part caused by any such
amendment, modification, restriction, limitation or waiver, unless either of the
BT Parties is in material breach of their obligations under this Agreement or
any other Transaction Agreement, following the termination of the Transaction
Agreements at the end of such 30-month period, AT&T shall make a payment to BT
in accordance with the provisions of Section 19.3(f), which Section shall apply
mutatis mutandis to the circumstances described in this Section 1.6(b).
1.7 Consumer Company. In connection with the reorganization of AT&T's
business, the company or business unit of AT&T to be established to own, manage,
and operate its consumer businesses ("ConsumerCo") shall be deemed a part of
AT&T for all purposes of this Agreement and the other Transaction Agreements so
long as such businesses remain a division of AT&T or constitute one or more of
its Subsidiaries.
ARTICLE 2
THE JOINT VENTURE
2.1 Venture Business. In furtherance of the purposes of the Venture
Business, the Newco Group will undertake the following activities, each of which
will initially be run as a separate Business Unit, through one or more Newco
Subsidiaries:
<PAGE>
(a) Product Unit. This Business Unit will be functionally responsible for
defining, marketing and managing Global Business Communications Services. It
will conduct product management for the Global Business Communications Services
of the Newco Group, providing international product development requirements and
controlling the delivery of products, appointing and managing Distributors
(subject to the provisions hereof) and managing relationships with its
suppliers. As used herein, marketing and managing Global Business Communications
Services shall mean product marketing and managing and shall not preclude sales
packaging or customer specific offers and sales made by AT&T or BT or their
Group Companies to customers other than Qualifying MNC Customers, provided that
such offers and sales comply with Section 9.2.
(b) International Carrier Services Unit. This Business Unit will provide to
AT&T and BT and, subject to the terms and conditions hereof, their Subsidiaries
all of their requirements for International Traffic Termination Services, will
provide Carrier Services for third parties and may provide Peering Arrangements
as contemplated by Section 2.1(g) for the parents and their Affiliates. This
Business Unit will be functionally responsible for all relationships with
International Carriers in their capacity as carriers and will plan, manage,
market, bill, provide channel and customer care support for International
Carrier Services. Exhibit P sets forth the principles for the operation of the
International Carrier Services Unit.
(c) MNC Unit. This Business Unit will (i) market, sell, contract, deliver,
manage, maintain and bill Communications Services provided or targeted to
Qualifying MNC Customers, and (ii) provide "Tier 1 Customer Care" referred to in
Schedule 2.1(c) and billing to Qualifying MNC Customers.
(d) Network and Systems Unit. This Business Unit will own and operate the
Newco Group's Global Network Facilities. It will be responsible for conducting
all international network activities, including asset planning, procurement and
implementation and will design, build, lease, operate and manage high quality
Global Network Facilities that support Global Communications Services, hubbing,
transit, reoriginating, global consumer traffic and other crossborder
Communications Services. It will manage on behalf of the Newco Group order
entry, provisioning, repair and maintenance, network management, Operational
Systems Support and billing systems. It will design, plan, build or lease,
manage, transition and integrate network and systems platforms into one network
for both the Product Unit and the International Carrier Services Unit, although
the overall design and development of architecture will be the responsibility of
the Technology Unit.
(e) Technology Unit. This Business Unit will be responsible for defining
the interfaces and platforms for the Newco Group=s Global Network Facilities and
managing development projects for the delivery of new Global Communications
Services. This Business Unit will also be responsible for developing interface
requirements to permit seamless delivery of services and features across the
networks of the Newco Group, AT&T and BT and their Subsidiaries, and, to the
extent possible, other Distributors. This Business Unit will recommend
technology architecture to each parent, but neither parent nor any of its
Subsidiaries shall be required to accept or adopt such recommendations.
<PAGE>
(f) Scope of Venture Business. Nothing in this Agreement shall preclude (i)
customers from requesting or making use of products or services obtained from
the Newco Group in such manner as they shall determine, or (ii) sales by the
Newco Group of Communications Services to Qualifying MNC Customers.
(g) Other Activities. Without imposing any legally binding obligation on
the parties and without limiting Section 26.1, the parents intend to investigate
and evaluate opportunities for the sale by the Newco Group of global wireless
and other services to the international traveler. "Peering Arrangements" means
interconnection with third party providers of IP backbone facilities. For the
avoidance of doubt, the Newco Group shall be able to enter into peering
arrangements in any country, provided, that, the peering arrangement is to carry
IP traffic that is inter-country and that does not originate and terminate
within the same country. This does not limit the rights of the parents to enter
into peering arrangements as they deem necessary, consistent with Article 11.
AT&T and BT each believes that a potential prospective benefit of the Newco
Group is to enhance the competitiveness of their respective IP activities and to
improve their peering relationships. In order fully to take advantage of such
potential, the parties agree to study the advantages of permitting the Newco
Group to engage in peering arrangements on behalf of AT&T and BT as well as any
adverse or divergent impacts that these arrangements may have on the parents and
to propose to the parents how best to deal with peering arrangements by March
31, 1999.
2.2 Structure.
(a) The parties contemplate that the activities of the various Business
Units will be conducted through the Newco Subsidiaries identified in Schedule
2.2. Schedule 2.2 specifies in reasonable detail information with respect to the
structure of the Newco Group to be in effect on the Closing Date, including,
with respect to each existing or presently contemplated Newco Subsidiary, (i)
its organizational form, (ii) its jurisdiction of organization or incorporation,
(iii) its capitalization, including the nature and classes of shares or
ownership interests, (iv) its direct and indirect ownership by the parties, and
(v) which activities of the various Business Units will initially be conducted
by such Newco Subsidiary.
(b) The parties shall, and shall cause their Subsidiaries and Thistle BV
to, establish, to the extent necessary, the Newco Subsidiaries identified on
Schedule 2.2, and such other Subsidiaries, with such structure and tax
characteristics as the parties may agree between the date of this Agreement and
the Closing Date, so that the structure and tax characteristics as contemplated
by such Schedule will be in effect on or as soon as practicable following the
Closing Date.
2.3 Principal Place of Business. The parties intend that the corporate
headquarters for the Newco Group will be on the East Coast of the United States.
2.4 IPR Matters. The ownership, licensing and other matters concerning
relevant IPR of the parents and IPR of the Newco Group shall be handled in
accordance with the IPR Agreement, which shall be executed concurrently with the
execution and delivery of this Agreement.
<PAGE>
2.5 Arrangements with U.S. Government. Schedule 2.5 contains mutually
agreed provisions relating to issues, if any, relating to ways to address the
provision of Communications Services to the U.S. Government.
ARTICLE 3
GOVERNANCE
3.1 Shareholders of Thistle BV. Following the Closing Date, the parents
shall, and in their capacity as direct and indirect shareholders and members of
the Newco Group, shall, or shall cause their direct and indirect Subsidiaries
and Affiliates that are shareholders or members of any or all of Thistle BV,
Newco Services Company, DirectorCo and the Newco Subsidiaries to, and Thistle BV
as a direct or indirect shareholder or member of the Newco Subsidiaries shall,
vote their shares or member interests at any meeting of the shareholders or
members, or class of shareholders or members, as the case may be, or in any
written resolution executed in lieu of a meeting, and shall take all other
actions necessary, to comply with and perform the provisions and obligations
contained in this Agreement and the other Transaction Agreements, and to ensure
that the Charter Documents and any constitutive documents of any other members
of the Newco Group do not conflict in any respect with any provisions of this
Agreement or the other Transaction Agreements. The parties and Thistle BV
undertake, to the fullest extent permitted by Applicable Law, to make, or cause
to be made, such changes to the Charter Documents and any such constitutive
documents as may be appropriate to bring them into compliance with the
provisions of this Agreement and the other Transaction Agreements. In the event
of any conflict between the provisions of the Transaction Agreements and the
provisions of any of the Charter Documents or the constitutive documents of
other Newco Subsidiaries, the provisions of the Transaction Agreements shall, to
the fullest extent permitted by Applicable Law, prevail. Schedule 3.1 sets forth
the principles upon which any conflict between the express provisions of this
Agreement, on the one hand, and any of the other Transaction Agreements that
deal with the same subject matter, on the other hand, will be resolved.
3.2 Thistle BV Shareholders' Meetings. Following the Closing Date, the
quorum necessary to constitute a meeting of the shareholders of Thistle BV shall
be the shareholders holding a majority of the outstanding voting securities of
Thistle BV or their proxies. Notwithstanding the foregoing, if such quorum is
not present within two hours from the time appointed for the meeting in respect
of which due notice has been given, the meeting shall adjourn to such place and
time (which is at least seven days later but no later than 14 days later) as the
shareholder that did attend shall decide. If at such adjourned meeting, such
quorum is not present within two hours from the time appointed for the meeting,
the meeting shall be further adjourned to such place and time (which is at least
seven days later but no later than 14 days later) as the shareholder that did
attend the adjourned meeting shall decide, at which time any shareholder present
at such second adjourned meeting shall constitute a quorum, but in no event will
the shareholder be allowed to decide on the U.K. as a location for the meeting.
3.3 Matters Requiring Unanimous Shareholder Approval. Following the Closing
Date, the following matters and decisions, and the implementation of any
thereof, shall require the unanimous vote of VLT and BT Holdings, acting as the
shareholders of Thistle BV:
<PAGE>
(a) a decision to modify, amend or terminate any Transaction Agreement or
any constitutive or equivalent documents of any material Newco Subsidiary (which
documents are not included in the definition of "Transaction Agreements");
(b) other than a Distribution of Netco pursuant to Section 12.3(c),
13.2(a), 14.3(c), 16.4(c), 23.2(d), 23.6(b) or 27.1(c), a decision to change the
fundamental corporate, legal, regulatory, tax or other structure of the Newco
Group, including a decision to restructure any member of the Newco Group or the
Business Units or a decision to modify any arrangements with respect to the
conduct of the business of the Newco Group contemplated by Schedule 2.2, that is
reasonably likely to have a non de minimis adverse regulatory or Tax effect
(including an adverse Tax effect that is caused by reason of an indemnification
obligation hereunder), or material adverse economic effect, on either parent;
(c) a decision to modify, change or alter in any material respect the
nature or scope of the Venture Business as it may be conducted from time to
time;
(d) except as set forth in Schedule 6.9, a decision for Thistle BV to pay
or make any dividends or distributions; provided, that, in connection with a
Distribution of Netco pursuant to Section 12.3(c), 13.2(a), 14.3(c), 16.4(c),
23.2(d), 23.6(b) or 27.1(c), VLT and BT Holdings shall vote their shares in
Thistle BV in favor thereof;
(e) a decision to cause any member of the Newco Group to incur or guarantee
any Indebtedness that involves recourse to either an AT&T Party or a BT Party or
is to be guaranteed by either of the parents or its Group Companies;
(f) a decision to admit, directly or indirectly, additional shareholders to
Thistle BV, additional members of Newco Services Company or DirectorCo or
additional shareholders or members of any of the Newco Subsidiaries;
(g) the dissolution or liquidation of, or the filing of a petition under
any Bankruptcy Law by Thistle BV or any other material member of the Newco
Group; provided, that, in the case of a dissolution of the Newco Group pursuant
to Section 11.2(d), 11.5(c)(iii), 13.4, 13.5, 14.3, 23.2, 23.4, 23.5 or 23.7,
following the delivery of a notice to elect to cause the dissolution of the
Newco Group by a parent which is entitled to do so thereunder, VLT and BT
Holdings shall, subject to any cure periods provided herein, vote their shares
of Thistle BV, and the parents shall cause their Subsidiaries or Affiliates that
own shares or other equity interests in such material members of the Newco Group
to vote, in favor of such dissolution;
(h) other than a Distribution of Netco pursuant to Section 12.3(c),
13.2(a), 14.3(c), 16.4(c), 23.2(d), 23.6(b) or 27.1(c), any sale, lease,
transfer or other disposition of all or substantially all of the assets of the
Newco Group or the merger, demerger, consolidation or sale of Thistle BV or any
material member of the Newco Group, other than pursuant to Section 11.2(d),
11.5(c)(iii), 13.4, 13.5, 14.3, 23.2, 23.4, 23.5 or 23.7;
(i) other than a Distribution of Netco pursuant to Section 12.3(c),
13.2(a), 14.3(c), 16.4(c), 23.2(d), 23.6(b) or 27.1(c), any transfer of assets,
transfer of equity or other interests in any member of the Newco Group, or
similar transaction involving any member of the Newco Group that is reasonably
likely to have an adverse Tax (including an adverse Tax effect that is caused by
reason of an indemnification obligation hereunder) or other effect on either
parent involving aggregate costs or potential costs to such parent in excess of
$10 million; and
<PAGE>
(j) a decision to change the Independent Auditor.
3.4 Management Board.
(a) From and after the Closing, the Management Board will at all times have
DirectorCo as its sole director. The chairman of DirectorCo will rotate every 18
months from a Representative of one Class to a Representative of the other Class
(in each case excluding the Class C Representative).
(b) Each of VLT and BT Holdings, as a shareholder of Thistle BV, shall vote
its shares of Thistle BV to ensure the election of DirectorCo as the sole
director of the Management Board. Each of VLT and BT Holdings, as a shareholder
of Thistle BV, shall vote its shares of Thistle BV against any resolution to
remove or suspend DirectorCo from its position as the sole director of Thistle
BV.
(c) The Management Board shall oversee the day-to-day management of Thistle
BV and, to the fullest extent permitted by Netherlands law, delegate to the CEO
full authority and power to manage and operate the business and affairs of the
Newco Group in accordance with and subject to Section 5.4.
3.5 Special Decisions of the Management Board. The following matters and
decisions, and the implementation of any thereof, shall require the approval of
the Management Board, with DirectorCo, as the sole director of the Management
Board, acting pursuant to a majority vote of each of the Class A Representatives
and the Class B Representatives:
(a) approval of the AOPB and Five Year Business Plan; provided, that if the
requisite vote of the Representatives of DirectorCo, acting as the sole director
of the Management Board, is not obtained for any AOPB or Five Year Business
Plan, the CEO shall implement a Provisional AOPB to the extent permitted by
Section 6.3;
(b) a decision to select, hire, appoint and dismiss the Agreement Officers
and the CTO;
(c) any modification of the schedule of authorizations or powers or
equivalent instrument of Thistle BV or any of the Newco Subsidiaries;
(d) a decision to make or to cause any member of the Newco Group to make
any acquisitions, divestitures, licenses, investments and joint ventures, in a
transaction or series of related transactions, involving property or assets
valued at $25 million or more or any such acquisitions, divestitures, licenses,
investments and joint ventures of major strategic significance to the Newco
Group as a whole, as determined by the Management Board, regardless of the value
thereof;
(e) a decision to purchase, or cause any member of the Newco Group to
purchase, in a transaction or series of related transactions, New Assets with an
Acquisition Cost in excess of $25 million;
(f) except as contemplated by any approved AOPB or amendment thereof and
except as reserved to the shareholders of Thistle BV pursuant to Section 3.3(e),
any material changes in the capitalization of any member of the Newco Group,
including the making of any Capital Calls;
<PAGE>
(g) a decision to adopt or modify (i) any accounting rules and policies of
the Newco Group or (ii) Tax elections of the Newco Group, which in the case of
clause (ii) may adversely affect either parent;
(h) any change in the branding policy of the Newco Group;
(i) instituting, compromising, terminating or settling litigation with
third parties involving claims or related claims of $10 million or more;
(j) other than with respect to the Transaction Agreements that constitute
Affiliate Transactions, a decision to enter into any Affiliate Transaction by
any member of the Newco Group with a value of $20 million or more, including
entering into any amendment, modification or termination thereof;
(k) subject to Section 5.3, the conduct and evaluation of performance
reviews of the CEO, CFO and CTO;
(l) the entering into, amendment, modification or termination of, or the
calling of a default under, or the grant by Thistle BV or any Newco Subsidiary
of any waivers or consents under, any third party contracts or agreements for
the purchase or sale of goods or services, license agreements or other
agreements or arrangements, involving annual payments in excess of $20 million
or aggregate payments in excess of $40 million;
(m) a decision required to be made under Section 8.3 or 8.5;
(n) a decision required to be made under Section 9.1(c)(i);
(o) a decision by any member of the Newco Group to incur any Indebtedness
that would cause the Leverage Ratio to be exceeded; and
(p) any action or decision that would have a Material Adverse Effect on the
Venture Business or on the Newco Group's relationship with AT&T or BT or both.
For the purposes of this Section 3.5(p), any action or decision that is
reasonably likely to (i) result in any member of the Newco Group incurring
liabilities or contingent liabilities in excess of $10 million, (ii) cause any
Business Unit to be unable to operate, (iii) result in a material breach by
Thistle BV or any of the Newco Subsidiaries of a material contract, agreement or
other arrangement with either parent or any of its Affiliates, or (iv) have a
material adverse regulatory or Tax impact on either parent, shall, in each case,
be deemed to be an action or decision that requires the approval of the
Management Board as set forth in this Section 3.5(p).
3.6 Other Decisions of the Management Board.
(a) Except as set forth in Sections 3.5, 8.1, 8.2 and 8.4 and Article 4 or
as otherwise specified herein, all matters coming before the Management Board
shall require a vote by DirectorCo, as the sole director of the Management
Board, acting pursuant to a simple majority vote of the Class A Representatives
and Class B Representatives without any required vote of the Class C
Representative; provided, that, if an even number of votes is cast by the Class
A Representatives and the Class B Representatives for and against any particular
matter that is to be decided by a simple majority of the DirectorCo Board, the
<PAGE>
Class C Representative may cast a vote on the matter to break a tie.
Notwithstanding the foregoing, if pursuant to this Agreement, the Affiliate of
AT&T or BT that is a member of DirectorCo shall have the right to appoint an
eighth Representative to the DirectorCo Board, the Class C Representative shall
not have the right to cast any vote on any matter to be decided by the
DirectorCo Board unless and until the number of Representatives on the
DirectorCo Board (assuming no vacancies) is reduced to seven, comprised of three
Class A Representatives, three Class B Representatives and the Class C
Representative.
(b) Decisions regarding the calling of a default under, or the granting by
Thistle BV or any Newco Subsidiary of any waivers or consents under, any
Transaction Agreement or with respect to any Affiliate Transaction, or any
decision by Thistle BV to bring any claim for indemnification under Section
25.4(c), (d) or (e) or Section 25.5 against a parent may be made by DirectorCo
on behalf of Thistle BV or such Newco Subsidiary, as the case may be, but shall
not require the consent of the Class C Representative or the Class of
Representatives appointed by the Person that is the Affiliate of AT&T or BT, as
the case may be, who is or is affiliated with the Person in default, or seeking
the waiver or consent under, the applicable Transaction Agreement or with
respect to an Affiliate Transaction or against whom the claim for
indemnification is made. Any such decision may be made and effected by the vote
of a majority of the Class of Representatives appointed by the Person that is
the Affiliate of the other parent.
3.7 Newco Subsidiary Boards. The management and constitution of the board
of directors or other similar governing body of the Newco Subsidiaries will be
appropriate to reflect the decisions of the DirectorCo Board as contemplated by
the DirectorCo Charter Documents. The Newco Subsidiary Charter Documents and the
constitution of the boards of directors or other similar governing bodies of all
material Newco Subsidiaries shall, on or prior to the Closing, be in form and
substance reasonably satisfactory to the parents and shall reflect the
provisions of Schedule 2.2 and Annex 3 and comply with the provisions of this
Agreement.
3.8 Implementation of Management Board Decisions.
(a) To the fullest extent permitted by Applicable Law, AT&T and BT shall
and shall cause their Subsidiaries and Affiliates that are direct or indirect
shareholders or members of certain of the Newco Subsidiaries, and Thistle BV, in
its capacity as a direct or indirect shareholder or member of the Newco
Subsidiaries shall and shall cause, the persons nominated by them to the board
of directors or other similar governing body of the Newco Subsidiaries to
conduct and have conducted the management and affairs of each of the members of
the Newco Group in accordance with the decisions of the Management Board.
(b) The parties acknowledge and confirm that the Management Board and the
Representatives on the DirectorCo Board will exercise business judgment taking
into account the interests of the Newco Group as a whole and that, in
furtherance of such objective, DirectorCo, as the sole director of the
Management Board, and the Representatives on the DirectorCo Board shall be
protected in making and shall be entitled, to the fullest extent permitted by
Applicable Law, to indemnification by Thistle BV, the Newco Group and DirectorCo
for any act or omission if it or they acted in good faith and in a manner it or
they reasonably believed was in, or not opposed to, the best interests of the
Newco Group as a whole. Prior to the Closing, DirectorCo, or the parents on
behalf of DirectorCo, shall arrange for an appropriate directors= and officers=
insurance policy to be in place and effective as of the Closing for the managers
and officers of DirectorCo.
<PAGE>
3.9 Regulatory Affairs.
(a) If, after the Closing, Thistle BV or any of the Newco Subsidiaries
proposes to take any proposed position or action on a regulatory, public policy
or public affairs matter in a parent's Home Territory, Thistle BV shall give the
responsible officer or officers of such parent reasonable prior notice thereof,
which notice need not be in writing. If the parent determines that Thistle BV's
or the Newco Subsidiary's proposed position or action would conflict with the
position of such parent, it will give the responsible officer or officers of
Thistle BV reasonable notice, which notice need not be in writing, before the
date the proposed position or action is to be taken, specifying the steps which
such parent wishes Thistle BV or the Newco Subsidiary to take. Thistle BV shall,
or shall cause the Newco Subsidiary to, comply with the instructions of such
parent. (b) On or prior to the Closing Date, Thistle BV shall establish a
regulatory clearance group mutually agreeable to the parents that will be
responsible for dealing with day-to-day issues relating to regulatory, public
policy and public affairs matters of the Newco Group.
ARTICLE 4
TECHNOLOGY UNIT GOVERNANCE
4.1 CTO. The Technology Unit will be led by the CTO, who will report
directly to the Management Board.
4.2 Annual Business Plan. No later than 90 days prior to the beginning of
each Fiscal Year, the CTO will submit to the Management Board for approval, an
annual business plan of the Technology Unit, which will be separate from the
AOPB and will include a program description, associated milestones, staffing and
budget requirements. The approval of the annual business plan of the Technology
Unit shall not be subject to the tie-break vote of the Class C Representative
set forth in Section 3.6.
4.3 Governance. The Technology Unit shall be operated in accordance with
the governance principles set forth in Schedule 4.3.
4.4 CTO. The first CTO shall be appointed in accordance with the principles
set forth in Schedule 4.4.
ARTICLE 5
MANAGEMENT
5.1 Senior Executives. On or prior to the Closing Date, the first CEO, the
other Agreement Officers and the CTO will be selected and appointed upon a
decision of the Management Board in accordance with Section 3.5(b) on the basis
of the "best available candidate." The re-appointment of the Agreement Officers
and the CTO and any subsequent appointment to such positions shall be subject
also to the decision of the Management Board in accordance with Section 3.5(b).
5.2 CEO. The CEO will not be a member of the Management Board, but will be
the sole Class C Representative of the DirectorCo Board. The CEO, in his or her
capacity as the Class C Representative, shall be entitled to attend all meetings
of the Management Board and the DirectorCo Board, other than (a) those meetings
or portions thereof involving discussion of his or her own performance or
compensation or (b) other meetings or portions thereof which do not involve
matters on which the Class C Representative is entitled to vote under Section
3.6(a) and for which a majority of either of the Class A Representatives or the
Class B Representatives determines that the CEO, in his or her capacity as the
Class C Representative, should be absent.
<PAGE>
5.3 Performance Reviews. Each of the CEO, CFO and CTO will be subject to a
mandatory annual performance review in the fourth quarter of each Fiscal Year.
If all of either the Class A Representatives or Class B Representatives is
dissatisfied with the performance of any or all of the CEO, CFO or CTO, such
Class of Representatives may require the Management Board to institute a new
search for a replacement or replacements and the Management Board shall consider
in good faith the best alternative candidates presented as a result of such
search.
5.4 Responsibilities of the CEO. Subject to the rights and duties of the
Management Board and the shareholders of Thistle BV as provided in this
Agreement, and except as otherwise provided in this Agreement or in any other
Transaction Agreement, to the fullest extent permitted by Applicable Law, the
CEO shall be responsible for the day-to-day management of the Newco Group,
including the following matters:
(a) subject to Schedule 2.2, allocating resources between the Business
Units or Newco Subsidiaries within the AOPB and Five Year Business Plan approved
by the Management Board or within any Provisional AOPB;
(b) monitoring the performance of the Newco Group as a whole and reporting
to the Management Board or the shareholders of Thistle BV, as required;
(c) overseeing the regulatory, public policy and public affairs of the
Newco Group as a whole, including obtaining a parent's approval on matters
arising in such parent's Home Territory consistent with the provisions of
Section 3.9(a);
(d) making decisions on acquisitions, divestitures, licenses, investments
and joint ventures, in a transaction or series of related transactions,
involving property or assets valued at less than $25 million, excluding any such
transactions (i) involving a third party acquiring an interest in Thistle BV or
any Newco Subsidiary or (ii) which are of major strategic significance to the
Newco Group as a whole as determined by the Management Board, regardless of the
value thereof;
(e) preparing and submitting to the Management Board the AOPB and an
annually updated Five Year Business Plan and implementing the AOPB approved by
the Management Board or a Provisional AOPB;
(f) implementing the policies and direction of the Management Board in
matters such as employee policies, security, media relations and compliance;
(g) except as otherwise reserved to the Management Board, selecting and
appointing staff;
(h) instituting, compromising, terminating or settling litigation with
third parties involving claims or related claims of less than $10 million;
(i) other than with respect to the Transaction Agreements that constitute
Affiliate Transactions, entering into an Affiliate Transaction with a value, in
a transaction or series of related transactions, of less than $20 million,
including entering any amendment, modification or termination thereof or calling
a default thereunder or granting any waiver or consent thereunder, in all cases
on an arm's length basis;
<PAGE>
(j) restructuring the Business Units, so long as such action has no adverse
regulatory or Tax effect, including any adverse Tax effect arising as a result
of an indemnification obligation hereunder, or material adverse economic effect,
on either parent; provided, however, that the CEO shall have no power to modify
any of the arrangements with respect to the conduct of the business of the Newco
Group contemplated by Schedule 2.2 or to restructure the Technology Unit or
conduct any other restructuring that constitutes a matter reserved to the
shareholders of Thistle BV under Section 3.3 or to the Management Board under
Section 3.5;
(k) ensuring compliance by the Newco Group with all legal and regulatory
requirements; and
(l) the entering into, amendment, modification or termination of, or the
calling of a default under, or the grant by Thistle BV or any Newco Subsidiary
of any waivers or consents under, any third party contracts or agreements for
the purchase or sale of goods or services, license agreements or other
agreements or arrangements, involving annual payments of less than $20 million
or aggregate payments of less than $40 million.
5.5 Restriction on the Activities of Thistle BV. Each of the parties shall
(a) at all times take all such action as may be required to ensure that Thistle
BV is at all times after the Closing a "company whose activities are limited
entirely or almost entirely to management and financing of affiliated entities"
("een vennootschap wiens werkzaamheid zich uitsluitend of nagenoeg uitsluitend
beperkt tot het beheer en de financiering van groepsmaatschappijen") within the
meaning of Book 2, article 263, paragraph 3(b), of the Dutch Civil Code (a
"Qualified Holding Company") and (b) refrain from taking any action that would
cause Thistle BV at any time to cease to be a Qualified Holding Company. Without
limiting the generality of the foregoing, (i) Thistle BV shall not engage in any
business or activity other than the management and financing of the Newco
Subsidiaries, (ii) all day-to-day business operations of the Newco Group shall
be conducted by the Newco Subsidiaries and not by Thistle BV, and (iii) Thistle
BV shall not have any employees other than the Agreement Officers and the CTO.
ARTICLE 6
FINANCE AND OTHER OPERATIONAL MATTERS
6.1 AOPB and Five Year Business Plan. The first Five Year Business Plan of
the Newco Group has been agreed to concurrently with the execution of this
Agreement. The first AOPB shall be agreed by the parents prior to the Closing.
Thereafter, the CEO and CFO shall be responsible for the preparation of the AOPB
and an annually updated Five Year Business Plan for the Newco Group, each of
which shall be submitted to the Management Board for its approval in accordance
with Section 3.5(a) no later than 90 days prior to the beginning of each Fiscal
Year. The AOPB and Five Year Business Plan shall have the same form and shall
address the same matters, including the aggregate requirements for equity or
debt funding, or both, from each of VLT and BT Holdings as the first AOPB and
Five Year Business Plan, subject to any changes approved by the Management Board
pursuant to Section 3.5(a).
6.2 Implementation of AOPB and Business Plan. With respect to the first
AOPB and Five Year Business Plan and, following approval by the Management
Board, any subsequent AOPB and Five Year Business Plan, and with respect to a
Provisional AOPB, Thistle BV will cause its officers and employees and those of
the Newco Subsidiaries to conduct the operations of such Newco Subsidiaries in
accordance therewith.
<PAGE>
6.3 Deadlock on AOPB.
(a) If the requisite vote of the Management Board for an AOPB for any
Fiscal Year is not obtained (a "deadlock") by December 1 of the Fiscal Year
prior to the Fiscal Year to which the AOPB pertains, an expense budget shall be
deemed to have been approved by the Management Board that (i) continues ordinary
operating expenses at the same level as the prior Fiscal Year's AOPB, (ii)
continues any capital expenditures provided for such Fiscal Year in the then
current Five Year Business Plan or that have otherwise been previously committed
to with the requisite approval of the Management Board, (iii) makes any
additional provision necessary for the satisfaction of all obligations or
liabilities of the Newco Group that will become due in accordance with their
terms during such Fiscal Year in order to prevent any member of the Newco Group
from defaulting thereunder, but in any event excluding any obligations or
liabilities of the Newco Group that require a decision of the Management Board
under Section 3.5(i), and (iv) permits the incurrence of additional Indebtedness
by Newco Group without recourse to or guarantees by the parents; provided, that,
such additional Indebtedness shall not cause the Leverage Ratio to be exceeded
(such AOPB, a "Provisional AOPB").
(b) If no funding commitment has been made with respect to the Fiscal Year
as to which a proposed AOPB has not been approved and the deadlock arises
because the Management Board did not approve a proposed funding commitment, then
Thistle BV shall fund the operations of the Newco Group to the extent required
under the Provisional AOPB with funds derived in the following order of
priority: (x) first, with funds generated from operations of the Newco Group,
subject to the provisions of Schedule 6.9, (y) second, with non-recourse
Indebtedness of the type described in Section 6.3(a)(iv), and (z) third, with
funds provided by the shareholders on a pro rata basis in the form of equity
cash contributions or shareholder loans, which shall, as to both shareholders,
be equal in amount, form and terms.
(c) Notwithstanding the foregoing, the CEO may only implement a Provisional
AOPB for a maximum period of three consecutive Fiscal Years.
6.4 Debt Financing.
(a) Subject to the approvals required under Sections 3.3(e) and 3.5(a) and
except as permitted by Section 6.3(b), the Newco Group may incur Indebtedness to
fund its operations taking into account such considerations as the Management
Board deems relevant; provided, that, after taking into account the incurrence
of such Indebtedness the ratio (the "Leverage Ratio") of (i) the consolidated
total Indebtedness of the Newco Group to (ii) the consolidated EBITDA of the
Newco Group, calculated on the basis of the most recent four fiscal quarters
shall not exceed 1.5:1; provided, however, that such consolidated EBITDA of the
Newco Group for any period prior to the conclusion of the first four fiscal
quarters of the Newco Group shall be deemed to be $1.6 billion.
(b) Any debt financing of the Newco Group shall be without recourse to
either or both parents or their Group Companies, unless VLT and BT Holdings
decide otherwise pursuant to Section 3.3(e).
6.5 Fiscal Year. The fiscal year of the Newco Group ("Fiscal Year") for
financial accounting and United States Tax purposes shall begin on January 1 and
end on December 31; provided, that, the first Fiscal Year shall begin on the
Closing Date and end on the next following December 31.
<PAGE>
6.6 Books and Records; Access and Information.
(a) Thistle BV shall keep, or cause the Newco Subsidiaries to keep, books
and records of the type typically maintained by Persons engaged in similar
businesses and which set forth a true, accurate and complete account of the
business and affairs of the Newco Group, including a fair presentation of all
income, expenditures, assets and liabilities thereof of each Business Unit. The
books and records of the Newco Group shall be kept in Dollars. Such books and
records shall include all information reasonably necessary to permit the
preparation of consolidated financial statements and Tax Returns required by
Applicable Law as provided in Annex 3 (including Tax Returns to be filed by
members of the AT&T group of companies or BT group of companies on which
information pertaining to the Newco Group must be reported) and, with respect to
financial statements, in accordance with U.S. GAAP. Thistle BV shall bear the
cost of providing financial and accounting information reasonably required by
each parent in the preparation of such parent's own financial statements,
including the cost of preparing any reconciliation statements to U.K. GAAP.
(b) Each of the AT&T Parties and the BT Parties and their auditors and
other representatives shall be entitled to, and shall upon request by the
relevant party be supplied with:
(i) full access (including copying facilities), at reasonable times and on
reasonable notice, to the separate books, records, accounts, regulatory filings,
documents, Tax Returns, premises, processes, systems, business activities,
management and auditors of the Newco Group, whether in connection with such
party's own internal audit of the Newco Group or otherwise; and
(ii) all information, including monthly management accounts, operating
statistics, details of tax payments and other trading and financial information
(including the information described in Section 6.7), in such form and at such
times as such party may reasonably require to keep it properly informed about
the business and affairs of the Newco Group and to fulfill such party's own
group reporting requirements. 6.7 Financial Statements.
(a) After the Closing, Thistle BV shall furnish to the AT&T Parties and the
BT Parties:
(i) As soon as practicable and in any event within three Business Days
following the end of each month, a consolidated balance sheet of the Newco Group
as at the end of such month and the related statements of income and cash flows
of the Newco Group for such month, together with such other information as the
parties shall agree relating to the revenues, expenditures and operations of
each Business Unit (the "Business Unit Information") for such month.
(ii) As soon as practicable and in any event within three Business Days
following the end of each fiscal quarter of the Newco Group, (1) a consolidated
balance sheet of the Newco Group as at the end of such fiscal quarter and the
related statements of income and cash flows of the Newco Group for such quarter,
prepared in accordance with U.S. GAAP, with reconciliation statements to U.K.
GAAP, which shall be furnished no later than 10 days after the delivery of the
aforementioned quarterly financial statements, (2) the Business Unit Information
for such quarter, and (3) financial statements reasonably requested by either
parent for each legal entity within the Newco Group for such period.
<PAGE>
(iii) As soon as practicable and in any event within 15 Business Days
following the end of each Fiscal Year, (1) consolidated and consolidating
balance sheets of the Newco Group, as of the end of such Fiscal Year, and the
related consolidated and consolidating statements of income and cash flows of
the Newco Group for such Fiscal Year, prepared in accordance with U.S. GAAP,
with reconciliation statements to U.K. GAAP, together with a report thereon of
the Independent Auditor, (2) the Business Unit Information for such Fiscal Year,
and (3) financial statements reasonably requested by either parent for each
legal entity within the Newco Group for such Fiscal Year.
(iv) As soon as practicable, such other financial information as either
parent shall reasonably require to satisfy its financial reporting and other
public, statutory and regulatory disclosure requirements or as either parent
shall reasonably request.
(v) Such information as either parent shall reasonably require to satisfy
its Tax reporting requirements.
(b) The AT&T Parties and the BT Parties shall cause Thistle BV and the
other members of the Newco Group to, and Thistle BV shall, and shall cause the
other members of the Newco Group to, prepare all statutory accounts that are
required under Applicable Law in accordance with the GAAP required under such
Applicable Law, and to furnish copies of such statutory accounts to each of the
AT&T Parties and the BT Parties promptly following their completion.
6.8 Auditors. Prior to the Closing Date, Thistle BV shall engage
PricewaterhouseCoopers to be the initial independent auditor of the Newco Group,
unless either of the parents objects, in which case another internationally
recognized firm of independent certified public accountants of outstanding
reputation that is mutually acceptable to the parents will be appointed to be
Newco Group=s initial independent auditor (the "Independent Auditor").
Thereafter, from time to time, the Independent Auditors may be replaced pursuant
to a decision of the shareholders of Thistle BV in accordance with Section
3.3(j). The Independent Auditor shall in all cases be an internationally
recognized firm of independent certified public accountants of outstanding
reputation.
6.9 Dividend Policy. Unless the shareholders of Thistle BV by a unanimous
vote determine otherwise, the shareholders shall declare the payment of
dividends or other distributions of the Newco Group in accordance with the
policy set forth in Schedule 6.9.
6.10 Dutch Residency. The AT&T Parties and the BT Parties shall cause
Thistle BV, DirectorCo and Newco Services Company to take all actions as may be
necessary or desirable to establish tax residency for Thistle BV solely in The
Netherlands.
6.11 Hedging, Etc. The Newco Group will adopt policies on currency and
interest rate hedging, risk management, and insurance with respect to the
operations of the Newco Group that will be mutually satisfactory to the parents.
The parents will adopt policies from time to time on the capital structure of
the Newco Group.
<PAGE>
ARTICLE 7
MNC UNIT; OUTSOURCING SERVICES
7.1 Sales to Qualifying MNC Customers.
(a) Subject to then existing legal and contractual obligations and the
provisions of Section 7.3 with respect to Outsourcing Services and except as
contemplated by Section 7.7 and Article 11, the MNC Newco Subsidiaries will, as
among the parents and their Group Companies and the other members of the Newco
Group, be the exclusive sales channel for the offer and sale of Communications
Services to Qualifying MNC Customers. The MNC Newco Subsidiaries will contract
for services from the Newco Subsidiaries that engage in the business and
activities of the Product Unit and, in the case of Communications Services in a
parent=s Home Country, the applicable parent and its Subsidiaries for Qualifying
MNC Customers on an integrated basis.
(b) In the supply of services to Qualifying MNC Customers, the MNC Newco
Subsidiaries will generally operate as providers of the Newco Group=s Global
Communications Services and, in accordance with the applicable Transaction
Agreements, as resellers of all the Communications Services of the parents and,
in the case of Communications Services in a parent's Home Country, the
Subsidiaries of such parent, to Qualifying MNC Customers. The parties shall
cause the MNC Newco Subsidiaries to adopt appropriate executive compensation
arrangements to ensure that the MNC Newco Subsidiaries appropriately sell the
services of the parents and such Subsidiaries. Schedule 7.1(b) sets forth
principles with respect to sales of Communications Services of the parents to
the MNC Newco Subsidiaries.
7.2 Transfer of Contracts.
(a) After the date of this Agreement, the parents will develop a transition
plan the objective of which will be to transfer and assign those customer
contracts entered into by the parents or their Subsidiaries with Qualifying MNC
Customers to the applicable MNC Newco Subsidiary as of the Closing or as soon
thereafter as feasible with customer consent, other than (i) any portion thereof
relating to the provision of Outsourcing Professional Services or any other
services not required to be supplied by the MNC Newco Subsidiaries, and (ii)
those customer contracts held by AT&T or its Affiliates with the customers set
forth on Schedule 7.2(a). To the extent that a customer contract cannot be so
transferred or assigned to the applicable MNC Newco Subsidiary, the relevant
parent or Subsidiary shall, except as set forth in Section 7.2(c), continue to
hold such contract (other than any portion thereof relating to the provision of
Outsourcing Professional Services or any other services not required to be
supplied by the MNC Newco Subsidiaries) in accordance with Section 7.6 for the
economic benefit or risk of the applicable MNC Newco Subsidiary.
(b) Notwithstanding the provisions of this Article 7, if the objective
criteria for the MNC Newco Subsidiaries to commence servicing and marketing to
Qualifying MNC Customers in the petroleum sector as set forth in Schedule 1.1F
are not satisfied, the parents will use their Reasonable Best Efforts to rectify
or to cause the Newco Group to rectify any identified deficiency that may have
caused such criteria not to be satisfied.
<PAGE>
(c) Any customer listed in Schedule 7.2(c) will become a Qualifying MNC
Customer after a reasonable transition period following the applicable date set
forth in such Schedule. Following the Closing, commencing as of such date, to
the extent that any such customer contract when renewed or extended cannot be so
transferred or assigned to the applicable MNC Newco Subsidiary, the relevant
parent or Subsidiary shall continue to hold such contract as renewed or extended
(other than any portion thereof relating to the provision of Outsourcing
Professional Services or any other services not required to be supplied by the
MNC Newco Subsidiaries) in accordance with Section 7.6 for the economic benefit
or risk of the applicable MNC Newco Subsidiary. Prior to such renewal or
extension, any such customer contract will be held for the economic benefit or
risk of the applicable parent or Subsidiary.
7.3 Outsourcing Services.
(a) Subject to the terms and conditions of this Section 7.3 and Section
11.12, (i) each parent and its Group Companies and, to the extent provided in
Section 7.3(e), the applicable MNC Newco Subsidiary shall be entitled to market,
offer, sell and provide Outsourcing Professional Services relating to
Communications Services, and (ii) the applicable MNC Newco Subsidiary shall be
entitled to market, offer, sell and provide the Outsourcing Professional
Services offered by the parents and their Group Companies, third parties and, to
the extent provided in Section 7.3(e), its own Outsourcing Professional
Services. The provisions of this Section 7.3 shall be subject to the existing
contractual obligations of the parents and their Group Companies, including, in
the case of AT&T, its contracts with the customers set forth on Schedule 7.2(c).
(b) Each parent and its Group Companies shall be entitled to market, offer,
sell and provide Managed Network Services relating to Communications Services
provided with respect to networks within any one country within its Home
Territory. The applicable MNC Newco Subsidiary shall be entitled to market,
offer, sell and provide Managed Network Services to customers who require such
services in two or more countries and, in the case of Managed Network Services
marketed, offered, sold and provided to Qualifying MNC Customers, Managed
Network Services relating to Communications Services. All Managed Network
Services provided by the parents and, subject to Section 7.7, their Group
Companies to Qualifying MNC Customers will be contracted for through the
applicable MNC Newco Subsidiary.
(c) Each parent and its Group Companies will be the Newco Group's preferred
supplier (as described in Section 10.1(b)) with respect to Outsourcing
Professional Services provided within its Home Territory subject to customer
consent. Subject to the provisions hereof relating to the MNC Newco Subsidiaries
in Section 7.3(d), when the parents or, subject to Section 7.7, their
Subsidiaries provide Outsourcing Professional Services in connection with Global
Communications Services, they shall use the Managed Network Services of the
applicable MNC Newco Subsidiary and Thistle BV will cause such MNC Newco
Subsidiary to make Managed Network Services available to the parents and such
Subsidiaries. Thistle BV shall consider from time to time reasonable requests
for waivers for de minimis exceptions from the provisions of the preceding
sentence. However, if the Newco Group does not have the capability of providing
particular Managed Network Services to a parent or any of such Subsidiaries,
such parent or Subsidiary may itself provide such Managed Network Services. If
<PAGE>
and to the extent such particular Managed Network Services cannot be provided by
such parent or Subsidiary, such parent shall, and shall cause such Subsidiary
to, use Reasonable Best Efforts to procure such Managed Network Services from
third parties. Thistle BV shall cause the applicable Newco Subsidiaries and the
CTO to use their Reasonable Best Efforts to work with the parents and their
Group Companies to facilitate the provision of seamless Managed Network
Services.
(d) Whenever a parent or, subject to Section 7.7, any of its Subsidiaries
wishes to sell Outsourcing Professional Services to Qualifying MNC Customers,
there shall be an integrated approach by the applicable MNC Newco Subsidiary and
such parent or Subsidiary to the relevant Qualifying MNC Customer. Such parent
shall or, subject to Section 7.7, shall cause such Subsidiary to, and Thistle BV
shall cause the members of the Newco Group to, comply with the following
procedures. During the proposal stage, each of the applicable parent or such
Subsidiary and the applicable MNC Newco Subsidiary will develop the proposal
related to its service and each shall prepare a separate agreement. They shall
jointly deliver the proposals and jointly negotiate all agreements. If a
Qualifying MNC Customer desires a master agreement (a "Master Outsourcing
Agreement"), the applicable MNC Newco Subsidiary shall hold such Master
Outsourcing Agreement (subject to customer consent) but nothing herein shall
authorize such MNC Newco Subsidiary or any other member of the Newco Group to
apply any incremental charges or increase the bid amount to the customers for
the Outsourcing Professional Services or otherwise obtain value beyond the value
provided in the agreement or subcontract with the parent or applicable
Subsidiary for the provision of such Outsourcing Professional Services. In any
such case, the applicable MNC Newco Subsidiary shall, subject to Section 7.3(e),
subcontract to the parent or such Subsidiary for such Outsourcing Professional
Services. Each such subcontract shall provide that the Person providing
Outsourcing Professional Services or Managed Network Services will be entitled
to the revenue related thereto and that revenues related to the provision of
Communications Services will be allocated to the Person providing the applicable
Communications Service. Each such subcontract shall contain customary commercial
indemnity provisions pursuant to which each relevant Person will indemnify the
other with respect to the services provided by it.
(e) Thistle BV will cause the applicable MNC Newco Subsidiary to use
Reasonable Best Efforts to procure Outsourcing Professional Services on
commercially competitive terms from either parent or any of its Subsidiaries.
However, if neither the parent nor any of its Subsidiaries has the capability to
provide particular Outsourcing Professional Services on commercially competitive
terms, Thistle BV will cause the applicable MNC Newco Subsidiary to provide such
particular Outsourcing Professional Services. If and to the extent such
particular Outsourcing Professional Services cannot be provided by any MNC Newco
Subsidiary, Thistle BV will cause the applicable MNC Newco Subsidiary to use
Reasonable Best Efforts to procure such Outsourcing Professional Services from
third parties.
7.4 Managed Network Services Facilities.
(a) Except as provided in Section 7.4(b) and Section 7.7, Managed Network
Services Facilities predominantly associated with the provision in accordance
with Section 7.3(b) of Managed Network Services for Global Communications
Services by members of the Newco Group shall be owned and operated exclusively
by members of the Newco Group. The Newco Group shall be entitled to place a
Managed Network Services Facility in a parent's Home Country if such Managed
Network Services Facility is predominantly associated with the provision of
Managed Network Services for Global Communications Services.
<PAGE>
(b) The parents and their Group Companies shall be entitled to own and
operate, and shall not be required to contribute to the Newco Group, Managed
Network Services Facilities predominantly associated with the provision of
Managed Network Services within a single country within their Home Territories.
(c) Schedule 7.4(c), which will be agreed by the parents on or prior to
April 30, 1999, will set forth a transition plan (i) specifying the objective
criteria that must be met relating to continued servicing of AT&T's and BT's
customers before AT&T or BT, as relevant, will be required to contribute Managed
Network Services Facilities as described in Section 7.4(a) to the Newco Group
and (ii) the principal terms and conditions on which such Managed Network
Services Facilities will be leased or otherwise made available to the Newco
Group until such contribution. The parties anticipate that such contributions
will be made to the Newco Group on or before the six month anniversary of the
Closing.
7.5 Account Management for Level 1 and Level 2 Customers.
(a) With respect to Level 2 Customers the parties agree that:
(i) Either AT&T or BT will assume overall account planning leadership on a
global basis as determined by Thistle BV based on (1) the relative strengths of
AT&T and BT within the account, and (2) where, on a geographic basis, the weight
of implementation lies, in each case unless determined otherwise by the
customer.
(ii) Each parent shall and, subject to Section 7.7, shall cause its
Subsidiaries that provide Global Business Communications Services in its Home
Country to, and Thistle BV shall cause the applicable Newco Subsidiary to, enter
into an applicable Transaction Agreement in order to support direct contractual
relationships for Level 2 Customers.
(b) With respect to Level 1 Customers and other customers (excluding
Qualifying MNC Customers and Level 2 Customers), each parent will separately
conduct the Global Business Communication Services sales activities for such
customers and Thistle BV will cause the Newco Group to provide sales and product
support for such services.
7.6 Existing Contracts. To the extent any customer contract then in effect
and referred to in Section 7.2(a), 7.2(c) or 11.11(i) is held by a parent or its
Subsidiaries for the economic benefit or risk of the applicable MNC Newco
Subsidiary, such parent shall, or shall cause its Subsidiary, to the extent
permitted under such contracts, to enter into a subcontract with the applicable
MNC Newco Subsidiary for the provision of the Communications Services to be
performed by such parent or its Subsidiary under the customer contract. Such
subcontract shall reflect the pricing and risk principles to be agreed by the
parents prior to the Closing as contemplated by Section 18.8(f).
7.7 Exceptions to Subsidiary Obligations; Term. The obligations set forth
in the second sentence of Section 7.3(c) and in Sections 7.1, 7.3(b), 7.3(d),
7.4 and 7.5(a)(ii) shall not apply to any Subsidiaries of a parent (a) that are
covered by an exception to such parent=s obligations under the Non-Competition
Undertakings, or (b) with respect to which such parent is subject to the
Fiduciary Duty Standard as provided in Section 11.2. A parent's and its Group
Companies' obligations under this Article 7 shall terminate when the parent is
no longer subject to Section 11.1.
<PAGE>
7.8 Qualifying MNC Customers.
(a) In principle, as soon as an MNC becomes a Qualifying MNC Customer, such
MNC's Subsidiaries shall be deemed to also be Qualifying MNC Customers, unless:
(i) a Subsidiary of any such MNC requests that the relevant services be
provided to it separately from such MNC; or
(ii) a parent demonstrates to the MNC Newco Subsidiaries that, prior to the
date of this Agreement, separate account management teams of such parent
serviced such MNC and its Subsidiary in question and, with respect to a Person
that qualifies as a Qualifying MNC Customer after the Closing, such parent
notifies the MNC Newco Subsidiary that such Subsidiary of such MNC should not be
treated as a Qualifying MNC Customer.
(b) The parties agree that if separate account management teams serviced an
MNC and any of its Subsidiaries prior to the date of this Agreement, such
Subsidiary may, subject to the terms and conditions hereof, become a Qualifying
MNC Customer in its own right as soon as the industry sector to which it belongs
becomes a Selected Industry Sector, notwithstanding that the Person that is such
Subsidiary's parent belongs to a different industry sector that has not yet
become a Selected Industry Sector and that such parent is not itself a
Qualifying MNC Customer.
7.9 Customer Choice. AT&T, BT and the MNC Unit will always adhere to
customer choice with respect to whether a Qualifying MNC Customer is served by
the MNC Unit or as a Level 1 Customer or Level 2 Customer. Schedule 7.9 sets
forth certain principles regarding customer choice.
7.10 MNC Unit. Schedule 7.10 sets forth certain principles relating to the
MNC Unit.
ARTICLE 8
APPOINTMENT OF DISTRIBUTORS
8.1 AT&T's Home Territory. In AT&T's Home Territory, the appointment of a
Distributor of the Global Business Communications Services of the Newco Group
shall require the approval of the Management Board, with DirectorCo, as the sole
director of the Management Board, acting pursuant to a majority vote of the
Class A Representatives only, with no other vote of any other Representative
being required.
8.2 BT's Home Territory. In BT's Home Territory, the appointment of a
Distributor of the Global Business Communications Services of the Newco Group
shall require the approval of the Management Board, with DirectorCo, as the sole
director of the Management Board, acting pursuant to a majority vote of the
Class B Representatives only, with no other vote of any other Representative
being required.
8.3 Schedule 8.3 Countries. In the case of the countries listed on Schedule
8.3 attached hereto, the CEO shall be entitled to appoint a Distributor on an
exclusive or non-exclusive basis, unless, in the case of a proposed exclusive
Distributor, the Management Board rejects such appointment pursuant to action
taken by DirectorCo, as the sole director of the Management Board, acting
pursuant to a majority vote of each of the Class A Representatives and the Class
B Representatives.
<PAGE>
8.4 Other RoW Countries. In the case of the countries in the RoW not listed
on Schedule 8.3 attached hereto, the CEO shall be entitled to appoint a
Distributor on an exclusive or non-exclusive basis, unless, in the case of a
proposed exclusive Distributor, the Management Board rejects such appointment
pursuant to action taken by DirectorCo, as the sole director of the Management
Board, acting pursuant to a majority vote of the Class A Representatives or
Class B Representatives only, with no other vote of any other Representative
being required.
8.5 Certain Countries. In the case of the countries listed on Schedule 8.5
attached hereto, the CEO, upon the approval of the Management Board, with
DirectorCo, as the sole director of the Management Board, acting pursuant to a
vote of a majority of each of the Class A Representatives and the Class B
Representatives, shall establish a plan for the expansion of distributorships in
each such country, which plan shall specify whether any proposed Distributor is
to be exclusive or non-exclusive.
ARTICLE 9
SUPPLY OF NEWCO SERVICES TO PARENTS
AND DISTRIBUTION OF NEWCO PRODUCTS
9.1 Basic Principles.
(a) A parent or the applicable Business Unit will be deemed to have
consistently and significantly underperformed if the criteria to be set forth in
Schedule 9.1(a), to be agreed by the parents on or prior to the Closing Date,
are not met.
(b) The criteria referred to in Schedule 9.1(a) shall be designed to assure
the market competitiveness of the Newco Group and the parents, based on market
tests, including benchmarking of pricing, quality standards and features against
competitive offerings.
(c) If either a Business Unit or a parent fails to meet the criteria set
forth in Schedule 9.1(a):
(i) in the first four Fiscal Years, (1) either parent, through VLT or BT
Holdings, as the case may be, may cause Thistle BV to require the CEO to propose
to the Management Board that the applicable Newco Subsidiary or other Business
Unit outsource the applicable components of Global Business Communications
Services, and (2) the CEO may propose to the Management Board that the
underperforming parent outsource the applicable components of its Home Country
Communications Services for sale to Qualifying MNC Customers to ensure a
competitive offering. Such decisions shall require the approval of the
Management Board, with DirectorCo, as the sole director of the Management Board,
acting pursuant to a majority vote of each of the Class A Representatives and
the Class B Representatives; and
(ii) after the end of the fourth Fiscal Year, for as long as such Business
Unit consistently and significantly fails to meet the criteria specified in
Schedule 9.1(b), either parent, through VLT or BT Holdings, as the case may be,
may cause Thistle BV to require the applicable Newco Subsidiary to outsource the
applicable components of Global Business Communications Services, and for as
long as such parent consistently and significantly fails to meet the criteria
specified in Schedule 9.1(b), the applicable Newco Subsidiary shall have the
contractual right to require such parent to outsource the applicable components
of its Home Country Communications Services for sale to Qualifying MNC
Customers.
<PAGE>
9.2 Exclusive Purchasing Commitment.
(a) Each parent will, and will cause its wholly-owned Subsidiaries and,
subject to the Fiduciary Duty Standard, its other Subsidiaries to, purchase all
their requirements for Global Communications Services from the Newco Group
pursuant to the terms and conditions of the applicable Transaction Agreements to
be entered into by each of the parents as of the Closing with the applicable
Newco Subsidiary; provided, however, that in the case of any customers that are
not Qualifying MNC Customers, each parent and its Subsidiaries may provide
directly the domestic portion of Communications Services relating to its Home
Country provided to such customers; and, provided, further, however, that a
parent's obligations under this Section 9.2(a) shall not apply to any of its
Subsidiaries that is covered by an exception to such parent's obligations under
the Non-Competition Undertakings and, in the case of AT&T, shall not apply to
the activities contemplated in Schedule 18.9. Each parent's obligations under
this Section 9.2(a) shall terminate when such parent is no longer subject to
Section 11.1.
(b) The applicable Newco Subsidiary will, at the Closing, subject to all
legal and contractual obligations existing at the Closing, enter into separate
applicable Transaction Agreements with each parent, pursuant to which it will
appoint the parents as its exclusive Distributors, on a requirements basis, for
the sale of the Global Business Communications Services of the Newco Group in
their Home Countries, subject, in AT&T's Home Country, to (i) the distribution
rights of MCI-WorldCom for the two year period set forth in the 1994
distribution agreement, between Concert and MCI-WorldCom, as amended by the
Unwind Agreement dated August 7, 1998 (the "MCI-WorldCom Distribution
Agreement"), plus the additional three-year period stated therein for the run
off of customer contracts that exist as of the end of such two-year period or
earlier termination of the MCI-WorldCom Distribution Agreement, and (ii) the
transition arrangements for BT North America Inc. to be set forth in Schedule
9.2(b), which Schedule will be agreed upon by the parents on or before April 30,
1999.
9.3 International Carrier Services.
(a) The Newco Group will provide (i) International Traffic Termination
Services to the parents and their wholly owned Subsidiaries pursuant to the
terms and conditions of the applicable International Traffic Service Agreements
to be entered into by each of them at the Closing with the applicable Newco
Subsidiary, and (ii) Carrier Services to third parties. Each parent will, and
will cause its wholly-owned Subsidiaries and, subject to the Fiduciary Duty
Standard, other Subsidiaries to, purchase all their requirements for
International Traffic Termination Services from the Newco Group. Each parent's
obligations under this Section 9.3(a) shall terminate when such parent is no
longer subject to Section 11.1.
(b) If a Performance Test Shortfall for the ICS Unit shall occur,
notwithstanding the provisions of Section 9.3(a) or 11.1(c), at the end of the
sixth full Fiscal Year, the parent in respect of whose routes the applicable
Newco Subsidiary shall have failed to achieve the required level of aggregate
annual Accounting Rate reductions shall have the right, following delivery of
notice in writing to Thistle BV, the applicable Newco Subsidiary, and the other
<PAGE>
parent, to undertake directly the negotiation of Accounting Rates as follows.
Such parent may undertake directly the negotiation of Accounting Rates for all
or any of its routes in respect of which the applicable Newco Subsidiary failed
by more than 5% to achieve the budgeted net Accounting Rate for such route as
set forth in the relevant AOPB or Provisional AOPB for any year in the four full
Fiscal Year period in which the Performance Test Shortfall for the ICS Unit
occurred. In addition, if the applicable Newco Subsidiary shall have failed the
Performance Test Shortfall for the ICS Unit (determined on a per year basis) for
any two full Fiscal Years, whether or not consecutive, following the first two
full Fiscal Years, the parent in respect of whose routes the applicable Newco
Subsidiary shall have failed to achieve the required level of aggregate annual
Accounting Rate reductions shall have the right, following delivery of notice in
writing to Thistle BV, the applicable Newco Subsidiary and the other parent, to
undertake directly the negotiation of Accounting Rates for all or any of its
routes in respect of which the applicable Newco Subsidiary failed by more than
5% to achieve the budgeted net Accounting Rate for such route as set forth in
the relevant AOPB or Provisional AOPB for any such Fiscal Year. For the
avoidance of doubt, it is understood that, notwithstanding the foregoing, the
Newco Group shall retain the ownership, operation and management of Global
Network Facilities for the provision of all such International Traffic
Termination Services; provided, however, that the parent in respect of whose
routes the applicable Newco Subsidiary shall have failed to achieve the required
level of aggregate annual Accounting Rate reductions shall have the right to
solicit and hire employees of the applicable Newco Subsidiary who are necessary
for the negotiation of Accounting Rates for the routes in respect of which it
elects to undertake directly the negotiation of Accounting Rates; provided,
further, however, that the solicitation and hiring of such employees shall not
unreasonably disrupt the operations of the International Carrier Services Unit.
ARTICLE 10
SUPPLY OF SERVICES BY PARENTS
TO THE NEWCO GROUP
10.1 Basic Principles.
(a) The procurement of products, services and facilities by the Newco Group
from the parents and their wholly owned Subsidiaries and, if applicable, other
Subsidiaries will be on arm's-length commercial terms at market rates. There
will be no exclusive purchasing obligation on the Newco Group with respect to
products, services and facilities; provided, however, that each parent and its
wholly-owned Subsidiaries and, if applicable, its other Subsidiaries will be the
preferred supplier of the Newco Group; provided, further, however, subject to
Section 9.1, if any MNC Newco Subsidiary purchases Communications Services in a
parent's Home Country, such MNC Newco Subsidiary shall exclusively purchase such
Communications Services from such parent or its wholly owned Subsidiaries or, if
applicable, its other Subsidiaries.
(b) For the purposes of this Agreement, the term "preferred supplier" shall
mean, with respect to a Person (the "Preferred Supplier") that, subject to
Applicable Law, is able to provide the products, services and facilities, as the
case may be, on terms, conditions and standards at least as favorable regarding
price, quality and service as the Person that wishes to obtain the same (the
"Purchaser") would be able to obtain in an arm's length transaction with any
<PAGE>
third Person that is not an Affiliate of the Purchaser (a "Third Party
Supplier"). If a Preferred Supplier offers or is able to offer to provide
products, services or facilities that are competitive and comparable as
described in the foregoing sentence, the Purchaser shall purchase such products,
services or facilities, as the case may be, from such Preferred Supplier and not
from a Third Party Supplier. No Purchaser shall provide to any Third Party
Supplier for the purpose of facilitating or promoting any alternative bid or
proposal (i) any confidential information concerning the terms, conditions and
standards of products, services or facilities, as the case may be, offered by
the Preferred Supplier, or (ii) any preferential commitments, support,
incentives or other preferential treatment or inducements with respect to the
supply or purchase of products, services or facilities, as the case may be, in
the applicable parent's Home Country.
10.2 Support Services; Secondment. The parties intend that the Newco Group
will have its own employees and will not rely unduly on secondees from the
parents. None of the members of the Newco Group shall be obligated to accept or
use any resources such as systems, personnel or facilities of the parents to be
used directly in connection with the Initial Contributed Assets. Prior to the
Closing, the parents shall agree upon the services and facilities of the parents
to be used by the Newco Group, if any, which services and facilities shall be
provided by the parents pursuant to mutually acceptable support services
agreements negotiated on an arm's-length basis.
ARTICLE 11
NON-COMPETITION
11.1 Restricted Businesses. Subject to the other provisions of this Article
11 and except as specifically provided herein, including pursuant to the
agreements contemplated by Section 18.8(h), each parent hereby agrees that from
and after the Closing for as long as this Agreement and the other Transaction
Agreements remain in effect, it shall not, and it shall undertake to ensure that
none of its Subsidiaries, Affiliates or Covered Investors or their respective
Subsidiaries or Affiliates (all of the foregoing, collectively, its "Group
Companies") shall, directly or indirectly, acting alone or in association with,
or through, one or more Persons, other than through the Newco Group:
(a) offer, sell or distribute any Global Business Communications Services
or any services competitive with the Global Business Communications Services
provided by the Newco Group other than as provided in this Agreement or the
other Transaction Agreements;
(b) offer, sell or distribute to any Qualifying MNC Customers any
Communications Services other than through the Newco Group;
(c) provide any International Carrier Services other than as provided in
any Transaction Agreements; or
(d) own, operate, lease or manage any Global Network Facilities.
11.2 Home Country Communications Services Business.
<PAGE>
(a) Notwithstanding the provisions of Section 11.1 and the second sentence
of Section 11.6 (collectively, the "Non-Competition Undertakings") or of
Sections 11.12 and 11.13, but subject to Section 11.7(b), either parent or any
of its Group Companies may engage in any Acquisition Transaction or Business
Combination predominantly in its Home Country involving any Person (the
"Specified Person"), that would otherwise, upon its consummation, result in a
breach of the Non-Competition Undertakings or Section 11.12 or 11.13 by such
parent or any of its Group Companies, including as a result of the direct or
indirect activities or investments of such Specified Person or its Group
Companies, if: (i) such parent's primary purpose in engaging in the Acquisition
Transaction or Business Combination is to extend its Home Country Communications
Services business, (ii) the business of the Specified Person and its Group
Companies, taken as a whole, is not predominantly international, and (iii) to
the extent the Specified Person and any Person in which the Specified Person has
a direct or indirect equity interest (each such Person, a "Specified Entity" of
such Specified Person) uses Global Business Communications Services and
International Carrier Services or provides Communications Services to Qualifying
MNC Customers, such parent, subject to Section 11.2(b), uses its Special Efforts
to cause the Specified Person and such Specified Entity to use the Global
Business Communications Services and International Carrier Services of the Newco
Group and to appoint the applicable MNC Newco Subsidiary as a distributor or
agent in the provision of Communications Services to Qualifying MNC Customers to
the extent such activities or investments of such Specified Person or Specified
Entity would otherwise violate Article 11. "Special Efforts" shall mean all
efforts consistent with a Person's fiduciary obligations. The parties agree
that, without limiting the scope of the foregoing restriction, and
notwithstanding Applicable Law or the definition of "Best Efforts" or
"Reasonable Best Efforts," under no circumstances shall Special Efforts require
the obligated Person to make any payment or assume special obligations in order
to achieve the stated objective. For the avoidance of doubt, any references in
this Section 11.2 to a parent or any of its Group Companies engaging in a
Business Combination not involving an Acquisition Transaction shall not affect
or limit in any way the rights of the other parent, if any, under Section 23.3,
23.4, 23.5 or 23.6 with respect to a Put, Call or right to cause a dissolution
of the Newco Group and, in the case of a Business Combination not involving an
Acquisition Transaction, this Section 11.2 shall not be given effect to
determine whether such rights are available.
(b) To the extent such parent acquires, directly or indirectly, more than
50% of the equity interests in and Controls the operations of the Specified
Person or acquires, directly or indirectly, more than 50% of the equity
interests in and Controls the operations of any Specified Entity of such
Specified Person, it will direct the Specified Person's or such Specified
Entity's, as the case may be, Global Business Communications Services and
International Carrier Services businesses and the business of providing
Communications Services to Qualifying MNC Customers, in each case, if any, to
the Newco Group to the extent that the failure to do so would violate Article 11
(without giving effect to this Section 11.2); provided, that such parent shall
not be required to so direct any such businesses unless it can do so consistent
with its fiduciary duties, which duties shall be determined within the context
of the Specified Person's and such Subsidiary's operations. Without limiting the
foregoing proviso, the standard of obligation set forth therein shall not
require such parent to take commercially unreasonable actions or to make any
Person whole for what would otherwise be a breach of its fiduciary duties to the
Specified Person or Subsidiary, including payment to compensate for the
premature termination of any contracts. The standard of obligation set forth in
this Section 11.2(b) shall be referred to herein as the "Fiduciary Duty
Standard."
<PAGE>
(c) Subject to the Fiduciary Duty Standard, such parent will refrain from
(i) taking actions that would significantly increase what, without giving effect
to this Section 11.2, would be a breach of Section 11.1 by the Specified Person
and its Subsidiaries, and (ii) transferring to the Specified Person or any of
its Subsidiaries from itself or any of its Affiliates any business or assets,
unless in the case of clause (i) or (ii), the primary purpose of the action or
transfer is a purpose other than to circumvent Section 11.1 or to grow the
portions of such businesses that breach Section 11.1. Notwithstanding the
preceding sentence, such parent may take any action with respect to the
Specified Person and its Subsidiaries that has an independent business purpose,
including property swaps, geographical consolidations and transfers for the
purpose of achieving operating efficiencies or satisfying Tax objectives.
(d) If the aggregate annual competing revenues referred to below of all
Specified Persons and their Subsidiaries exceed $4 billion plus 12.5% of the
excess, if any, of the Newco Group's aggregate annual revenues in the applicable
Fiscal Year over $20 billion, then the other parent shall have the right, by
notice to the acquiring parent within 30 days of its becoming aware thereof, to
elect to cause a dissolution of the Newco Group. The aggregate annual competing
revenues referred to in the preceding sentence shall be and refer to revenues
calculated on a Pro Rata Basis derived from activities which, without
duplication, would violate either or both of (i) Section 11.1 or (ii) in the
case of the other party's Home Territory other than its Home Country, clause (b)
of the second sentence of Section 11.6, in each case if this Section 11.2 were
not applicable. Any such dissolution shall be completed as soon as practicable
but in any event, subject to compliance with mandatory requirements of
Applicable Law, within two years following the date of such notice. The
provisions of Section 23.9 shall apply to a dissolution of the Newco Group
initiated under this Section 11.2(d).
11.3 BT in European Region and AT&T in NAFTA Region. Notwithstanding the
provisions of Section 11.1, neither parent nor any of its Group Companies shall
be in breach of Section 11.1 to the extent such breach results from the direct
or indirect acquisition or ownership by it or any of its Group Companies,
whether acting alone or in association with, or through, one or more Persons, of
the following interests in any Person which undertakes, engages in, owns or
operates a business deriving revenues from activities that would violate Section
11.1 in the European Region in the case of BT and its Group Companies or in the
NAFTA Region in the case of AT&T and its Group Companies:
(a) Any non-Controlling interest representing less than 20% of the equity
interests of such a Person, subject to the Revenue Limitation with respect to
any breach of Section 11.1(a).
(b) Any non-Controlling interest representing 20% or more and less than 50%
of the equity interests of such a Person, as long as BT or AT&T, as the case may
be, has made Reasonable Best Efforts to cause such Person to comply with Section
11.1, but subject to the Revenue Limitation with respect to any breach of
Section 11.1(a).
(c) Any Controlling interest in the equity of such a Person so long as such
Person does not violate Section 11.1(a).
<PAGE>
11.4 Other Parent's Home Territory.
(a) Notwithstanding the provisions of Section 11.1 and clause (a) of the
second sentence of Section 11.6, neither parent nor any of its Group Companies
shall be in breach thereof to the extent that such breach results from the
direct or indirect acquisition or ownership by it or any of its Group Companies,
whether acting alone or in association with, or through, one or more Persons, of
any non-Controlling interest representing less than 20% of the equity interests
of a Person which undertakes, engages in, owns or operates a business deriving
revenues from activities in the other party's Home Territory which would violate
Section 11.1 or clause (a) of the second sentence of Section 11.6, but subject
to the Revenue Limitation with respect to any breach of Section 11.1(a).
(b) For the purposes of Section 11.3(a) or (b) and this 11.4, in no event
shall the aggregate total annual revenues derived in the two Home Territories
from Global Business Communications Services by a parent and, without
duplication, its Group Companies from all activities specified as subject to
restriction pursuant to the terms thereof exceed $200 million (the "Revenue
Limitation"); provided, that, no revenues attributed to a parent or any of its
Group Companies as a result of a transaction meeting the requirements of Section
11.2 shall be included in this calculation. For purposes of calculating such
aggregate total annual revenues, only the actual pro rata share of revenues of a
parent and, without duplication, its Group Companies will be included with
respect to any investments in a Person that is not wholly-owned. Such method of
calculation shall be referred to herein as being made on a "Pro Rata Basis."
11.5 RoW.
(a) Notwithstanding the provisions of Section 11.1 or clause (a) of the
second sentence of Section 11.6, but subject to Section 11.5(c), neither parent
nor any of its Group Companies shall be in breach of Section 11.1 or clause (a)
of the second sentence of Section 11.6 to the extent that such breach results
from the direct or indirect acquisition or ownership by it or any of its Group
Companies of any equity interest of a Person which undertakes, engages in, owns
or operates a business deriving revenues from activities in the RoW that would
violate Section 11.1 or clause (a) of the second sentence of Section 11.6;
provided, that, (i) with respect to any acquisition of a Controlling interest in
the equity of any such Person that derives revenues from Global Business
Communications Services in the RoW, the acquiring parent shall request the grant
of distribution rights for Global Business Communications Services from the
applicable Newco Subsidiary on commercially reasonable terms for such Person
with respect to the territories in the RoW from which such Person derives such
revenues and prior to the consummation of the acquisition of such interest such
Person shall be prepared to enter into a distribution agreement or similar
commercial arrangement, including agency agreements, with the applicable Newco
Subsidiary on commercially reasonable terms; (ii) in no event shall the
aggregate total annual revenues derived in the RoW by a parent and any of its
Group Companies, directly or indirectly, whether acting alone or in association
with, or through one or more Persons, from a cross border network, alliance or
consortium in the RoW providing Global Business Communications Services (a "GBCS
Alliance") in which such parent or any of its Group Companies has any direct or
indirect equity interest exceed $400 million determined on a Pro Rata Basis; and
(iii) with respect to any acquisitions or ownership of a non-Controlling
interest in the equity of any Person, the acquiring parent shall use its
Reasonable Best Efforts to prevent such Person from, directly or indirectly,
creating, participating in the creation of or owning, operating or having an
interest in any GBCS Alliance.
<PAGE>
(b) If a parent requests on behalf of any Person which undertakes, owns or
operates a business deriving revenues from activities in the RoW in which it or
any of its Group Companies acquires an equity interest of 20% or more, or if any
such Person requests directly from the Newco Group, the right to distribute
Global Business Communications Services on a non-exclusive basis in a particular
territory within the RoW from which it derives such revenues, the Newco Group
will be required to use its Reasonable Best Efforts to grant such non-exclusive
distribution rights to such Person on commercially reasonable terms, taking into
account the disruption, if any, which may be caused to any existing operations
of the Newco Group in the territory in question.
(c) (i) Notwithstanding anything to the contrary in Section 11.5(a),
neither parent nor any of its Group Companies may directly or indirectly acquire
or own any interest in any Person which undertakes, engages in, owns or operates
a business deriving revenues from International Carrier Services activities in
RoW, unless such parent shall use its Special Efforts to cause such Person, to
the extent such Person provides International Carrier Services, to use the Newco
Group to provide such International Carrier Services; provided, that, to the
extent that a parent acquires more than 50% of the equity interests and Controls
such Person, such parent shall direct such Person's International Carrier
Services business to the Newco Group, as long as it can do so consistent with
the Fiduciary Duty Standard.
(ii) Subject to the Fiduciary Duty Standard, such parent will refrain from
(x) taking actions that would significantly increase the competition of any such
Person with the Newco Group with respect to the provision of International
Carrier Services and (y) transferring to any such Person from itself or any of
its Affiliates any business or assets, unless in the case of clause (x) or (y),
the primary purpose of the action or transfer is a purpose other than to
circumvent Section 11.1(c) or this Section 11.5(c) or to grow the International
Carrier Services businesses of any such Person. Notwithstanding the preceding
sentence, such parent may take any action with respect to such Person that has
an independent business purpose, including property swaps, geographical
consolidations and transfers for the purpose of achieving operating efficiencies
or satisfying Tax objectives.
(iii) If the aggregate annual revenues of all of such Persons, calculated
on a Pro Rata Basis, derived in the RoW from the provision of International
Carrier Services not provided by the Newco Group exceed $4 billion plus 12.5% of
the excess, if any, of the Newco Group's aggregate annual revenues in the
applicable Fiscal Year over $20 billion, then the other parent shall have the
right, by notice to the acquiring parent within 30 days of its becoming aware
thereof, to elect to cause a dissolution of the Newco Group. Any such
dissolution shall be completed as soon as practicable but in any event within
two years following the date of such notice. The provisions of Section 23.9
shall apply to a dissolution of the Newco Group initiated under this Section
11.5(c)(iii).
11.6 Ancillary Non-Compete. Since the Technology Unit will be engaging in
architectural design and since technology, know-how, other Intellectual Property
Rights and confidential information will be provided to, or developed by, for,
or in conjunction with, the Technology Unit for use in connection with the
Venture Business, each parent agrees in principle that as long as it, directly
<PAGE>
or indirectly, owns a substantial interest in the Newco Group, it will not seek
to undermine fundamentally the technology architecture of the Newco Group for
the Venture Business, all as more specifically set forth in, and subject to the
terms of, the IPR Agreement. Accordingly, consistent with the foregoing, except
as specifically provided herein, from the Closing, and so long as this Agreement
and the other Transaction Agreements remain in effect, each parent shall not,
and shall undertake to ensure that none of its Group Companies shall, directly
or indirectly, acting alone or in association with, or through, one or more
Persons, or through Domestic Network Facilities in which any of the foregoing
has ownership or operation rights, (a) engage in any of the activities described
in Section 11.1 in the other parent's Home Territory (but in such event, subject
to the exception set forth in Section 11.4), or (b) compete with the other
parent or any other Distributor of the Newco Group in the other parent's Home
Territory as a distributor of Communications Services of the type provided by
the Newco Group (subject to passive sales requirements under Applicable Law) or
as a supplier of Communications Services of the type supplied by the Newco
Group.
11.7 Exceptions to Ancillary Non-Compete and Other Non-Compete Provisions.
(a) Notwithstanding the provisions of clause (b) of the second sentence of
Section 11.6 and of Sections 11.12 and 11.13, either parent and its Group
Companies may, in the other parent's Home Territory, make any investment in a
Person which breaches clause (b) of the second sentence of Section 11.6 or
Section 11.12 or 11.13, so long as (i) such investment represents less than 20%
of the equity interests of such Person and the investment or related series of
investments made or committed in connection therewith does not exceed $200
million; provided, that, the aggregate initial value of all such investments
does not exceed $1 billion in the aggregate, or (ii) the aggregate annual
revenues derived by any such Person in the other parent's Home Territory from
any investment or related series of investments that violate clause (b) of the
second sentence of Section 11.6 or Section 11.12 or 11.13 do not exceed $200
million, or taken together with all such other investments, $1 billion in the
aggregate.
(b) If a parent or any of its Group Companies engages in an Acquisition
Transaction or Business Combination in its Home Country involving a Specified
Person as provided in Section 11.2 and such Specified Person, directly or
indirectly, has investments in or derives revenues from the other parent=s Home
Country that would breach clause (b) of the second sentence of Section 11.6 or
Section 11.12 or 11.13, then such investments and revenues shall be aggregated
with all other direct or indirect investments in, or revenues derived from, as
applicable, the other parent=s Home Country that would breach clause (b) of the
second sentence of Section 11.6 or Section 11.12 or 11.13 in determining whether
the limitations set forth in clauses (i) and (ii), respectively, of Section
11.7(a) are met.
11.8 Exceptions and Restrictions Applied Independently. The permitted
exceptions for breaches of the Non-Competition Undertakings apply independently.
If an investment in any Person breaches both one or more subsections of Section
11.1 and one or more subsections of the second sentence of Section 11.6 or
Section 11.12 or 11.13 and is entitled to a permitted exception for a breach of
one or more subsections of one Section and not the others, such permitted
<PAGE>
exception will not excuse the breach of such other subsections. Unless an
applicable permitted exception can be relied upon to excuse such breach, the
party in breach must, subject to the terms and conditions hereof, cure the
breach and bring itself or the relevant other Person into compliance. The
permitted exceptions in Sections 11.3, 11.4, 11.5 and 11.7 apply and may be
utilized with respect to the revenues derived from activities in the respective
territories set forth in each such Section, notwithstanding the fact that a
single Person may derive revenues from activities in more than one of such
territories; provided, that any revenues derived from activities in any other
territory must independently comply with Section 11.1 and the second sentence of
Section 11.6 and Sections 11.12 and 11.13.
11.9 Determinations of Revenue. For the purposes of Section 11.3, 11.4,
11.5 and the second sentence of Section 11.6, a Person shall be deemed to
undertake, engage in, own or operate a business, as the case may be, in any
territory subject to such Section in which it derives any revenue during the
last full fiscal year of such Person prior to the time the determination is
made.
11.10 Calculation of Damages; Cure Period; Notice. For purposes of
calculating damages and similar remedies, the breach of any provision of this
Article 11 shall be deemed to have commenced upon the occurrence of the event
resulting in the breach, notwithstanding that any applicable cure period may not
then have expired; provided, that, if a breach of any provision of this Article
11 exists as of the Closing Date, such breach shall be deemed to have commenced
as of the Closing Date. No parent shall be entitled to injunctive relief or any
similar remedy for any breach of any provision of this Article 11 until the
expiration of the one year period from the time the parent seeking relief shall
have given notice to the other parent of the occurrence of the event resulting
in the breach (it being agreed that the foregoing period may run concurrently
with any cure period set forth in this Article 11). Each parent shall use its
good faith efforts to notify the other upon actually becoming aware of any
events that would constitute a breach by the other parent of this Article 11.
11.11 Exclusions. The following activities and Persons shall be excluded
from the application of the Non-Competition Undertakings and Sections 11.12 and
11.13:
(a) Multimedia Content;
(b) Broadcast Services;
(c) Systems Integration; provided, that the parents in their respective
Home Territories and the Newco Group in the RoW shall be the preferred supplier
of Communications Services and Outsourcing Services therefor;
(d) membership in any satellite consortia as of the date hereof and
successor interests therein;
(e) international roaming agreements;
(f) all non-wholly-owned equity or other non-wholly-owned investments and
joint ventures held as of the date hereof and those for which definitive
<PAGE>
agreements have been concluded as of the date hereof set forth on Schedule
11.11(f)A in the case of AT&T and Schedule 11.11(f)B in the case of BT, as well
as all current and any future Subsidiaries of the joint ventures and investments
identified on Schedule 11.11(f)A and Schedule 11.11(f)B (it being agreed that
such Schedule 11.11(f)A and Schedule 11.11(f)B may be amended or supplemented on
or prior to December 31, 1998 to reflect errors and omissions, if any,
reflecting non-wholly-owned equity or other non-wholly-owned investments held as
of the date hereof);
(g) all joint research and development initiatives existing as of the date
hereof;
(h) run off of customer agreements existing at the time of the acquisition
of an interest in a Person that is a party thereto that were not entered into in
contemplation of an investment in a parent's Home Country; otherwise, after a
one year period, the economic benefit and risk of such agreements will be held,
in accordance with Section 7.6, for the account of the applicable Newco
Subsidiary;
(i) maintenance and operation of legacy systems;
(j) the activities of AT&T listed on Schedule 18.9;
(k) servicing of contracts for which consents are not obtained;
(l) supporting but not selling other vendors' services;
(m) investments made by employee benefit plans of either parent and its
Group Companies;
(n) investments actually made by AT&T or BT or any of their respective
Group Companies in conjunction with the other parent or any of its Affiliates
with respect to any of the investment opportunities set forth in Schedule 26.1;
(o) investments actually made by the investment fund established pursuant
to the Investment Fund Agreement in accordance with the terms thereof;
(p) Satellite & Radio Services;
(q) agreements of AT&T set forth in Schedule 7.2(c); and
(r) AT&T's existing reseller agreements.
11.12 Certain Sales Practices, Outsourcing Services, Outsourcing
Professional Services; Resellers.
(a) Nothing in this Article 11 shall prohibit the activities contemplated
by the last sentence of Section 2.1(a) or the provision of any Outsourcing
Services to the extent expressly permitted by Section 7.3; provided, however,
that, in order to enhance the business of the Newco Group, except as expressly
set forth in Section 7.3 and except as permitted in Section 11.7, when such
parent is no longer subject to clause (b) of the second sentence of Section
11.6, neither parent nor any of its Group Companies will directly or indirectly
engage in any Outsourcing Professional Services principally targeted or provided
to businesses in the other parent's Home Territory.
<PAGE>
(b) The provisions of Article 11 shall not apply to agreements between the
parents or their Affiliates and resellers, so long as the parents and their
Affiliates are not pursuing reselling (i) for the express purpose of marketing
to Qualifying MNC Customers or (ii) deliberately to target Qualifying MNC
Customers.
11.13 Non-Exclusive Content Services. Notwithstanding the provisions of
this Article 11, either parent and its Group Companies shall be entitled to
offer, sell or distribute Non-Exclusive Content Services; provided, however,
that, in order to enhance the business of the Newco Group, except as permitted
in Section 11.7, unless such parent is no longer subject to clause (b) of the
second sentence of Section 11.6, no parent or its Group Companies may offer,
sell or distribute Special Content Services in the other parent's Home
Territory.
11.14 Preexisting Non-Competition Obligations. Schedule 11.14A and Schedule
11.14B set forth the non-competition obligations by which BT or AT&T or any of
their Group Companies, respectively, is bound as of the date hereof and the
activities which, if engaged in by the Newco Group, would violate such
non-competition obligations. The Newco Group shall not undertake any of the
activities set forth on Schedule 11.14A or Schedule 11.14B, directly or
indirectly, whether acting alone or in association with, or through, one or more
Persons, without the prior written consent of the parent or the parent of the
Group Company that is subject to the non-competition obligation.
11.15 Unintentional Non-Conformance. Notwithstanding anything to the
contrary in this Article 11, neither parent nor any of its Group Companies shall
be in breach of its undertakings in this Article 11 to the extent that such
breach shall result from the activities by a Person owned by any third Person,
if such parent owns less than 20% of the equity interests of such third Person
and such third Person owns less than 20% of the equity interests of the Person
engaging in the activities that would otherwise breach this Article 11;
provided, that the aggregate annual revenues of the applicable parent derived
from all such activities, calculated on a Pro Rata Basis, shall not exceed $25
million. 11.16 Cost of Living Adjustment. Each of the Dollar amounts set forth
in this Article 11 shall be increased on and as of each anniversary of the
Closing Date by a percentage equal to the higher of (a) the percentage increase,
if any, in the Consumer Price Index for the month in which the applicable
anniversary occurs compared to the Consumer Price Index for the month in which
the Closing occurs or the most recent preceding anniversary thereof, as
applicable, and (b) the percentage increase, if any, in the Retail Price Index
for the month in which the applicable anniversary occurs compared to the Retail
Price Index for the month in which the Closing occurs or the most recent
preceding anniversary thereof, as applicable. "Consumer Price Index" shall mean
the Consumer Price Index for all Urban Consumers U.S. City Average, All Items
(1982-84=100), published by the Bureau of Labor Statistics of the United States
Department of Labor, or any successor index thereto, appropriately adjusted;
provided, that, if there shall be no successor index, a substitute index with
respect to the United States shall be selected by the parents. "Retail Price
Index" shall mean the General Index of Retail Prices published by the Office for
National Statistics of the U.K., or any successor index thereto, appropriately
adjusted; provided, that, if there shall be no successor index, a substitute
index with respect to the U.K. shall be selected by the parents. Such adjustment
shall be calculated by the Independent Auditor and reported to the parents no
later than 30 days following the date upon which the Consumer Price Index and
Retail Price Index information for the latest applicable month is available.
<PAGE>
11.17 Enforcement. The parties expressly agree and acknowledge that each
parent shall be entitled, directly and on its own behalf, (a) to enforce any of
the provisions of this Article 11 and to seek any remedies provided in this
Agreement, or otherwise available by law, for the violation of such provisions
both on behalf of itself and on behalf of Thistle BV, and (b) to claim its pro
rata share of any harm to the Newco Group caused by the breach by the other
parent or its Group Companies of this Article 11, notwithstanding that the harm
resulting from any such breach is only to the Newco Group or the Venture
Business, and Thistle BV shall not be entitled to any duplicative recovery for
the same breach.
11.18 Farland.
(a) For a period of two years following the Closing, the provisions of
Article 11 shall not apply to (i) BT's equity interests in Farland B.V., a
Besloten Vennootschap organized under the law of The Netherlands ("Farland"), or
(ii) BT's indirect interest in any Assets or Subsidiaries of Farland.
(b) On or prior to the second anniversary of the Closing, BT will offer to
sell to Thistle BV or its designee, in one or more transactions, and on
customary terms and conditions, an aggregate of approximately 30% of the then
outstanding equity of Farland or the ultimate parent of Farland (the "Farland
Equity Stake"). Any such decision by Thistle BV to purchase an equity interest
in Farland shall be made by the Class A Representatives only, with no other vote
of any other Representative being required.
(c) If BT and Thistle BV cannot agree on the sale price for the Farland
Equity Stake, the sale price will be determined by reference to the appraisal
procedures set forth in Annex 2.
(d) Notwithstanding Section 11.18(b), from and after the second anniversary
of the Closing, BT will own, directly or indirectly, not more than 25% of the
equity interests in Farland or the Farland Equity Stake.
ARTICLE 12 RESTRICTIONS ON TRANSFER
12.1 General Prohibition.
(a) After the Closing Date, except as provided in Section 12.2, 12.3, 23.3
or 23.4, (i) neither the AT&T Parties nor the BT Parties shall directly or
indirectly sell, transfer, assign, charge, mortgage, hypothecate, pledge,
encumber, grant a security interest in, grant any right or option or create any
convertible, exchangeable or derivative security with respect to, grant any
limited right (beperkt recht) with respect to, issue any depositary receipts
for, or otherwise dispose of (whether by operation of law or otherwise) (each, a
"Transfer") any of their shares or other equity interests in Thistle BV (but in
the case of Thistle BV, subject to Section 12.3), DirectorCo, the Newco Services
Company or any of the Newco Subsidiaries and, in the case of AT&T or BT, any of
its shares in VLT or BT Holdings (but in the case of BT Holdings, subject to
Section 12.3), respectively, or with respect to any of the foregoing, any rights
or interests therein or thereto or in the proceeds thereof, and (ii) Thistle BV
shall not, and shall cause the other members of the Newco Group not to, and VLT
and BT Holdings, in their capacity as shareholders of Thistle BV, shall cause
<PAGE>
Thistle BV and the other members of the Newco Group not to, and the parents
shall cause their direct and indirect Subsidiaries and Affiliates that are
shareholders or members of the Newco Subsidiaries not to, Transfer any shares or
other equity interests in any member of the Newco Group or any rights or
interests therein or thereto or in the proceeds thereof to any third party;
provided, however, that notwithstanding the foregoing, the provisions of this
Section 12.1 shall not prohibit any Business Combination or Change of Control
involving, or sale or other Transfer of, any of the Voting Securities of a
parent.
(b) Any attempt to Transfer any shares or other equity interests in Thistle
BV, DirectorCo, the Newco Services Company, the Newco Subsidiaries, VLT or BT
Holdings or any rights or interests therein or thereto or in the proceeds
thereof, in violation of this Article 12 shall be null and void ab initio, and
Thistle BV shall not, and the parties shall cause DirectorCo, the Newco Services
Company, the Newco Subsidiaries, VLT and BT Holdings not to, register or
recognize any such Transfer.
12.2 Permitted Transfers. Subject to Section 12.4, either parent may, with
the prior written consent of the other parent, which consent shall not be
unreasonably withheld or delayed, cause the shares or other equity interests in
VLT, BT Holdings, Thistle BV, DirectorCo, the Newco Services Company or any of
the Newco Subsidiaries held by it or one of its Subsidiaries or Affiliates to be
transferred to a direct or indirect wholly-owned Subsidiary of such parent;
provided, that, (i) the transferring parent confirms in writing that it remains
obligated to perform the obligations contemplated to be performed by it pursuant
to this Agreement and the other Transaction Agreements; (ii) such transferee
shall have agreed in writing to be bound by the terms and conditions of this
Agreement and, to the extent applicable, the other Transaction Agreements; (iii)
the Transfer complies in all respects with the provisions of this Agreement and
the applicable Charter Documents or constitutive documents of the Newco
Subsidiaries; and (iv) the transferee shall have agreed in writing to
re-Transfer such shares or equity interests in Thistle BV, DirectorCo, the Newco
Services Company or the Newco Subsidiary to the transferring parent or one of
its other wholly-owned Subsidiaries if it no longer qualifies as a wholly-owned
Subsidiary of the transferring parent.
12.3 Transfer of BT Holdings and Thistle BV Shares.
(a) The prohibition on the Transfer of any shares in BT Holdings or Thistle
BV shall apply for a period commencing on the Closing Date and ending on the
10th anniversary thereof.
(b) If, on or prior to the 10th anniversary of the Closing Date,
Netherlands counsel mutually acceptable to the parents confirms to the parties
that an extension of the prohibition on the Transfer of shares in BT Holdings or
Thistle BV will not be enforceable under Netherlands laws, VLT and BT Holdings
may Transfer any or all of their direct shares in Thistle BV and BT may Transfer
any or all of its shares in BT Holdings; provided, that, if any such party does
so Transfer any or all of its shares in Thistle BV or BT Holdings, (i) it shall
be required concurrently to Transfer all of its equity interests in DirectorCo
to the other parent; (ii) the transferee may not be, or be a Group Company of, a
Major Competitor of the other parent; (iii) the transferee shall have agreed in
<PAGE>
writing to be bound by the terms and conditions of this Agreement and, to the
extent applicable, the other Transaction Agreements (as amended to reflect the
changes described in clause (vi)); (iv) in the case of Thistle BV, the Transfer
complies in all respects with the provisions of this Agreement and the Thistle
BV Charter Documents; (v) the provisions of Article 11 shall upon such Transfer
immediately cease to have any force or effect with respect to the other parent
and its Group Companies; (vi) the parties shall amend this Agreement and the
DirectorCo Charter Documents appropriately to reflect the change in ownership of
the equity interests in DirectorCo and changes in the governance provisions such
that the non-Transferring parent shall have exclusive management and control of
DirectorCo and in respect of all actions or decisions to be undertaken or made
by DirectorCo as the sole director of the Management Board; and (vii) the other
parent shall be entitled to cause a Distribution of Netco, in which case the
provisions of Schedule 13.2 shall apply (it being understood that the other
parent may or may not elect to do so).
(c) If, on or prior to the 10th anniversary of the Closing Date, such
Netherlands counsel confirms that the continued prohibition on the Transfer of
shares in Thistle BV or BT Holdings will be enforceable under Netherlands law,
then following such 10th anniversary, the prohibition on the Transfer of shares
in Thistle BV or BT Holdings shall be extended for the maximum period then
permitted under Netherlands law. Thereafter, the provisions of Section 12.3(b)
and this Section 12.3(c) shall apply again on or prior to the expiration of any
such period or periods of extension.
12.4 Tax Consequences. Notwithstanding Section 12.2 or 12.3 and except as
provided in Section 12.6, no Transfer of any shares or equity interests in VLT,
BT Holdings, Thistle BV, DirectorCo, the Newco Services Company or the Newco
Subsidiaries or any rights or interests therein or thereto or in the proceeds
thereof shall be made or recognized if it would result in more than de minimis
adverse Tax consequences to either parent, any of its Affiliates or Thistle BV.
12.5 Approval of Share Transfers. Each of the AT&T Parties and the BT
Parties hereby waives the application of any of the provisions of the Thistle BV
Charter Documents which if enforced would block or delay any Transfer of the
shares of Thistle BV that is permitted or required to be made by this Agreement
and agrees to vote all of its shares of Thistle BV in favor of the approval of
any such Transfer.
12.6 Netco Distribution. For the avoidance of doubt, the restrictions in
this Article 12 shall not apply to any Distribution of Netco pursuant to Section
12.3, 13.2(a), 14.3(c), 16.4(c), 23.2(d), 23.6(b) or 27.1(c).
ARTICLE 13
CONSEQUENCES OF INVESTMENT BY A MAJOR COMPETITOR
13.1 Triggering Transaction. If any Person (together with its Subsidiaries,
Affiliates and all Persons with whom it is acting as a Group) that is a Major
Competitor of AT&T or BT acquires, directly or indirectly, beneficial ownership
of (a) 25% or more but less than 30% of the Outstanding Company Common Stock or
the Outstanding Company Voting Securities of the other parent (referred to below
as the "Investee") and satisfies the Influence Test, (b) 30% or more but less
than 45% of the Outstanding Company Common Stock or the Outstanding Company
<PAGE>
Voting Securities of the Investee, regardless of whether the Influence Test is
met, or (c) 20% or more of the Outstanding Company Common Stock or Outstanding
Company Voting Securities of the Investee and the provisions of paragraph (d) of
the definition of "Influence Test" are met (with or without a Limitation), then,
effective upon the consummation of the transaction in which the Person acquires
such Outstanding Company Common Stock or Outstanding Company Voting Securities
of the Investee (the "Triggering Transaction"), the following provisions of this
Article 13 shall apply. Any Person who satisfies the conditions of clause (a),
(b) or (c) of this Section 13.1 shall be referred to in this Agreement as a
"Triggering Person."
13.2 Remedies. Except as otherwise set forth in this Article 13, but
notwithstanding anything else in this Agreement to the contrary, the following
remedies will be available immediately if there is a Triggering Person:
(a) The member of DirectorCo affiliated with the parent other than the
Investee (the "Other Parent") shall be entitled to appoint an additional
Representative to the DirectorCo Board and the Other Parent shall have the right
to cause Thistle BV, to the extent permitted by Applicable Law, to distribute or
cause the distribution of the equity interests in Netco or the shareholders of
Netco, to the shareholders of Thistle BV or their designees on a pro rata basis
(such transfer, a "Distribution of Netco"), and the provisions of Schedule 13.2
shall apply with respect thereto and any Taxes arising in connection with such
Distribution of Netco shall be borne by the Investee (it being understood that
the Other Parent may elect none, either or both of such remedies);
(b) The Other Parent shall have the right unilaterally to hire, appoint and
remove the CEO; and
(c) The Other Parent shall have the right to nominate the CFO; provided,
however, that the appointment of the CFO shall continue to require the approval
of the Management Board in accordance with Section 3.5(b).
13.3 Right to Cure. Within the two year period following consummation of
the Triggering Transaction, the Investee shall have the right to remedy the
situation so that the Triggering Person does not meet the share ownership
thresholds set forth in Section 13.1 (unless any Person shall thereafter
nonetheless independently satisfy the definition of "Triggering Person") either
(a) in the case of a Person who became a Triggering Person as a result of clause
(a) of Section 13.1, eliminating the conditions that cause the Influence Test to
be satisfied, (b) in the case of a Person who became a Triggering Person as a
result of clause (b) of Section 13.1, eliminating the conditions, if any, that
cause the Influence Test to be satisfied and causing the ownership of the
Outstanding Company Common Stock or the Outstanding Company Voting Securities of
the Investee to be less than 30%, or (c) in the case of a Person who became a
Triggering Person pursuant to clause (c) of Section 13.1, if the Influence Test
is met with a Limitation, by eliminating the conditions, if any, that cause the
Influence Test to be satisfied and causing the ownership of the Outstanding
Company Common Stock or the Outstanding Company Voting Securities of the
Investee to be less than 20%. In the case of a Person who became a Triggering
Person pursuant to clause (c) of Section 13.1, if the Influence Test is not met
with a Limitation, the Investee shall not have the right to remedy the situation
and the provisions of Section 13.2 shall be in effect immediately upon
<PAGE>
consummation of the Triggering Transaction. In all other cases, if the Investee
remedies the situation to the reasonable satisfaction of the Other Parent, the
provisions of Section 13.2 shall no longer apply such that (x) the right to
appoint an additional Representative to the DirectorCo Board shall cease, and
(y) the rights of the Other Parent in Sections 13.2(b) and (c) shall terminate.
13.4 Right to Cause Dissolution of the Newco Group. If the Investee shall
not have remedied the situation as provided in Section 13.3 within the two year
period following the consummation of the Triggering Transaction (including a
Triggering Transaction in which the Influence Test is met with a Limitation), in
addition to the rights of the Other Parent in Section 13.2, the Other Parent
shall have the right, exercisable by notice in writing to the Investee within 60
days following the expiration of the two year cure-period, to elect to cause a
dissolution of the Newco Group. Such dissolution shall be completed as soon as
practicable following such notice by the Other Parent, but in any event, subject
to compliance with mandatory requirements of Applicable Law, within two years
following the date of such notice. The provisions of Section 23.9 shall apply to
a dissolution of the Newco Group initiated under this Section 13.4.
13.5 Immediate Right to Dissolve the Newco Group. If a Person becomes a
Triggering Person as a result of clause (c) of Section 13.1 and if the Influence
Test is not met with a Limitation, the Other Parent shall have the right,
exercisable by notice in writing to the Investee within 60 days following the
consummation of the Triggering Transaction, to elect to cause a dissolution of
the Newco Group. Such dissolution shall be completed as soon as practicable
following such notice by the Other Parent, but in any event, subject to
compliance with mandatory requirements of Applicable Law, within two years
following the date of such notice. The provisions of Section 23.9 shall apply to
a dissolution of the Newco Group initiated under this Section 13.5.
13.6 Application of Remedies. From the time a Person becomes a Triggering
Person and throughout the period of the dissolution of the Newco Group, if a
dissolution is elected, the provisions of Section 13.2 shall apply. If the Other
Parent does not elect to cause a dissolution of the Newco Group within the
period when it has the right to do so, the provisions of Section 13.2 shall
continue to apply.
13.7 Other Remedies. The rights and remedies set forth in this Article 13
shall be in addition to, and not exclusive of, any other rights or remedies to
which the Other Parent may be entitled if the circumstances creating the
Triggering Transaction also give rise to rights or remedies under any other
provision of this Agreement (excluding, other than in the case of a Covered
Investor or a Change of Control, Article 11) or Applicable Law.
ARTICLE 14
STANDSTILL PROVISIONS
14.1 Standstill Restrictions. From the date of this Agreement until (x) the
second anniversary of the date of termination of this Agreement, (y) the
completion of the dissolution of the Newco Group pursuant to Section 11.2(d),
11.5(c)(iii), 13.4, 13.5, 23.2, 23.4, 23.5 or 23.7, or otherwise or (z) the
closing of any sale of the Put Shares or Call Shares, whichever is the latest
(excluding any such event that is incapable of occurring), the parents shall
not, and shall cause their Affiliates (excluding any employee benefit plan of a
parent or its related trust) not to:
<PAGE>
(a) acquire, publicly announce an intention to acquire, publicly offer to
acquire or propose to the board of directors of the other parent to acquire, or
agree to acquire, directly or indirectly, by purchase or otherwise, any
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of any Outstanding Company Common Stock or Outstanding Company
Voting Securities (in either case, the "Voting Securities") of the other parent,
or direct or indirect rights or options to acquire (through purchase, exchange,
conversion or otherwise) any Voting Securities of the other parent, except that
BT may, directly or indirectly, acquire up to 100,000 shares of the Voting
Securities of AT&T in order to achieve capital gains grouping between BT and one
or more U.K. resident Subsidiaries of Thistle BV;
(b) make, or in any way participate, directly or indirectly, in any
"solicitation" of "proxies" (as such terms are defined in Rule 14a-1 under the
Exchange Act) to vote any Voting Securities of the other parent, initiate or
propose any shareholder proposal or intentionally induce any other Person to
initiate any shareholder proposal;
(c) make any proposal, whether written or oral, to the board of directors
of the other parent, or make any public announcement or public proposal
whatsoever, with respect to a merger or other business combination, sale or
transfer of assets, recapitalization, liquidation or other extraordinary
corporate transaction with the other parent or any other transaction which could
result in a Change of Control of such other parent, or intentionally induce any
other Person to make any such proposal;
(d) form, join or in any way participate in a group with respect to any
Voting Securities of the other parent;
(e) otherwise act, alone or in concert with others, intentionally to seek
to exercise any influence over the management or board of directors of the other
parent, excluding (i) any discussions between or among representatives of the
AT&T Parties, the BT Parties, Thistle BV or the Newco Group that properly relate
to the operation of the Newco Group or DirectorCo or the participation of VLT or
BT Holdings as shareholders in Thistle BV or the relevant Affiliates of AT&T or
BT as shareholders or members in DirectorCo, Newco Services Company or any of
the Newco Subsidiaries as contemplated by the Transaction Agreements or any
other informal and non-coercive discussions among members of senior management,
and (ii) statements made by a parent regarding the business or operations of the
other parent that were not made with a view to seeking Control of the other
parent;
(f) make a public request to the other parent (or its directors, officers,
shareholders, employees or agents) to amend, waive or modify or not to enforce
any provisions of this Article 14;
(g) take any action which is reasonably likely to require the other parent
to make a public announcement regarding the possibility of any transaction
referred to in clause (c) above or similar transaction; or
(h) publicly disclose any intention, plan or arrangement inconsistent with
any of the foregoing clauses (a) through (g).
<PAGE>
14.2 Release of Standstill.
(a) If any third party (i) makes any offer to the board of directors or
shareholders of either parent to acquire or has acquired more than 10% but less
than 45% of the Voting Securities of such parent (the "target parent"), and such
third party is financially capable of completing such acquisition or (ii) makes
an offer to the board of directors of either parent with respect to an
Acquisition Proposal (as defined below) involving the target parent (for the
avoidance of doubt, excluding any open market purchases of 10% or less of the
Voting Securities of a Person or the issuance by either parent of Voting
Securities in connection with the acquisition of a business or assets), and such
third party is financially capable of completing the acquisition of such Voting
Securities, (x) in the case of clause (i), the other parent may make an offer
comparable in scope to the third party offer to the target parent, and (y) in
the case of clause (ii), the other parent shall no longer be bound by the
restrictions set forth in Section 14.1 until such offer has been withdrawn or
terminated, in which case the restrictions of Section 14.1 shall be reinstated;
provided, however, that neither the board of directors nor the management of the
target parent shall be required to accept the offer from the other parent or
give such offer any preference over the third party offer or any other offers
made by other third parties; and provided, further, however, that in the case of
clause (ii), the other parent, if it chooses to make an Acquisition Proposal for
the target parent during a period in which the restrictions of Section 14.1 do
not apply, will not make such Acquisition Proposal for less than the percentage
of the Voting Securities of the target parent that is the subject of the third
party's Acquisition Proposal.
(b) If either AT&T or BT makes a public announcement that it has reached
agreement with a third party with respect to an Acquisition Proposal or that it
is considering alternatives including Acquisition Proposals from third parties,
the other parent may thereafter make an Acquisition Proposal to the board of
directors or shareholders of AT&T or BT, as the case may be, and shall no longer
be bound by the restrictions set forth in Section 14.1. For the purposes of this
Section, an "Acquisition Proposal," with respect to any Person, shall mean any
proposal made by a financially capable third party to effect (i) a Change of
Control of such Person, (ii) a Business Combination, or (iii) any other
acquisition of 45% or more of such Person's Voting Securities.
(c) If an event specified in paragraph (b) of the definition of Change of
Control shall have occurred, the other parent shall no longer be bound by the
restrictions set forth in Section 14.1.
14.3 Breach of Standstill Provisions.
(a) If a parent breaches its obligations in Section 14.1, the other parent
may bring a suit, action or proceeding directly to the District Court to enjoin
such breach, and need not refer the matter to the Wise Counselor.
(b) Each parent acknowledges and agrees that the other parent would be
irreparably damaged if it breaches its obligations in Section 14.1. It is
accordingly agreed that the non-breaching parent, in addition to any other
remedy to which it may be entitled at law or equity, shall be entitled to an
injunction to prevent breaches of Section 14.1 and to enforce specifically the
<PAGE>
terms of this Article and to seek a substantial award of damages, including
damages resulting from the disruption of its business and interference with its
ongoing Governmental Approvals or Permits as a result of such breach.
(c) Without limiting the foregoing, if a parent breaches its obligations in
Section 14.1, the non-breaching party may exercise any or all of the following
rights:
(i) The non-breaching party shall have the right, by notice in writing to
the breaching party within 90 days after the occurrence of the breach, to elect
to cause a dissolution of the Newco Group. Such dissolution shall be completed
as soon as practicable following such notice by the non-breaching party, but in
any event, subject to compliance with mandatory requirements of Applicable Law,
within two years following the date of such notice. Except as provided in this
Section 14.3(c), the provisions of Section 23.9 shall apply to a dissolution of
the Newco Group initiated under this Section;
(ii) The provisions of Article 11 shall be of no further force or effect
with respect to the non-breaching party and its Group Companies from and after
the occurrence of the breach. The provisions of Article 11 shall be of no
further force or effect with respect to the breaching party and its Group
Companies from and after the completion of the dissolution of the Newco Group;
(iii) The Affiliate of the non-breaching party that is a member of
DirectorCo shall be entitled to appoint an additional Representative to the
DirectorCo Board for a period of five years commencing on the date of the
occurrence of the breach; and
(iv) The non-breaching party shall be entitled to cause a Distribution of
Netco, in which case, the provisions of Schedule 13.2 shall apply with respect
thereto. Any Taxes arising in connection with such Distribution of Netco shall
be borne by the breaching party.
ARTICLE 15
CONTRIBUTION OF ASSETS; ASSUMED LIABILITIES
15.1 Initial Capital Contributions.
(a) Schedule 15.1A and Schedule 15.1B identify certain businesses,
contracts and other assets to be contributed (collectively, the "Initial
Contributed Assets") by the AT&T Sellers and the BT Sellers, respectively, to
Thistle BV and the Newco Subsidiaries on the Closing Date.
(b) On the Closing Date, Thistle BV or a Newco Subsidiary will assume:
(i) Liabilities arising out of, relating to or resulting from the AT&T GCS
Business from and after the Closing Date and any Excluded AT&T Liabilities to
the extent AT&T ceases to be liable to indemnify Thistle BV in respect thereof
as provided in Section 25.4(c) (collectively, the "Assumed AT&T Liabilities");
and
(ii) Liabilities arising out of, relating to or resulting from the BT GCS
Business from and after the Closing Date, the Assumed Concert Purchase Debt, the
<PAGE>
Indebtedness of Concert as contemplated by Section 15.7(a), Liabilities of
Concert that are reflected in the Concert Financials or that arise or have
arisen in the ordinary course of business from April 1, 1998 to the Closing Date
(but excluding any material Liabilities associated with material Actions that
arise or occur prior to the Closing Date), and any Excluded BT Liabilities to
the extent BT ceases to be liable to indemnify Thistle BV in respect thereof as
provided in Section 25.4(d) (collectively, the "Assumed BT Liabilities," and
together with the Assumed AT&T Liabilities, the "Assumed Liabilities").
(c) To effectuate the transfer of the Initial Contributed Assets and
assumption of the Assumed Liabilities, in each case as updated pursuant to
Section 15.1(d), Thistle BV and each parent shall, and shall cause its relevant
Affiliates to, at the Closing, (i) in the case of the AT&T Sellers, enter into
the Asset Contribution Agreement (AT&T), and (ii) in the case of the BT Sellers,
enter into the Asset Contribution Agreement (BT).
(d) The schedules to the Asset Contribution Agreements shall be based on
Schedule 15.1A and Schedule 15.1B attached hereto but shall, on or prior to the
Closing Date, be updated to (i) reflect changes to specific businesses or assets
as a result of dispositions, capital expenditures and other transactions
permitted in this Agreement and corresponding changes in the Liabilities to be
transferred or assumed in connection therewith and to reflect whether the AT&T
Assets or the BT Assets, as the case may be, will be contributed directly or
through Contributed AT&T Subsidiaries or Contributed BT Subsidiaries, as the
case may be and (ii) include contracts with customers (but not with additional
Qualifying MNC Customers) which are in effect on the date hereof and the
revenues for which were included in the preparation of the business plan
previously agreed by the parents. No later than 10 days prior to the Closing
Date, each parent shall provide to the other parent for its review an updated
schedule of the assets and Liabilities to be contributed by it at the Closing.
The parents shall endeavor to resolve by the Closing Date any disagreements
between them relating to the updated schedules.
(e) The parties agree that no assets will be transferred from any employee
benefit plan or trust of either parent or its Affiliates to any member of the
Newco Group or any benefit plan or trust of any member of the Newco Group.
15.2 Management Board Valuation; Accountants' Statement. At the Closing,
the AT&T Parties and the BT Parties shall cause DirectorCo, in its capacity as
the sole director of Thistle BV, to prepare a description of the AT&T Assets and
the BT Assets complying with the requirements of Book 2, article 204a, of the
Dutch Civil Code (the "Management Board Valuation"), setting forth (i) a
description of the AT&T Assets and the BT Assets, (ii) the total valuation
assigned to the AT&T Assets and the BT Assets and (iii) the method(s) used in
arriving at such valuation. The parents shall use their Reasonable Best Efforts
to obtain at the Closing a statement of PricewaterhouseCoopers or another
qualified accounting firm acceptable to the parents, complying with the
requirements of Book 2, article 204b, of the Dutch Civil Code (the "Accountants=
Statement") to the effect that the value of the AT&T Assets and BT Assets is at
least equal to the aggregate par value of the shares of Thistle BV to be issued
at the Closing in consideration for the contribution of the AT&T Assets and BT
Assets. At the Closing, Thistle BV=s capital surplus (agio) account shall be
credited with an amount equal to the amount by which the value of the AT&T
Assets and BT Assets as set forth in the Management Board Valuation exceeds the
aggregate par value of the shares of Thistle BV issued in exchange for the AT&T
Assets and the BT Assets.
<PAGE>
15.3 Transfers.
(a) At the Closing, upon the terms and subject to the conditions set forth
herein and in the Asset Contribution Agreement to which it is a party:
(i) AT&T shall, and shall cause the other AT&T Sellers to, transfer the
Assets to be contributed by them as set forth in Schedule 15.1A, as updated
pursuant to Section 15.1(d) (the "AT&T Assets") and the share capital in any
Contributed AT&T Subsidiary to be contributed by them, as of the Closing,
subject to Section 15.3(d), free and clear of all Liens consisting of pledges,
mortgages, security interests, claims, leases or voluntary liens, to Thistle BV
and the relevant Newco Subsidiaries;
(ii) BT shall, and shall cause the other BT Sellers to, transfer the Assets
to be contributed by them as set forth in Schedule 15.1B, as updated pursuant to
Section 15.1(d) (the "BT Assets"), the share capital in any Contributed BT
Subsidiary to be contributed by them and the Assets of the Contributed BT
Subsidiaries to be, as of the Closing, subject to Section 15.3(e), free and
clear of all Liens consisting of pledges, mortgages, security interests, claims,
leases or voluntary liens, other than, in the case of Concert, the Liabilities
described in clauses (i), (ii) and (iii) of paragraph (c) of the definition of
"Excluded BT Liabilities," to Thistle BV and the relevant Newco Subsidiaries;
and
(iii) Thistle BV or the relevant Newco Subsidiaries shall assume the
Assumed Liabilities.
(b) In addition to the Assets set forth on Schedule 15.1A and Schedule
15.1B, each parent will, or will cause its Subsidiaries to, contribute to
Thistle BV or the relevant Newco Subsidiary all personal property that is
exclusively used in the AT&T GCS Business and BT GCS Business, respectively.
(c) To the extent that ownership of the AT&T Assets and BT Assets or
assumption of the Assumed Liabilities by Thistle BV would cause Thistle BV to
cease to be a Qualified Holding Company, Thistle BV shall at the Closing cause
such AT&T Assets and the BT Assets and Assumed Liabilities to be transferred to
or assumed by one or more of the Newco Subsidiaries; provided, however, that the
foregoing shall not limit or alter any obligation of Thistle BV pursuant to
Article 25.
(d) Thistle BV shall use its commercially reasonable efforts to cause
itself or one of the Newco Subsidiaries to be substituted in all respects for
AT&T or any of AT&T's Affiliates (except the Contributed AT&T Subsidiaries)
under, and shall use its commercially reasonable efforts to cause AT&T and any
such Affiliates to be released and fully discharged from, any Liability relating
to, arising out of or resulting from any and all Assumed AT&T Liabilities,
including all Liabilities of AT&T or any such Affiliate (x) under any
Contributed AT&T Contract and (y) under each of the guarantees, letters of
credit, letters of comfort, bid bonds, performance bonds and similar obligations
obtained or issued by AT&T or any such Affiliate for the benefit of any of the
Contributed AT&T Subsidiaries or otherwise relating to the AT&T GCS Business
(all of the foregoing, the "AT&T Guarantees").
<PAGE>
(e) Thistle BV shall use its commercially reasonable efforts to cause
itself or one of the Newco Subsidiaries to be substituted in all respects for BT
or any of BT's Affiliates (except the Contributed BT Subsidiaries) under, and
shall use its commercially reasonable efforts to cause BT and any such
Affiliates to be released and fully discharged from, any Liability relating to,
arising out of or resulting from any and all Assumed BT Liabilities, including
all Liabilities of BT or any such Affiliate (x) under any Contributed BT
Contract and (y) under each of the guarantees, letters of credit, letters of
comfort, bid bonds, performance bonds and similar obligations obtained or issued
by BT or any such Affiliate for the benefit of any of the Contributed BT
Subsidiaries or otherwise relating to the BT GCS Business, including the
guarantees, letters of credit, letters of comfort, bid bonds, performance bonds
and other obligations set forth on Schedule 15.3(e) (all of the foregoing,
whether or not on such Schedule, the "BT Guarantees").
(f) In principle, share capital of the Contributed AT&T Subsidiaries and
the Contributed BT Subsidiaries, the AT&T Assets and the BT Assets and the
Assets of the Contributed BT Subsidiaries shall be contributed to the Newco
Group free and clear of all Liens consisting of pledges, mortgages, security
interests, claims, leases or voluntary liens other than, in the case of Concert,
the Liabilities described in clauses (i), (ii) and (iii) of paragraph (c) of the
definition of "Excluded BT Liabilities." Notwithstanding the foregoing, if,
during the process of updating Schedule 15.1A and Schedule 15.1B as provided in
Section 15.1(d), an Asset may be contributed to the Newco Group subject to a
Lien consisting of pledges, mortgages, security interests, claims, leases or
voluntary liens, the party that is contributing such Asset shall also make a
cash contribution to Thistle BV in an amount determined by the contributing
party using its best good faith judgment to be the value or amount of such Lien
or, if Thistle BV is contributing such Asset, it may, at its option, forgive a
portion of the outstanding Assumed Concert Purchase Debt. Any such capital
contribution shall be made by wire transfer of same day funds on the Closing
Date. The amount of such cash capital contribution shall be credited to the
capital surplus (agio) account of Thistle BV.
(g) As of the Closing, (i) AT&T shall eliminate, either by cancellation or
settlement as it shall determine, net intercompany receivables, payables and
loans existing between AT&T or any of its Affiliates (other than the Contributed
AT&T Subsidiaries), on the one hand, and the Contributed AT&T Subsidiaries, on
the other hand, and (ii) BT shall eliminate, either by cancellation or
settlement as it shall determine, net intercompany receivables, payables and
loans existing between BT or any of its Affiliates (other than the Contributed
BT Subsidiaries), on the one hand, and the Contributed BT Subsidiaries, on the
other hand.
(h) At the Closing, with respect to prepaid expenses, deferred revenue and
similar items relating to the AT&T GCS Business and BT GCS Business, each parent
and Thistle BV or the relevant Newco Subsidiary shall do a proration thereof for
the period prior to and including the Closing Date and for the period from and
after the Closing Date. The amounts thereof for the period prior to and
including the Closing Date shall be for the account of the parent or its
relevant Affiliate and the amounts thereof for the period from and after the
Closing Date shall be for the account of Thistle BV or the relevant Newco
Subsidiary. Each parent, on the one hand, and Thistle BV, on the other hand,
shall cooperate to make appropriate arrangements to effect the proration
described herein and to ensure that accounts receivable with respect to the
pre-Closing period are for the account of each parent.
<PAGE>
15.4 Minimum Contribution.
(a) The parties agree that, on the Closing Date (i) AT&T shall be obligated
to contribute or cause to be contributed Global Network Facilities (other than
Managed Network Services Facilities), and work-in-process related thereto
arising from money invested or spent but not merely committed to (such
work-in-process, "WIP"), with a net book value of no less than an amount
calculated for AT&T in accordance with Schedule 15.4 (the "AT&T Minimum
Contribution") and (ii) BT shall be obligated to contribute or cause to be
contributed Global Network Facilities (other than Managed Network Services
Facilities) and WIP with a net book value of no less than an amount calculated
for BT in accordance with Schedule 15.4 (the "BT Minimum Contribution") (it
being agreed that the value of BT IntermediateCo, Concert Holdings and its
Subsidiaries shall not be included in the determination of the BT Minimum
Contribution). The AT&T Minimum Contribution and the BT Minimum Contribution are
referred to as the "Minimum Contributions" and individually a "Minimum
Contribution".
(b) On the Closing Date, the parents shall jointly instruct an
internationally recognized firm of independent certified public accountants of
outstanding reputation that is mutually acceptable to the parents (the
"Designated Accountants") to conduct a verification of the net book value of the
Global Network Facilities (other than Managed Network Services Facilities) and
WIP constituting a part of the BT Assets and the AT&T Assets as of the Closing
Date as listed on Schedule 15.1A and Schedule 15.1B as such Schedules are
updated prior to the Closing Date in accordance with Section 15.1(d). For the
purposes of determining the net book values, the Designated Accountants will be
instructed to use, in the case of the applicable BT Assets, the accounting
policies and practices of BT used in determining the net book values of the
Global Network Facilities (other than those owned by BT IntermediateCo, Concert
Holdings and their Subsidiaries) that are listed on Schedule 15.1B, which values
have been separately agreed to by the parents, and in the case of the applicable
AT&T Assets, the accounting policies and practices of AT&T used in determining
the net book values of the Global Network Facilities that are listed on Schedule
15.1A, which values have been separately agreed to by the parents, in each case
as such accounting policies and practices are consistently applied. The parents
shall jointly instruct the Designated Accountants to complete their verification
and issue their report thereon within 15 days following the Closing Date or as
soon thereafter as the Designated Accountants can do so but in any event no
later than 25 days after the Closing Date. The fees and expenses of the
Designated Accountants shall be borne equally by the parents. The Designated
Accountants shall act as an expert and not as an arbitrator. Absent manifest
error, the net book values determined by the Designated Accountants shall be
final and binding on the parents and the parents expressly waive any right they
may have to seek judicial review of such determination on any ground.
(c) If the Designated Accountants determine and state in their report that
the Contribution of Global Network Facilities (other than Managed Network
Services Facilities) and WIP as listed on Schedule 15.1A and Schedule 15.1B, as
such Schedules are updated to the Closing Date in accordance with Section
15.1(d) (i) by AT&T is less than the AT&T Minimum Contribution or (ii) by BT is
less than the BT Minimum Contribution, then either or both of the relevant
parents, as the case may be, shall be required to make up the shortfall between
<PAGE>
its Minimum Contribution and the net book value of its Global Network Facilities
(other than Managed Network Services Facilities) and WIP so determined by making
a cash capital contribution to Thistle BV (or, in the case of BT, by forgiving
all or a portion of the outstanding Assumed Concert Purchase Debt) in the amount
of such shortfall. Any such cash capital contribution shall be made by wire
transfer of same day funds within five days after the delivery by the Designated
Accountants of their report to each of the parties, but in no event later than
30 days after the date of Contribution of the AT&T Assets and the BT Assets. The
amount of such cash capital contribution shall be credited to the capital
surplus (agio) account of Thistle BV.
15.5 Concert Shares.
(a) Concert Holdings Ltd. ("Concert Holdings"), a wholly-owned Subsidiary
of BT, owns, legally, beneficially and of record, 100% of the share capital of
Concert and BT, through BT Holdings, owns legally, beneficially and of record
100% of the share capital of Concert Holdings. After the date of this Agreement
and prior to the Closing, BT Holdings will form a wholly-owned Subsidiary ("BT
IntermediateCo") to which it will contribute all of the share capital of Concert
Holdings, which will thereafter own legally, beneficially and of record 100% of
the share capital of Concert Holdings. At the Closing, BT Holdings will
contribute the share capital in Concert to the Newco Group by transferring to
Thistle BV its equity interests in BT IntermediateCo, which will thereafter own
legally, beneficially and of record 100% of the share capital of BT
IntermediateCo.
(b) The parents acknowledge that prior to the date of this Agreement,
Concert Holdings acquired from MCI the 24.9% equity interest in Concert
previously held by MCI (the "Purchased Shares") and that such purchase of the
Purchased Shares has been financed by BT Holdings by debt with interest rates
and other provisions on market terms. The amount of Indebtedness of Concert
Holdings incurred to fund the purchase of the Purchased Shares and to be assumed
by Thistle BV or any of the Newco Subsidiaries does not exceed $1 billion (the
"Assumed Concert Purchase Debt"). For the purposes of this Section 15.5, subject
to Section 15.5(c), the term "Cap" means $500 million.
(c) Prior to the Closing, BT will negotiate with AT&T in good faith to
purchase for fair market value a package of assets from AT&T or any of its
Affiliates for an amount equal to the Cap. Without being required to offer any
particular assets to BT, AT&T will use its Reasonable Best Efforts to offer to
BT a package of assets, and negotiate in good faith with respect thereto, with
the mutual intention that the downward adjustment in the Cap referred to below
in this Section 15.5(c) will not be necessary. The assets to be offered by AT&T
will include assets located in Continental Europe, in North America, and in such
other locations as may be reasonably agreed by AT&T and BT; provided, that, any
assets located in the United States to be offered by AT&T shall be selected by
AT&T in its discretion. If the parents cannot agree on the valuation of the
assets being offered by AT&T to BT, either parent may, by written notice to the
other, require that the valuation be determined by an Appraiser pursuant to the
provisions of Annex 2. Any sale and purchase of assets pursuant to this Section
15.5(c), shall be in accordance with terms and conditions mutually acceptable to
the parents and set forth in a definitive stock or asset purchase agreement,
which shall contain mutually acceptable provisions regarding the assumption of
<PAGE>
liabilities and mutually acceptable representations and warranties comparable in
nature and scope to those contained herein, which representations and warranties
shall not survive the closing of the transactions contemplated therein. It is
the intention of AT&T and BT that such stock or asset purchase agreement shall
be executed on or before the Closing. The consummation of such sale and purchase
shall be as soon as practicable thereafter. If (x) AT&T has complied with its
obligations under this Section 15.5(c) and BT or its designee has purchased
assets from AT&T pursuant to this Section 15.5(c) with a value less than the Cap
or (y) no definitive agreements for the sale and purchase of assets of AT&T with
a fair market value equal to the Cap have been entered into or the sale and
purchase of such assets has not been consummated, in either case on or prior to
the first anniversary of the Closing Date, then on such first anniversary of the
Closing Date the Cap will be adjusted downward Dollar-for-Dollar in AT&T's favor
to offset the difference between the Cap and the value of the assets purchased
and BT Holdings shall, at its option, make a cash capital contribution to
Thistle BV or forgive a portion of the outstanding Assumed Concert Purchase
Debt, in either case in an amount equal to two times such difference, subject to
the provisions of the following sentence. The requirement that the sale and
purchase of AT&T assets be consummated by BT on or prior to the first
anniversary of the Closing Date shall be postponed by the same amount of time
involved, but for no longer than one year thereafter, in receiving regulatory
approvals if any regulatory approval is not received in a prompt and timely
manner and without delay, for any reason other than a failure by BT diligently
to pursue such regulatory approvals in good faith (without any obligation on BT
to incur more than de minimis cost or compromise any of its other business
interests). The amount of any such cash contribution to Thistle BV shall be
credited to the capital surplus (agio) account of Thistle BV.
15.6 Non-Concert Product Contributions. Within 30 days following the
Closing Date, each of AT&T and BT shall prepare a statement of profit and loss
showing the results after tax for the operation of their Non-Concert Product
Contributions during the period from the date of this Agreement to the Closing
Date. The applicable tax rate for purposes of such calculation shall be the
effective tax rate of the relevant parent reflected in its financial statements
for its most recently completed fiscal year. Such statements shall be prepared
in accordance with U.S. GAAP in the case of AT&T and U.K. GAAP in the case of
BT, in each case consistently applied and consistent with the principles used in
the preparation of Schedule 15.6. If the profits after tax from the operation of
the Non-Concert Product Contributions of either or both parents shall fail to
meet the forecasts of profit after tax set forth in Schedule 15.6, the parent or
parents whose Non-Concert Product Contributions is deficient shall cause VLT or
BT Holdings, as the case may be, to contribute to Thistle BV within 30 days
after the completion of the statement of profit and loss, an additional amount
in cash equal to (or, in the case of BT Holdings, BT Holdings may, at its
option, forgive a portion of the outstanding Assumed Concert Purchase Debt in an
amount equal to) the difference between the forecasted profit and loss of the
Non-Concert Product Contributions and the actual profit after tax of such
businesses for such period. Notwithstanding the foregoing, if a parent disputes
the statement of profit and loss of the other parent, the parents shall jointly
instruct the Designated Accountants or such other firm of independent certified
public accountants mutually acceptable to them to confirm and verify the
disputed statement of profit and loss within 10 days of their appointment, in
which case the required capital contribution (or, in the case of BT Holdings,
any forgiveness of any portion of the outstanding Assumed Concert Purchase Debt)
shall be made within 30 days after the parents' receipt of the report of the
Designated Accountants or such other accounting firm. The amount of any cash
contribution to Thistle BV pursuant to this Section 15.6 shall be credited to
the capital surplus (agio) account of Thistle BV.
<PAGE>
15.7 Concert Funding.
(a) The parents agree that, from the date of this Agreement to the Closing
Date, BT shall cause Concert to be funded by incurring Indebtedness with
interest rates and other provisions on market terms.
(b) Within 30 days after the Closing Date, Thistle BV shall cause the
Independent Auditor to prepare a profit and loss account for Concert for the
period from March 31, 1998 to the Closing Date. The applicable tax rate for
purposes of such calculation shall be the effective tax rate of Concert
reflected in its financial statements for its most recently completed fiscal
year. If, based on such profit and loss account, Concert has failed to meet the
forecasts of net after-tax profits set forth in Schedule 15.7, BT Holdings will
within 30 days after its receipt of the profit and loss account either (i) make
a capital contribution to Thistle BV in an amount equal to the shortfall between
the forecasted net after-tax profits set forth in Schedule 15.7 and the actual
net after-tax profits of Concert for the period ending on the Closing Date or
(ii) otherwise appropriately compensate Thistle BV with respect to such
shortfall in a manner mutually acceptable to the parents. Notwithstanding the
foregoing, if either BT or AT&T disputes the profit and loss account for Concert
prepared by the Independent Auditor, the parents shall jointly instruct the
Designated Accountants or such other firm of independent certified public
accountants mutually acceptable to them to confirm and verify the profit and
loss account prepared by the Independent Auditor within 10 days of their
appointment, in which case BT Holdings shall make its capital contribution or
other mutually acceptable compensation within 30 days after its receipt of the
report of the Designated Accountants or such other accounting firm. The amount
of any such cash contribution to Thistle BV shall be credited to the capital
surplus (agio) account of Thistle BV.
15.8 Liability for Transaction Gains Taxes. BT shall be responsible for any
BT Transaction Gains Taxes other than Excluded Taxes, and AT&T shall be
responsible for any AT&T Transaction Gains Taxes other than Excluded Taxes. The
parents shall cooperate with each other to minimize any Transaction Gains Taxes
to the extent there exists a means of minimizing any such Tax liabilities
without adversely affecting the other parent.
15.9 Issuance of Shares. At the Closing, in consideration for the
contribution by the BT Sellers and the AT&T Sellers to the Newco Group of the BT
Assets and the AT&T Assets, respectively, Thistle BV shall, and shall cause the
applicable Newco Subsidiaries (including Concert Holdings) to, issue the
appropriate number and class of shares or other equity interests to AT&T or one
of its Affiliates and BT or one of its Affiliates as identified on Schedule 2.2,
which in the case of shares of Thistle BV, shall be effected pursuant to a
notarial deed of issuance substantially in the form of Exhibit L. If any such
shares or other equity interests are evidenced by certificates, such
certificates shall bear an appropriate legend stating that the Transfer of the
shares or equity interests evidenced thereby is restricted under this Agreement.
15.10 Waiver of Preemptive Rights. Each of the AT&T Parties and the BT
Parties hereby waives the applicability of any preemptive right (voorkeursrecht)
to which such party may be entitled with respect to any issuance of shares of
Thistle BV required to be made pursuant to this Agreement.
<PAGE>
15.11 United States Tax Treatment. It is the intention of the parents that
Thistle BV and all Check the Box Entities shall be treated as partnerships, and
all Disregarded Entities shall be treated as entities disregarded from their
owner, for U.S. federal income tax purposes. Accordingly, the provisions of
Annex 3 are intended, among other things, to achieve for the parents an
allocation of the profits and losses of the Newco Group for U.S. federal income
tax purposes consistent with the requirements of the provisions of the Code
applicable to partnerships. Furthermore, the provisions of Annex 3 shall be
interpreted in a manner consistent with the requirements of the Code. The
parties agree that the constitutive documents of each Check the Box Entity,
other than Thistle BV, will contain provisions consistent with the provisions of
Annex 3 and the requirements of the Code. For federal income tax purposes, the
parties agree that the adjustments required by Sections 15.4, 15.5, 15.6 and
15.7 shall be made as of the Closing Date. Upon completion of the adjustments in
Sections 15.4, 15.5, 15.6 and 15.7, the parties agree that their contributions
to the Newco Group will be of equal value.
15.12 Concert Receivable. BT agrees that disputes concerning intercompany
receivables existing on the date hereof on the Clover Financials shall be
resolved in Concert's favor.
ARTICLE 16
ADDITIONAL CAPITAL CONTRIBUTIONS
16.1 Future Contributions of Managed Network Services Facilities;
Contracts.
(a) After the Closing, the parents shall contribute Managed Network
Services Facilities to the Newco Group as contemplated by Section 7.4(c).
Appropriate Asset Contribution Agreements shall be entered into by the
applicable parent or its Affiliates and Thistle BV. The parties agree that no
valuation shall be made of the Managed Network Services Facilities when they are
actually contributed to the Newco Group. In addition, neither parent shall be
required to make any true-up payment in connection with such contributions. The
provisions of Section 15.3(c) shall be applicable, mutatis mutandis, to any
contribution of the Managed Network Services Facilities pursuant to this Section
16.1(a).
(b) After the Closing, the parents shall contribute customer contracts to
the MNC Newco Subsidiaries as contemplated by Section 7.2 and in accordance with
Schedule 16.1. For this purpose, after the Closing, the parents shall conduct
reviews of the status of the inclusion of additional customers from additional
Selected Industry Sectors on a quarterly basis. Schedule 16.1 sets forth the
timing of such contributions, the valuation thereof and the method of making the
true-up payments in respect thereof.
16.2 Future Cash Capital Contributions.
(a) On or after the Closing Date, subject to Section 3.5, the Management
Board may require each of VLT and BT Holdings to make additional capital
contributions to Thistle BV in such amounts and at such times as shall be set
forth in the relevant approved AOPB or, subject to Section 6.3(b), a Provisional
AOPB (a "Capital Call").
<PAGE>
(b) All additional capital contributions required to be made pursuant to
this Agreement shall, unless the Management Board decides otherwise, be made in
Dollars and shall be made by way of subscription for additional shares in
Thistle BV or in the form of shareholder loans or loans from third parties, as
determined by the Management Board in the AOPB or, if no such determination has
been made, as determined by the CEO. In the case of third party loans, such
loans may, subject to Section 3.3(e), involve recourse to the AT&T Parties and
the BT Parties.
(c) Any issuance of shares of Thistle BV in connection with any Capital
Call shall be effected pursuant to a notarial deed of issuance substantially in
the form of Exhibit L. The amount of any such capital contribution in excess of
the aggregate par value of the shares of Thistle BV issued in exchange for such
contribution shall be credited to the capital surplus (agio) account of Thistle
BV.
16.3 Notice of Capital Calls. If the Management Board determines to make a
Capital Call in accordance with Section 3.5 or a Capital Call is otherwise
provided for in the relevant AOPB or Provisional AOPB, Thistle BV shall send to
each of VLT and BT Holdings a written notice of a Capital Call (a "Capital Call
Notice"), which shall set forth, among other things, the amount of additional
capital contributions to be made by each of VLT and BT Holdings, the form of
such contributions and the date (the "Capital Call Date") by which such
additional capital contributions shall be made. The Capital Call Date shall be
not less than 20 days following the date on which such Capital Call Notice is
delivered. Each of VLT and BT Holdings shall be obligated to make its pro rata
share of such contributions.
16.4 Failure to Make Additional Capital Contributions.
(a) If VLT or BT Holdings fails to fund a Capital Call on or prior to the
Capital Call Date, (i) Thistle BV shall promptly notify each parent of such
failure (such defaulting shareholder, a "Defaulting Shareholder" and such
failure, a "Funding Breach"), and (ii) the amount funded by the non-defaulting
shareholder (the "Non-Defaulting Shareholder") shall ab initio be deemed to be a
loan, with interest and other provisions on market terms, and no shares of
Thistle BV will be issued with respect thereto. The Defaulting Shareholder shall
have 20 days from the date of delivery of notice of the Funding Breach to cure
delivering to Thistle BV the additional capital contribution required under the
Capital Call Notice, together with interest thereon calculated at LIBOR
applicable on the Capital Call Date, plus 4%, from and including the Capital
Call Date up to but excluding to the date of payment.
(b) If a Defaulting Shareholder shall fail to deliver its additional
capital contribution, together with interest thereon as provided in Section
16.4(a), within the 20-day cure period, then all rights of the Defaulting
Shareholder to receive additional shares in Thistle BV pursuant to such Capital
Call, if applicable, shall cease and, for a period of 60 days after the
expiration of the 20-day cure period, the Non-Defaulting Shareholder shall have
the option, by capital contribution or by loan with interest and other
provisions on market terms, to provide all or any part of the Defaulting
Shareholder's additional capital contribution to Thistle BV without payment of
default interest. If the Non-Defaulting Shareholder decides to provide all or
<PAGE>
any part of the Defaulting Shareholder's additional capital contribution by way
of a capital contribution, it shall have the right to receive additional shares
in Thistle BV in consideration therefor. If BT or any of its Affiliates is the
Non-Defaulting Shareholder and decides to make such capital contribution by way
of a loan, it shall have the right at any time to convert the principal amount
of, and all accrued and unpaid interest on, such loan into a capital
contribution to Thistle BV, in connection with which it shall be entitled to
receive additional shares in Thistle BV. The number of additional shares in
Thistle BV issuable to the Non-Defaulting Shareholder in connection with such
converted loan shall be determined based on the per share consideration
applicable to the Capital Call in question.
(c) In addition to the provisions of Section 16.4(b), if there has been a
Funding Breach, (i) the Non-Defaulting Shareholder (or its Affiliate that is a
member of DirectorCo) shall be entitled to appoint an additional Representative
to the DirectorCo Board effective as of the expiration of the 20-day cure period
if the Funding Breach has not been cured within such 20-day period; provided,
that, if the Non-Defaulting Shareholder wishes to waive such right, it shall
notify the other parties prior to the expiration of the 20-day cure period, and
(ii) the parent of the Non-Defaulting Shareholder shall have the right to cause
a Distribution of Netco, in which case the provisions of Schedule 13.2 shall
apply and the parent of the Defaulting Shareholder shall bear any Taxes arising
in connection therewith (it being understood that the Non-Defaulting Shareholder
may elect none, either or both of such alternatives).
(d) If a Defaulting Shareholder fails to make additional capital
contributions with respect to three separate consecutively issued Capital Call
Notices, it shall be deemed to have committed a material breach of this
Agreement as provided in Section 22.3(a), and the Non-Defaulting Shareholder
shall have the rights specified in Section 23.4.
ARTICLE 17
REPRESENTATIONS AND WARRANTIES
17.1 Representations and Warranties of AT&T. AT&T represents and warrants
to the BT Parties and Thistle BV as follows:
(a) Organization and Standing. AT&T is a corporation duly organized,
validly existing and in good standing under the laws of the State of New York,
and VLT is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware, and each has all requisite corporate
power and corporate authority necessary to enable it to own, lease or otherwise
hold its properties and assets and to carry on its business as presently
conducted. Each of the other AT&T Sellers and the Contributed AT&T Subsidiaries
is duly organized and validly existing and, with respect to those Persons
organized under the laws of states of the United States, in good standing, under
the laws of the jurisdiction of its organization, except for such failure to be
in good standing which would not, individually or in the aggregate have a
Material Adverse Effect on the Venture Business taken as a whole (a "Venture
Business Material Adverse Effect"). Each of the other AT&T Sellers and the
Contributed AT&T Subsidiaries (i) has all requisite corporate, partnership or
limited liability company power and authority to own, lease or otherwise hold
its properties and assets and to carry on its business as presently conducted,
and (ii) is duly qualified to transact business in each jurisdiction in which
the nature of property owned or leased by it or the conduct of its business
requires it to be so qualified, except for such failure to be so qualified as
would not individually or in the aggregate have a Venture Business Material
Adverse Effect.
<PAGE>
(b) Authorization; Validity. Each of AT&T and VLT has all requisite
corporate power and corporate authority to execute and deliver this Agreement
and the IPR Agreement, to perform its obligations hereunder and thereunder and
to consummate the transactions contemplated hereby and thereby. Each of AT&T,
VLT and their Affiliates will have at the Closing all requisite corporate,
partnership or limited liability company power and authority to execute and
deliver the Transaction Agreements and the Local Purchase Agreements to be
executed by it on or prior to the Closing, to perform its obligations under such
other Transaction Agreements and the Local Purchase Agreements to which it is a
party and to consummate the transactions contemplated thereby. The execution,
delivery and performance by each of AT&T and VLT of this Agreement and the IPR
Agreement, and the consummation by each of AT&T and VLT of the transactions
contemplated hereby and thereby, have been duly authorized by all necessary
corporate action on the part of AT&T and VLT, and the execution, delivery and
performance of each of AT&T, VLT and their Affiliates of the Transaction
Agreements and the Local Purchase Agreements to be executed by it on or prior to
the Closing, and the consummation of the transactions contemplated thereby,
will, prior to such execution and delivery, be duly authorized by all necessary
corporate, partnership or limited liability company action on the part of AT&T,
VLT or such Affiliates, and no other corporate, partnership or limited liability
company proceedings or actions on the part of any of AT&T, VLT or such
Affiliates, or their respective boards of directors or other governing bodies or
stockholders, partners or members are necessary therefor. This Agreement and the
IPR Agreement have been, and the Transaction Agreements and the Local Purchase
Agreements to be executed by AT&T, VLT and their Affiliates on or prior to the
Closing will, when executed and delivered, be, duly executed and delivered by
AT&T, VLT and their Affiliates, as applicable. Assuming the due execution and
delivery hereof and thereof by the other parties thereto, this Agreement and the
IPR Agreement constitute, and the other Transaction Agreements and the Local
Purchase Agreements to be executed by AT&T, VLT or their Affiliates on or prior
to the Closing will, when duly executed and delivered, constitute, legal, valid
and binding obligations of AT&T, VLT and such Affiliates that are parties
thereto, enforceable against it or them in accordance with their respective
terms.
(c) No Conflicts. Except as set forth on Schedule 17.1(c), the execution,
delivery and performance by each of AT&T and VLT of this Agreement and the IPR
Agreement, the consummation of the transactions contemplated hereby and thereby
and the compliance with the terms hereof and thereof do not, and the execution,
delivery and performance by each of AT&T, VLT and their Affiliates of the other
Transaction Agreements and the Local Purchase Agreements to be executed by it on
or prior to the Closing, the consummation of the transactions contemplated by
such Transaction Agreements and such Local Purchase Agreements and compliance
with the terms of such Transaction Agreements and such Local Purchase Agreements
will not at the Closing, conflict with, or constitute or result in any Default
under (i) any provision of the Restated Certificate of Incorporation or bylaws
of AT&T, the certificate of incorporation or bylaws of VLT or any provision of
the constitutive or equivalent documents of any such Affiliate, (ii) any order,
arbitration award, judgment, injunction or decree against, or binding upon, any
of AT&T, VLT or any such Affiliate or upon its properties or businesses, (iii)
any instrument, contract, mortgage, charge or other agreement to which AT&T, VLT
or any such Affiliate is a party or by which any of its Assets is bound, or (iv)
under any Applicable Law with respect to AT&T, VLT or any such Affiliates or any
<PAGE>
of their respective Assets (except, with respect to clauses (ii), (iii) and
(iv), for such conflicts or Defaults that, individually or in the aggregate,
would not have a material effect on the ability of AT&T, VLT or any of their
Affiliates, as applicable, to perform in all material respects its obligations
under this Agreement and the other Transaction Agreements and Local Purchase
Agreements to which it is a party in accordance with their respective terms and
would not have a Venture Business Material Adverse Effect).
(d) Consents and Approvals. Except as provided in Schedule 17.1(d), no
Third Party Approval and no Governmental Approval is required to be obtained or
made by AT&T, VLT or any of their Affiliates in connection with the execution,
delivery and performance of this Agreement and the other Transaction Agreements
and the transactions contemplated hereby and thereby, except for Third Party
Approvals or Governmental Approvals, the absence of which, individually or in
the aggregate, would not have a material effect on the ability of any of AT&T,
VLT or their Affiliates, as applicable, to perform in all material respects its
obligations under this Agreement and the other Transaction Agreements to which
it is a party in accordance with their respective terms and would not have a
Venture Business Material Adverse Effect.
(e) Litigation.
(i) Except as set forth in Schedule 17.1(e), there are, as of the date
hereof, no Actions pending or, to the knowledge of AT&T, threatened against AT&T
or any of its Affiliates or any property of AT&T or of any such Affiliate,
including Intellectual Property Rights, in any court or before any arbitrator of
any kind or in or before or by any Governmental Body, except Actions which,
individually or in the aggregate, are not reasonably likely to, (x) have a
material adverse effect on AT&T or VLT or (y) restrain, enjoin or otherwise
prevent or materially delay the consummation of the transactions contemplated
hereby or by any other Transaction Agreement, in each case, except with respect
to Taxes which are the subject of separate representations and warranties.
(ii) Schedule 17.1(e) contains a list and brief description (other than
with respect to any Tax matters) as of the date hereof of (x) all pending
Actions against any of the AT&T Sellers relating to their conduct of the AT&T
GCS Business or against any of the Contributed AT&T Subsidiaries and which
individually involve an amount in excess of $10 million, (y) all threatened
Actions against any of the AT&T Sellers relating to their conduct of the AT&T
GCS Business or against any of the Contributed AT&T Subsidiaries, in each case
of which AT&T has knowledge and which individually involve an amount in excess
of $10 million, and (z) all writs, injunctions, orders, and decrees of any
Governmental Bodies to which any of the AT&T Sellers is subject relating to
their conduct of the AT&T GCS Business or against any of the Contributed AT&T
Subsidiaries, in each case which would, individually or in the aggregate, have a
Material Adverse Effect on the AT&T GCS Business or on the Contributed AT&T
Subsidiaries taken as a whole (collectively, a "AT&T GCS Business MAE").
(iii) Except as disclosed in Schedule 17.1(e) and except with respect to
Taxes and Environmental Laws (which are the subject of separate representations
and warranties), there are no Actions pending or, to AT&T's knowledge,
threatened against any AT&T Seller relating to the AT&T GCS Business or against
any Contributed AT&T Subsidiary that would individually or in the aggregate have
<PAGE>
an AT&T GCS Business MAE or prohibit the Contribution of the AT&T Assets or the
transactions contemplated hereby or by any other Transaction Agreement. Except
as disclosed in Schedule 17.1(e), there are no judgments or outstanding orders,
injunctions, decrees, stipulations or awards (whether rendered by a court or
administrative agency, or by arbitration) against AT&T or any AT&T Seller and
relating to the AT&T GCS Business or against any of the Contributed AT&T
Subsidiaries that would individually or in the aggregate have an AT&T GCS
Business MAE or that would prohibit the Contribution of the AT&T Assets or the
transactions contemplated hereby or by any other Transaction Agreement.
(f) Brokers and Finders. Except for the fees and expenses payable to J.P.
Morgan & Co., which fees and expenses will be paid by AT&T, none of AT&T or any
of its Affiliates has employed any investment banker, broker, finder, consultant
or intermediary in connection with the transactions contemplated by this
Agreement which would be entitled to any investment banking, brokerage, finder's
or similar fee or commission in connection with this Agreement, any other
Transaction Agreement or the transactions contemplated hereby or thereby.
(g) Contributed AT&T Subsidiaries.
(i) Schedule 17.1(g) sets forth a chart describing accurately and
completely the organizational structure and ownership of the Contributed AT&T
Subsidiaries and the authorized capitalization thereof.
(ii) Except as disclosed in Schedule 17.1(g), all of the outstanding shares
of capital stock or other equity interests or other securities of each of the
Contributed AT&T Subsidiaries has been, or if such Contributed AT&T Subsidiary
is not yet organized will, as of the Closing be, validly issued and is fully
paid and nonassessable and, except for directors' qualifying shares and other
nominal share interests issued to third parties to comply with Applicable Law,
is owned by the AT&T Sellers or one or more of the Contributed AT&T Subsidiaries
and, as of the Closing will be owned by a member of the Newco Group, in each
case, free and clear of all Liens consisting of pledges, mortgages, security
interests, claims, leases or voluntary liens.
(iii) Except as disclosed in Schedule 17.1(g), there are no outstanding
options, warrants or other rights of any kind to acquire, securities convertible
into or obligations to issue or transfer any shares of capital stock of any
class of, or other equity interests or other securities of, any of the
Contributed AT&T Subsidiaries.
(h) Financial Statements. AT&T has heretofore provided to BT true and
complete copies of unaudited statements of operating results relating to the
historical performance of the AT&T GCS Business (the "AT&T GCS Business
Financials"). The AT&T GCS Business Financials are true and correct in all
material respects, were extracted from and are consistent with the books and
records used in the preparation of AT&T's audited financial statements for the
relevant periods covered by such statements, and were prepared in a manner
consistent with the accounting policies and practices of AT&T.
(i) Undisclosed Liabilities; Adequacy of Assets.
<PAGE>
(i) Except as disclosed in Schedule 17.1(i), except for Excluded AT&T
Liabilities, and except as reflected, reserved against or otherwise disclosed in
the AT&T GCS Business Financials or incurred or arising in the ordinary course
of the AT&T GCS Business subsequent to July 31, 1998, the AT&T GCS Business does
not have any Liabilities that would be required to be reflected on a combined
statement of net assets of the AT&T GCS Business if any such statement were to
be prepared in accordance with U.S. GAAP and that would have an AT&T GCS
Business MAE. No Contributed AT&T Subsidiary has any Liability that did not
arise in the ordinary course of the AT&T GCS Business.
(ii) The AT&T Assets constitute all of the material assets, properties and
rights owned by any AT&T Seller or any Contributed AT&T Subsidiary reasonably
necessary for the conduct of the AT&T GCS Business as it is currently conducted,
except (A) any of the foregoing hereafter disposed of in the ordinary course of
business, (B) for any shared-use or multiparty facilities or Assets, (C)
otherwise contemplated by the Transaction Agreements, and (D) as would not have
an AT&T GCS Business MAE. To the knowledge of AT&T, the AT&T Sellers and the
Contributed AT&T Subsidiaries do not lack any Asset necessary for the continued
conduct of the AT&T GCS Business, as the same has heretofore been conducted, but
giving effect to the transactions contemplated by this Agreement and the other
Transaction Agreements, the absence of which would have an AT&T GCS Business
MAE. To the knowledge of AT&T, no AT&T Assets and no Assets of any Contributed
AT&T Subsidiary are impaired in such a manner as would individually or in the
aggregate have an AT&T GCS Business MAE.
(j) Properties.
(i) Schedule 15.1A includes a complete list of (A) all real properties
owned by the AT&T Sellers and included in the AT&T Assets or owned by the
Contributed AT&T Subsidiaries (the "AT&T Property Assets"), and (B) all real
properties leased by the AT&T Sellers of which the leasehold rights are included
in the AT&T Assets and all real property leased by the Contributed AT&T
Subsidiaries and used by them in their conduct of the AT&T GCS Business, in each
case involving an annual rental of $10 million or more (the "AT&T Leases").
(ii) An AT&T Seller or one of the Contributed AT&T Subsidiaries is the
owner in fee simple of and has good and marketable title to all of the AT&T
Property Assets listed in Schedule 15.1A and, except as set forth on Schedule
17.1(j), all such properties are owned free and clear of any Liens except
Permitted Liens and except as would not have an AT&T GCS Business MAE.
(iii) Except as set forth in Schedule 17.1(j), each of the AT&T Leases is
valid and enforceable in accordance with its terms and is in full force and
effect, subject to applicable Bankruptcy Law or other laws relating to or
affecting the rights and remedies of creditors generally and to general
principles of equity (regardless of whether in equity or at law) and except
where the failure to be valid and enforceable or in full force and effect would
not individually or in the aggregate have an AT&T GCS Business MAE.
(iv) To the knowledge of AT&T, there is no pending or threatened
condemnation, expropriation, eminent domain or similar proceeding affecting all
or any material portion of the AT&T Property Assets, and none of the AT&T
Sellers or the Contributed AT&T Subsidiaries has received any written notice of
any of the same that would individually or in the aggregate have an AT&T GCS
Business MAE.
<PAGE>
(v) Except as set forth in Schedule 17.1(j), none of the AT&T Sellers or
Contributed AT&T Subsidiaries has received any notice in writing that any
Default exists under any of the material covenants, conditions, restrictions,
rights of way or easements, if any, affecting all or any portion of the AT&T
Property Assets which are to be performed or complied with by the AT&T Sellers
or the Contributed AT&T Subsidiaries as the owner of any of the AT&T Property
Assets, except for such Defaults as would not individually or in the aggregate
have an AT&T GCS Business MAE.
(vi) All components of all buildings, structures, fixtures and other
improvements in, on or within the AT&T Property Assets and any real property
that is the subject of the AT&T Leases are in a state of condition and repair
which enables the relevant part of the AT&T GCS Business to be carried on in the
relevant real property, subject to continued repair and replacement in
accordance with past practice and except for any failures that would not
individually or in the aggregate have an AT&T GCS Business MAE.
(k) Absence of Certain Changes. Except as disclosed herein or in the
Schedules to this Section 17.1 or as otherwise permitted under the Transaction
Agreements, since July 31, 1998: (i) there has been no change in the AT&T GCS
Business which, taken as a whole, constitutes an AT&T GCS Business MAE; (ii)
there has been no physical damage, destruction or loss to any AT&T Assets or any
Assets of any Contributed AT&T Subsidiary that would have an AT&T GCS Business
MAE; and (iii) neither an AT&T Seller nor a Contributed AT&T Subsidiary nor any
of their respective Affiliates, has, with respect to the AT&T GCS Business:
(A) incurred any material Liability except (i) Liabilities included in the
AT&T GCS Business Financials or (ii) Liabilities incurred since July 31, 1998,
in the ordinary course of the business that would not individually or in the
aggregate have an AT&T GCS Business MAE;
(B) discharged or satisfied any material Lien or paid any material
Liability, except for such discharges, satisfactions or payments as were made in
the ordinary course of business or as would not individually or in the aggregate
have an AT&T GCS Business MAE;
(C) subjected to any Lien, other than Permitted Liens, any of the AT&T
Assets or any Assets used by the Contributed AT&T Subsidiaries in the AT&T GCS
Business except in the ordinary course of the AT&T GCS Business;
(D) (i) sold, assigned, transferred, conveyed, leased or otherwise disposed
of, or agreed to sell, assign, transfer, convey, lease or otherwise dispose of
any material Assets of the AT&T GCS Business, or (ii) except as permitted by
this Agreement, including Section 19.2, entered into any material joint venture
or partnership, or purchased or acquired any material line of business of any
Person, in the case of clause (i) or (ii) except in the ordinary course of the
AT&T GCS Business, or (iii) incurred any liability for any capital expenditures
other than in the ordinary course of the AT&T GCS Business; or
(E) entered into any agreement which provides for or will result in any of
the foregoing.
(l) Permits.
<PAGE>
(i) Schedule 17.1(l) contains true and correct lists of all claims that the
AT&T GCS Business has received in writing since January 1, 1996 from any
Governmental Body alleging noncompliance by the AT&T GCS Business with any
Applicable Law (other than Environmental Laws) in connection with the AT&T
Sellers' or Contributed AT&T Subsidiaries= conduct of the AT&T GCS Business
except for any such claims as would not individually or in the aggregate have an
AT&T GCS Business MAE.
(ii) Except as disclosed in Schedule 17.1(1), all Permits necessary for the
conduct of the AT&T GCS Business as presently conducted are in full force and
effect and the AT&T Sellers and the Contributed AT&T Subsidiaries, as
applicable, are in compliance therewith except for any failures to have such
Permits or any failures of any Permits to be in full force and effect or in
compliance as would not individually or in the aggregate have an AT&T GCS
Business MAE. Except as disclosed in Schedule 17.1(e), no Action is pending or,
to AT&T's knowledge, threatened seeking the revocation or limitation of any such
Permit except for any Action as would not individually or in the aggregate have
an AT&T GCS Business MAE.
(m) Compliance with Laws. Except as disclosed in Schedule 17.1(m) and
except with respect to Taxes and Environmental Laws (which are the subject of
separate representations and warranties), the conduct of the AT&T GCS Business
and the AT&T Property Assets complies and has since January 1, 1996 complied
with all Applicable Law and judgments, orders or decrees applicable thereto,
except for such failures as would not individually or in the aggregate have an
AT&T GCS Business MAE.
(n) Material Contracts.
(i) For the purposes hereof, "AT&T Specified Contracts" shall mean (A) each
contract to which any of the AT&T Sellers with respect to the AT&T GCS Business
or any of the Contributed AT&T Subsidiaries is a party involving a likely annual
expenditure of more than $15 million or likely annual revenue of more than $15
million and (B) each distribution, international correspondent,
supply/requirements or customer agreement with respect to the AT&T GCS Business
to which AT&T or any of its Affiliates is a party representing annual
expenditures or revenues of more than $25 million, or $100 million over the term
of the agreement.
(ii) Except as disclosed in Schedule 17.1(n), neither any of the AT&T
Sellers in respect of the AT&T GCS Business nor any of the Contributed AT&T
Subsidiaries is a party to any:
(A) agreement preventing any Contributed AT&T Subsidiary, or agreement
that, after the Closing, will prevent the Newco Group, BT or any of their
respective Affiliates, from competing with any other Person or engaging in any
material business activity;
(B) guaranty of the obligations of any third party in excess of $25 million
in the aggregate;
(C) note, mortgage, indenture or other obligation, agreement or instrument
for or relating to any lending or borrowing of $25 million or more in the
aggregate, except for lending or borrowing incurred by the AT&T Sellers for
general corporate purposes which does not encumber any of the AT&T Assets or the
Assets of the Contributed AT&T Subsidiaries;
<PAGE>
(D) material contract with the United States or any other federal or
foreign government other than any such contract entered in the ordinary course
of business after the date hereof or any contract with AT&T or any of its
Affiliates as of the date hereof; or
(E) other contract, agreement or arrangement, entered into other than in
the ordinary course of business and requiring future payment or payments in
excess of $15 million annually which is not terminable on no more than 90 days'
notice without material penalty.
(iii) With respect to each AT&T Specified Contract and with respect to each
Contributed AT&T Contract, such AT&T Specified Contracts and the Contributed
AT&T Contracts are, to the knowledge of AT&T, valid and binding (subject to
applicable Bankruptcy Law or other laws relating to or affecting the rights and
remedies of creditors generally and to general principles of equity (regardless
of whether in equity or at law)), except for such failures to be valid and
binding as would not individually or in the aggregate have an AT&T GCS Business
MAE. None of the AT&T Sellers or Contributed AT&T Subsidiaries nor, to AT&T's
knowledge, any other Person is in default under any such contracts except for
such defaults as to which requisite waivers or consents have been or are being
obtained or which would not individually or in the aggregate have an AT&T GCS
Business MAE.
(o) Environmental Matters. Except as set forth on Schedule 17.1(o) and,
with respect to Sections 17.1(o)(i), (ii), (iv) and (vi), except as would not,
individually or in the aggregate, have an AT&T GCS Business MAE, since January
1, 1996 (i) the AT&T GCS Business is and has been conducted in accordance with
all applicable Environmental Laws and Environmental Permits, (ii) all
Environmental Permits are in full force and effect, and the AT&T GCS Business
has made all appropriate filings for issuance or renewal of such Environmental
Permits, (iii) none of the AT&T Sellers with respect to the AT&T GCS Business
and no Contributed AT&T Subsidiary has been notified that it may be a
"potentially responsible party" under the United States Comprehensive
Environmental Response, Compensation and Liability Act, an "Appropriate Person"
who has liability for contaminated land clean-up under Part II of the U.K.
Environmental Act 1985, or may be the substantial equivalent under any
applicable Environmental Law, (iv) none of the AT&T Sellers with respect to the
AT&T GCS Business and no Contributed AT&T Subsidiary has received any written
notice from any Governmental Body, or any other third party, that alleges that
any of the AT&T Sellers with respect to the AT&T GCS Business or any Contributed
AT&T Subsidiary is liable under or is not in compliance with applicable
Environmental Laws or Environmental Permits, (v) there is no Action asserting
any Environmental Liability in excess of $10 million pending, or to the
knowledge of AT&T, threatened, against any of the AT&T Sellers with respect to
the AT&T GCS Business or any Contributed AT&T Subsidiary, and (vi) there has
been no reportable release of any Hazardous Substances at, on, or about, under
or within any AT&T Property Assets or, to the knowledge of AT&T, any other
premises at the time when such premises were formerly owned, leased, operated,
controlled or occupied by the AT&T GCS Business or by any predecessor of the
AT&T GCS Business (other than releases not in violation of Environmental Law).
(p) Year 2000 Compliance.
(i) All computer software used in the AT&T GCS Business is or will be year
2000 compliant, meaning that neither the performance nor the functionality of
the software or any service based on such software will be adversely affected by
the advent of the year 2000 or any other year, or by the advent of September 9,
1999 or February 29, 2000, except for such failures to be year 2000 compliant
that would not individually or in the aggregate have an AT&T GCS Business MAE.
<PAGE>
(ii) There is no fault with the functionality or operation of any software
or other systems used in the AT&T GCS Business that detrimentally affects the
quality of services being supplied to customers or the ongoing cost of
maintenance and support of such software or systems in comparison with other
equivalent software or systems, except such faults that would not individually
or in the aggregate have an AT&T GCS Business MAE.
(q) Tax Representations. With respect to the AT&T GCS Business, the AT&T
Assets and the Contributed AT&T Subsidiaries:
(i) Each of AT&T, the AT&T Sellers and the Contributed AT&T Subsidiaries
has complied in all material respects with applicable tax regulations, and has
duly and timely filed all United States federal, foreign, state, county and
local Tax Returns required to be filed by it for all taxable periods or portions
thereof through the date of this Agreement, and will duly and timely file such
Returns as are required to be filed with respect to the taxable periods ending
on or before the Closing Date, unless, in each case, the failure to do so would
not have an AT&T GCS Business MAE. Such Tax Returns have been prepared, or will
be prepared, in accordance with all applicable government regulations and are,
or will be, accurate and complete in all respects, except where a failure so to
prepare such Returns would not individually or in the aggregate have an AT&T GCS
Business MAE. Each of AT&T, the AT&T Sellers and the Contributed AT&T
Subsidiaries has timely paid or adequately provided for (or will timely pay or
adequately provide for) all Taxes due and payable by such Person (whether or not
shown on any Returns), and each of AT&T, the AT&T Sellers and the Contributed
AT&T Subsidiaries have adequately provided (or will adequately provide) for all
Taxes which would be due with respect to the current taxable year if the current
taxable year ended at the close of business on the Closing Date, except for any
such failures as would not individually or in the aggregate have an AT&T GCS
Business MAE.
(ii) Except as set forth on Schedule 17.1(q), no proposed Taxes or Tax
deficiencies have been asserted against AT&T, the AT&T Sellers or the
Contributed AT&T Subsidiaries relating to the AT&T GCS Business or any of the
Contributed AT&T Subsidiaries except those that have been paid in full or those
which if determined adversely to AT&T, the AT&T Sellers or the Contributed AT&T
Subsidiaries would not individually or in the aggregate have an AT&T GCS
Business MAE.
(iii) Except as set forth on Schedule 17.1(q), there are no and have been
no tax sharing or other agreements or arrangements regarding the allocation of
liability of Taxes or similar matters between or among AT&T or the AT&T Sellers,
on the one hand, and any of the Contributed AT&T Subsidiaries, on the other
hand.
(iv) Except as set forth on Schedule 17.1(q), (A) there are no pending
requests for rulings from any Taxing authority relating to any material issue
affecting any AT&T Asset or Contributed AT&T Subsidiary, (B) there are no
outstanding subpoenas or written requests for information by any Taxing
authority with respect to Taxes relating to any material issue affecting any
AT&T Asset or Contributed AT&T Subsidiary, and (C) to the knowledge of AT&T or
the AT&T Sellers, there are no proposed reassessments by any Taxing authority of
any property that constitutes an AT&T Asset, or is owned or leased by any AT&T
Seller or any Contributed AT&T Subsidiaries.
<PAGE>
(v) Except as set forth on Schedule 17.1(q), there are no written
agreements in effect to extend (A) the time to file any Tax Return of any
Contributed AT&T Subsidiaries or (B) the period of limitations for the
assessment or collection of any Taxes of any Contributed AT&T Subsidiaries.
(vi) Except as set forth on Schedule 17.1(q), there is no pending Tax
audit, examination, investigation or similar proceeding involving any liability
for Taxes relating to any Contributed AT&T Subsidiaries or the AT&T Assets,
which would, if determined adversely to AT&T, the AT&T Sellers or the
Contributed AT&T Subsidiaries, have an AT&T GSC Business MAE, nor have any of
the Contributed AT&T Subsidiaries, AT&T or any AT&T Seller entered into any
closing agreement within the meaning of Section 7121 of the Code, or any
analogous provision of state, local or foreign law relating to any material
issue affecting any AT&T Asset or Contributed AT&T Subsidiary.
(vii) Except as set forth on Schedule 17.1(q), the Income Tax Returns of
each Contributed AT&T Subsidiary have either been examined by the relevant
Taxing authority or the periods covered by such Income Tax Returns have been
closed by an applicable statute of limitations.
(viii) Except as set forth on Schedule 17.1(q), no Contributed AT&T
Subsidiary is or was a member of a U.S. Consolidated Group.
(r) Conduct of AT&T GCS Business. On the Closing Date, except as disclosed
on Schedule 17.1(r) or otherwise permitted or required by this Agreement,
including Schedule 2.2, or to effect the Contribution and the transactions
contemplated in connection therewith the following shall be true and correct
with respect to the period from the date hereof to and including the Closing
Date:
(i) AT&T will have caused the AT&T GCS Business to have been operated in
the ordinary course;
(ii) AT&T will have caused each Contributed AT&T Subsidiary not to have (A)
amended its constitutive or equivalent documents; (B) except as otherwise
contemplated hereby (including as may be necessary to transfer any non-AT&T
Assets from any Contributed AT&T Subsidiary) and except for cash dividends or
distributions, declared or paid any dividend or distribution with respect to its
capital stock or share capital; or (C) repurchased its capital stock or share
capital;
(iii) AT&T will have caused the AT&T Sellers in respect of the AT&T GCS
Business and the Contributed AT&T Subsidiaries not to have (A) created, incurred
or assumed any material long-term or short-term Indebtedness, except (1) in
connection with replacements of maturing or other Indebtedness, (2) intercompany
loans and advances between a Contributed AT&T Subsidiary and AT&T or any of its
Affiliates and (3) Indebtedness incurred in the ordinary course of business; (B)
assumed, guaranteed, endorsed or otherwise have become liable or responsible
(whether directly, contingently or otherwise) for any material obligations of
any other Person other than any of the Contributed AT&T Subsidiaries; or (C)
made any material loans, advances or capital contributions to or investments in,
any Person other than any of the Contributed AT&T Subsidiaries (except as
permitted by this Agreement or any other Transaction Agreement and except for
customary loans, advances or capital contributions consistent with past practice
or in accordance with contractual arrangements existing as the date hereof and
set forth on Schedule 17.1(r) and except intercompany loans and advances between
the Contributed AT&T Subsidiaries and AT&T or any of its Affiliates), except for
any of the foregoing that shall not become obligations of the Newco Group or
that shall have been settled or otherwise eliminated on or prior to the Closing;
<PAGE>
(iv) except as required by Applicable Law or contractual obligations
existing on the date hereof and set forth on Schedule 17.1(r) or as permitted
under or contemplated by this Agreement, any of the Local Purchase Agreements or
any of the other Transaction Agreements, AT&T will have caused (1) the AT&T
Sellers not to have sold, transferred or otherwise have disposed of any AT&T
Assets, and the Contributed AT&T Subsidiaries not to have sold, transferred or
otherwise have disposed of any of their Assets, with a total value of more than
$250 million in the aggregate, other than in the ordinary course of business or
(2) the AT&T Sellers not to have created any Lien, except a Permitted Lien, on
the AT&T Assets other than in the ordinary course of business, or the
Contributed AT&T Subsidiaries not to have created any Lien, except a Permitted
Lien, on any of their Assets other than in the ordinary course of business;
(v) AT&T will have caused all transactions involving AT&T and any of its
Affiliates, on the one hand, and the Contributed AT&T Subsidiaries, on the other
hand, or otherwise involving AT&T and its Affiliates and the AT&T GCS Business
to have been on an arm's length basis;
(vi) subject to the terms and conditions of this Agreement, to any effects
arising principally from having entered into the Term Sheet, dated July 24,
1998, between AT&T and BT (the "Term Sheet"), this Agreement or the other
Transaction Agreements and consistent with operating in the ordinary course,
AT&T will have used and will have caused the AT&T Sellers and the Contributed
AT&T Subsidiaries to have used, its or their reasonable commercial efforts to
preserve the AT&T GCS Business intact, and to preserve the goodwill of
customers, suppliers and others having business relations with the AT&T GCS
Business; and
(vii) AT&T will have caused the AT&T Sellers in respect of the AT&T GCS
Business and the Contributed AT&T Subsidiaries not to have agreed to take any
action or refrain from taking any action with respect to the AT&T GCS Business
described in this Section 17.1(r).
(s) Cables. There is no fault with the functionality or operation of any
cable used in the AT&T GCS Business that detrimentally affects the quality of
services being supplied to customers or the on-going cost of maintenance and
support of such cable in comparison with other equivalent cables, except for
such faults that would not individually or in aggregate have an AT&T GCS
Business MAE.
17.2 Representations and Warranties of BT. BT represents and warrants to
the AT&T Parties and, with respect to Sections 17.2(a) through (q) and 17.2(s),
to Thistle BV, as follows:
(a) Organization and Standing. BT is a public limited company incorporated
under the laws of England and Wales, BT Holdings is a Besloten Vennootschap
organized under the laws of The Netherlands, and Concert is an unlimited company
incorporated under the laws of England and Wales, and each has all requisite
corporate power and corporate authority necessary to enable it to own, lease or
otherwise hold its properties and assets and to carry on its business as
presently conducted. Each of the other BT Sellers and the Contributed BT
Subsidiaries is duly organized and validly existing and, with respect to those
Persons organized under the laws of states of the United States, in good
<PAGE>
standing, under the laws of the jurisdiction of its organization, except for
such failure to be in good standing which would not, individually or in the
aggregate have a Venture Business Material Adverse Effect. Each of the other BT
Sellers and the Contributed BT Subsidiaries (i) has all requisite corporate,
partnership or limited liability company power and authority to own, lease or
otherwise hold its properties and assets and to carry on its business as
presently conducted, and (ii) is duly qualified to transact business in each
jurisdiction in which the nature of property owned or leased by it or the
conduct of its business requires it to be so qualified, except for such failures
to be so qualified as would not individually or in the aggregate have a Venture
Business Material Adverse Effect.
(b) Authorization; Validity. Each of BT and BT Holdings has all requisite
corporate power and corporate authority to execute and deliver this Agreement
and the IPR Agreement, to perform its obligations hereunder and thereunder and
to consummate the transactions contemplated hereby and thereby. Each of BT, BT
Holdings and their Affiliates will have at the Closing all requisite corporate,
partnership or limited liability company power and authority to execute and
deliver the Transaction Agreements to be executed by it on or prior to the
Closing, to perform its obligations under such Transaction Agreements to which
it is a party and to consummate the transactions contemplated thereby. The
execution, delivery and performance by each of BT and BT Holdings of this
Agreement and the IPR Agreement, and the consummation by each of BT and BT
Holdings of the transactions contemplated hereby and thereby, have been duly
authorized by all necessary corporate action on the part of BT and BT Holdings
and the execution, delivery and performance by each of BT, BT Holdings and their
Affiliates of the Transaction Agreements to be executed by it on or prior to the
Closing, and the consummation of the transactions contemplated thereby, will,
prior to such execution and delivery, be duly authorized by all necessary
corporate, partnership or limited liability company action on the part of BT, BT
Holdings or such Affiliates and no other corporate, partnership or limited
liability company proceedings or actions on the part of any of BT, BT Holdings
or such Affiliates, or their respective boards of directors or other governing
bodies or stockholders, partners or members will be necessary therefor. This
Agreement and the IPR Agreement have been, and the Transaction Agreements to be
executed by BT, BT Holdings and their Affiliates on or prior to the Closing
will, when executed and delivered, be, duly executed and delivered by BT, BT
Holdings and their Affiliates, as applicable. Assuming the due execution and
delivery hereof and thereof by the other parties thereto, this Agreement and the
IPR Agreement constitute, and the other Transaction Agreements to be executed by
BT, BT Holdings or their Affiliates on or prior to the Closing will, when duly
executed and delivered, constitute, legal, valid and binding obligations of BT,
BT Holdings and such Affiliates that are parties thereto, enforceable against it
or them in accordance with their respective terms.
(c) No Conflicts. Except as set forth on Schedule 17.2(c), the execution,
delivery and performance by each of BT and BT Holdings of this Agreement and the
IPR Agreement, the consummation of the transactions contemplated hereby and
thereby and the compliance with the terms hereof and thereof do not, and the
execution, delivery and performance by each of BT, BT Holdings and their
Affiliates of the other Transaction Agreements to be executed by it on or prior
to the Closing, the consummation of the transactions contemplated by such
Transaction Agreements and compliance with the terms of such Transaction
<PAGE>
Agreements will not at the Closing, conflict with, or constitute or result in
any Default under (i) any provision of the memorandum or articles of association
or bylaws of BT, the articles of association of BT Holdings or any provision of
the constitutive or equivalent documents of any such Affiliate, (ii) any order,
arbitration award, judgment, injunction or decree against, or binding upon, any
of BT, BT Holdings or any such Affiliate or upon its properties or businesses,
(iii) any instrument, contract, mortgage, charge or other agreement to which BT,
BT Holdings or any such Affiliate is a party or by which any of its Assets is
bound, or (iv) under any Applicable Law with respect to BT, BT Holdings or any
such Affiliates, or any of their respective Assets (except, with respect to
clauses (ii), (iii) and (iv), for such conflicts or Defaults that, individually
or in the aggregate, would not have a material effect on the ability of BT, BT
Holdings or any of their Affiliates, as applicable, to perform in all material
respects its obligations under this Agreement and the other Transaction
Agreements to which it is a party in accordance with their respective terms and
would not have a Venture Business Material Adverse Effect).
(d) Consents and Approvals. Except as provided in Schedule 17.2(d), no
Third Party Approval and no Governmental Approval is required to be obtained or
made by BT, BT Holdings or any of their Affiliates in connection with the
execution, delivery and performance of this Agreement and the other Transaction
Agreements and the transactions contemplated hereby and thereby, except for
Third Party Approvals or Governmental Approvals, the absence of which,
individually or in the aggregate, would not have a material effect on the
ability of BT, BT Holdings or their Affiliates, as applicable, to perform in all
material respects its obligations under this Agreement and the other Transaction
Agreements to which it is a party in accordance with their respective terms and
would not have a Venture Business Material Adverse Effect.
(e) Litigation.
(i) Except as set forth in Schedule 17.2(e), there are, as of the date
hereof, no Actions pending or, to the knowledge of BT, threatened against BT or
any of its Affiliates or any property of BT or of any such Affiliate, including
Intellectual Property Rights, in any court or before any arbitrator of any kind
or in or before or by any Governmental Body, except Actions which, individually
or in the aggregate, are not reasonably likely to, (x) have a material adverse
effect on BT or BT Holdings or (y) restrain, enjoin or otherwise prevent or
materially delay the consummation of the transactions contemplated hereby or by
any other Transaction Agreement, in each case, except with respect to Taxes,
which are the subject of separate representations and warranties.
(ii) Schedule 17.2(e) contains a list and brief description (other than
with respect to any Tax matters) as of the date hereof of (x) all pending
Actions against any of the BT Sellers relating to their conduct of the BT GCS
Business or against any of the Contributed BT Subsidiaries and which
individually involve an amount in excess of $10 million, (y) all threatened
Actions against any of the BT Sellers relating to their conduct of the BT GCS
Business or against any of the Contributed BT Subsidiaries, in each case of
which BT has knowledge and which individually involve an amount in excess of $10
million, and (z) all writs, injunctions, orders, and decrees of any Governmental
Bodies to which any of the BT Sellers is subject relating to their conduct of
the BT GCS Business or against any of the Contributed BT Subsidiaries, in each
case which would, individually or in the aggregate, have a Material Adverse
Effect on the BT GCS Business or on the Contributed BT Subsidiaries taken as a
whole (collectively, a "BT GCS Business MAE").
<PAGE>
(iii) Except as disclosed in Schedule 17.2(e) and except with respect to
Taxes and Environmental Laws (which are the subject of separate representations
and warranties), there are no Actions pending or, to BT's knowledge, threatened
against any BT Seller relating to the BT GCS Business or against any Contributed
BT Subsidiary that would individually or in the aggregate have a BT GCS Business
MAE or prohibit the Contribution of the BT Assets or the transactions
contemplated hereby or by any other Transaction Agreement. Except as disclosed
in Schedule 17.2(e), there are no judgments or outstanding orders, injunctions,
decrees, stipulations or awards (whether rendered by a court or administrative
agency, or by arbitration) against BT or any BT Seller and relating to the BT
GCS Business or against any of the Contributed BT Subsidiaries that would
individually or in the aggregate have a BT GCS Business MAE or that would
prohibit the Contribution of the BT Assets or the transactions contemplated
hereby or by any other Transaction Agreement.
(f) Brokers and Finders. Except for the fees and expenses payable to N M
Rothschild & Sons Ltd., Rothschild Inc. and Morgan Stanley Dean Witter & Co.
Inc., which fees and expenses will be paid by BT, none of BT or any of its
Affiliates has employed any investment banker, broker, finder, consultant or
intermediary in connection with the transactions contemplated by this Agreement
which would be entitled to any investment banking, brokerage, finder's or
similar fee or commission in connection with this Agreement, any other
Transaction Agreement or the transactions contemplated hereby or thereby.
(g) Contributed BT Subsidiaries.
(i) Schedule 17.2(g) sets forth a chart describing accurately and
completely the organizational structure and ownership of the Contributed BT
Subsidiaries and the authorized capitalization thereof.
(ii) Except as disclosed in Schedule 17.2(g), all of the outstanding shares
of capital stock or other equity interests or other securities of each of the
Contributed BT Subsidiaries has been, or if such Contributed BT Subsidiary is
not yet organized will, as of the Closing be, validly issued and is fully paid
and nonassessable and, except for directors' qualifying shares and other nominal
share interests issued to third parties to comply with Applicable Law, is owned
by the BT Sellers or one or more of the Contributed BT Subsidiaries and, as of
the Closing will be owned by a member of the Newco Group in each case, free and
clear of all Liens consisting of pledges, mortgages, security interests, claims,
leases or voluntary liens.
(iii) Except as disclosed in Schedule 17.2(g), there are no outstanding
options, warrants or other rights of any kind to acquire, securities convertible
into or obligations to issue or transfer any shares of capital stock of any
class of, or other equity interests or other securities of, any of the
Contributed BT Subsidiaries.
(h) Financial Statements.
(i) BT has heretofore provided to AT&T true and complete copies of
unaudited statements of operating results relating to the historical performance
of the BT GCS Business, other than Concert and its Current Subsidiaries (the "BT
GCS Business Financials"). The BT GCS Business Financials are true and correct
in all material respects, were extracted from and are consistent with the books
and records used in the preparation of BT's audited financial statements for the
relevant periods covered by such statements, and were prepared in a manner
consistent with the accounting policies and practices of BT.
<PAGE>
(ii) The audited balance sheet of Concert as of March 31, 1998, and the
related profit and loss account, revenue account and cashflow statement for the
year then ended, including the footnotes thereto, which have been audited by
PricewaterhouseCoopers, independent auditors to Concert (the "Concert
Financials"), and which have heretofore been delivered to AT&T, have been
prepared in accordance with U.K. GAAP consistently applied, and give a true and
fair view of the assets, liabilities and trading position of Concert as of March
31, 1998 and of its profit and cashflow for the year then ended.
(iii) Except for the Assumed Concert Purchase Debt, neither Concert
Holdings nor BT IntermediateCo has or is subject to any Liabilities or has any
Assets except as expressly contemplated by this Agreement.
(iv) Schedule 17.2(h)A is an unaudited consolidated balance sheet of
Concert and its Subsidiaries as of September 30, 1998. Schedule 17.2(h)B is an
unaudited balance sheet of Concert Holdings as of September 30, 1998. Each such
balance sheet was prepared in a manner consistent with the accounting policies
and practices of Concert or Concert Holdings, as appropriate, and reflects the
financial position as of such date of Concert and its Subsidiaries or Concert
Holdings, as appropriate. The matters set forth in Sections 17.2(r)(iii)(A) and
(B) shall be true and correct on the Closing Date with respect to the period
from September 30, 1998 to and including the Closing Date.
(i) Undisclosed Liabilities; Adequacy of Assets.
(i) Except as disclosed in Schedule 17.2(i), except for Excluded BT
Liabilities, and except as reflected, reserved against or otherwise disclosed in
the BT GCS Business Financials or the Concert Financials or incurred or arising
in the ordinary course of the BT GCS Business subsequent to July 31, 1998, the
BT GCS Business does not have any Liabilities that would be required to be
reflected on a combined statement of net assets of the BT GCS Business if any
such statement were to be prepared in accordance with U.K. GAAP and that would
have a BT GCS Business MAE. No Contributed BT Subsidiary has any Liability that
did not arise in the ordinary course of the BT GCS Business.
(ii) The BT Assets constitute all of the material assets, properties and
rights owned by any BT Seller or any Contributed BT Subsidiary reasonably
necessary for the conduct of the BT GCS Business as it is presently conducted,
except (A) for any of the foregoing hereafter disposed of in the ordinary course
of business, (B) for any shared-use or multiparty facilities or Assets, (C) as
otherwise contemplated by the Transaction Agreements, and (D) as would not have
a BT GCS Business MAE. To the knowledge of BT, the BT Sellers and the
Contributed BT Subsidiaries do not lack any Asset necessary for the continued
conduct of the BT GCS Business, as the same has heretofore been conducted, but
giving effect to the transactions contemplated by this Agreement and the other
Transaction Agreements, the absence of which would have a BT GCS Business MAE.
To the knowledge of BT, no BT Assets and no Assets of any Contributed BT
Subsidiary are impaired in such a manner as would individually or in the
aggregate have a BT GCS Business MAE.
(j) Properties.
(i) Schedule 15.1B includes a complete list of (A) all real properties
owned by the BT Sellers and included in the BT Assets or owned by the
Contributed BT Subsidiaries (the "BT Property Assets"), and (B) all real
properties leased by the BT Sellers of which the leasehold rights are included
in the BT Assets and all real property leased by the Contributed BT Subsidiaries
and used by them in their conduct of the BT GCS Business, in each case involving
an annual rental of $10 million or more (the "BT Leases").
<PAGE>
(ii) A BT Seller or one of the Contributed BT Subsidiaries is the owner in
fee simple of and has good and marketable title to all of the BT Property Assets
listed in Schedule 15.1B and, except as set forth on Schedule 17.2(j), all such
properties are owned free and clear of any Liens except Permitted Liens and
except as would not have a BT GCS Business MAE.
(iii) Except as set forth in Schedule 17.2(j), each of the BT Leases is
valid and enforceable in accordance with its terms and is in full force and
effect, subject to applicable Bankruptcy Law or other laws relating to or
affecting the rights and remedies of creditors generally and to general
principles of equity (regardless of whether in equity or at law) and except
where the failure to be valid and enforceable or in full force and effect would
not individually or in the aggregate have a BT GCS Business MAE.
(iv) To the knowledge of BT, there is no pending or threatened order,
resolution or published proposal for the compulsory acquisition of, or similar
proceeding affecting, all or any material portion of the BT Property Assets, and
none of the BT Sellers or the Contributed BT Subsidiaries has received any
written notice of any of the same that would individually or in the aggregate
have a BT GCS Business MAE.
(v) Except as set forth in Schedule 17.2(j), none of the BT Sellers or
Contributed BT Subsidiaries has received any notice in writing that any Default
exists under any of the material covenants, conditions, restrictions, rights of
way or easements, if any, affecting all or any portion of the BT Property Assets
which are to be performed or complied with by the BT Sellers or the Contributed
BT Subsidiaries as the owner of any of the BT Property Assets, except for such
Defaults as would not individually or in the aggregate have a BT GCS Business
MAE.
(vi) All components of all buildings, structures, fixtures and other
improvements in, on or within the BT Property Assets and any real property that
is the subject of the BT Leases are in a state of condition and repair which
enables the relevant part of the BT GCS Business to be carried on in the
relevant real property, subject to continued repair and replacement in
accordance with past practice and except for any failures that would not
individually or in the aggregate have a BT GCS Business MAE.
(k) Absence of Certain Changes. Except as disclosed herein or in the
Schedules to this Section 17.2 or as otherwise permitted under the Transaction
Agreements, since July 31, 1998: (i) there has been no change in the BT GCS
Business which, taken as a whole, constitutes a BT GCS Business MAE; (ii) there
has been no physical damage, destruction or loss to any BT Assets or any Assets
of any Contributed BT Subsidiary that would have a BT GCS Business MAE; and
(iii) neither a BT Seller nor a Contributed BT Subsidiary nor any of their
respective Affiliates, has, with respect to the BT GCS Business:
(A) incurred any material Liability except (A) Liabilities included in the
BT GCS Business Financials or the balance sheet included in the Concert
Financials, or (B) Liabilities incurred since July 31, 1998, in the ordinary
course of the business that would not individually or in the aggregate have a BT
GCS Business MAE;
<PAGE>
(B) discharged or satisfied any material Lien or paid any material
Liability, except for such discharges, satisfactions or payments as were made in
the ordinary course of business or as would not individually or in the aggregate
have a BT GCS Business MAE;
(C) subjected to any Lien, other than Permitted Liens, any of the BT Assets
or any Assets used by the Contributed BT Subsidiaries in the BT GCS Business
except in the ordinary course of the BT GCS Business;
(D) (i) sold, assigned, transferred, conveyed, leased or otherwise disposed
of, or agreed to sell, assign, transfer, convey, lease or otherwise dispose of
any material Assets of the BT GCS Business, or (ii) except as permitted by this
Agreement, including Section 19.2, entered into any material joint venture or
partnership, or purchased or acquired any material line of business of any
Person, in the case of clause (i) or (ii) except in the ordinary course of the
BT GCS Business, or (iii) incurred any liability for any capital expenditures
other than in the ordinary course of the BT GCS Business; or
(E) entered into any agreement which provides for or will result in any of
the foregoing.
(l) Permits.
(i) Schedule 17.2(1) contains true and correct lists of all claims that the
BT GCS Business has received in writing since January 1, 1996 from any
Governmental Body alleging noncompliance by the BT GCS Business with any
Applicable Law (other than Environmental Laws) in connection with the BT
Sellers' or Contributed BT Subsidiaries' conduct of the BT GCS Business except
for any such claims as would not individually or in the aggregate have a BT GCS
Business MAE.
(ii) Except as disclosed in Schedule 17.2(1), all Permits necessary for the
conduct of the BT GCS Business as presently conducted are in full force and
effect and the BT Sellers and the Contributed BT Subsidiaries, as applicable,
are in compliance therewith except for any failures to have such Permits or any
failures of any Permits to be in full force and effect or in compliance as would
not individually or in the aggregate have a BT GCS Business MAE. Except as
disclosed in Schedule 17.2(e), no Action is pending or, to BT's knowledge,
threatened seeking the revocation or limitation of any such Permit except for
any Action as would not individually or in the aggregate have a BT GCS Business
MAE.
(m) Compliance with Laws. Except as disclosed in Schedule 17.2(m) and
except with respect to Taxes and Environmental Laws (which are the subject of
separate representations and warranties), the conduct of the BT GCS Business and
the BT Property Assets complies and has since January 1, 1996 complied with all
Applicable Law and judgments, orders or decrees applicable thereto, except for
such failures as would not individually or in the aggregate have a BT GCS
Business MAE.
(n) Material Contracts.
(i) For the purposes hereof, "BT Specified Contracts" shall mean (A) each
contract to which any of the BT Sellers with respect to the BT GCS Business or
any of the Contributed BT Subsidiaries is a party involving a likely annual
expenditure of more than $15 million or likely annual revenue of more than $15
million and (B) each distribution, international correspondent,
supply/requirements or customer agreement with respect to the BT GCS Business to
which BT or any of its Affiliates is a party representing annual expenditures or
revenues of more than $25 million, or $100 million over the term of the
agreement.
<PAGE>
(ii) Except as disclosed in Schedule 17.2(n), neither any of the BT Sellers
in respect of the BT GCS Business nor any of the Contributed BT Subsidiaries is
a party to any:
(A) agreement preventing any Contributed BT Subsidiary, or agreement that,
after the Closing, will prevent the Newco Group, AT&T or any of their respective
Affiliates, from competing with any other Person or engaging in any material
business activity;
(B) guaranty of the obligations of any third party in excess of $25 million
in the aggregate;
(C) note, mortgage, indenture or other obligation, agreement or instrument
for or relating to any lending or borrowing of $25 million or more in the
aggregate, except for lending or borrowing incurred by the BT Sellers for
general corporate purposes which does not encumber any of the BT Assets or the
Assets of the Contributed BT Subsidiaries;
(D) material contract with the U.K. or any other federal or foreign
government other than any such contract entered in the ordinary course of
business after the date hereof or any contract with BT or any of its Affiliates
as of the date hereof; or
(E) other contract, agreement or arrangement, entered into other than in
the ordinary course of business and requiring future payment or payments in
excess of $15 million annually which is not terminable on no more than 90 days'
notice without material penalty.
(iii) With respect to each BT Specified Contract and with respect to each
Contributed BT Contract, such BT Specified Contracts and the Contributed BT
Contracts are, to the knowledge of BT, valid and binding (subject to applicable
Bankruptcy Law or other laws relating to or affecting the rights and remedies of
creditors generally and to general principles of equity (regardless of whether
in equity or at law)), except for such failures to be valid and binding as would
not individually or in the aggregate have a BT GCS Business MAE. None of the BT
Sellers or Contributed BT Subsidiaries nor, to BT's knowledge, any other Person
is in default under any such contracts except for such defaults as to which
requisite waivers or consents have been or are being obtained or which would not
individually or in the aggregate have a BT GCS Business MAE.
(o) Environmental Matters. Except as set forth on Schedule 17.2(o) and,
with respect to Sections 17.2(o)(i), (ii), (iv) and (vi), except as would not,
individually or in the aggregate, have a BT GCS Business MAE, since January 1,
1996 (i) the BT GCS Business is and has been conducted in accordance with all
applicable Environmental Laws and Environmental Permits, (ii) all Environmental
Permits are in full force and effect, and the BT GCS Business has made all
appropriate filings for issuance or renewal of such Environmental Permits, (iii)
none of the BT Sellers with respect to the BT GCS Business and no Contributed BT
Subsidiary has been notified that it may be a "potentially responsible party,"
under the United States Comprehensive Environmental Response, Compensation and
Liability Act, an "Appropriate Person" who has liability for contaminated land
clean-up under Part II of the U.K. Environmental Act 1985, or may be the
substantial equivalent under any applicable Environmental Law, (iv) none of the
<PAGE>
BT Sellers with respect to the BT GCS Business and no Contributed BT Subsidiary
has received any written notice from any Governmental Body, or any other third
party, that alleges that any of the BT Sellers with respect to the BT GCS
Business or any Contributed BT Subsidiary is liable under or is not in
compliance with applicable Environmental Laws or Environmental Permits, (v)
there is no Action asserting any Environmental Liability in excess of $10
million pending, or to the knowledge of BT, threatened, against any of the BT
Sellers with respect to the BT GCS Business or any Contributed BT Subsidiary,
and (vi) there has been no reportable release of any Hazardous Substances at,
on, or about, under or within any BT Property Assets or, to the knowledge of BT,
any other premises at the time when such premises were formerly owned, leased,
operated, controlled or occupied by the BT GCS Business or by any predecessor of
the BT GCS Business (other than releases not in violation of any Environmental
Law).
(p) Year 2000 Compliance.
(i) All computer software used in the BT GCS Business is or will be year
2000 compliant, meaning that neither the performance nor the functionality of
the software or any service based on such software will be adversely affected by
the advent of the year 2000 or any other year, or by the advent of September 9,
1999 or February 29, 2000, except for such failures to be year 2000 compliant
that would not individually or in the aggregate have a BT GCS Business MAE.
(ii) There is no fault with the functionality or operation of any software
or other systems used in the BT GCS Business that detrimentally affects the
quality of services being supplied to customers or the ongoing cost of
maintenance and support of such software or systems in comparison with other
equivalent software or systems, except such faults that would not individually
or in the aggregate have a BT GCS Business MAE.
(q) Tax Representations. With respect to the BT GCS Business, the BT Assets
and the Contributed BT Subsidiaries:
(i) Each of BT, the BT Sellers and the Contributed BT Subsidiaries has
complied in all material respects with applicable tax regulations, and has duly
and timely filed all United Kingdom, United States federal, foreign, state,
county and local Tax Returns required to be filed by it for all taxable periods
or portions thereof through the date of this Agreement, and will duly and timely
file such Returns as are required to be filed with respect to the taxable
periods ending on or before the Closing Date, unless, in each case, the failure
to do so would not have a BT GCS Business MAE. Such Tax Returns have been
prepared, or will be prepared, in accordance with all applicable government
regulations and are, or will be, accurate and complete in all respects, except
where a failure so to prepare such Returns would not individually or in the
aggregate have a BT GCS Business MAE. Each of BT, the BT Sellers and the
Contributed BT Subsidiaries has timely paid or adequately provided for (or will
timely pay or adequately provide for) all Taxes due and payable by such Person
(whether or not shown on any Returns), and each of BT, the BT Sellers and the
Contributed BT Subsidiaries have adequately provided (or will adequately
provide) for all Taxes which would be due with respect to the current taxable
year if the current taxable year ended at the close of business on the Closing
Date, except for any such failures as would not individually or in the aggregate
have a BT GCS Business MAE.
<PAGE>
(ii) Except as set forth in Schedule 17.2(q), no proposed Taxes or Tax
deficiencies have been asserted against BT, the BT Sellers or the Contributed BT
Subsidiaries relating to the BT GCS Business or any of the Contributed BT
Subsidiaries except those that have been paid in full or those which if
determined adversely to BT, the BT Sellers or the Contributed BT Subsidiaries
would not individually or in the aggregate have a BT GCS Business MAE.
(iii) Except as set forth on Schedule 17.2(q), there are no and have been
no tax sharing or other agreements or arrangements regarding the allocation of
liability of Taxes, reimbursement for group relief or consortium relief or
similar matters between or among BT or the BT Sellers, on the one hand, and any
of the Contributed BT Subsidiaries, on the other hand.
(iv) Except as set forth on Schedule 17.2(q), (A) there are no pending
requests for rulings from any Taxing authority relating to any material issue
affecting any BT Asset or Contributed BT Subsidiary, (B) there are no
outstanding subpoenas or written requests for information by any Taxing
authority with respect to Taxes relating to any material issue affecting any BT
Asset or Contributed BT Subsidiary, and (C) to the knowledge of BT or the BT
Sellers, there are no proposed reassessments by any Taxing authority of any
property that constitutes a BT Asset, or is owned or leased by any BT Seller or
any Contributed BT Subsidiaries.
(v) Except as set forth on Schedule 17.2(q), there are no written
agreements in effect to extend (A) the time to file any Tax Return of any
Contributed BT Subsidiaries or (B) the period of limitations for the assessment
or collection of any Taxes of any Contributed BT Subsidiaries.
(vi) Except as set forth on Schedule 17.2(q), there is no pending Tax
audit, examination, investigation or similar proceeding involving any liability
for Taxes relating to any Contributed BT Subsidiaries or the BT Assets which
would, if determined adversely to BT, the BT Sellers or the Contributed BT
Subsidiaries have a BT GCS Business MAE, nor have any of the Contributed BT
Subsidiaries, BT or any BT Seller entered into any closing agreement within the
meaning of Section 7121 of the Code, or any analogous provision of state, local
or foreign law relating to any material issue affecting any BT Asset or
Contributed BT Subsidiary.
(vii) Except as set forth on Schedule 17.2(q), the Income Tax Returns of
each Contributed BT Subsidiary have either been examined by the relevant Taxing
authority or the periods covered by such Income Tax Returns have been closed by
an applicable statute of limitations.
(viii) No Contributed BT Subsidiary is or was a member of a U.S.
Consolidated Group.
(ix) There are no transactions which have been carried out by the
Contributed BT Subsidiaries in respect of which special consent was required
from H.M. Treasury under the provisions of section 765 of the U.K. Income and
Corporation Taxes Act 1988 without such consent having first been obtained and
all relevant information supplied to H.M. Treasury.
<PAGE>
(r) Conduct of BT GCS Business. On the Closing Date, except as disclosed on
Schedule 17.2(r) or otherwise permitted or required by this Agreement, including
Schedule 2.2, or to effect the Contribution and the transactions contemplated in
connection therewith, the following shall be true and correct with respect to
the period from the date hereof to and including the Closing Date:
(i) BT will have caused the BT GCS Business to have been operated in the
ordinary course;
(ii) BT will have caused each Contributed BT Subsidiary not to have (A)
amended its constitutive or equivalent documents; (B) subject to Section
17.2(u), except as otherwise contemplated hereby (including as may be necessary
to transfer any non-BT Assets from any Contributed BT Subsidiary other than BT
IntermediateCo, Concert Holdings or any of their Subsidiaries) and except for
cash dividends or distributions, declared or paid any dividend or distribution
with respect to its capital stock or share capital; or (C) repurchased its
capital stock or share capital;
(iii) BT will have caused the BT Sellers in respect of the BT GCS Business
and the Contributed BT Subsidiaries not to have (A) created, incurred or assumed
any long-term or short-term Indebtedness, except pursuant to Section 15.7(a);
(B) assumed, guaranteed, endorsed or otherwise have become liable or responsible
(whether directly, contingently or otherwise) for any material obligations of
any other Person other than any of the Contributed BT Subsidiaries; or (C) made
any material loans, advances or capital contributions to or investments in, any
Person other than any of the Contributed BT Subsidiaries (except as permitted by
this Agreement or any other Transaction Agreement and except for customary
loans, advances or capital contributions consistent with past practice or in
accordance with contractual arrangements existing as the date hereof and set
forth on Schedule 17.2(r) and except intercompany loans and advances between the
Contributed BT Subsidiaries and BT or any of its Affiliates), except for any of
the foregoing that shall not become obligations of the Newco Group or that shall
have been settled or otherwise eliminated on or prior to the Closing;
(iv) except as required by Applicable Law or contractual obligations
existing on the date hereof and set forth on Schedule 17.2(r) or as permitted
under or contemplated by this Agreement or any of the other Transaction
Agreements, BT will have caused (1) the BT Sellers not to have sold, transferred
or otherwise have disposed of any BT Assets, and the Contributed BT Subsidiaries
not to have sold, transferred or otherwise have disposed of any of their Assets,
with a total value of more than $250 million in the aggregate, other than in the
ordinary course of business or (2) the BT Sellers not to have created any Lien,
except a Permitted Lien, on the BT Assets other than in the ordinary course of
business or the Contributed BT Subsidiaries not to have created any Lien, except
a Permitted Lien, on any of their Assets other than in the ordinary course of
business;
(v) BT will have caused all transactions involving BT and any of its
Affiliates, on the one hand, and the Contributed BT Subsidiaries, on the other
hand, or otherwise involving BT and its Affiliates and the BT GCS Business to
have been on an arm's length basis;
(vi) subject to the terms and conditions of this Agreement, to any effects
arising principally from having entered into the Term Sheet, this Agreement or
the other Transaction Agreements and consistent with operating in the ordinary
course, BT will have used, and will have caused the BT Sellers and the
Contributed BT Subsidiaries to have used, its or their reasonable commercial
efforts to preserve the BT GCS Business intact, and to preserve the goodwill of
customers, suppliers and others having business relations with the BT GCS
Business; and
<PAGE>
(vii) BT will have caused the BT Sellers in respect of the BT GCS Business
and the Contributed BT Subsidiaries not to have agreed to take any action or
refrain from taking any action with respect to the BT GCS Business described in
this Section 17.2(r).
(s) Cables. There is no fault with the functionality or operation of any
cable used in the BT GCS Business that detrimentally affects the quality of
services being supplied to customers or the on-going cost of maintenance and
support of such cable in comparison with other equivalent cables, except for
such faults that would not individually or in aggregate have a BT GCS Business
MAE.
(t) Intercompany Agreements; Purchase of MCI's Interest in Concert. Except
as set forth on Schedule 17.2(t), none of Concert Holdings, Concert, any other
Contributed BT Subsidiary or any of their Subsidiaries, on the one hand, is a
party to any agreement or arrangement with BT or any of its Affiliates (other
than Concert or one or more of its Subsidiaries), or MCI or MCI-WorldCom or any
of their Affiliates, on the other hand. Except as set forth on Schedule 17.2(t),
none of the agreements or arrangements entered into by either BT or Concert or
any of their respective Affiliates in connection with the purchase of the
Purchased Shares will impose any Liabilities upon Concert or any of its
Affiliates which, individually or in the aggregate, are material to Concert, or
would, individually or in the aggregate, have a material adverse effect on the
business, operations or financial condition of Concert. Except as set forth on
Schedule 17.2(t), none of BT IntermediateCo, Concert Holdings or any other
Contributed BT Subsidiary is subject to any Liabilities that did not arise in
the ordinary course of conduct of their Global Business Communications Services
business.
(u) Concert Distributions; Indebtedness.
(i) Since March 31, 1998 and through to the Closing, none of BT
IntermediateCo, Concert Holdings or any of their Subsidiaries has or will have
(x) declared, paid or made any dividends or other distributions on its
outstanding share capital, or (y) redeemed, retired, purchased, or otherwise
acquired for value any shares of any of its classes of share capital.
(ii) From March 31, 1998 to the date hereof, (x) Concert was operated in
the ordinary course of business other than any matter resulting from or relating
to Concert's restructuring of its relationship with MCI (and for these purposes
the change-over from leasing to owning circuits shall be deemed to be in the
ordinary course of business), and (y) Concert has not created, incurred or
assumed long-term or short-term Indebtedness or assumed, guaranteed, endorsed or
otherwise become liable or responsible (whether directly, contingently or
otherwise) for any material obligations of any other Person, except to fund
losses and to invest in Concert's business to operate such business in the
ordinary course as such ordinary course is described in the preceding clause
(x). As of September 30, 1998, the net debt of Concert was not greater than
65.15 million pounds sterling, as shown on the attached Schedule 17.2(u).
For purposes of this Section 17.2(u) only, a breach of this representation
shall be remedied by BT by a payment of cash to Concert, or a cancellation of
Indebtedness owed by Concert to BT, in an amount equal to any Indebtedness above
the level provided in the preceding sentence.
<PAGE>
(v) Organization and Standing. Thistle BV is a Besloten Vennootschap duly
organized under the laws of The Netherlands, and has all requisite corporate
power and corporate authority necessary to enable it to own, lease or otherwise
hold its properties and assets and to carry on its business as presently
conducted.
(w) Share Capital of Thistle BV. The total authorized share capital of
Thistle BV is NLG 200,000, divided into 2,000 shares with a nominal value of NLG
100 per share, of which 400 shares have been issued to, and are registered in
the name of, BT Holdings. Thistle BV is a wholly-owned Subsidiary of BT
Holdings.
(x) No Operations. Except for obligations or liabilities incurred in
connection with the costs and expenses of its incorporation or organization and
with the transactions contemplated in the Transaction Agreements and the Local
Purchase Agreements, Thistle BV has not incurred any obligations or liabilities
or engaged in any business or activities of any type or entered into any
agreements or arrangements with any Person.
(y) Thistle BV Authorization; Validity. Thistle BV has all requisite
corporate power and corporate authority to execute and deliver this Agreement
and the IPR Agreement, to perform its obligations hereunder and thereunder and
to consummate the transactions contemplated hereby and thereby. Thistle BV will
have at the Closing all requisite corporate power and corporate authority to
execute and deliver the Transaction Agreements and the Local Purchase Agreements
to be executed by it on or prior to the Closing, to perform its obligations
under such other Transaction Agreements and such Local Purchase Agreements to
which it is a party and to consummate the transactions contemplated thereby. The
execution, delivery and performance by Thistle BV of this Agreement and the IPR
Agreement, and the consummation by Thistle BV of the transactions contemplated
hereby and thereby have been duly authorized by all necessary corporate action
on the part of Thistle BV. The execution, delivery and performance of Thistle BV
of the Transaction Agreements and the Local Purchase Agreements to be executed
by it on or prior to the Closing, and the consummation of the transactions
contemplated thereby, will, prior to such execution and delivery, be duly
authorized by all necessary corporate action on the part of Thistle BV and no
other corporate proceedings or action on the part of Thistle BV or its
Management Board or shareholders will be necessary therefor. This Agreement and
the IPR Agreement have been, and the Transaction Agreements and the Local
Purchase Agreements to be executed by Thistle BV on or prior to the Closing
will, when executed and delivered, be, duly executed and delivered by Thistle
BV. This Agreement and the IPR Agreement constitute, and the other Transaction
Agreements and the Local Purchase Agreements to be executed by Thistle BV on or
prior to the Closing will, when duly executed and delivered, constitute, legal,
valid and binding obligations of Thistle BV, enforceable against it in
accordance with their respective terms.
(z) Thistle BV No Conflicts. Except as set forth on Schedule 17.2(z), the
execution, delivery and performance by Thistle BV of this Agreement and the IPR
Agreement, the consummation of the transactions contemplated hereby and thereby
and the compliance with the terms hereof and thereof do not, and the execution,
delivery and performance by Thistle BV of the other Transaction Agreements and
the Local Purchase Agreements to be executed by it on or prior to the Closing,
<PAGE>
the consummation of the transactions contemplated by such Transaction Agreements
and such Local Purchase Agreements and compliance with the terms of such
Transaction Agreements and such Local Purchase Agreements will not at the
Closing, conflict with, or constitute or result in any Default under (i) any
provision of the Thistle BV Charter Documents, (ii) any order, arbitration
award, judgment, injunction or decree against, or binding upon, Thistle BV or
upon its properties or businesses, (iii) any instrument, contract, mortgage,
charge or other agreement to which it is bound, or by which any of its Assets is
bound, or (iv) under any Applicable Law with respect to Thistle BV or any of its
Assets (except, with respect to clauses (ii), (iii) and (iv), for such conflicts
or Defaults that, individually or in the aggregate, would not have a material
effect on the ability of Thistle BV to perform in all material respects its
obligations under this Agreement and the other Transaction Agreements and the
Local Purchase Agreements to which it is a party in accordance with their
respective terms and would not have a Venture Business Material Adverse Effect).
(aa) Litigation; Orders. There are no Actions pending or, to BT's
knowledge, threatened against Thistle BV that would individually or in the
aggregate have a Venture Business Material Adverse Effect or prohibit the
Contribution or the transactions contemplated hereby or by any of the other
Transaction Agreements. There are no judgments or outstanding orders,
injunctions, decrees, stipulations or awards (whether rendered by a court or
administrative agency, or by arbitration) against Thistle BV that would
individually or in the aggregate have a Venture Business Material Adverse Effect
or that would prohibit the Contribution or the transactions contemplated hereby
or by any of the other Transaction Agreements.
ARTICLE 18
COVENANTS
18.1 Conduct of AT&T GCS Business; Conduct of BT GCS Business.
(a) Except as otherwise provided herein, nothing in this Agreement shall be
construed or interpreted to (x) limit or prevent the AT&T Sellers or any of the
Contributed AT&T Subsidiaries prior to the Closing Date from (i) making or
accepting intercompany advances to, from or with one another or with AT&T or any
of its Affiliates or (ii) engaging in any transaction incident to the normal
cash management procedures of AT&T and its Affiliates, including short-term
investments in bank deposits, money market instruments, time deposits,
certificates of deposit and bankers' acceptances and borrowings for working
capital purposes and purposes of providing additional funds to the AT&T Sellers
and the Contributed AT&T Subsidiaries in the ordinary course of business;
provided, that, none of such actions would have an AT&T GCS Business MAE or (y)
limit or prevent (i) transfers of assets or liabilities by AT&T or its
Affiliates to facilitate the transfer of the AT&T Assets to the Newco Group at
the Closing, (ii) other activities of AT&T and its Affiliates undertaken in
connection with provisioning for the transition period pursuant to the
Transition Plan before the establishment of the Newco Group and for the
establishment of the Newco Group, and (iii) activities undertaken by AT&T or any
of its Affiliates in connection with the withdrawal from the alliances set forth
on Schedule 18.9 or in connection with the formation of ConsumerCo.
<PAGE>
(b) Except as otherwise provided herein, nothing in this Agreement shall be
construed or interpreted to (x) limit or prevent the BT Sellers or any of the
Contributed BT Subsidiaries prior to the Closing Date from (i) making or
accepting intercompany advances to, from or with one another or with BT or any
of its Affiliates or (ii) engaging in any transaction incident to the normal
cash management procedures of BT and its Affiliates, including short-term
investments in bank deposits, money market instruments, time deposits,
certificates of deposit and bankers' acceptances and borrowings for working
capital purposes and purposes of providing additional funds to the BT Sellers
and the Contributed BT Subsidiaries in the ordinary course of business;
provided, that, none of such actions would have a BT GCS Business MAE or (y)
limit or prevent (i) transfers of assets or liabilities by BT or its Affiliates
to facilitate the transfer of the BT Assets to the Newco Group at the Closing,
(ii) other activities of BT and its Affiliates undertaken in connection with
provisioning for the transition period pursuant to the Transition Plan before
the establishment of the Newco Group and for the establishment of the Newco
Group, and (iii) activities undertaken by BT, Concert or any of their Affiliates
in connection with the withdrawal of MCI from Concert.
(c) AT&T and BT shall cause the representations and warranties set forth in
Sections 17.1(r) and 17.2(r), respectively, to be true and correct in all
material respects on and as of the Closing.
18.2 No Amendments. None of Concert, BT or any of their Affiliates shall
(a) enter into or agree to any material amendment, by supplement or otherwise,
to the provisions of the MCI-WorldCom Distribution Agreement or (b) extend or
agree to extend the two year term or the three year run-off period thereof.
18.3 EU Merger Regulation. From the date of this Agreement, each parent
shall use its Best Efforts to secure that the transactions contemplated hereby
will be considered by the European Commission under the European Merger Control
Regulation, including the procedures and timetable provided for in Council
Regulation EEC No. 4064/89 and its associated regulations (each as amended)
(collectively, the "EU Merger Regulations"); provided, however, that neither the
foregoing nor the provisions of Section 20.3 shall (a) limit or restrict the
parents' ability to negotiate the terms of any Transaction Agreement to the
extent not agreed on the date hereof, or (b) require either parent to agree to
any material change to (i) the structure of the Newco Group as described in
Schedule 2.2, (ii) the Initial Contributed Assets, or (iii) any important
restriction, modification, limitation or reduction of the second sentence of
Section 11.6, including any applicable exceptions thereto, or any other material
term of this Agreement or any other Transaction Agreement.
18.4 Governmental Approvals.
(a) Subject to Sections 19.2 and 19.3, from the date of this Agreement,
each parent shall use its Best Efforts to obtain the Governmental Approvals set
forth in Schedule 17.1(d) and Schedule 17.2(d) (collectively, the "Key
Governmental Approvals") necessary for the parents, Thistle BV and their
Subsidiaries to consummate the transactions contemplated by the Transaction
Agreements within 12 months from the date hereof; provided, however, that,
whether in connection with any discussions with any Governmental Body or in
connection with any Governmental Approval with respect to the transactions
<PAGE>
contemplated hereby or otherwise, (i) the obligations of the parents to use Best
Efforts shall not limit or restrict the parents' ability to negotiate the terms
of any Transaction Agreement to the extent not agreed on the date hereof, (ii)
neither parent shall be required to agree to any important restriction,
modification, limitation or reduction of the second sentence of Section 11.6,
including any applicable exceptions thereto, (iii) without limiting clause (ii),
the exclusion for Material Adverse Effect in the definition of "Best Efforts"
shall apply to and shall be deemed to include any restriction, condition, burden
or detriment applicable to a parent's own business or on the proposed Venture
Business, and (iv) neither BT nor any of its Subsidiaries shall be required to
take any of the actions or provide any of the services described in Schedule
18.4. Any Key Governmental Approval that is granted or proposed subject to any
of the matters referred to in the proviso to the preceding sentence or which
would have a Material Adverse Effect on the applicable parent's own business or
on the proposed Venture Business shall be deemed to contain a "Burdensome
Condition."
(b) From the date of this Agreement, the parents shall make or cause to be
made available all information reasonably requested by the other parent to
permit all necessary filings and notices to the European Commission to be made
within one week following the execution of this Agreement, and, with respect to
filings and notifications in the United States and elsewhere, as promptly as
practicably following the execution hereof. The parents shall promptly furnish
or cause to be furnished all information and documents reasonably required by
the relevant Governmental Bodies, and make or cause to be made available staff
to give evidence to such Governmental Bodies, in each case as appropriate in
order to obtain the Key Governmental Approvals.
(c) At all times prior to the Closing, the parents shall cooperate and
coordinate with each other, as appropriate, with respect filings and
notifications to Governmental Bodies in connection with obtaining Governmental
Approvals for the transactions contemplated hereby.
18.5 Access. From the date of this Agreement until the Closing Date, each
parent shall give to the other parent and its representatives reasonable access
during normal business hours to the properties, books and records of such parent
and its Affiliates to the extent relating to the Initial Contributed Assets and
the Assumed Liabilities and furnish each other with all such information
concerning the AT&T GCS Business or the BT GCS Business, as the case may be, as
the other parent may reasonably request, subject to appropriate confidentiality
restrictions and restrictions on sharing of information imposed by contracts
with third parties or Applicable Law. Without limiting the foregoing, BT will
provide AT&T and its representatives reasonable access during normal business
hours to the information, books and records relating to Concert and its
business, operations, contracts, assets, liabilities, revenues and other
financial information.
18.6 Books and Records. From the date of this Agreement until the Closing
Date, each parent shall, and shall cause its Affiliates to, continue to maintain
the books, accounts and records of such parent and the AT&T GCS Business or the
BT GCS Business, as the case may be, in the usual, regular and ordinary manner
on a basis consistent with prior years and periods, except as required by
Applicable Law or the GAAP of the applicable jurisdiction of such businesses, as
the case may be.
<PAGE>
18.7 Further Assurances. The parties shall use their Reasonable Best
Efforts to consummate the transactions contemplated hereby, subject to the terms
hereof. Each party shall execute, or cause to be executed, such documents and
other instruments, and take or cause to be taken such further actions, as may be
reasonably requested to carry out the provisions hereof and the transactions
contemplated hereby, subject in all cases, to the terms hereof.
18.8 Other Documents. As soon as reasonably practicable after the date
hereof but prior to the Closing Date, the parents shall negotiate in good faith
to reach mutual agreement on the definitive terms and conditions of:
(a) an investment fund agreement, which shall contain the terms set forth
in Schedule 18.8 attached hereto and such other terms and conditions as the
parents shall agree (the "Investment Fund Agreement");
(b) systems and other support services agreements, including, to the extent
not covered in a Supply Agreement (Parent Components), agreements for the supply
by the parents to the Newco Group of capacity and other telecommunications
services;
(c) an employee matters agreement, which shall contain terms and conditions
as the parents shall agree (the "Employee Matters Agreement");
(d) to the extent not covered in the IPR Agreement, any trademark licenses
to be granted by the parents to the Newco Group or vice versa;
(e) the transition plan (the "Transition Plan"), identifying the actions to
be taken by the parents, consistent with legal, regulatory and contractual
obligations, including time schedules for implementation, in order to facilitate
the establishment of the Newco Group and the Venture Business;
(f) the pricing and risk principles to be incorporated in the subcontracts
referred to in Section 7.6;
(g) supply agreements for the supply by the Newco Group to each parent of
facilities and services involving the Global Network Facilities of the Newco
Group, including multi-use facilities and earth stations; and
(h) supply agreements for the supply by each parent to the Newco Group of
facilities and services involving the Domestic Network Facilities of such
parent, including multi-use facilities.
18.9 Activities With Respect to Alliances. With respect to the Persons
listed in Schedule 18.9, AT&T shall take the actions listed in such Schedule
within the time periods set forth therein; provided, however, that, if AT&T is
prevented or restrained by any order, judgment, injunction, award or decree by
any Governmental Body from so taking such action, so long as AT&T is diligently
and in good faith pursuing all available legal remedies to cause such order,
judgment, injunction, award or decree to be withdrawn, terminated, canceled or
released, the applicable time period set forth in Schedule 18.9 shall be tolled
for the period of time any such order, judgment, injunction, award or decree is
in effect and binding on AT&T; provided, further, however, that AT&T shall be
entitled to engage in the transitional and other post-termination activities set
forth on Schedule 18.9.
<PAGE>
18.10 Confidentiality.
(a) The terms of the separate Confidentiality Agreements dated March 11,
1998 and June 8, 1998 between the parents (the "Confidentiality Agreements")
shall apply to all Evaluation Material (as defined therein) disclosed to the
other parent as a result of the discussions, negotiations or due diligence
process contemplated in this Agreement.
(b) Each parent shall, and shall cause its Affiliates and its or their
directors, officers, employees and agents (each, a "Recipient") to, maintain in
confidence the terms of this Agreement and the other Transaction Agreements and
all information furnished to each such Recipient in connection with or relating
to this Agreement, the other Transaction Agreements or the business and affairs
of the Newco Group. The preceding sentence shall not apply to information that
(i) becomes generally available to the public other than as a result of
disclosure by such recipient contrary to this Agreement, (ii) was available to
such Recipient on a non-confidential basis prior to its disclosure to such
Recipient by the Newco Group or the other parent, (iii) becomes available to
such Recipient on a non-confidential basis from a source other than the Newco
Group or any other Recipient unless such Recipient knows that such source is
bound by a confidentiality agreement or is otherwise prohibited from
transmitting the information to such Recipient by a contractual obligation, (iv)
is independently developed by such Recipient without reference to confidential
information received from the Newco Group, (v) is required to be disclosed by
Applicable Law or legal process, or (vi) is required to be disclosed by any
listing agreement with, or the rules or regulations of, any securities exchange
on which securities of such Recipient or any of its Affiliates are listed or
traded. In the case of a disclosure in the circumstances described in clause (v)
of the preceding sentence, the disclosing Recipient shall use its Reasonable
Best Efforts to provide Thistle BV and the other parent with prompt notice
thereof so that Thistle BV or the other parent may seek a protective order or
other appropriate remedy. If such protective order or other remedy is not
obtained, the disclosing Recipient agrees to furnish only that portion of the
information that it is legally required to do so and, at the request of Thistle
BV or the other parent, shall use its Reasonable Best Efforts to obtain
assurances that confidential treatment will be accorded such information.
18.11 Name of Thistle BV. The chairman of the board of directors of each
parent shall, prior to the Closing, consult with each other and agree upon the
corporate name of Thistle BV to be adopted as of the Closing.
18.12 Netherlands Tax Ruling. If either AT&T or BT fails to obtain a ruling
from the Netherlands Tax Authorities which ensures that their respective
contributions of Assets to the Newco Group will be exempt from Netherlands
capital tax under application of article 37 of the relevant Netherlands Tax law
(i.e., Wet op Belastingen van Rechstverkeer) and Article 28 (Non-Discrimination)
of the Convention between the United States of America and The Kingdom of the
Netherlands for the Avoidance of Double Taxation and the Prevention of Fiscal
Evasion with respect to Taxes on Income (December 18, 1992), then the parties
agree to negotiate in good faith to secure an alternative mutually acceptable
jurisdiction of incorporation (other than the U.S. or U.K.) for Thistle BV.
ARTICLE 19
PRE-CLOSING ACQUISITION TRANSACTIONS
19.1 Acquisition Transactions.
<PAGE>
(a) This Section 19.1 shall apply to any businesses, investments or assets
acquired by either parent or any of its Group Companies by merger, acquisition,
business combination or other transaction (an "Acquisition Transaction") on or
after the date of this Agreement and prior to the Closing Date which, if
acquired after the Closing Date, would violate the provisions of Section 11.1 or
the second sentence of Section 11.6 after giving effect to any exceptions
thereto, other than any of the foregoing acquired pursuant to an agreement
initially executed and delivered prior to July 24, 1998 (collectively, the "New
Assets"). If an Acquisition Transaction involves New Assets and other assets or
the acquisition of an interest in a business that owns New Assets and other
assets, this Article 19 shall apply only to the New Assets; provided, that, if
the acquired interest in a business is a non-Controlling interest, the party
making such Acquisition Transaction may elect to treat the entirety of such
interest as New Assets in order to satisfy its obligations under this Article
19.
(b) In the case of any New Assets, the parents and the CEO shall, following
the Closing Date, cooperate in a review of such New Assets and their potential
value to the Newco Group. Unless the parents agree to the contrary, the CEO
shall have the authority to make a determination to purchase New Assets and
assume related liabilities up to an aggregate Acquisition Cost (as defined
below) of $25 million. If so determined by the CEO, Thistle BV or one or more of
the Newco Subsidiaries shall purchase for cash any such New Assets and Thistle
BV or one or more of the Newco Subsidiaries will assume any related liabilities
approved by the CEO at a price (unless otherwise agreed by the applicable parent
and by Thistle BV through a decision of the Management Board, with DirectorCo,
as the sole director of the Management Board, acting pursuant to a majority vote
of each of the Class A Representatives and the Class B Representatives) equal to
the price paid to acquire such New Assets, adjusted to reflect any liabilities
not assumed by Thistle BV or the applicable Newco Subsidiary, plus the
applicable cost of funds of the parent or its Group Company attributable to such
purchase price for the period from the acquisition thereof by the parent or its
Group Company to the closing of the sale of the New Assets to Thistle BV or one
or more of the Newco Subsidiaries (such cost, the "Acquisition Cost"). If the
CEO decides not to purchase the New Assets, unless the parents agree to the
contrary, none of Thistle BV or any of the Newco Subsidiaries shall purchase any
such New Assets. The provisions of Section 15.3(c) shall be applicable, mutatis
mutandis, to any New Assets and related liabilities acquired or assumed by
Thistle BV.
(c) Any acquisition of New Assets with an Acquisition Cost in excess of $25
million, in a transaction or series of related transactions, shall require the
approval of the Management Board in accordance with Section 3.5(e). The
applicable parent shall, or shall cause its applicable Group Company to, divest
any New Assets not so acquired by Thistle BV or any of the Newco Subsidiaries
within one year following the Closing Date.
(d) The parties will cooperate to make any purchases by Thistle BV or any
of the Newco Subsidiaries contemplated by this Section 19.1 not financially
coercive and efficient from a tax and accounting perspective to the Newco Group
or the parent, or the parent of the Group Company, that acquired the New Assets
and the parties will cooperate in structuring any such purchases. Any purchases
of New Assets described in this Section 19.1 shall be pursuant to mutually
acceptable stock or asset purchase agreements.
<PAGE>
19.2 Obligation to Obtain Governmental Approvals.
(a) Notwithstanding anything to the contrary in this Agreement other than
Section 19.4, but including the definition of "Best Efforts" and "Reasonable
Best Efforts," nothing herein shall prevent or restrict either parent or any of
its Group Companies from engaging in any Acquisition Transaction after the date
hereof and prior to the Closing Date.
(b) Any Acquisition Transaction engaged in by a parent or any of its Group
Companies after the date hereof and prior to the Closing Date shall not affect
the application of Section 20.2(a), 20.2(b) or 20.2(c) or the obligation of the
parent, or the parent of the Group Company, undertaking the Acquisition
Transaction otherwise to continue to use its Best Efforts to obtain the Key
Governmental Approvals for the transactions contemplated by the Transaction
Agreements at the earliest practicable date concurrently with pursuing such
Acquisition Transaction.
19.3 Material Acquisition Transaction.
(a) This Section 19.3 shall apply to any Material Acquisition Transaction.
A "Material Acquisition Transaction" shall mean an Acquisition Transaction that
involves the acquisition of a Person engaged predominantly in the Global
Communications Services business or the Carrier Services business which either
(i) derives aggregate annual revenues from such business in excess of $500
million or (ii) owns or operates Global Network Facilities with a fair market
value in excess of $250 million, in either case as determined by reference to
the most recently completed full fiscal year of such Person.
(b) If a parent or any of its Group Companies (the "engaging party") enters
into any written agreement for a Material Acquisition Transaction, it shall
promptly notify the other parent (the "non-engaging party") in writing. Within
60 days following receipt of such notice from the engaging party, the
non-engaging party shall be entitled to seek written confirmation from the
engaging party that it will continue to perform its obligations to use its Best
Efforts to obtain the Key Governmental Approvals for the transactions
contemplated by the Transaction Agreements at the earliest practicable date
concurrently with pursuing such Material Acquisition Transaction. The engaging
party shall respond to such request for confirmation within 10 days following
receipt of a request for written confirmation. If it gives such written
confirmation, then it must perform its Best Efforts to obtain the Key
Governmental Approvals for the transactions contemplated by the Transaction
Agreements at the earliest practicable date concurrently with pursuing such
Material Acquisition Transaction.
(c) If the engaging party does not confirm in writing to the non-engaging
party that it will perform such obligation within 10 days after receipt of the
non-engaging party's request for confirmation, and thereafter, diligently and
continuously perform such obligation, the non-engaging party shall be entitled
forthwith, by prompt notice to the engaging party, to terminate this Agreement
and the other Transaction Agreements.
(d) If, on the expiration of the 18-month period provided in Section
20.2(a), the Key Governmental Approvals shall not have been obtained for the
<PAGE>
transactions contemplated by the Transaction Agreements, the non-engaging party
shall have the right to decide, by giving notice in writing to the engaging
party on or before the nineteenth month anniversary of the date of this
Agreement, whether or not it wishes to require both the AT&T Parties and the BT
Parties to continue to be bound by the terms of this Agreements and the other
Transaction Agreements for a period specified by it of up to an additional 12
months after the expiration of the 18-month period provided in Section 20.2(a)
or to terminate this Agreement and the other Transaction Agreements.
(e) If the non-engaging party decides not so to terminate the Transaction
Agreements, it may require the engaging party to use its Best Efforts to obtain
the Key Governmental Approvals for the transactions contemplated by the
Transaction Agreements at the earliest practicable date concurrently with
pursuing such Material Acquisition Transaction and shall itself continue to use
its Best Efforts to obtain the Key Governmental Approvals. If the Key
Governmental Approvals have still not been obtained on the date specified by the
non-engaging party pursuant to Section 19.3(d), either parent shall have the
right, exercisable by giving written notice to the other parent within 30 days
thereafter, to terminate this Agreement and the other Transaction Agreements.
(f) If the non-engaging party shall not have exercised its rights to
terminate the Transaction Agreements prior to the end of the 30-month period
following the date hereof, and if the Key Governmental Approvals have still not
been obtained by the end of such 30-month period and such failure was in some
meaningful part caused by the engaging party's undertaking of such Material
Acquisition Transaction, unless the non-engaging party is in material breach of
its obligations under this Agreement or any other Transaction Agreement, the
engaging party shall pay to the non-engaging party, following the termination of
the Transaction Agreements at the end of such 30-month period, all of the fees,
charges, costs, disbursements and expenses, including travel, lodging and other
expenses, of the non-engaging party and its employees, agents, representatives,
investment bankers, counsel, including charges for in-house counsel, accountants
and other advisers incurred in connection with the negotiation and preparation
of this Agreement and the Transaction Agreements and all prior agreements, term
sheets, letters of intent and other documents that have been superseded by this
Agreement, including the Term Sheet, and all other activities relating to the
transactions contemplated by the Transaction Agreements (excluding the purchase
of the Purchased Shares) up to an aggregate maximum of $150 million. If the
Transaction Agreements are terminated at the end of such 30-month period, within
30 days after the expiration of such 30-month period, the non-engaging party
shall deliver to the engaging party a statement, in reasonable detail, of all
such fees, charges, costs, disbursements and expenses. Within five days
following delivery of such statement, the engaging party shall make payment, by
wire transfer of same day funds, of such amount to the non-engaging party.
(g) If the Transaction Agreements are not terminated under this Section
19.3 and the Closing shall occur, the provisions of Section 19.1 shall apply
with respect to New Assets involved in the Material Acquisition Transaction.
19.4 No Acquisition Transactions. After the date of this Agreement and
prior to the Closing Date, neither parent shall be permitted to undertake any
Material Acquisition Transaction if (a) the principal business and predominant
source of revenue of such Person or assets is derived from the offer, sale or
distribution of Global Business Communications Services, and (b) a substantial
portion of the assets of such Person or such assets, as applicable, that
comprise New Assets could not reasonably be expected to be acquired by Thistle
BV for regulatory or antitrust reasons.
<PAGE>
ARTICLE 20
CLOSING
20.1 Closing.
(a) The AT&T Parties, on the one hand, and the BT Parties and Thistle BV,
on the other hand, shall promptly notify the other parties upon receipt of
notice that all Key Governmental Approvals required to be obtained by the
notifying parties in connection with the transactions contemplated hereby have
been obtained. Thereafter, provided that all other conditions set forth in
Article 21 have been satisfied or waived, the closing (the "Closing") of the
transactions contemplated hereby shall take place simultaneously at the offices
of Paul, Weiss, Rifkind, Wharton & Garrison, 1285 Avenue of the Americas, New
York, New York, at 10:00 a.m., New York City time and Houthoff, Parnassusweg
126, 1076 AT Amsterdam, The Netherlands, at a date agreed to by the parties but
in any event not later than 10 Business Days following the latter of such
notices from either the AT&T Parties, on the one hand, or the BT Parties and
Thistle BV, on the other hand, has been given, or at such other time or date as
the parties shall agree upon in writing. The time and date upon which the
Closing occurs is referred to herein as the "Closing Date."
(b) At the Closing, upon the terms and subject to the conditions set forth
herein, each party will and will cause its Affiliates to take the actions
described in Article 21 to be taken at the Closing and this Section 20.1 and
execute and deliver such other instruments and take all such other reasonable
actions as are necessary to consummate the transactions contemplated by the
Transaction Agreements to be consummated by it and its Affiliates at the
Closing.
(c) At the Closing, upon the terms and subject to the conditions set forth
herein, each of the parties shall, and shall cause its Affiliates and, insofar
as within its power, each of the Newco Subsidiaries to, enter into each of the
Transaction Agreements which have not been entered into prior to the Closing
Date to which such party, its Affiliates or such Newco Subsidiary, as the case
may be, are parties, including the following Transaction Agreements:
(i) Asset Contribution Agreements;
(ii) International Traffic Service Agreements;
(iii) Distribution Agreements (Newco Products);
(iv) Distribution Agreements (Parent Products);
(v) Supply Agreements (Parent Components);
(vi) Investment Fund Agreement; and
(vii) Employee Matters Agreement.
(d) At such time prior to the Closing as will enable BT Holdings to take
the actions and achieve the objectives described herein, BT Holdings in its
capacity as the sole shareholder of Thistle BV shall adopt a shareholder's
resolution in the form of Exhibit M approving the amendment of the articles of
association of Thistle BV in the form as set forth in Exhibit I. Promptly after
<PAGE>
the adoption of such resolution, BT Holdings shall apply for a declaration of no
objections (verklaring van qeen bezwaar) from the Ministry of Justice of The
Netherlands with respect to such amendment and shall use its Reasonable Best
Efforts to obtain such declaration of no objections as promptly as practicable
thereafter.
(e) At the Closing:
(i) BT Holdings in its capacity as the sole shareholder of Thistle BV shall
adopt a shareholder's resolution in the form of Exhibit N approving the issuance
of the shares of Thistle BV to be issued at the Closing and the transfer of
Thistle BV shares to VLT as contemplated by Section 20.1(e)(iii).
(ii) Thistle BV shall issue an equal number of shares to each of BT
Holdings and VLT and shall receive good title thereto pursuant to a notarial
deed of issuance substantially in the form of Exhibit L.
(iii) BT Holdings shall transfer such number of shares of Thistle BV to
AT&T or its Affiliate as shall be necessary to cause AT&T or its Affiliate to be
the holder of the same number of shares of Thistle BV as BT Holdings, for a
total purchase price equal to the aggregate par value of such shares payable at
Closing. Such transfer shall effect good title and be effected pursuant to a
notarial deed of transfer among such Affiliate of AT&T, BT Holdings and Thistle
BV substantially in the form of Exhibit O.
20.2 Termination Prior to Closing by Either Party. Either parent may
terminate this Agreement and the other Transaction Agreements prior to the
Closing by providing written notice thereof to the other parent if:
(a) the Key Governmental Approvals are not obtained within the time frame
set forth in Section 18.4(a); provided, however, that either parent, if it is
not in material breach of its obligations in Section 18.4(a) to use its Best
Efforts to obtain the Key Governmental Approvals, may extend the 12 month period
set forth in Section 18.4(a) by up to two additional three month periods, in
each instance, by providing written notice to the other parent no later than
five days prior to the expiration of either the 12-month period or the expiry of
the first three month extension, as applicable; provided, further, however, that
the aggregate total number of such three month extensions by both parents shall
not exceed two;
(b) after the date of this Agreement, it becomes highly probable that the
Key Governmental Approvals will not be obtained without Burdensome Conditions
adversely affecting the Newco Group or the parent seeking to terminate by the
eighteenth month anniversary of the date of this Agreement, so long as the
failure to satisfy such condition does not result from a breach by the party
seeking to terminate of its obligations under any Transaction Agreement;
(c) a Key Governmental Approval with a Burdensome Condition adversely
affecting the Newco Group or the parent seeking to terminate has been granted
for the transactions contemplated by the Transaction Agreements and is final and
not subject to further appeal;
(d) an event(s) or development(s) shall occur or fail to occur with respect
to the other parent or Thistle BV that would have a Material Adverse Effect on
the proposed Venture Business or on the ability of the other parent to perform
its obligations under the Transaction Agreements;
<PAGE>
(e) (i) a Change of Control with respect to the other parent shall occur,
(ii) the other parent or any of its Group Companies, as of the Closing Date,
would not be in compliance with Section 11.1 or the second sentence of Section
11.6 (assuming such Section were then fully in effect) and has failed to commit
to the non-breaching party that it will cure any such default diligently and in
good faith and in any event on or prior to the first anniversary of the Closing
Date, (iii) there shall exist a Triggering Person with respect to the other
parent, unless such other parent is entitled to cure such event in accordance
with Section 13.3 and such other parent shall have committed that it will
eliminate the circumstances causing the Triggering Person to be the same
diligently and in good faith and in any event prior to the first anniversary of
the Closing Date, or (iv) there shall exist a Covered Investor with respect to
the other party that is a Major Competitor of the party seeking to terminate the
Transaction Agreements;
(f) any final and binding order, judgment, injunction, award or decree that
is not subject to further appeal shall have been entered that enjoins, restrains
or prohibits the consummation of the transactions contemplated hereby or by the
Transaction Agreements or puts in doubt the validity of this Agreement or any
other Transaction Agreement in any material respect;
(g) any representation or warranty of the other parent contained in this
Agreement or the other Transaction Agreements, to the extent qualified by
materiality, a Venture Business Material Adverse Effect or an AT&T GCS Business
MAE or BT GCS Business MAE, as the case may be, fails to be true and correct or,
to the extent not so qualified, fails to be true and correct in all material
respects, or the other parent has failed to perform or comply in all material
respects with any of its covenants or agreements contained in this Agreement, in
the case of any of the foregoing, which failure cannot be cured on or prior to
the Closing Date and has not been waived by the parent that is seeking to
terminate the Transaction Agreements; or
(h) if the conditions set forth in Section 21.1(a)(iv) or (v) have not been
fulfilled by the Closing Date.
20.3 Termination Relating to Non-Compete.
(a) Nothing in this Section 20.3 shall limit, restrict or otherwise affect
the rights of the parents to terminate, or not consummate the transactions
contemplated by, the Transaction Agreements for the reasons set forth in Section
20.2 or Article 21 or affect any rights of either parent under Section 18.3 or
18.4(a), and each parent shall be entitled to exercise any of its rights
thereunder prior to, concurrently with or after the application of the
procedures set forth in this Section 20.3.
(b) The parents agree that, in all events, except as may arise in
accordance with this Section 20.3, the provisions of Section 11.1 and the second
sentence of Section 11.6, including any applicable exceptions thereto, shall
remain reciprocal in terms of duration and scope with respect to each parent's
Home Territory. If any relevant Governmental Body imposes or requires, as a
condition to the grant of its Key Governmental Approval, any restriction,
modification, limitation or reduction (any of the foregoing, a "Reduction") of
the non-compete provisions of Section 11.1 or the second sentence of Section
11.6 or any applicable exceptions thereto applicable to any Home Country, the
European Region, the NAFTA Region or a Home Territory, the parent receiving
notice of any such imposition or requirement for any such Reduction from the
Governmental Body shall promptly notify the other parent in writing.
<PAGE>
(c) The parent that would benefit from the Reduction (the "Advantaged
Party") shall, within 10 Business Days after the giving or receipt of the notice
of the Governmental Body's imposition or requirement, either (x) exercise any
applicable rights under Section 18.4(a), 20.2 or Article 21, or (y) notify the
other parent (the "Disadvantaged Party") in writing (i) whether it will agree to
make a corresponding change to the relevant provisions of Section 11.1 or the
second sentence of Section 11.6 or any applicable exceptions thereto, as the
case may be, with respect to its Home Country or Home Territory, or the European
Region or NAFTA Region, as the case may be, so that the provisions of Section
11.1 or the second sentence of Section 11.6 or any applicable exceptions
thereto, as the case may be, will be the same for both parents with respect to
their Home Countries and their and the other parent's Home Territory and the
same for AT&T in the NAFTA Region as for BT in the European Region, or (ii)
whether it declines to do so.
(d) If the Advantaged Party so elects to make the corresponding change,
then, subject to Section 20.3(a), the Reduction will not in and of itself
entitle the Disadvantaged Party to terminate this Agreement and the other
Transaction Agreements.
(e) If the Advantaged Party declines to make the corresponding change, the
Disadvantaged Party shall have the right, in addition to any other rights it may
have hereunder, by providing written notice thereof to the Advantaged Party
within 10 Business Days after receipt of notice from the Advantaged Party, to
terminate this Agreement and the other Transaction Agreements.
20.4 Termination Otherwise Than Permitted. If either parent attempts to
terminate this Agreement and the other Transaction Agreements prior to the
Closing other than as permitted pursuant to Section 1.6(b), 19.3, 20.2 or 20.3,
such action shall constitute a material breach of this Agreement and the other
parent shall have all rights and remedies available to it in law or equity,
including the right to seek specific performance of the obligations under this
Agreement of the party attempting to terminate the Transaction Agreements.
Specific performance shall be a non-exclusive remedy for such breach.
20.5 Effect of Termination.
(a) If this Agreement and the other Transaction Agreements are terminated
pursuant to Section 1.6(b), 19.3, 20.2 or 20.3, this Agreement and the other
Transaction Agreements shall forthwith cease to have effect between and among
the parties and all further obligations of the parties shall terminate without
further liability, except that (i) such termination shall not constitute a
waiver of any rights any party may have by reason of the material failure of any
material representation of the other party in this Agreement (but excluding the
representations and warranties in Sections 17.1(p) and 17.2(p)) to have been
true and correct as of the date of this Agreement, a material breach of Section
18.1(c) or a willful and intentional breach by any other party of any other
material covenant contained in this Agreement, (ii) the covenants and agreements
contained in Sections 25.2 and 25.3 shall survive for a period of six years
following the date of termination (other than with respect to claims that have
been made and are pending resolution as of such date, with respect to which it
shall survive without limit), and the other covenants and agreements contained
in Sections 18.10 and 28.3 and the Confidentiality Agreements shall survive such
termination without limitation as to time.
<PAGE>
(b) Except as provided in Section 20.5(a), but notwithstanding anything
herein to the contrary, all representations, warranties, covenants and
agreements contained herein shall be of no further force or effect after the
termination of this Agreement pursuant to Section 1.6(b), 19.3, 20.2 or 20.3.
ARTICLE 21
CONDITIONS TO CLOSING
21.1 Condition to Each Party's Obligations. The obligations of each of the
parties and their Affiliates to make their Contributions described in Section
15.1 and the obligations of the parties and their Affiliates to enter into the
other Transaction Agreements not theretofore executed and delivered to which
they are parties and otherwise to consummate the transactions to be consummated
by them at Closing are subject to the fulfillment to the satisfaction of, or
waiver by, each of AT&T and BT, as of the Closing Date, of the following
conditions:
(a) Governmental Approvals.
(i) All notifications required pursuant to the HSR Act for the transactions
contemplated hereby shall have been made, and the applicable waiting period and
any extensions thereof shall have expired or been terminated without the
imposition of any Burdensome Condition adversely affecting the Newco Group or
the parent seeking to rely on this condition.
(ii) The European Commission, pursuant to the EU Merger Regulations, shall
have granted approval of this Agreement and each other Transaction Agreement and
the transactions contemplated hereby and thereby, without the imposition of any
Burdensome Condition adversely affecting the Newco Group or the parent seeking
to rely on this condition.
(iii) An FCC Order shall have been obtained without the imposition of a
Burdensome Condition adversely affecting the Newco Group or the parent seeking
to rely on this condition, which has not been revoked or stayed as of the
Closing Date.
(iv) All other Governmental Approvals required to be obtained for the
consummation of the transactions contemplated hereby shall have been obtained,
all applicable pre-consummation waiting periods shall have expired, and no
Burdensome Condition adversely affecting the Newco Group or the parent seeking
to rely on this condition shall have been imposed by any Governmental Body with
respect to the transactions contemplated hereby, except for Governmental
Approvals and waiting periods the failure of which to obtain or satisfy would
not, individually or in the aggregate, be reasonably likely to impose a
Burdensome Condition adversely affecting the Newco Group or the parent seeking
to rely on this condition or materially and adversely affect the ability of
either the AT&T Parties or the BT Parties to perform their obligations hereunder
or under the other Transaction Agreements.
(v) No action shall have been taken by any Governmental Body to rescind or
withdraw any of the Key Governmental Approvals or any Governmental Approvals
contemplated by Section 21.1(a)(iv).
<PAGE>
(b) No Injunctions. No order, judgment, injunction, award or decree shall
have been entered or threatened by any Governmental Body that enjoins, restrains
or prohibits the consummation of any of the transactions contemplated hereby or
by the Transaction Agreements or puts in doubt the validity of this Agreement or
any other Transaction Agreement in any material respect.
(c) Transaction Agreements. The Transaction Agreements listed in Section
20.1(c) shall have been executed and delivered by the parties thereto and the
Charter Documents shall have become effective.
(d) Asset Purchase Agreements. The parents or their Affiliates shall have
executed and delivered one or more stock or asset purchase agreements as
contemplated by Section 15.5(c).
(e) Accountants' Statement. PricewaterhouseCoopers or another qualified
accounting firm acceptable to the parents shall have issued the Accountants'
Statement.
21.2 Conditions to the Obligations of AT&T. The obligations of AT&T and the
other AT&T Sellers to make their Contributions to the Newco Group pursuant to
Section 15.1 and the obligations of each of AT&T and its Affiliates to enter
into the other Transaction Agreements to which it is a party and to otherwise
consummate the transactions that are to be consummated by them at the Closing
are subject to the fulfillment to the satisfaction of, or waiver by, AT&T, as of
the Closing Date, of the following additional conditions: (a) Accuracy of
Representations and Warranties. The representations and warranties by BT and its
Affiliates in each Transaction Agreement to which they are a party, to the
extent qualified by materiality, a Venture Business Material Adverse Effect or a
BT GCS Business MAE, shall be true and correct and, to the extent not so
qualified, shall be true and correct in all material respects, in each case as
of the date they were made and as of the Closing Date, as if made on and as of
the Closing Date, except for representations and warranties that are made as of
a specified date which need be true and correct, or true and correct in all
material respects, as the case may be, only on the specified date. The
representations and warranties set forth in Section 17.2(q) that are not
qualified by a BT GCS Business MAE shall treated for the purposes of this
Section 21.2(a) as if so qualified.
(b) Performance of Obligations. BT and its Affiliates shall have performed
or complied in all material respects with their respective covenants and
agreements contained in the Transaction Agreements required to be performed or
complied with by BT and its Affiliates on or prior to the Closing Date.
(c) Delivery of Certificates of BT. BT and BT Holdings shall have delivered
to AT&T customary closing certificates and documents, in each case signed by an
officer or officers with the authority to bind such party (in each case dated as
of the Closing Date), and such other certificates or documents as AT&T or its
counsel may reasonably request evidencing the satisfaction in all material
respects of the conditions to Closing.
(d) Share Certificates. AT&T or its Affiliate shall have received share
certificates or other evidences of its interests in DirectorCo, the Newco
Services Company and the Newco Subsidiaries as described in Schedule 2.2 and
shall have been satisfied that such shares and other equity interests have been
validly issued and, in the case of shares, fully paid and non-assessable, free
and clear of all Liens.
<PAGE>
(e) Opinions of Counsel. AT&T shall have received such reasonable opinions
and certificates as are requested by it on reasonable notice to BT.
21.3 Conditions to the Obligations of BT. The obligations of BT and the
other BT Sellers to make their Contributions to the Newco Group pursuant to
Section 15.1 and the obligations of each of BT and its Affiliates to enter into
the other Transaction Agreements to which it is a party and to otherwise
consummate the transactions that are to be consummated by them at the Closing
are subject to the fulfillment to the satisfaction of, or waiver by, BT, as of
the Closing Date, of the following additional conditions:
(a) Accuracy of Representations and Warranties. The representations and
warranties by AT&T and its Affiliates in each Transaction Agreement to which
they are a party, to the extent qualified by materiality, a Venture Business
Material Adverse Effect or an AT&T GCS Business MAE, shall be true and correct
and, to the extent not so qualified, shall be true and correct in all material
respects, in each case as of the date they were made and as of the Closing Date,
as if made on and as of the Closing Date, except for representations and
warranties that are made as of a specified date, which need be true and correct,
or true and correct in all material respects, as the case may be, only on the
specified date. The representations and warranties set forth in Section 17.1(q)
that are not qualified by an AT&T GCS Business MAE shall be treated for the
purposes of this Section 21.3(a) as if so qualified.
(b) Performance of Obligations. AT&T and its Affiliates shall have
performed or complied in all material respects with their respective covenants
and agreements contained in the Transaction Agreements required to be performed
or complied with by AT&T and its Affiliates on or prior to the Closing Date.
(c) Delivery of Certificates of AT&T. AT&T and VLT shall have delivered to
BT customary closing certificates and documents, in each case signed by an
officer or officers with the authority to bind such party (in each case dated as
of the Closing Date), and such other certificates or documents as BT or its
counsel may reasonably request evidencing the satisfaction in all material
respects of the conditions to Closing.
(d) Share Certificates. BT or its Affiliate shall have received share
certificates or other evidences of its interests in DirectorCo, the Newco
Services Company and the Newco Subsidiaries as described in Schedule 2.2 and
shall have been satisfied that such shares and other equity interests have been
validly issued and, in the case of shares, fully paid and non-assessable, free
and clear of all Liens.
(e) Opinions of Counsel. BT shall have received such reasonable opinions
and certificates as are requested by it on reasonable notice to AT&T.
ARTICLE 22
BREACH; EVENTS OF DEFAULT
22.1 Breach. Except as otherwise expressly provided herein, a party shall
be in breach of this Agreement if it fails fully to perform, or suspends its
performance of, its obligations hereunder and if it fails to cure such failure
or suspension within 30 days following receipt of written notice thereof from
one of the other parties.
<PAGE>
22.2 Remedies for Breach. In addition to any other remedies set forth in
this Agreement, the remedies for any breach of this Agreement shall include
damages and injunctive relief, including specific performance. The rights and
remedies provided in this Agreement are cumulative and are not exclusive of any
rights or remedies that any party may otherwise have at law or in equity.
22.3 Events of Default. Following the Closing, except as may otherwise be
agreed by the parents, an "Event of Default" with respect to a parent shall have
occurred upon the occurrence of any of the following:
(a) such parent's material breach of this Agreement (other than a breach of
Section 11.1 or the second sentence of Section 11.6) or any other Transaction
Agreement, which breach shall remain uncured after the 30-day cure period set
forth in Section 22.1 if the impact of such breach on the Newco Group is so
material as to go to the essence of the Venture Business;
(b) a Change of Control shall have occurred with respect to such parent;
(c) such parent shall be in breach of Section 11.1 or clause (a) of the
second sentence of Section 11.6 and either (i) such breach is willful, repeated
and significant, or (ii) such parent shall not have cured such breach within the
one year period after notice thereof from the other parent, and where the
Revenue Limitation in Section 11.3 or 11.4 (x) applies with respect to the
violating activities, the aggregate total revenues derived from such violating
activities exceeds $400 million (including the amount covered by the Revenue
Limitation) or (y) does not apply to the violating activities, the aggregate
total revenues from such violating activities exceeds $200 million, and where in
both clauses (x) and (y), (1) the "aggregate total revenues" shall be calculated
on a Pro Rata Basis, and (2) the Dollar amounts set forth therein shall be
subject to adjustment as provided in Section 11.16;
(d) such parent shall be in breach of clause (b) of the second sentence of
Section 11.6 and shall not have cured such breach within the one year period
after notice thereof from the other parent; or
(e) there shall exist any Covered Investor with respect to such parent that
is a Major Competitor of the other parent or there shall have been a Change of
Control involving such parent by a Major Competitor of the other parent (a
"Covered Investor Breach").
22.4 Confirmation of Cure. If, prior to the expiration of the one year cure
period provided in Section 22.3(c) or 22.3(d), the breaching party does not,
when requested in writing by the non-breaching party, confirm in writing within
five Business Days after receipt of such request that it will diligently and in
good faith cure the breach or, thereafter, does not diligently and in good faith
undertake to effect such cure, such breach shall constitute an Event of Default
prior to the expiration of any such cure period. If the breaching party does so
commit to cure the breach, the non-breaching party shall be entitled to rely
thereon, and, in addition to its other rights and remedies, the non-breaching
party shall be entitled to payment for any damages resulting from any failure by
the breaching party to cure any such breach.
<PAGE>
ARTICLE 23
TERMINATION OF JOINT VENTURE;
CONSEQUENCES OF EVENT OF DEFAULT
23.1 No Dissolution. Each of Thistle BV, DirectorCo, the Newco Services
Company and the Newco Subsidiaries shall continue without interruption until it
is dissolved or terminated in accordance with this Agreement.
23.2 Performance Test Shortfall.
(a) If a Performance Test Shortfall shall occur, either parent shall be
entitled to deliver a written notice (a "Performance Notice") to the other
parent at any time prior to the 180th day following the end of the eighth full
Fiscal Year to initiate the dissolution and winding up of the Newco Group in
accordance with the provisions of this Section; provided, however, that any
Performance Notice delivered prior to the end of the eighth full Fiscal Year
shall be revocable until the end of such full Fiscal Year.
(b) If a Performance Notice has been delivered and not then revoked, it
shall commence a two year transition period beginning at the later of the last
day of the eighth full Fiscal Year or the date the Performance Notice is
delivered if such Notice is delivered following the last day of the eighth full
Fiscal Year in accordance with Section 23.2(a) (the "Transition Period"). Unless
mutually agreed by the parents, the parents shall, during the Transition Period,
cause the business and affairs of the Newco Group to be dissolved and wound up
in accordance with Section 23.9.
(c) During the Transition Period, each party agrees to honor and to cause
its Affiliates to honor all obligations under the other Transaction Agreements,
subject to any exceptions set forth therein.
(d) During the Transition Period, the parent that has received the
Performance Notice shall be entitled to appoint an additional Representative to
the DirectorCo Board and to elect to cause a Distribution of Netco, in which
case the provisions of Schedule 13.2 shall apply and the parent that has
delivered the Performance Notice shall bear any Taxes arising in connection
therewith (it being understood that such parent may elect none, either or both
of such alternatives).
(e) If a parent delivers a Performance Notice, the provisions of clause (b)
of the second sentence of Section 11.6 shall, effective upon the last day of the
tenth full fiscal year of the Newco Group, be of no further force or effect with
respect to either parent and its Group Companies and the remaining provisions of
Article 11 shall be of no further force or effect with respect to either parent
and its Group Companies on the completion of the dissolution of the Newco Group;
provided, however, that, during the Transition Period either parent and its
Group Companies may undertake such activities as are necessary or advisable to
prepare itself to provide Global Communications Services after the Transition
Period.
23.3 Change of Control Termination.
(a) Upon the occurrence of a Change of Control with respect to either
parent, such parent shall immediately notify the other parent of such
occurrence.
<PAGE>
(b) Upon the occurrence of a Change of Control with respect to a parent
(the "subject party"), the other parent (the "non-subject party") shall have the
right, but not the obligation, within 90 days following its becoming aware of
the occurrence of the Change of Control, whether by notice pursuant to Section
23.3(a) or otherwise, to elect, by written notice delivered to the subject party
(the "Put Notice"), to require the subject party to purchase all but not less
than all of the non-subject party's shares or other equity interests in Thistle
BV, DirectorCo and the Newco Services Company and all but not less than all of
its shares or other equity interests in the Newco Subsidiaries (collectively,
the "Put Shares", and such right to require the subject party to purchase the
Put Shares, the "Put") at a purchase price equal to 110% of their fair market
value, determined in accordance with Section 23.7(a).
(c) The provisions of Sections 23.7(b) and (c) shall apply to the closing
of the sale and purchase of the Put Shares.
(d) If a non-subject party delivers a Put Notice, the provisions of Article
11 shall, effective upon the closing of the sale and purchase of the Put Shares
or, if earlier, the first anniversary of the date of delivery of the Put Notice,
be of no further force or effect with respect to either parent and its Group
Companies.
23.4 Termination for Material Breach.
(a) If an Event of Default described in Section 22.3(a) shall occur with
respect to a parent (the "breaching party"), the other parent (the "complying
party") shall have the right to elect by delivering notice in writing to the
breaching party (the "Election Notice"), within 60 days after the expiration of
the 30-day cure period described in Section 22.3(a), either (i) to require the
breaching party to sell all but not less than all of the breaching party's
shares or other equity interests in Thistle BV, DirectorCo and the Newco
Services Company and all but not less than all of its shares or other equity
interests in the Newco Subsidiaries (collectively, the "Call Shares", and such
right to require the breaching party to sell the Call Shares (the "Call") to the
complying party at a purchase price equal to 90% of their fair market value
determined in accordance with Section 23.7(a), or (ii) to dissolve the Newco
Group.
(b) If the complying party elects to require a sale and purchase of the
Call Shares, the provisions of Sections 23.7(b) and (c) shall apply to the
closing of such sale and purchase.
(c) If the complying party elects to dissolve the Newco Group, the period
of dissolution shall, subject to compliance with mandatory requirements of
Applicable Law, be no longer than two years from the commencement thereof and
the provisions of Section 23.9 shall apply to a dissolution of the Newco Group
initiated under this Section 23.4.
(d) In the event of the sale and purchase of the Call Shares or the
dissolution of the Newco Group under this Section 23.4, (i) effective upon the
date of delivery by the complying party of an Election Notice, the provisions of
Article 11 shall be of no further force or effect with respect to the complying
party and its Group Companies, and (ii) if the complying party has elected to
<PAGE>
purchase the Call Shares, effective upon the closing of the sale and purchase
thereof or, if earlier, the first anniversary of the date of delivery of the
Election Notice, the provisions of Article 11 shall be of no further force or
effect with respect to the breaching party and its Group Companies, or (iii) if
the complying party has elected to dissolve the Newco Group, effective upon the
completion of the dissolution of the Newco Group, the provisions of Article 11
shall be of no further force or effect with respect to the breaching party and
its Group Companies.
(e) Without limiting the foregoing, if an Event of Default described in
Section 22.3(a) arises in connection with a Change of Control, the parent that
is not subject to the Change of Control shall also have the rights set forth in
Section 23.3.
23.5 Termination for Non-Compete Breaches and Covered Investor Breaches.
(a) Upon the occurrence of a Covered Investor Breach, the breaching party
shall immediately notify the other parent of such occurrence. The other parent
shall be the non-breaching party for the purposes of Sections 23.5 and 23.6.
(b) If an Event of Default described in Section 22.3(c), (d) or (e) shall
occur, the non-breaching party shall have the right to elect by notice in
writing (the "Breach Notice") to the breaching party within 90 days after the
end of the one year cure period set forth in Section 22.3(c)(ii) or (d), or at
any time after the occurrence of the Event of Default described in Section
22.3(c)(i), if any, or within 90 days of its becoming aware of the occurrence of
the Covered Investor Breach, whether by notice pursuant to Section 23.5(a) or
otherwise, in the case of a Covered Investor Breach, to dissolve the Newco
Group.
(c) If the non-breaching party elects to dissolve the Newco Group, the
dissolution shall be completed as soon as practicable but in any event, subject
to compliance with mandatory requirements of Applicable Law, within two years
following the date of the Breach Notice. The provisions of Section 23.9 shall
apply to a dissolution of the Newco Group initiated under this Section 23.5.
(d) If the non-breaching party shall duly deliver a Breach Notice under
Section 23.5(b), until the consummation of any such dissolution of the Newco
Group, the non-breaching party shall have the rights set forth in Section 13.2.
(e) The remedies set forth in this Section 23.5 shall be in addition to,
and not in lieu of, any other remedies that the non-breaching party may have
under law or equity or which may be provided for elsewhere in this Agreement.
(f) To determine whether an Event of Default under Section 22.3(c) or (d)
or a Covered Investor Breach has occurred, a non-breaching party may refer the
matter to the Wise Counselor in accordance with the provisions of Article 24.
The non-breaching party shall request the Wise Counselor to make his or her
determination within 20 days after the matter has been referred to him or her.
The non-breaching party may rely on the determination of the Wise Counselor that
such an Event of Default or Covered Investor Breach has occurred in order to
exercise its rights under this Section 23.5.
<PAGE>
(g) Article 11 shall be of no further force or effect with respect to (i)
the non-breaching party and its Group Companies upon the occurrence of an Event
of Default under Section 22.3(c) or (d) or, subject to Section 23.6(a), a
Covered Investor Breach, and (ii) the breaching party and its Group Companies
upon the completion of the dissolution of the Newco Group.
23.6 Additional Provisions Relating to a Covered Investor Breach.
(a) Within 30 days after a definitive agreement has been executed for a
transaction that would result in a Covered Investor Breach (the "Covered
Transaction"), the parent in respect of which the Covered Investor Breach shall
occur (the "Affected Party") shall notify the non-breaching party and Thistle BV
of whether it intends to cure such breach. If the Affected Party fails to give
such notice or elects not to cure the breach, then notwithstanding that the
Covered Transaction shall not have been consummated, and may never be
consummated, (x) the breach of Article 11 that would occur upon the consummation
of the Covered Transaction shall be deemed to have occurred upon the earlier of
(the "Effective Date") (i) the expiration of such 30 day period or (ii) the
giving of notice by the Affected Party that it does not intend to cure the
breach, (y) upon the Effective Date, the non-breaching party shall have the
right to exercise its rights under Section 23.5, and (z) upon the Effective
Date, Article 11 shall be of no further force or effect with respect to the
non-breaching party and its Group Companies.
(b) Notwithstanding anything to the contrary contained herein, so long as
the Affected Party and its Group Companies shall elect to, and do, cure the
breach of Article 11 within six months after the consummation of the Covered
Transaction, then no breach of Article 11 shall be deemed to have occurred. Upon
the delivery by the Affected Party of its notice to elect to cure the breach,
from the date of the giving of such notice until the expiration of the six month
cure period or, if earlier, the date the breach shall have been cured to the
satisfaction of the non-breaching party, the non-breaching party shall be
entitled to appoint an additional Representative to the DirectorCo Board and to
elect to cause a Distribution of Netco, in which case the provisions of Schedule
13.2 shall apply and the Affected Party shall bear any Taxes arising in
connection therewith (it being understood that the non-breaching party may elect
none, some or all of such alternatives). If the breach has not been cured to the
satisfaction of the non-breaching party within such six month cure period, then
the non-breaching party shall have all other remedies available to it as
contemplated by Section 23.5 and under applicable law, including a separate
claim for damages against the Affected Party for misrepresentation and failure
to honor its commitment to cure such breach.
(c) Without limiting the foregoing, if a Covered Investor Breach or an
Event of Default under Section 22.3(c) or 22.3(d) arises in connection with a
Change of Control, the parent that is not subject to the Change of Control shall
also have the rights set forth in Section 23.3.
23.7 Fair Market Value; Sale and Closing of Put Shares or Call Shares.
(a) Within 10 days after the date of delivery of a Put Notice under Section
23.3 or an Election Notice under Section 23.4, the parents shall select an
Appraiser in accordance with Annex 2. The Appraiser shall determine the fair
market value of the Put Shares or Call Shares in accordance with Annex 2.
<PAGE>
(b) The closing of the sale and purchase of the Put Shares or the Call
Shares, as the case may be, shall take place within 90 days after the date of
receipt of the Appraiser's report on a date mutually agreed to by the parents;
provided that such date shall be subject to extension up to a maximum period of
15 months solely for the purposes of obtaining all material Governmental
Approvals that may be required in connection with the sale and purchase thereof.
The closing shall take place at the offices of Houthoff, Parnassusweg 126, 1076
AT Amsterdam, The Netherlands or at such other place as the parents shall agree.
The parents shall, and shall cause Thistle BV and the applicable Newco
Subsidiaries to, use their Reasonable Best Efforts in cooperation with each
other promptly to make all filings, give all notices and secure all Third Party
Approvals and Governmental Approvals that may be required in connection with the
sale and purchase of the Put Shares or the Call Shares, as the case may be. If,
notwithstanding the extension of the period for the closing of the sale and
purchase of the Put Shares or the Call Shares, as the case may be, all material
Governmental Approvals have not been or cannot be obtained, on or prior to the
expiration of the additional 15-month period, the parent that delivered the Put
Notice or Election Notice, as the case may be, may, by notice to the other
parent delivered within 10 Business Days after the expiration of such 15-month
period, elect to cause the dissolution of the Newco Group. The provisions of
Section 23.9 shall apply to a dissolution of the Newco Group initiated under
this Section 23.7(b); provided, however, that, notwithstanding the provisions of
Annex 1, the parent that delivered the Put Notice or Election Notice, as the
case may be, shall be entitled to be allocated assets and liabilities of the
Newco Group in such a manner so as to approximate as closely as practicable any
discount or premium that it would have been entitled to had the sale and
purchase of the Put Shares or Call Shares been consummated. The dissolution
shall be completed as soon as practicable but in any event, subject to
compliance with mandatory requirements of Applicable Law, within one year after
the expiration of the 15-month extension period.
(c) At the closing of the sale and purchase of the Put Shares or Call
Shares, as the case may be, (i) the purchasing parent (which shall include its
Affiliate that is a shareholder or member of the members of the Newco Group and
of DirectorCo) shall pay to the selling parent (which shall include its
Affiliate that is a shareholder or member of the members of the Newco Group and
of DirectorCo) the applicable purchase price in cash or by cashier's order or
wire transfer of funds or any combination of the foregoing, (ii) in the case of
shares of Thistle BV, the selling parent shall transfer the shares of Thistle BV
comprising a part of the Put Shares or the Call Shares, as the case may be, to
the purchasing parent pursuant to a notarial deed of transfer among the selling
parent, the purchasing parent and Thistle BV substantially in the form of
Exhibit O, and all requisite share transfer taxes or share transfer costs shall
be borne equally by the parents in the case of the shares of Thistle BV
comprising a part of the Put Shares and solely by the breaching party in the
case of the shares of Thistle BV comprising a part of the Call Shares, and (iii)
in the case of the shares and equity interests in other members of the Newco
Group and of DirectorCo, the selling parent shall deliver duly executed transfer
forms and sold notes or other instruments of transfer, together with
certificates representing such other shares and equity interests comprising a
part of the Put Shares or the Call Shares, as the case may be (if applicable),
duly endorsed for transfer and accompanied by payment of all requisite share
transfer taxes, which shall be borne equally by the parents in the case of such
<PAGE>
other shares and equity interests comprising a part of the Put Shares and solely
by the breaching party in the case of such other shares and equity interests
comprising a part of the Call Shares, and such Put Shares or Call Shares, as the
case may be, shall be free and clear of any Liens (other than those arising
hereunder), and the selling parent shall so represent and warrant to the
purchasing parent, and shall further represent and warrant to the purchasing
parent that it is the record, beneficial and legal owner of all such Put Shares
or Call Shares, as the case may be, with full power and authority to transfer
such Put Shares or Call Shares, as the case may be.
23.8 Licensing Obligations. Notwithstanding anything to the contrary
contained herein, including Annex 1 attached hereto:
(a) Upon the dissolution of the Newco Group or the withdrawal of BT from
the Newco Group whether pursuant to the exercise by AT&T of its rights under
Section 23.3 or by BT of its rights under Section 23.4, BT shall be entitled to
purchase at fair market value such assets of the Newco Group located in the U.K.
as are required to be owned by BT in order to operate under its then existing
licenses in the U.K.; and
(b) Upon the dissolution of the Newco Group or the withdrawal of AT&T from
the Newco Group whether pursuant to the exercise by BT of its rights under
Section 23.3 or by AT&T of its rights under Section 23.4, AT&T shall be entitled
to purchase at fair market value such assets of the Newco Group located in the
United States as AT&T can demonstrate clearly are of the same type that would be
purchasable by BT as required by BT's then existing licenses if BT were
purchasing assets under Section 23.8(a).
(c) Either parent purchasing assets pursuant to this Section 23.8 shall
indemnify Thistle BV and the other parties for all Taxes arising in connection
therewith.
23.9 Division of Assets on Dissolution.
(a) With respect to any dissolution initiated pursuant to Section 11.2(d),
11.5(c)(iii), 13.4, 13.5, 14.3, 23.2, 23.4, 23.5 or 23.7, subject to the
provisions of Section 23.8, the assets and liabilities of the Newco Group shall
be divided between the parents in accordance with the provisions set forth on
Annex 1 attached hereto and to such additional provisions as the parents
mutually determine are necessary or advisable. Such division of the assets and
liabilities will be administered by an independent third party agreed by the
parents, who shall be an internationally recognized accounting or similar firm
or individual with expertise in the telecommunications industry; provided, that,
if the parents are unable to agree upon such independent third party within 30
days following the delivery of the applicable notice of election to dissolve the
Newco Group provided in Section 11.2(d), 11.5(c)(iii), 13.4, 13.5, 14.3,
23.4(b), 23.5(b) or 23.7(b), or, in the case of Section 23.2, following the
later of the end of the eighth full Fiscal Year if a Performance Notice has been
given and the first delivery of a Performance Notice, either parent may
thereafter submit its choice of an independent third party administrator to the
Wise Counselor and request the Wise Counselor to make his or her choice within
20 days following the submission of the matter to him or her. The parents shall
cause the third party administrator referred to in the preceding sentence to be
<PAGE>
elected as the liquidator (vereffenaar) of Thistle BV pursuant to the relevant
provisions of the Thistle BV Charter Documents and, unless both parents
otherwise agree, shall cause VLT and BT Holdings to vote all of their shares of
Thistle BV against any resolution for the removal or suspension of such
liquidator. Any successor liquidator of Thistle BV may be elected by the parents
only in accordance with the provisions of the preceding two sentences. Each
party shall execute, or cause to be executed such documents and other
instruments and take or cause to be taken such further actions as may be
reasonably requested to carry out the dissolution pursuant to the provisions of
Annex 1, including using its Reasonable Best Efforts in cooperation with the
other promptly to make all filings, give all notices, and secure all Third Party
Approvals and Governmental Approvals and execute such documents and instruments
in reasonable and customary form that may be required in connection with the
division of the assets and liabilities of the Newco Group or otherwise with
respect to the dissolution of the Newco Group.
(b) If and to the extent that any provision of this Article 23 relating to
the distribution of assets upon dissolution of Thistle BV cannot be given direct
effect because such provision conflicts with mandatory provisions of Applicable
Law, the parent receiving more assets in such dissolution than it is entitled to
receive pursuant to this Article 23 shall, promptly after its receipt of such
assets, transfer such assets without consideration to the other parent.
23.10 Effect of Termination. Except as otherwise expressly provided in this
Agreement, upon completion of the dissolution of the Newco Group or the
consummation of a Put or a Call, all provisions of this Agreement shall
terminate and be of no further force or effect, except Articles 1, 14, 17 (to
the extent necessary to form the basis of any claims pursuant to Article 25), 24
and 25 and Sections 18.7, 18.10, 28.3, 28.5, 28.6, 28.7, 28.8, 28.9 and 28.10
and Annex 1 and Annex 3. Except as expressly provided in any Transaction
Agreement, each Transaction Agreement shall terminate upon the earlier of (i)
completion of the dissolution of the Newco Group, or (ii) the later of (x) two
years following the giving of a Put Notice or an election Notice or (y) the
consummation of the Put or Call.
ARTICLE 24
DISPUTE RESOLUTION
24.1 College of Wise Counselors.
(a) AT&T and BT will appoint by mutual agreement a "Wise Counselor" who is
disinterested with respect to, and independent of, the parents and knowledgeable
about the Venture Business, AT&T and BT and about the relationship between the
parents. For this purpose, the initial Wise Counselor, and four other persons,
who satisfy the criteria set forth in the preceding sentence (the "College of
Wise Counselors") will be identified in Schedule 24.1(a), which will be agreed
upon on or before April 30, 1999.
(b) The initial Wise Counselor and each successor Wise Counselor shall
serve for a term of 18 months; provided, however, that any matters, or series of
directly related matters, submitted to the Wise Counselor prior to the end of
such 18-month period shall remain within his or her authority to resolve. No
later than 45 days prior to the end of the term of a Wise Counselor, either
<PAGE>
parent may, by notice to the other parent, designate a replacement Wise
Counselor for the next 18-month period from among the College of Wise
Counselors. If within such 45-day period, the other parent does not propose an
alternative replacement, then the replacement designated by the parent that
issued a notice shall became the successor Wise Counselor. If within such 45-day
period, the other parent does indicate by notice to the first notifying parent
that it wishes to appoint a different successor Wise Counselor, the parents
shall promptly submit the two choices to the remaining members of the College of
Wise Counselors for selection. The remaining members of the College of Wise
Counselors shall be requested to make their selection within five days after
referral of the matter to them. If neither parent designates a replacement, the
then serving Wise Counselor shall continue to serve as Wise Counselor for the
following 18-month period.
(c) Each time a person is designated as a successor Wise Counselor from the
College of Wise Counselors, the parents shall agree upon and identify another
person to become one of the members of the College of Wise Counselors (it being
understood that at all times there will be four persons in the College of Wise
Counselors). If the parents cannot agree on an additional Wise Counselor to be
added to the College of Wise Counselors, the appointment shall be made by the
Wise Counselors who then constitute the College of Wise Counselors. They shall
be instructed that their nominee must satisfy the requirements in the first
sentence of Section 24.1(a).
24.2 Resignation or Replacement of Wise Counselor. It is understood that
the Wise Counselor will be free to resign his or her appointment at any time
without liability whatsoever. Within 10 days after the Wise Counselor resigns or
ceases to act for any reason whatsoever, BT and AT&T will, by mutual agreement,
appoint a successor in accordance with the provisions for selection of a
successor from the College of Wise Counselors described in Section 24.1, which
successor shall serve for an 18-month term from his or her appointment. BT and
AT&T, by mutual consent, may at any time designate a successor Wise Counselor
from the College of Wise Counselors.
24.3 Submission of Claims.
(a) Subject to Sections 24.4(c) and 24.5, after the Closing, any dispute,
controversy or claim (each such dispute, controversy or claim, a "Claim")
arising out of or relating to this Agreement or any of the other Transaction
Agreements of a legal or contractual nature or any breach of any provision
hereof or thereof shall be resolved by arbitration before the Wise Counselor who
shall apply the law governing the applicable Transaction Agreement, and judgment
upon the award rendered by him or her may be entered upon application of the
party entitled thereto in the U.S. District Court for the Eastern District of
Virginia (the "District Court"); provided, however, that no Claim may be
submitted to the Wise Counselor by any party to this Agreement or any of the
Transaction Agreements unless and until a senior officer of each of the parents
shall have met and conferred with respect thereto (unless the other parent shall
have failed to comply with a request to confer after reasonable notice).
(b) For purposes of court enforcement of a Wise Counselor's award pursuant
to Section 24.3(a), the Wise Counselor's award shall have the force and effect
of an arbitral award under the United States Federal Arbitration Act, and shall
be directly enforceable in The Netherlands in accordance with the provisions of
the Dutch Code of Civil Procedure. Subject to Sections 24.4(c) and 24.5, the
decision and award of the Wise Counselor will be final and conclusive upon the
parties with respect to all matters referred to the Wise Counselor.
<PAGE>
(c) With respect to any claim relating to the validity or infringement of a
United States patent, the determination of the Wise Counselor will be
non-binding upon the parties. The proceedings of the Wise Counselor on such
matters will be conducted as provided in Section 24.4. Any non-binding
determination of the Wise Counselor on the matters referred to in this Section
24.3(c) shall be deemed to meet the requirements of Section 24.5(a) for
submission to the District Court for binding determination.
24.4 Proceedings Before the Wise Counselor.
(a) All hearings before the Wise Counselor will be conducted in Alexandria,
the Commonwealth of Virginia under such procedures (including, presentation of
written submissions or presentation of evidence) as he or she considers
appropriate in the circumstances; provided, however, that:
(i) in any proceeding conducted by the Wise Counselor, (x) discovery shall
be limited to the production of specific and directly relevant documents, and
any such discovery must be concluded by the party seeking such discovery within
30 days of its initial demand for discovery, and (y) no depositions shall be
permitted; and
(ii) any Claim or series of related Claims submitted to the Wise Counselor
shall be completed, and the Wise Counselor's decision delivered to the parties,
within a period of three months from the submission of the matter to the Wise
Counselor.
(b) With respect to specialized disputes, including IPR-related disputes,
the Wise Counselor shall be entitled to retain experts and specialists at the
expense of Thistle BV to assist him or her.
24.5 District Court.
(a) Notwithstanding anything herein to the contrary but subject to Section
24.6, if (i) the Wise Counselor awards monetary damages in an amount equal to or
in excess of $500 million in any proceeding commenced pursuant to this
Agreement, whether or not accompanied by any injunctive relief, or (ii) if (1)
the Wise Counselor issues injunctive relief, or a combination of injunctive
relief and an award of monetary damages in an amount less than $500 million in
any such proceeding, and (2) a Settlement Offer has been made and has not been
accepted, then, the injunctive relief granted by the Wise Counselor shall be
binding, subject to any order or other ruling by the District Court as
contemplated by Section 24.5(b), and any losing party may, within 10 Business
Days after the date of such award or the failure to accept such Settlement
Offer, respectively, submit the Claim or series of related Claims giving rise
thereto to the District Court or otherwise seek a judicial declaration in the
District Court that it is not liable on the Claim or series of related Claims
that were asserted by the winning party or parties and in respect of which the
Settlement Offer was rejected.
(b) In such event, the District Court shall review the matter, including
all factual and legal issues, on a de novo basis and affirm, vacate or revise
the determination of the Wise Counselor and the injunctive relief previously
granted. The decision of the District Court shall be appealable to the full
extent provided by Applicable Law and procedures.
<PAGE>
(c) No party shall object to the introduction by any other party into the
record before the District Court of the evidentiary record, findings and
holdings of the Wise Counselor in the arbitration of the Claims, but the
District Court shall not give such evidentiary record, findings and holdings any
special weight or deference.
(d) The scope of any additional discovery, which may include depositions,
shall be determined by the District Court, provided, that any such additional
discovery must be completed by the parties no later than 90 days following the
commencement of such discovery in the District Court; and, provided, further,
however, that any party that files a motion to the District Court to extend
discovery beyond such 90-day period shall, notwithstanding the provisions of
Section 24.8, pay all costs and expenses, including the fees and expenses of
counsel, that the other party may incur in both (i) resisting any such motion,
and (ii) complying with any order that the District Court may issue granting
such request for the extension of discovery.
(e) For the purposes of this Agreement, each party irrevocably submits to
the jurisdiction of the District Court solely for the purpose of interpretation
and enforcement of matters relating to this Agreement and the other Transaction
Agreements, and, unless otherwise agreed by the parties, the District Court
shall have exclusive jurisdiction and each party agrees that all legal actions,
suits and proceedings arising out of or relating to this Agreement or the
transactions contemplated hereby shall be instituted only in the District Court.
Each party agrees not to assert, by way of motion, as a defense, or otherwise,
in any such action, suit or proceeding, any claim that it is not subject
personally to the jurisdiction of the District Court, that its property is
exempt or immune from attachment or execution, that the action, suit or
proceeding is brought in an inconvenient forum, that the venue of the action,
suit or proceeding is improper, or that this Agreement or the subject matter
hereof may not be enforced in or by the District Court, and hereby waives any
offsets or counterclaims in any such action, suit or proceeding pertaining
thereto. In any such action, suit or proceeding, each party waives, to the
fullest extent it may effectively do so, personal service of any summons,
complaint or other process and agrees that service thereof may be made by
registered airmail, return receipt requested, or by any other means of mail
which requires a signed receipt, postage prepaid, mailed to such party as
provided in Section 27.2.
(f) EACH OF THE PARTIES HEREBY AGREES, AND AGREES TO CAUSE ITS
SUBSIDIARIES, TO WAIVE ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE OTHER TRANSACTION
AGREEMENTS OR ANY DEALINGS BETWEEN THEM RELATING TO THE TRANSACTIONS
CONTEMPLATED HEREBY. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL-ENCOMPASSING
OF ANY AND ALL DISPUTES THAT MAY BE FILED IN THE DISTRICT COURT OR ANY OTHER
COURT AND THAT RELATE TO THE TRANSACTIONS CONTEMPLATED HEREBY, INCLUDING
CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS AND ALL OTHER COMMON LAW AND
STATUTORY CLAIMS.
24.6 Settlement Offer. Notwithstanding anything to the contrary contained
herein, if with respect to the Claims in any proceeding before the Wise
Counselor, the Wise Counselor grants injunctive relief, or a combination of
monetary damages of less than $500 million and injunctive relief, and any of the
<PAGE>
losing parties believes that the value of the injunctive relief or the damages
plus injunctive relief is greater than $500 million, such party may, at its sole
option, within 10 Business Days after the determination of the Wise Counselor,
make an offer in writing to the winning party or parties, of $500 million in the
aggregate to all the winning parties with respect to such claims (the
"Settlement Offer"). If the Settlement Offer is not accepted by all of the
winning parties within 20 days after receipt of the Settlement Offer, the
injunctive relief, or the award and the injunctive relief, as the case may be,
shall be deemed to be an award of monetary damages in excess of $500 million,
and the procedures described in Section 24.5 shall apply. If the winning party
or parties accept the Settlement Offer, the losing party or parties shall within
10 Business Days after receipt of written confirmation of the winning party or
parties of their acceptance of the Settlement Offer, pay the $500 million to the
winning party or parties by wire transfer of same day funds to the bank account
or accounts designated by it or them. Thereupon, the losing party or parties
shall be released from all liability for the Claims, including injunctive
relief, that were the subject of the arbitration proceeding and any comparable
Claims, and the winning party or parties will have no further recourse with
respect thereto.
24.7 Pre-Closing Claims. Prior to the Closing, any party may institute any
legal action, suit or proceeding arising out of or relating to this Agreement or
the other Transaction Agreements in the District Court, and the parties agree
that the District Court shall have exclusive jurisdiction to adjudicate the
same.
24.8 Payment of Costs. All costs and expenses reasonably incurred by the
winning party or parties in connection with either the Wise Counselor or
judicial proceedings pursuant to this Agreement, including fees, charges and
disbursements of attorneys, whether prior to or after the Closing, shall be paid
by the losing party or parties.
24.9 Exclusive Method of Dispute Resolution. The parties hereby agree that
the provisions of this Article 24 constitute an exclusive agreement for the
settlement of disputes ("regeling voor de oplossing van geschillen") as referred
to in Book 2, article 337, of the Dutch Civil Code and each party hereby, to the
fullest extent permitted by Applicable Law, waives any right such party may have
to initiate any of the procedures against the other parties referred to in Book
2, Title 8, Part 1, of the Dutch Civil Code.
ARTICLE 25
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION
25.1 Survival Period. Except for Sections 17.1(q) and 17.2(q), all
representations, warranties, covenants and agreements of the parties contained
in this Agreement, the IPR Agreement and the Employee Matters Agreement shall
survive the Closing, and all such representations and warranties of the parents
shall thereafter terminate and expire on the 90th day after the end of the
second full Fiscal Year or, if later, 30 days after the delivery of the audited
financial statements described in Section 6.7(a)(iii) for the second full Fiscal
Year, with respect to any claim based upon, arising out of or otherwise in
respect of any fact, circumstance or Action of which the party asserting such
claim shall not have given written notice on or prior to such date to the party
<PAGE>
against which such claim is asserted, and thereafter neither parent shall have
any liability in respect of any claim in respect of which such written notice
shall not have been given on or prior to such date. No claim may be asserted
against an Indemnifying Party for breach of any representation or warranty
contained herein, unless written notice of such claim is received by the
Indemnifying Party describing in detail the facts and circumstances with respect
to the subject matter of such claim on or prior to the date on which the
representation or warranty on which such claim is based ceases to survive as set
forth in this Section 25.1. For the avoidance of doubt, the representations and
warranties contained in Sections 17.1(q) and 17.2(q) shall not survive the
Closing, and the sole remedy of any party for any claims relating to Taxes shall
be as set forth in Section 25.5.
25.2 Indemnification by AT&T. AT&T shall indemnify and hold harmless BT and
its Affiliates (other than Concert and MCI and their Affiliates) and their
respective officers, directors, employees and representatives and each of their
respective heirs, executors, successors and assigns (the "BT Indemnified
Parties") from and against all claims, liabilities, losses, costs, expenses and
damages, including the reasonable fees, expenses and other charges of counsel
(collectively, "Losses") relating to, arising out of or resulting from, or
asserted by third Persons against the BT Indemnified Parties in connection with
(a) AT&T's or its Affiliate's participation in any business relationship or
alliance, including any of the foregoing that may arise out of, in connection
with or relating to any agreements, arrangements or understandings between or
among AT&T and its Affiliates, on the one hand, and World Partners Company
and/or AT&T-Unisource Communications Services and any of their Affiliates, on
the other hand, or (b) without any duplication of any recovery by Thistle BV
under Section 25.4(e), any inaccuracy in or any breach of any representation or
warranty contained in Section 17.1(a), (b), (c) or (d).
25.3 Indemnification by BT. BT shall indemnify and hold harmless AT&T and
its Affiliates and their respective officers, directors, employees and
representatives and each of their respective heirs, executors, successors and
assigns (the "AT&T Indemnified Parties") from and against all Losses relating
to, arising out of or resulting from, or asserted by third Persons against the
AT&T Indemnified Parties in connection with (a) BT's or its Affiliate's
participation in any business relationship or alliance, including any of the
foregoing that may arise out of, in connection with or relating to any
agreements, arrangements or understandings between or among BT, Concert and
their Affiliates, on the one hand, and MCI and/or WorldCom and any of their
Affiliates on the other hand, including the Agreement and Plan of Merger, dated
as of November 9, 1997 among WorldCom, TC Investments Corp. and MCI, the Amended
and Restated Investment Agreement, dated as of January 31, 1994, between BT and
MCI, as amended as of September 29, 1994, the Agreement, dated as of November 9,
1997, among BT, MCI and WorldCom, any agreement, arrangement or understanding
referred to in Section 9.2(b)(i) and any related agreements or arrangements, or
(b) without any duplication of any recovery by Thistle BV under Section 25.4(e),
any inaccuracy in or any breach of any representation or warranty contained in
Section 17.2(a), (b), (c) or (d).
25.4 General Indemnification.
(a) AT&T shall indemnify and hold harmless the BT Indemnified Parties, and
BT shall indemnify and hold harmless the AT&T Indemnified Parties from and
against all Losses relating to, arising out of or resulting from or asserted by
any third Person against the BT Indemnified Parties or the AT&T Indemnified
Parties, respectively, in connection with, any breaches or alleged breaches by
AT&T and its Affiliates or BT and its Affiliates, respectively, under any of the
Transaction Agreements.
<PAGE>
(b) Thistle BV shall indemnify and hold harmless each of the AT&T
Indemnified Parties and the BT Indemnified Parties from and against any and all
Losses asserted by any third Person against any of the AT&T Indemnified Parties
or BT Indemnified Parties in connection with any Assumed Liabilities, the AT&T
Guarantees and the BT Guarantees, or the business and operations of any member
of the Newco Group.
(c) AT&T shall indemnify and hold harmless the BT Indemnified Parties and
Thistle BV from and against any and all Losses relating to, arising out of or
resulting from, or asserted by any third Person against any of the BT
Indemnified Parties, Thistle BV or any other member of the Newco Group in
connection with, any Excluded AT&T Liabilities. The indemnification obligation
of AT&T under this Section 25.4(c) shall terminate on the fourth anniversary of
the Closing Date (other than with respect to claims that have been made and are
pending resolution as of such date, with respect to which such obligation shall
survive).
(d) BT shall indemnify and hold harmless the AT&T Indemnified Parties and
Thistle BV from and against any and all Losses relating to, arising out of or
resulting from, or asserted by any third Person against any of the AT&T
Indemnified Parties, Thistle BV or any other member of the Newco Group in
connection with, any Excluded BT Liabilities. The indemnification obligation of
BT under this Section 25.4(d) shall terminate on the fourth anniversary of the
Closing Date (other than with respect to claims that have been made and are
pending resolution as of such date, with respect to which such obligation shall
survive).
(e) Subject to Section 25.7, each parent shall indemnify and hold harmless
Thistle BV from and against any and all Losses relating to, arising out of or
resulting from, or asserted by any third Person against Thistle BV or any member
of the Newco Group, in connection with any inaccuracy in or any breach of any
representation or warranty of such parent contained in this Agreement, the IPR
Agreement or the Employee Matters Agreement, relating to the AT&T Assets, the
Assets of the Contributed AT&T Subsidiaries and the AT&T GCS Business or the BT
Assets, the Assets of the Contributed BT Subsidiaries and the BT GCS Business,
as the case may be.
25.5 Tax Indemnification.
(a) AT&T shall indemnify and hold harmless the BT Indemnified Parties and
Thistle BV and other members of the Newco Group from and against any and all
Losses relating to, arising out of or resulting from, or asserted by any third
Person against any of the BT Indemnified Parties, Thistle BV or any other member
of the Newco Group with respect to (i) AT&T Pre-Closing Taxes, (ii) AT&T
Consolidated Group Taxes and Taxes that constitute Excluded AT&T Liabilities and
(iii) AT&T Transaction Gains Taxes (other than Excluded Taxes); provided, that
if (I) an audit adjustment for a period ending (or deemed to end) on or prior to
the Closing Date either (x) gives rise to an indemnity obligation under this
Section 25.5(a) or (y) constitutes an audit adjustment for a member of the AT&T
Consolidated Group other than a Contributed AT&T Subsidiary that results in an
increase in tax basis of assets held by a member of the Newco Group, and (II)
such adjustment is reasonably expected to reduce the taxable income of the Newco
Group for a taxable year or period beginning after the Closing Date (such
estimated reduction in taxable income referred to herein as a "Post-Closing Tax
Benefit"), then the amount required to be indemnified by AT&T pursuant to
Section 25.5(a)(i) shall be reduced by the "net present value" of such
Post-Closing Tax Benefit in accordance with Section 25.5(e).
<PAGE>
(b) BT shall indemnify and hold harmless the AT&T Indemnified Parties and
Thistle BV and other members of the Newco Group from and against any and all
Losses relating to, arising out of or resulting from, or asserted by any third
Person against any of the AT&T Indemnified Parties, Thistle BV or any other
member of the Newco Group with respect to (i) BT Pre-Closing Taxes, (ii) BT
Consolidated Group Taxes and Taxes that constitute Excluded BT Liabilities and
(iii) BT Transaction Gains Taxes (other than (Excluded Taxes); provided, that,
if (I) an audit adjustment for a period ending or deemed to end) on or prior to
the Closing Date either (x) gives rise to an indemnity obligation under this
Section 25.5(b) or (y) constitutes an audit adjustment for a member of the BT
Consolidated Group other than a Contributed BT Subsidiary that results in an
increase in tax basis of assets held by a member of the Newco Group, and (II)
such adjustment is reasonably expected to result in a Post-Closing Tax Benefit
for a taxable year or period beginning after the Closing Date, then the amount
required to be indemnified by BT pursuant to Section 25.5(b)(i) shall be reduced
by the "net present value" of such Post-Closing Tax Benefit in accordance with
Section 25.5(e).
(c) No payment shall be required under Section 25.5(a)(i) or Section
25.5(b)(i) until the first calendar year in which either: (i) the Losses
attributable to the aggregate cumulative AT&T Pre-Closing Taxes exceed the
Losses attributable to the aggregate cumulative BT Pre-Closing Taxes by $20
million, in which case AT&T shall be required to make a payment pursuant to
Section 25.5(a)(i) in an amount equal to the excess of (x) the Losses
attributable to the aggregate cumulative AT&T Pre-Closing Taxes over (y) the
Losses attributable to the aggregate cumulative BT Pre-Closing Taxes; or (ii)
the Losses attributable to the aggregate cumulative BT Pre-Closing Taxes exceed
the Losses attributable to the aggregate cumulative AT&T Pre-Closing Taxes by
$20 million, in which case BT shall be required to make a payment pursuant to
Section 25.5(b)(i) in an amount equal to the excess of (x) the Losses
attributable to the aggregate cumulative BT Pre-Closing Taxes over (y) the
Losses attributable to the aggregate cumulative AT&T Pre-Closing Taxes. For each
calendar year following the year in which the first payment is made under
Section 25.5(a)(i) or Section 25.5(b)(i): (i) AT&T shall be required to make a
payment pursuant to Section 25.5(a)(i) in an amount equal to the Losses
attributable to the aggregate cumulative AT&T Pre-Closing Taxes as of such time,
minus all amounts previously paid pursuant to Section 25.5(a)(i), minus the
Losses attributable to the aggregate cumulative BT Pre-Closing Taxes as of such
time, plus all amounts previously paid by BT pursuant to Section 25.5(b)(i),
unless the amount so calculated is less than or equal to zero, in which case no
payment shall be due under Section 25.5(a)(i); and (ii) BT shall be required to
make a payment pursuant to Section 25.5(b)(i) in an amount equal to the Losses
attributable to the aggregate cumulative BT Pre-Closing Taxes as of such time,
minus all amounts previously paid pursuant to Section 25.5(b)(i), minus the
Losses attributable to the aggregate cumulative AT&T Pre-Closing Taxes as of
such time, plus all amounts previously paid by AT&T pursuant to Section
25.5(a)(i), unless the amount so calculated is less than or equal to zero, in
which case no payment shall be due under Section 25.5(b)(i). In each case, the
Losses attributable to the aggregate cumulative Pre-Closing Taxes shall be
calculated from the Closing Date through the last day of the relevant calendar
year, and the aggregate cumulative Pre-Closing Taxes shall include only those
amounts for which a determination, as set forth in section 1313(a) of the Code
or any equivalent provision of foreign, state or local law, has been made by the
relevant Taxing Authority.
<PAGE>
(d) The "net present value" of a Post-Closing Tax Benefit shall be
determined by using a discount rate equal to 6.5%. For purposes of making this
determination, the parents shall assume that a Post-Closing Tax Benefit shall be
realized by the Newco Group at the time the relevant Tax Return is required to
be filed for the taxable year or period in which such Post-Closing Tax Benefit
is reasonably expected to be available and that the relevant member of the Newco
Group is subject to tax at the maximum rate provided by law in the
jurisdiction(s) in which it is subject to tax for such taxable year or period.
(e) In the event of any audit, administrative or judicial proceeding the
outcome of which could result in an indemnification payment under Section
25.5(a) or Section 25.5(b) (a "Tax Proceeding"), the parent who could be
required to make an indemnification payment as a result of such Tax Proceeding
(the "Tax Indemnifying Party") shall have the right to control the conduct of
such Tax Proceeding, and to employ counsel at its own expense; provided,
however, the non-indemnifying parent (the "Non-Indemnifying Party") shall have
the right to participate in such Tax Proceeding at its own expense.
Notwithstanding the foregoing, the Tax Indemnifying Party shall not be entitled
to settle any such Tax Proceeding without the consent of the Non-Indemnifying
Party, which consent shall not be unreasonably withheld. The only reasonable
basis for withholding consent to any settlement shall be a non de minimis
adverse Tax effect on such party.
25.6 Notice and Opportunity to Defend Against Third Party Claims.
(a) Promptly after receipt by any BT Indemnified Party or AT&T Indemnified
Party or Thistle BV (the "Indemnitee") from any third party of notice of any
demand, claim or circumstance that, with the lapse of time, would give rise to a
claim or the commencement or threatened commencement of any action, proceeding
or investigation (an "Asserted Liability") that may result in a Loss under
Section 25.2, 25.3 or 25.4, as the case may be, the Indemnitee shall give notice
thereof (the "Claims Notice") to AT&T, BT or Thistle BV, as the case may be (the
"Indemnifying Party"); provided, that, any failure to promptly give a Claims
Notice shall not relieve any Indemnifying Party of its liability hereunder
except to the extent that such Indemnifying Party has been materially prejudiced
thereby. The Claims Notice shall describe the Asserted Liability in reasonable
detail, and shall indicate the amount, estimated, if necessary, of the Loss that
has been or may be suffered by the Indemnitee.
(b) The Indemnifying Party may elect to compromise or defend, at its own
expense and by its own counsel, any Asserted Liability if it confirms in writing
that it has liability for such Asserted Liability without qualification. If the
Indemnifying Party elects to compromise or defend such Asserted Liability and
gives such notice, it shall within 30 Business Days, or sooner, if the nature of
the Asserted Liability so requires, notify the Indemnitee of its intent to do
so, and the Indemnitee shall cooperate, at the expense of the Indemnifying
Party, in the compromise of, or defense against, such Asserted Liability. If the
Indemnifying Party elects not to compromise or defend the Asserted Liability,
fails to notify the Indemnitee of its election as herein provided or contests
its liability to indemnify the Indemnitee, the Indemnitee may pay, compromise or
defend such Asserted Liability. Notwithstanding the foregoing, neither the
Indemnifying Party nor the Indemnitee may settle or compromise any claim over
the objection of the other; provided, however, that no Indemnifying Party or
<PAGE>
Indemnitee shall consent to entry of any judgment or enter into any settlement
without the consent of the Indemnitee or Indemnifying Party, respectively, if
the effect thereof is to permit any injunction, declaratory judgment, order or
other nonmonetary relief to be entered, directly or indirectly, against the
Indemnitee or Indemnifying Party, respectively, and provided, further, however,
that no Indemnifying Party shall be liable for any settlement effected without
its consent, such consent not to be unreasonably withheld. In any event, the
Indemnitee and the Indemnifying Party may participate, at their own expense, in
the defense of such Asserted Liability. If the Indemnifying Party chooses to
defend any Asserted Liability, the Indemnitee shall make available to the
Indemnifying Party any books, records or other documents within its control that
are necessary or appropriate for such defense. If the Indemnifying Party does
not so choose, it will make available to the Indemnitee any books, records or
other documents within its control that are necessary or appropriate for the
defense of the Asserted Liability.
(c) If any Asserted Liability involves a Loss in respect of which an
Indemnifying Party has an indemnification obligation under this Article 25, as
well as a Loss in respect of which such Indemnifying Party does not have an
indemnification obligation under this Article 25, the parties shall cooperate in
allocating responsibility therefor.
25.7 Limitation on Indemnification. The indemnification provided for in
Section 25.4(e) shall be subject to the following limitations:
(a) An Indemnifying Party shall not be required to indemnify any
Indemnitee, and shall not have any liability for any individual occurrences,
events, circumstances, acts or omissions where the Loss relating thereto is less
than $1 million, and such occurrences, events, circumstances, acts or omissions
shall not be aggregated for the purposes of Section 25.7(b); and
(b) An Indemnifying Party shall not be obligated to pay any amounts for
indemnification under Section 25.4(e) until the aggregate amount of all Losses
for which it would be liable exceeds on a cumulative basis an amount equal to
$62.5 million, whereupon the Indemnifying Party shall be obligated to pay in
full all such Losses; provided, that, the limitation contained in this Section
25.7 shall not apply with respect to any inaccuracy in or breach of the
representation contained in Section 17.2(u).
25.8 Certain Matters Relating to Indemnification.
(a) With respect to the matters that are subject to, or asserted by an
Indemnitee to be subject to, the indemnification obligations created by this
Article 25, except as otherwise expressly provided herein or in any other
Transaction Agreement, the parties agree not to seek recovery from one another
other than pursuant to this Article 25; it being understood that the recovery
available under this Article 25 is limited to a right to seek monetary
compensation and does not include specific performance or injunctive relief.
(b) In no event shall any Indemnifying Party be responsible or liable for
any Losses that are incidental, consequential, indirect, special, punitive or
other than actual damages.
<PAGE>
(c) The amount which any Indemnifying Party is required to pay to any
Indemnitee entitled to indemnification hereunder will be reduced by any
insurance proceeds or other amount recovered or recoverable from any third party
in reduction of the related Loss. If an Indemnitee receives a payment (an
"Indemnity Payment") required by this Agreement from an Indemnifying Party in
respect of any Loss and subsequently receives insurance proceeds or recovers any
other amount as provided in this Section 25.8(c), then the Indemnitee will
without demand reimburse the Indemnifying Party such amount as is equal to the
excess of the Indemnity Payment received over the amount of the Indemnity
Payment that would have been due if the insurance proceeds or other amounts had
been received, realized or recovered before the Indemnity Payment was made.
(d) Any Loss for which indemnification is sought hereunder shall also be
reduced by any net tax benefit actually realized by the Indemnitee. Any net tax
benefit actually realized by the Indemnitee subsequent to its receipt of an
Indemnity Payment shall be promptly reimbursed to the Indemnifying Party.
(e) Notwithstanding anything in this Agreement or any other Transaction
Agreement to the contrary, a party shall not be required to indemnify any other
party with respect to any Loss incurred by or asserted against such other party
by reason of any breach of any of the representations or warranties contained
herein, if such breach has affected the calculation of the BT Closing Valuation
or the AT&T Closing Valuation, as applicable, or to the extent the amount of the
Loss was reflected in the BT Closing Valuation or the AT&T Closing Valuation, as
applicable.
25.9 Treatment of Indemnification Payments. The parties agree that any
Indemnity Payment hereunder shall be treated for tax and accounting purposes as
follows: (a) the Loss for which an Indemnity Payment is made shall be treated,
ab initio, as a reduction in the amount of the capital contribution and related
capital account of the party (or Affiliate thereof) making the payment; (b) the
Indemnity Payment shall increase, ab initio, the capital contribution and
related capital account of the Indemnifying Party; and (c) no additional shares
will be issued by Thistle BV in connection therewith. These provisions shall
apply mutatis mutandis if the Indemnifying Party is Thistle BV.
ARTICLE 26
OTHER COOPERATION OPPORTUNITIES
26.1 U.S. Wireless Opportunities. AT&T hereby offers to BT the opportunity
to invest in the wireless activities in the United States of America described
in Schedule 26.1 attached hereto, and agrees to negotiate in good faith and
diligently with BT on any such particular opportunity that BT wishes to explore
with AT&T; provided, that, BT gives AT&T notice of such intention prior to the
date specified in Schedule 26.1 with respect to such particular opportunity.
26.2 Investment Fund. From and after the Closing Date, the parents shall
actively operate an investment fund pursuant to the Investment Fund Agreement.
ARTICLE 27
BANKRUPTCY
27.1 Bankruptcy.
(a) The AT&T Parties and the BT Parties acknowledge and agree that they are
entering into this Agreement and forming the Newco Group in reliance upon the
unique skills and expertise of the other. Accordingly, upon the Bankruptcy of a
parent or of a material Subsidiary of a parent constituting substantially all of
<PAGE>
its business (the affected parent, a "Bankrupt Parent"), the other parent (the
"Non-Bankrupt Parent") shall have the right, promptly and without further
action, upon the earlier of (i) the Non-Bankrupt Parent becoming aware of the
Bankruptcy of the Bankrupt Parent and (ii) the occurrence of the event of
Bankruptcy, to manage and control the business and operations of the Newco
Group.
(b) To effectuate the intent of Section 27.1(a), upon the occurrence and
during the continuance of the Bankruptcy of the Bankrupt Parent, unless the
Non-Bankrupt Parent shall elect otherwise, the Representatives on the DirectorCo
Board appointed by the Bankrupt Parent or its Affiliate that is a member of
DirectorCo shall be deemed to have resigned upon the occurrence of the event of
Bankruptcy and the Non-Bankrupt Parent or its Affiliate that is a member of
DirectorCo shall forthwith have the right to appoint three replacement
Representatives to fill the vacancies caused by such resignations to act as the
Class of Representatives formerly appointed by the Bankrupt Parent or its
Affiliate, as the case may be.
(c) Upon the occurrence and during the continuance of the Bankruptcy of the
Bankrupt Parent:
(i) The provisions of clause (b) of the second sentence of Section 11.6
shall be of no further force or effect with respect to the Non-Bankrupt Parent
and its Group Companies; and
(ii) The Non-Bankrupt Parent shall have the right to cause a Distribution
of Netco, in which case the provisions of Schedule 13.2 shall apply and the
Non-Bankrupt Parent and the Bankrupt Parent shall bear equally any Taxes arising
in connection therewith.
(d) If, upon the first anniversary of the occurrence of the Bankruptcy of
the Bankrupt Parent, such Bankruptcy continues, the provisions of the remainder
of Article 11 shall thereupon be of no further force or effect with respect to
the Non-Bankrupt Parent and its Group Companies during the continuance of the
Bankruptcy.
(e) The parties agree that if the Bankrupt Parent is no longer the subject
of an event of Bankruptcy, other than by reason of its complete dissolution or
liquidation, the Non-Bankrupt Parent's rights and benefits under Sections
27.1(b), (c) and (d) shall cease (except that if a Distribution of Netco has
occurred, then the parents or their Affiliates shall remain shareholders or
members of Netco). The Non-Competition Undertakings and Sections 11.12 and 11.13
shall, in such event, be reinstated with respect to the Non-Bankrupt Parent and
its Group Companies; provided, that such provisions shall be thereupon waived
with respect to any activities that were undertaken by the Non-Bankrupt Parent
or any of its Group Companies during the continuance of the Bankruptcy of the
Bankrupt Parent that would otherwise have violated Article 11 but for the
application of Section 27.1(c)(i) or 27.1(d).
27.2 Economic Interest. Notwithstanding the provisions of Section 27.1,
upon the occurrence and during the continuance of a Bankruptcy of the Bankrupt
Parent, the Bankrupt Parent shall continue to be entitled to an economic
interest in the Newco Group and to receive any and all dividends and
distributions paid or made by the members of the Newco Group and DirectorCo to
its shareholders or members.
<PAGE>
ARTICLE 28
MISCELLANEOUS
28.1 No Breach of MCI or WorldCom Agreements; Compliance with Laws and
Licenses.
(a) Nothing in this Agreement or in any of the Transaction Agreements is
intended to require (i) AT&T, BT, Concert or any of their Affiliates to take any
action that would breach any provision, including any confidentiality or
non-compete provision, of any agreement between or among any of the foregoing
and MCI or WorldCom or any of their Affiliates, or (ii) AT&T, BT, Concert, or
any of their Affiliates to take any action that would breach any applicable
provision of any Applicable Law or license.
(b) No restriction in this Agreement or in any other agreement or
arrangement of which it forms a part which is registrable under the U.K.
Restrictive Trade Practices Act 1976 or 1977 (the "RTP Acts") shall come into
force until the day after particulars of this Agreement and of any other
agreement or arrangement of which it forms part have been furnished to the
Director General of Fair Trading in accordance with the RTP Acts. The provisions
of this Section 28.1(b) shall not apply if this Agreement and any other
agreement or arrangement of which it forms part either:
(i) falls within one of the classes of non-notifiable agreements
established by statutory instrument from time to time under the RTP Acts or by
any other statute or statutory instrument, or
(ii) is not capable of being furnished due to the repeal of the RTP Acts.
28.2 Export Control.
(a) Each party hereto acknowledges that any products, software, and
technical information (including services and training) to be provided by AT&T,
BT or Thistle BV or any of their respective Affiliates in accordance with this
Agreement or any other Transaction Agreement are subject to U.S. export laws and
regulations and any use or transfer of such products, software, and technical
information must be authorized under those regulations. Each party agrees that
it shall not, and that it shall cause its Affiliates not to, use, distribute,
transfer, or transmit any such products, software or technical information (even
if incorporated into other products) except in compliance with U.S. export
regulations. Each party agrees that neither it nor any of its Affiliates will,
directly or indirectly, "export" or "reexport" the following items to any of the
countries listed in Section [4.3] of the IPR Agreement: (x) software or
"technical data" disclosed or provided to them by AT&T or any of its Affiliates;
or (y) the direct product of such software or "technical data."
(b) The commitments in Section 28.2(a) apply unless (x) the export
administration regulations of the U.S. Department of Commerce explicitly permits
the export or reexport or (y) the office of export licensing of the U.S.
Department of Commerce first grants authorization in writing.
(c) As used in this Section 28.2, "technical data," "development,"
"production," "use," "transfer," "release," "export," and "reexport" shall have
the respective meanings assigned to them in the IPR Agreement.
<PAGE>
(d) The obligations under this Section shall survive termination of this
Agreement and the consummation of the Put, the Call and the dissolution of
Thistle BV.
28.3 Notices. Any notice or other communication required or permitted
hereunder shall be in writing and shall be delivered personally, sent by
facsimile transmission (with confirmation of receipt) or sent by internationally
recognized courier service, postage prepaid. Any such notice shall be deemed
given when so delivered personally or, if sent by facsimile, at the time of
receipt of a legible copy thereof or, if sent by internationally recognized
courier service, three days after the date of deposit with the courier service,
postage prepaid, and shall be sent as follows:
(i) if to the AT&T Parties, to:
AT&T Corp.
Norfolk House
31 St. James Square
London SW1Y 4JR
England
Attention: Walter G. DeSocio, Esq.
Facsimile No.: 011-44-171-925-8232
with a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
United States of America
Attention: Richard D. Katcher, Esq.
Stephanie J. Seligman, Esq.
Facsimile No.: 212-403-2000
(ii) if to the BT Parties, to:
British Telecommunications plc
81 Newgate Street
London ECIA 7AJ
England
Attention: Jack Greenberg, Esq.
Facsimile No.: 011-44-171-356-5608
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
United States of America
Attention: Toby S. Myerson, Esq.
Facsimile No.: 212-757-3990
and:
Bird & Bird
90 Fetter Lane
London EC4A1JP
England
Attention: David Kerr, Esq.
Facsimile No.: 011-44-171-415-6111
<PAGE>
(iii) if to Thistle BV, to:
Thistle B.V.
c/o British Telecommunications plc
81 Newgate Street
London ECIA 7AJ
England
Attention: Jack Greenberg, Esq.
Facsimile No.: 011-44-171-356-5608
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
United States of America
Attention: Toby S. Myerson, Esq.
Facsimile No.: 212-757-3990
and:
Bird & Bird
90 Fetter Lane
London EC4A1JP
England
Attention: David Kerr, Esq.
Facsimile No.: 011-44-171-415-6111
Any party may by notice given in accordance with this Section 28.3 to the
other parties designate another address, facsimile number or Person for receipt
of notices hereunder.
28.4 No Publicity. Except as required by law, the parents shall consult in
advance of all public announcements in respect of the subject matter of this
Agreement and the other Transaction Agreements. The content of any such
announcements shall require the agreement of the parents prior to publication,
such agreement not to be unreasonably withheld or delayed in the context of
announcements that are required to be made in order to comply with any listing
agreement with, or the rules or regulations of, any securities exchange on which
securities of a parent or any of its Affiliates are listed or traded or any
other regulatory requirements. The parents shall establish a common press policy
with respect to the matters contemplated hereby.
28.5 Entire Agreement. This Agreement (including the Exhibits, Schedules
and Annexes hereto), together with the other Transaction Agreements, and the
other agreements contemplated hereby and thereby, contain the entire agreement
among the parties with respect to the transactions contemplated hereby and
supersede the Term Sheet and all prior term sheets, discussions, negotiations
and agreements, written or oral, with respect thereto (other than the
Confidentiality Agreements).
28.6 Waivers and Amendments; Preservation of Remedies. This Agreement may
be amended, superseded, canceled, renewed or extended, and the terms hereof may
be waived, only by a written instrument signed by the parties or, in the case of
a waiver, by the party waiving compliance. No delay on the part of any party in
exercising any right, power or privilege hereunder shall operate as a waiver
thereof, nor shall any waiver on the part of any party of any such right, power
or privilege, nor any single or partial exercise of any such right, power or
privilege, preclude any further exercise thereof or the exercise of any other
such right, power or privilege.
<PAGE>
28.7 Severability. Subject to the proviso in Sections 18.3 and 18.4, in
case any provision of this Agreement shall be held invalid, illegal or
unenforceable in a jurisdiction, such provision shall be modified or deleted, as
to the jurisdiction involved, only to the extent necessary to render the same
valid, legal and enforceable, and the validity, legality and enforceability of
the remaining provisions hereof shall not in any way be affected or impaired
thereby nor shall the validity, legality or enforceability of such provision be
affected thereby in any other jurisdiction.
28.8 No Assignment. This Agreement shall be binding upon and shall inure to
the benefit of and be enforceable by the parties and their respective successors
and permitted assigns; provided, that, other by operation of law in the case of
a Business Combination and except as otherwise expressly set forth in this
Agreement, neither the rights nor the obligations of any party may be assigned
or delegated without the prior written consent of the other parties, except that
either parent may assign any or all of its rights hereunder to any of its
wholly-owned Subsidiaries. For the purposes of clarification, none of Thistle BV
or the Newco Subsidiaries shall be deemed to be an Affiliate of either parent.
28.9 No Third Party Beneficiaries. This Agreement is not intended to be for
the benefit of and shall not be enforceable by any Person which is not a party
hereto, except for the indemnification provisions contained in Article 25, which
provisions may be enforced by any AT&T Indemnified Parties or BT Indemnified
Parties referred to therein.
28.10 Governing Law. This Agreement shall be governed by, and construed and
interpreted in accordance with, the laws of the State of New York applicable to
contracts made and to be performed entirely within such State.
28.11 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one instrument. Signatures delivered by telecopy shall
have the same effect as the manual original signatures.
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed and delivered by the
parties set forth below as of the date first written above. AT&T CORP.
By
Name:
Title:
VLT CORPORATION
By
Name:
Title:
<PAGE>
BRITISH TELECOMMUNICATIONS PLC
By
Name:
Title:
BT (NETHERLANDS) HOLDINGS B.V.
By
Name:
Title:
THISTLE B.V.
By
Name:
Title:
Form 10-Q
For the Nine
Months Ended
September 30, 1998
AT&T Corp.
Computation of Ratio of Earnings to Fixed Charges
(Dollars in Millions)
(Unaudited)
Income from Continuing Operations
Before Income Taxes ................................. $4,991
Less Interest Capitalized during
the Period........................................... 151
Add Equity Investment Losses, net of distributions
of Less than 50% Owned Affiliates.................... 173
Add Fixed Charges...................................... 683
Total Earnings from Continuing
Operations Before Income Taxes
and Fixed Charges.................................... $5,696
Fixed Charges
Total Interest Expense Including Capitalized Interest.. $ 473
Interest Portion of Rental Expense..................... 210
Total Fixed Charges.................................. $ 683
Ratio of Earnings to Fixed Charges..................... 8.3
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited consolidated balance sheet of AT&T Corp. at September 30, 1998 and the
unaudited consolidated statement of income for the nine-month period ended
September 30, 1998 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 4,190
<SECURITIES> 0
<RECEIVABLES> 10,008
<ALLOWANCES> 1,029
<INVENTORY> 0
<CURRENT-ASSETS> 15,563
<PP&E> 49,811
<DEPRECIATION> 24,718
<TOTAL-ASSETS> 58,161
<CURRENT-LIABILITIES> 14,723
<BONDS> 6,079
0
0
<COMMON> 1,754
<OTHER-SE> 22,313
<TOTAL-LIABILITY-AND-EQUITY> 58,161
<SALES> 0
<TOTAL-REVENUES> 39,695
<CGS> 0
<TOTAL-COSTS> 35,551
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,050
<INTEREST-EXPENSE> 322
<INCOME-PRETAX> 4,991
<INCOME-TAX> 1,840
<INCOME-CONTINUING> 3,151
<DISCONTINUED> 1,300
<EXTRAORDINARY> (137)
<CHANGES> 0
<NET-INCOME> 4,314
<EPS-PRIMARY> 2.40
<EPS-DILUTED> 2.38
</TABLE>
