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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10
------------------------
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR 12(g) OF
THE SECURITIES EXCHANGE ACT OF 1934
------------------------
NCR CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C>
MARYLAND 31-0387920
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1700 SOUTH PATTERSON BLVD.
DAYTON, OHIO 45479
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (937) 445-5000
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SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<CAPTION>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH
TO BE SO REGISTERED EACH CLASS IS TO BE REGISTERED
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<S> <C>
COMMON STOCK, PAR VALUE $.01 PER SHARE
PREFERRED SHARE PURCHASE RIGHTS
</TABLE>
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
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<PAGE> 2
November , 1996
Dear Shareowner:
The Board of Directors of AT&T Corp. has authorized the distribution to the
AT&T shareowners of all of the outstanding shares of common stock of NCR
Corporation, which is currently a wholly owned subsidiary of AT&T. The
distribution of the shares of NCR is expected to occur on December 31, 1996.
The distribution of NCR will complete the restructuring announced by AT&T
on September 20, 1995. Pursuant to the restructuring, AT&T has split into three
separate companies: NCR, which engages in the information technology business;
Lucent Technologies Inc., which engages in the telecommunications systems,
software and products businesses; and the continuing AT&T, which engages in the
communications services and credit card businesses. Earlier this year, Lucent
Technologies separated from AT&T by means of an initial public offering of
approximately 17.6% of its common stock in April, followed by a distribution by
AT&T to AT&T's shareowners of the remaining common stock of Lucent on
, 1996. AT&T also sold its 86% interest in AT&T Capital Corporation
as part of the sale of AT&T Capital consummated on , 1996.
If you are an AT&T shareowner at the close of business on December ,
1996, the record date for the distribution, you will receive one share of NCR
common stock for each shares of AT&T common stock you own on that
date, with cash to be paid in lieu of any fractional interest in a share to any
holder who receives certificates for NCR shares or who would be entitled to less
than one whole share of NCR. We expect that NCR stock certificates will be
mailed or, alternatively, that book-entry credit for shares of NCR common stock
will be made, beginning on or about December 31, 1996.
is acting as distribution agent and will be responsible for
mailing NCR share certificates or making book-entry credits to holders of
record. NO ACTION IS REQUIRED BY AT&T SHAREOWNERS IN ORDER TO RECEIVE NCR
SHARES. A shareowner vote is not required in connection with the matter and,
accordingly, your proxy is not being sought. Questions about NCR and other
matters relating to the distribution should be addressed to ,
, number: .
The attached Information Statement, which is being distributed to all AT&T
shareowners in connection with the distribution, describes the NCR distribution
in detail and contains important information about NCR, including financial
statements and other financial information. I urge you to read it carefully.
Sincerely,
<PAGE> 3
A REGISTRATION STATEMENT RELATING TO THE COMMON STOCK AND THE PREFERRED
SHARE PURCHASE RIGHTS OF NCR CORPORATION HAS BEEN FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION BUT HAS NOT YET BECOME EFFECTIVE. INFORMATION
CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT.
PRELIMINARY COPY DATED SEPTEMBER 26, 1996
-- FOR INFORMATION ONLY --
INFORMATION STATEMENT
NCR CORPORATION
COMMON STOCK, PAR VALUE $.01
PREFERRED SHARE PURCHASE RIGHTS
This Information Statement is being furnished to shareowners of AT&T Corp.,
a New York corporation ("AT&T"), in connection with the distribution (the
"Distribution") by AT&T to its shareowners of all of the outstanding shares of
common stock, par value $.01 per share (the "NCR Common Stock"), of its wholly
owned subsidiary, NCR Corporation, a Maryland corporation ("NCR" or the
"Company").
It is expected that the Distribution will be made on December 31, 1996, on
the basis of one share of NCR Common Stock for each shares of common stock,
$1.00 par value, of AT&T (the "AT&T Common Stock") held on December , 1996
(the "Record Date"), with cash being paid in lieu of fractional interests in a
share of NCR Common Stock to any holder who receives certificates for NCR shares
or who would be entitled to less than one whole share of NCR. No payment need be
made by shareowners of AT&T for the shares of NCR Common Stock to be received by
them in the Distribution. AT&T shareowners will not be required to surrender or
exchange shares of AT&T Common Stock in order to receive shares of NCR Common
Stock. Each share of NCR Common Stock issued in the Distribution will be
accompanied by one Preferred Share Purchase Right.
There is currently no public market for NCR Common Stock, although it is
expected that a "when-issued" trading market may develop on or about the Record
Date. An application is expected to be filed to list shares of NCR Common Stock
on the New York Stock Exchange (the "NYSE"), under the symbol "NCR."
------------------------
WE ARE NOT ASKING YOU FOR A PROXY
AND YOU ARE REQUESTED NOT TO
SEND US A PROXY.
------------------------
THIS INFORMATION STATEMENT SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES. ANY SUCH OFFERING
MAY ONLY BE MADE BY MEANS OF A SEPARATE PROSPECTUS PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT AND
OTHERWISE IN COMPLIANCE WITH APPLICABLE LAW.
The date of this Information Statement is November , 1996.
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TABLE OF CONTENTS
<TABLE>
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PAGE
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Available Information...................... ii
Summary.................................... 1
The Distribution......................... 1
NCR Corporation.......................... 3
Summary Historical Financial Data........ 6
Introduction............................... 8
Risk Factors............................... 8
Historical Losses........................ 9
Risks Relating to Implementation of New
Business Strategy...................... 9
Future Capital Requirements; Absence of
AT&T Funding........................... 9
Dependence on New Product Development.... 10
Reliance on Suppliers and Partners....... 10
Competition.............................. 11
Seasonality.............................. 12
Reliance on AT&T Entities; Industry
Focus.................................. 12
Risk of Foreign Operations and Foreign
Exchange............................... 13
Certain Legal Matters; Potential
Environmental Liabilities.............. 13
Risk of Intellectual Property
Infringement Claims.................... 14
Limited Relevance of Historical Financial
Information............................ 15
Absence of History as a Stand-alone
Company................................ 15
Absence of a Public Market for NCR Common
Stock.................................. 15
Possibility of Substantial Sales of NCR
Common Stock........................... 15
Certain Antitakeover Effects............. 16
The Distribution........................... 16
Background of and Reasons for the
Distribution........................... 16
Manner of Effecting the Distribution..... 17
Certain Federal Income Tax Consequences
of the Distribution.................... 17
Listing and Trading of NCR Common
Stock.................................. 18
Conditions; Termination.................. 19
Dividend Policy............................ 19
Financing.................................. 19
Business................................... 19
Overview................................. 19
Restructuring and Turnaround............. 20
Strategy................................. 22
Business Unit Overview................... 23
Retail Systems Group..................... 24
Financial Systems Group.................. 27
Computer Systems Group................... 29
Worldwide Services....................... 31
Systemedia Group......................... 33
Research and Development................. 34
Backlog.................................. 34
Sources and Availability of Raw
Materials.............................. 35
Patents and Trademarks................... 35
Employees................................ 35
Legal Proceedings and Environmental
Matters................................ 35
Properties............................... 36
Capitalization............................. 38
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Selected Financial Data.................... 39
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................... 40
Overview................................. 40
Restructuring............................ 41
Results of Operations.................... 43
Financial Condition, Liquidity and
Capital Resources...................... 49
Recently Issued Accounting
Pronouncements......................... 52
Products and Technology.................. 52
Legal Proceedings and Environmental
Matters................................ 53
Forward Looking Statements............... 54
Management................................. 55
Directors and Executive Officers of
NCR.................................... 55
Committees of the NCR Board of
Directors.............................. 57
Compensation of Directors................ 57
Annual Meeting........................... 58
Stock Ownership of Executive Officers and
Directors.............................. 58
Executive Compensation................... 59
Option and SAR Grants of AT&T Common
Stock to Executive Officers............ 61
Employment Agreements.................... 62
Savings Plan............................. 63
Retirement Benefits...................... 64
NCR Stock Incentive Plans................ 66
Other Benefit Plans...................... 67
Arrangements Among AT&T, NCR and
Lucent................................... 69
NCR Distribution Agreement............... 69
Separation and Distribution Agreement.... 72
Employee Benefits Agreement.............. 75
Purchase Agreements...................... 76
Interim Services and Systems Replication
Agreement.............................. 77
Patent Licenses and Related Matters...... 77
Technology Licenses and Related
Matters................................ 78
Tax Agreements........................... 78
Real Estate Agreements................... 79
Other Agreements......................... 79
Description of NCR Capital Stock........... 80
Authorized Capital Stock................. 80
Common Stock............................. 80
Preferred Stock.......................... 80
Certain Antitakeover Effects............... 81
Board of Directors....................... 81
Stockholder Action by Unanimous Written
Consent; Limitations on Call of Special
Meetings............................... 81
Advance Notice Procedures................ 82
Amendment................................ 82
Rights Plan.............................. 83
Maryland Business Combination Statute.... 85
GCL Business Combination Vote
Requirements........................... 85
Control Share Acquisition Statute........ 85
Liability of Directors and Officers;
Indemnification.......................... 85
Index to Financial Statements.............. F-1
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AVAILABLE INFORMATION
NCR has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form 10 (the "Registration Statement")
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), with
respect to the NCR Common Stock and Preferred Share Purchase Rights described
herein. This Information Statement does not contain all of the information set
forth in the Registration Statement and the exhibits and schedules thereto. For
further information, reference is made hereby to the Registration Statement,
exhibits and schedules. Statements contained herein concerning any documents are
not necessarily complete and, in each instance, reference is made to the copies
of such documents filed as exhibits to the Registration Statement. Each such
statement is qualified in its entirety by such reference. Copies of these
documents may be inspected without charge at the principal office of the
Commission at 450 5th Street, N.W., Washington, D.C. 20549, and at the Regional
Offices of the Commission at 7 World Trade Center, Suite 1300, New York, New
York 10048, at Citicorp Center, Suite 1400, 500 West Madison Street, Chicago,
Illinois 60661, and at 5670 Wilshire Boulevard, Suite 1100, Los Angeles,
California 90036, and copies of all or any part thereof may be obtained from the
Commission upon payment of the charges prescribed by the Commission. Copies of
such material may also be obtained from the Commission's Web Site
(http://www.sec.gov).
Following the Distribution, NCR will be required to comply with the
reporting requirements of the Exchange Act and will file annual, quarterly and
other reports with the Commission. NCR will also be subject to the proxy
solicitation requirements of the Exchange Act and, accordingly, will furnish
audited financial statements to its stockholders in connection with its annual
meetings of stockholders. In the event of the listing of the NCR Common Stock on
the NYSE, NCR will be required to file with the NYSE copies of such reports,
proxy statements and other information which then can be inspected at the
offices of the NYSE at 20 Broad Street, New York, New York 10005.
NO PERSON IS AUTHORIZED BY AT&T OR NCR TO GIVE ANY INFORMATION OR TO MAKE
ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS INFORMATION STATEMENT,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED.
------------------------
This Information Statement contains trademarks, service marks or registered
marks of NCR, AT&T, their respective subsidiaries and other companies.
For the purposes of this Information Statement, the following terms are
used to refer to the items that NCR provides to its customers:
A "product" refers to individual hardware, software, and consumable
supplies. Examples of products are automated teller machines ("ATMs"),
barcode scanners, paper rolls, and NCR's Teradata(R) relational database.
A "system" refers to combinations of hardware, operating systems
software, and basic services. "Basic services" primarily includes system
installation. Examples of systems are point of sale systems (which could
combine point of sale terminals, barcode scanners, servers, operating
system software, and basic installation services) and computer systems
(which could combine WorldMark(TM) servers, UNIX(R) or Microsoft Windows
NT(R) operating systems, and basic installation services).
A "solution" refers to combinations of hardware, operating system
software, application software, consumable supplies, and value added
services. "Value added services" include items such as consulting services,
implementation services, and database design services. Examples of
solutions are NCR's High Availability Transaction Processing solutions and
Scalable Data Warehousing solutions.
NCR's High Availability Transaction Processing solutions are designed to
ensure minimum system downtime for customers' business critical
applications. These business critical applications can include financial
reporting applications, credit card authorization systems, and order
entry systems. NCR's High Availability Transaction Processing solution
integrates hardware, software, and services with the customers'
application to provide high levels of availability.
ii
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Scalable Data Warehousing solutions are designed to help customers
store, retrieve, and analyze large volumes of detailed data coming from
a wide range of transactional and operational systems. For example,
Scalable Data Warehousing would allow retailers to analyze individual
transactions from their point of sale systems, to determine the volume
of individual products sold in each store location, and to facilitate
decision making in areas such as merchandising and inventory. These
solutions are scalable, in that customers can increase the size of these
solutions from small (10 gigabytes of data), to very large (over 1
terabyte of data, which is equivalent to 1,000 gigabytes) all within the
same hardware and software platform.
An "offering" refers to all of the items that NCR provides to its
customers, and can include products, systems, solutions, and services. The
different services that NCR provides to customers are referred to as
"service offerings."
See "Business" for a description of these products, services, systems,
and solutions.
iii
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SUMMARY
This summary is qualified by the more detailed information set forth
elsewhere in this Information Statement, which should be read in its entirety,
including the discussion of certain factors set forth under "Risk Factors."
Unless the context otherwise requires, as used herein the term "NCR" or the
"Company" includes NCR and its subsidiaries.
THE DISTRIBUTION
Distributing Company....... AT&T Corp., a New York corporation.
Shares to be Distributed... Approximately million shares of NCR Common
Stock, representing all of the outstanding shares
of NCR Common Stock. All such shares are currently
held by AT&T.
Distribution Ratio......... One share of NCR Common Stock for each
shares of AT&T Common Stock. Cash will be paid in
lieu of any fractional interest in a share of NCR
Common Stock to any holder who receives
certificates for NCR shares or who would be
entitled to less than one whole share of NCR. No
payment need be made by shareowners of AT&T for the
shares of NCR Common Stock to be received by them
in the Distribution, nor will they be required to
surrender or exchange shares of AT&T Common Stock
in order to receive NCR Common Stock. See "The
Distribution -- Manner of Effecting the
Distribution." Shareowners who hold fewer than
shares of AT&T Common Stock will receive
a cash payment in lieu of a fractional share and
will not receive any shares of NCR Common Stock.
Federal Income Tax
Consequences............. The Distribution is subject to receipt of a ruling
from the Internal Revenue Service ("IRS") to the
effect that for United States federal income tax
purposes no gain or loss will be recognized by
holders of AT&T Common Stock upon receipt of NCR
Common Stock in the Distribution, except with
respect to cash received in lieu of fractional
interests in shares of NCR Common Stock, and that
no gain or loss will be recognized by AT&T or NCR
in respect of the Distribution. AT&T shareowners
are urged to consult their own tax advisors as to
the specific tax consequences of the Distribution
to them. See "The Distribution -- Certain Federal
Income Tax Consequences of the Distribution."
Risk Factors............... Shareowners should consider certain factors
discussed under "Risk Factors."
Background of and Reasons
for the Distribution..... The Distribution to AT&T shareowners of all the
outstanding shares of NCR Common Stock will
complete the restructuring announced by AT&T on
September 20, 1995. Pursuant to the restructuring,
AT&T has split into three separate companies: NCR;
Lucent Technologies Inc., a Delaware corporation
("Lucent"), which engages in the telecommunications
systems, software and products businesses; and the
continuing AT&T, which engages in the
communications services and credit card businesses.
Earlier this year, Lucent was separated from AT&T
by means of an initial public offering of
approximately 17.6% of the Lucent common stock (the
"Lucent Common Stock") on April 10, 1996, followed
by the distribution by AT&T to AT&T's shareowners
of the remaining Lucent Common Stock on
, 1996 (the "Lucent
1
<PAGE> 8
Distribution"). AT&T also sold its 86% interest in
AT&T Capital Corporation ("AT&T Capital") as part
of the sale of AT&T Capital consummated on
, 1996.
The restructuring of AT&T responds to changes in
customer needs and demands, public policy, and
technology in the industries in which AT&T has
operated in the past. In AT&T's view, these changes
are creating a new industry structure in which,
increasingly, the advantages of vertical
integration are outweighed by its costs and
disadvantages. In particular, these changes have
resulted in, among other things, a situation in
which, to varying degrees, many of the actual and
potential customers of Lucent and NCR are or will
be competitors of AT&T's communications services
businesses. NCR believes that its efforts to target
the communications industry have been hindered by
the reluctance of AT&T's communications services
competitors to make purchases from an AT&T
subsidiary, and that in some cases the
unwillingness of these competitors to share
proprietary information, such as customer data and
marketing strategies, with NCR has made it more
difficult for NCR to market information technology
solutions to these companies. Finally, the demands
created by this new industry structure have also
heightened the need for focused management time and
attention in each of the businesses previously
conducted by AT&T, including the information
technology business operated by NCR. For these
reasons, AT&T determined to separate its businesses
by means of its restructuring.
Trading Market............. There is currently no public market for NCR Common
Stock, although a "when-issued" trading market is
expected to develop prior to the Distribution Date.
An application is expected to be filed to list the
NCR Common Stock on the NYSE, under the symbol
"NCR." See "Risk Factors -- Absence of a Public
Market for NCR Common Stock" and "-- Possibility of
Substantial Sales of NCR Common Stock" and "The
Distribution -- Listing and Trading of NCR Common
Stock."
Record Date................ December , 1996.
Distribution Date.......... Expected to be December 31, 1996 (the "Distribution
Date"). Commencing on or about the Distribution
Date, (the "Distribution Agent")
will commence mailing share certificates or making
book-entry credits for shares of NCR Common Stock
to holders of AT&T Common Stock on the Record Date.
AT&T shareowners will not be required to make any
payment or to take any other action to receive the
NCR Common Stock to which they are entitled in the
Distribution. See "The Distribution -- Manner of
Effecting the Distribution."
Distribution Agent......... will be the Distribution Agent for the
Distribution.
Conditions to the
Distribution............. The Distribution is conditioned upon, among other
things: (a) the receipt by AT&T of a ruling from
the IRS to the effect that the Distribution
qualifies as a tax-free distribution under Section
355 of the Internal Revenue Code of 1986, as
amended (the "Code"); (b) the receipt of any
material governmental approvals and third party
consents necessary to consummate the Distribution;
(c) the absence of any order, injunction, decree or
other legal restraint or prohibition preventing the
consummation of the Distribution; (d) the failure
to occur of any other event that prevents the
consummation of the Distribution; (e) the
acceptance for listing on a mutually agreed stock
exchange or quotations
2
<PAGE> 9
system, which is expected to be the NYSE, of the
NCR Common Stock (and related Preferred Share
Purchase Rights); and (f) the formal approval by
the Board of Directors of AT&T (the "AT&T Board")
of the Distribution. The AT&T Board may, but has no
obligation to, waive any of these conditions. In
addition, regardless of whether these conditions
are satisfied, the AT&T Board has reserved the
right to abandon, defer or modify the Distribution
and the related transactions described herein at
any time prior to the Distribution Date. See "The
Distribution -- Conditions; Termination" and
"Arrangements Among AT&T, NCR and Lucent -- NCR
Distribution Agreement."
Principal Businesses to Be
Retained by AT&T......... AT&T is among the world's communications leaders,
providing voice, data, and video telecommunication
services to large and small businesses, government
entities and consumers, and offering a general
purpose credit card and other services. AT&T and
its subsidiaries furnish local, regional, domestic
and international communication transmission
services. AT&T's wholly owned subsidiaries,
including AT&T Wireless Services, Inc. ("AT&T
Wireless"), provide cellular telephone and other
wireless services. In conjunction with its
subsidiaries (including AT&T Universal Card
Services Corp.), AT&T also provides billing,
directory, and credit and calling card services to
support its communications services business.
NCR CORPORATION
NCR Corporation............ NCR Corporation is currently a wholly owned
subsidiary of AT&T that is engaged in the
information technology business. NCR was merged
with a wholly owned subsidiary of AT&T on September
19, 1991.
NCR designs, develops, markets, and services
information technology products, services, systems,
and solutions worldwide. NCR's goal is to be a
world-class provider of commercial, open computing
systems for High Availability Transaction
Processing and Scalable Data Warehousing solutions
to customers in all industries. NCR also seeks to
take advantage of its expertise and market presence
in the retail, financial, and communications
industries to provide specific information
technology solutions to customers in these targeted
industries. NCR's systems and solutions are
supported by its Customer Support Services and
Professional Services offerings, and its Systemedia
business, which develops, produces, and markets a
complete line of consumable and media products.
NCR's offerings cover a broad range of its
customers' information technology needs: from
consumers' interaction and data collection, with
products including point of sale workstations,
barcode scanning equipment, and self-service
devices such as ATMs; through data processing, with
NCR's High Availability Transaction Processing
solutions; to data storage, manipulation, and
usage, with NCR's Teradata relational database
management system and Scalable Data Warehousing
offerings. NCR's computing platforms and associated
products span midrange servers, massively parallel
processing computer systems, computer network
servers and software systems, imaging and payment
systems,
3
<PAGE> 10
workstations and peripherals, business forms, ink
ribbons, customized paper rolls, and other
consumable supplies and processing media.
NCR also provides Worldwide Customer Support
Services and Professional Services that include
hardware maintenance, software maintenance, data
warehousing service offerings, end-to-end
networking service and design, and the
implementation, integration and support of complex
solutions.
NCR operates through five business units: the
Computer Systems Group; the Financial Systems
Group; the Retail Systems Group; Worldwide
Services; and Systemedia.
The principal executive offices of NCR are located
at 1700 South Patterson Blvd., Dayton, Ohio 45479
and its telephone number at such location is (937)
445-5000. The Company was incorporated in Ohio in
1884 and was reincorporated in Maryland in 1926.
Business Strategy.......... In September 1995, NCR announced a restructuring of
the Company, based on five key initiatives: focus,
accountability, expense level reduction, process
improvements, and a sense of urgency. NCR's
business plan focuses on three basic components:
the level of resources to be deployed, the
processes through which the Company manages the
business, and the market opportunities to be
pursued. See "Business -- Restructuring and
Turnaround" and "-- Strategy," "Management's
Discussion and Analysis of Financial Condition and
Results of Operations," and "Risk Factors -- Risks
Relating to Implementation of New Business
Strategy."
Management of NCR.......... The executive officers of NCR following the
Distribution are expected to be persons who
currently serve as executive officers of NCR. See
"Management."
Intercompany Agreements.... NCR, AT&T and Lucent have entered into certain
intercompany agreements governing various interim
and ongoing relationships between and among the
three companies. In addition, NCR has entered into
the Operating Agreement (as defined below) with
AT&T Capital. See "Arrangements Among AT&T, NCR and
Lucent."
Preferred Share Purchase
Rights................... As of the Distribution Date, NCR will have adopted
a Preferred Share Purchase Rights Plan (the "Rights
Plan"). Certificates or book entry credits issued
in the Distribution representing shares of NCR
Common Stock will also initially represent an
equivalent number of associated Preferred Share
Purchase Rights of NCR (the "Rights"). See "Certain
Antitakeover Effects -- Rights Plan."
Certain Antitakeover
Effects.................. Certain provisions of NCR's Amended and Restated
Charter (the "Charter") and NCR's Bylaws (the
"Bylaws"), as each will be in effect as of the
Distribution, and of applicable Maryland state
corporation law have the effect of making more
difficult an acquisition of control of NCR in a
transaction not approved by NCR's Board of
Directors. See "Description of NCR Capital Stock"
and "Certain Antitakeover Effects." The Rights Plan
will also make more difficult an acquisition of
control of NCR in a transaction not approved by
NCR's Board of Directors. See "Certain Antitakeover
Effects -- Rights Plan."
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<PAGE> 11
Post-Distribution Dividend
Policy................... NCR does not anticipate the payment of any cash
dividends on NCR Common Stock in the foreseeable
future. Payment of dividends on NCR Common Stock is
also expected to be subject to such limitations as
may be imposed by NCR's credit facilities. The
declaration of dividends will be subject to the
discretion of the Board of Directors of NCR. See
"Dividend Policy" and "Financing."
Transfer Agent and
Registrar................ will be the Transfer Agent and
Registrar for NCR after the Distribution.
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SUMMARY HISTORICAL FINANCIAL DATA
The following table presents summary historical financial data of NCR. The
information set forth below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the historical consolidated financial statements and notes thereto included
elsewhere in this Information Statement. The consolidated statement of
operations data set forth below for each of the years ended December 31, 1995,
1994, and 1993 and the consolidated balance sheet data at December 31, 1995 and
1994 are derived from, and are qualified by reference to, the audited
consolidated financial statements included elsewhere in this Information
Statement, and should be read in conjunction with those financial statements and
notes thereto. The consolidated balance sheet data at December 31, 1993 are
derived from the audited consolidated balance sheet of NCR at December 31, 1993,
which is not included in this Information Statement. The consolidated statement
of operations data for each of the years ended December 31, 1992 and 1991 and
the consolidated balance sheet data at December 31, 1992 and 1991 are derived
from unaudited consolidated financial statements not included in this
Information Statement. The consolidated statement of operations data for each of
the six month periods ended June 30, 1996 and 1995, and the consolidated balance
sheet data as of June 30, 1996 and 1995 are derived from, and are qualified by
reference to, the unaudited interim financial statements included elsewhere
herein, and should be read in conjunction with those financial statements and
notes thereto. See "Index to Financial Statements."
The historical financial information may not be indicative of NCR's future
performance and does not necessarily reflect the financial position and results
of operations of NCR had NCR operated as a separate, stand-alone entity during
the periods covered. See "Risk Factors -- Limited Relevance of Historical
Financial Information."
6
<PAGE> 13
NCR CORPORATION
SUMMARY HISTORICAL FINANCIAL DATA
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30 YEARS ENDED DECEMBER 31
--------------- -----------------------------------------------
1996 1995 1995 1994 1993 1992 1991
------ ------ ------- ------- ------- ------- -------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenues(3)(5).................... $3,265 $3,860 $ 8,162 $ 8,461 $ 7,265 $ 7,139 $ 7,246
Operating expenses(1)(6)
Cost of revenues................ 2,396 3,024 7,316 5,894 4,839 4,378 4,322
Selling, general and
administrative expenses...... 711 995 2,632 2,169 2,136 1,938 2,113
Research and development
expenses..................... 184 231 585 500 571 568 709
------ ------ ------- ------- ------- ------- -------
Income (loss) from operations..... (26) (390) (2,371) (102) (281) 255 102
Interest expense.................. 26 46 90 44 41 77 85
Other income, net(2)(4)........... (3) (78) (45) (130) (42) (77) (87)
------ ------ ------- ------- ------- ------- -------
Income (loss) before income taxes
and cumulative effects of
accounting changes.............. (49) (358) (2,416) (16) (280) 255 104
Income tax expense (benefit)...... 34 31 (136) 187 138 157 387
------ ------ ------- ------- ------- ------- -------
Income (loss) before cumulative
effects of accounting changes... (83) (389) (2,280) (203) (418) 98 (283)
Cumulative effects of accounting
changes(7)...................... -- -- -- -- (869) -- --
------ ------ ------- ------- ------- ------- -------
Net income (loss)................. $ (83) $ (389) $(2,280) $ (203) $(1,287) $ 98 $ (283)
====== ====== ======= ======= ======= ======= =======
FINANCIAL POSITION AND OTHER DATA
Cash and short-term investments... $ 825 $ 638 $ 338 $ 661 $ 343 $ 436 $ 391
Accounts receivable, net.......... 1,175 1,744 1,908 1,860 1,288 1,228 1,305
Inventories....................... 561 1,072 621 952 781 620 504
Property, plant and equipment,
net............................. 950 1,092 957 1,234 1,143 1,026 1,067
Total assets...................... 4,934 5,837 5,256 5,836 4,664 4,565 4,448
Short-term borrowings............. 40 70 45 73 40 118 105
Long-term debt.................... 99 612 330 642 115 142 229
Shareholder's equity.............. 859 1,499 358 1,690 1,032 1,831 1,628
Headcount (employees and
contractors).................... 38,600 46,700 41,100 50,000 52,500 53,800 54,000
</TABLE>
- ---------------
(1) 1995 operating expenses include restructuring and other charges of $1,649.
(See Note 5 of Notes to Consolidated Financial Statements.)
(2) 1995 other income, net includes a gain on sale of the Microelectronics
components business of $51.
(3) The decrease in revenues beginning in the fourth quarter of 1995 and in the
six months ended June 30, 1996 is due largely to the Company's decision in
September 1995 to discontinue selling personal computers through high volume
indirect channels.
(4) 1994 other income, net includes a gain on sale of certain assets of $110.
(5) The fiscal year-end for locations outside the U.S. was changed from November
to December in 1994 to conform the domestic and international reporting
periods. This change increased reported revenues in 1994 by $223, however
the effect on loss from operations was not significant.
(6) 1993 operating expenses include restructuring and other charges of $219.
(See Note 5 of Notes to Consolidated Financial Statements.)
(7) NCR changed its methods of accounting for postretirement benefits,
postemployment benefits, and income taxes effective in 1993. (See Note 3 of
Notes to Consolidated Financial Statements).
7
<PAGE> 14
INTRODUCTION
NCR is currently a wholly owned subsidiary of AT&T. The Distribution to
AT&T shareowners of all the outstanding shares of NCR Common Stock will complete
the restructuring announced by AT&T on September 20, 1995. Pursuant to the
restructuring, AT&T has split into three separate companies: NCR, which engages
in the information technology business; Lucent, which engages in the
telecommunications systems, software, and products businesses; and the
continuing AT&T, which engages in the communications services and credit card
businesses. Earlier this year, Lucent was separated from AT&T by means of an
initial public offering of approximately 17.6% of the Lucent Common Stock on
April 10, 1996, followed by the Lucent Distribution on , 1996. AT&T
also sold its 86% interest in AT&T Capital as part of the sale of AT&T Capital
consummated on , 1996. NCR, AT&T and, in certain cases, Lucent, have
entered into certain agreements governing various interim and ongoing
relationships between and among the three companies. In addition, NCR has
entered into the Operating Agreement with AT&T Capital. See "Arrangements Among
AT&T, NCR and Lucent."
The Distribution will be effected by distributing to holders of AT&T Common
Stock on the Record Date all of the outstanding shares of NCR Common Stock. On
the Distribution Date, AT&T will deliver the outstanding shares of NCR Common
Stock to , the Distribution Agent for transfer and distribution to
the holders of AT&T Common Stock as of the Record Date for the Distribution. It
is expected that the Distribution Date will be December 31, 1996. The
Distribution is conditioned upon, among other things, the receipt of a ruling
from the IRS that the transaction will be a tax-free spin-off for federal income
tax purposes, except to the extent of cash received instead of fractional
shares. See "The Distribution -- Certain Federal Income Tax Consequences of the
Distribution" and "-- Conditions; Termination."
Shareowners of AT&T with inquiries relating to the Distribution should call
AT&T toll-free at (800) 756-8500 (anytime, 24 hours a day, 7 days a week) or the
Distribution Agent at (800) , Monday through Friday, a.m. to
p.m. (Eastern time). After the Distribution Date, stockholders of NCR with
inquiries relating to their investment in NCR should contact the Distribution
Agent at the above number or NCR Investor Relations, at 1700 South Patterson
Boulevard, Dayton, Ohio 45479; or by telephone at (937) 445-5905, Monday through
Friday, 8:00 a.m. to 5:00 p.m. (Eastern time).
NO ACTION IS REQUIRED BY AT&T SHAREOWNERS IN ORDER TO RECEIVE THE NCR
COMMON STOCK TO WHICH THEY ARE ENTITLED IN THE DISTRIBUTION.
RISK FACTORS
Shareowners should carefully consider and evaluate all of the information
set forth in this Information Statement, including the risk factors listed
below. NCR also cautions readers that, in addition to the historical information
included herein, this Information Statement includes certain forward-looking
statements and information that are based on management's beliefs as well as on
assumptions made by and information currently available to management. When used
in this Information Statement, the words "expect," "anticipate," "intend," "
plan," " believe," "seek," "estimate," and similar expressions are intended to
identify such forward-looking statements. However, this Information Statement
also contains other forward-looking statements. Such statements are not
guarantees of future performance and involve certain risks, uncertainties and
assumptions, including but not limited to the following factors, which could
cause NCR's future results and stockholder values to differ materially from
those expressed in any forward-looking statements made by or on behalf of NCR.
Many of such factors are beyond NCR's ability to control or predict. Readers are
cautioned not to put undue reliance on forward-looking statements. NCR disclaims
any intent or obligation to update publicly any forward-looking statements,
whether as a result of new information, future events or otherwise. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Forward Looking Statements."
8
<PAGE> 15
HISTORICAL LOSSES
NCR has experienced net losses of $2,280 million, $203 million and $1,287
million for the years ended December 31, 1995, 1994, and 1993, respectively, and
net losses of $83 million and $389 million for the six months ended June 30,
1996 and 1995, respectively. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the consolidated financial
statements and notes thereto included elsewhere in this Information Statement.
RISKS RELATING TO IMPLEMENTATION OF NEW BUSINESS STRATEGY
NCR announced a restructuring in September 1995, with the goal of creating
a more focused and efficient business. See "Business -- Restructuring and
Turnaround" and "-- Strategy." Although management believes that implementation
of its restructuring and strategic business plan has improved and should
continue to improve NCR's results of operations, there can be no assurance that
NCR will be successful in implementing its new business strategies or that it
will be able to maintain or improve upon its current operating performance.
Although improvements in operating results since the announcement of the
restructuring have come in part from expense reductions, further expense
reductions are not expected to drive material improvements in operating results.
As a result, NCR's ability to continue to improve its operating results will
depend primarily on its ability to increase revenues and to continue to improve
sales and services and rentals gross margins.
A key determinant of the success of NCR's strategy will be NCR's ability to
expand its data warehousing and professional services businesses. There can be
no assurances that NCR will not face unforeseen costs, delays or obstacles in
the implementation of its business plan, that these changes will have the
desired benefits, or that NCR's strategy will be successful. The success of
NCR's strategy will also depend, among other things, upon the technologies,
actions, products, and strategies of NCR's current and future competitors,
general domestic and foreign economic and business conditions, the condition of
the information technology industry and the industries in which NCR's customers
operate and other factors. See "-- Dependence on New Product Development" and
"-- Competition."
FUTURE CAPITAL REQUIREMENTS; ABSENCE OF AT&T FUNDING
In recent years, NCR's working capital and cash flow requirements have been
substantial. Since 1991, NCR's working capital, research and development,
capital expenditures, and other financing requirements have been met by AT&T's
corporate-wide cash management and funding policies. Net cash transfers from
AT&T were $1,034 million, $770 million, and $425 million for the years ended
December 31, 1995, 1994, and 1993, respectively, and $595 million for the six
months ended June 30, 1996. After the Distribution, AT&T will no longer provide
such funds to finance NCR's operations or for any other purpose.
In order to meet its working capital needs after the Distribution, NCR
anticipates that it will enter into an unsecured revolving credit facility (the
"Credit Facility") with a syndicate of commercial banks and financial
institutions. The Credit Facility is expected to provide that NCR may borrow
from time to time on a revolving credit basis an aggregate principal amount of
up to $600 million, subject to the terms and conditions thereof. See "Financing"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Financial Condition, Liquidity and Capital Resources."
NCR believes that cash flows from operations, availability under the Credit
Facility and other short and long-term debt financings, if any, will be
sufficient to satisfy its future working capital, research and development,
capital expenditure, and other financing requirements. NCR further believes that
it will be able to access capital markets on terms and in amounts that will be
satisfactory to it, although there can be no assurance that will be the case.
NCR believes that it will be able to obtain bid and performance bonds, to
arrange or provide customer financing as necessary, and to engage in hedging
transactions on commercially acceptable terms.
However, NCR does not expect to be able to obtain financing with interest
rates or other terms as favorable as those historically experienced by AT&T,
with the result that its cost of capital will likely be higher
9
<PAGE> 16
than that reflected in NCR's historical financial statements. NCR will also
likely be subject to financial, operating, and other covenants restricting its
operations, although historically, as a wholly owned subsidiary of AT&T, it has
not been subject to any such restrictive covenants.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Financial Condition, Liquidity and Capital Resources"
and the consolidated financial statements and notes thereto included elsewhere
in this Information Statement.
DEPENDENCE ON NEW PRODUCT DEVELOPMENT
The markets for many of NCR's offerings are characterized by rapidly
changing technology, evolving industry standards, and frequent new product
introductions. NCR's operating results will depend to a significant extent on
its ability to design, develop or otherwise obtain and introduce new products,
services, systems, and solutions and to reduce the costs of these offerings. The
success of these and other new offerings is dependent on many factors, including
proper identification of customer needs, cost, timely completion and
introduction, differentiation from offerings of NCR's competitors, and market
acceptance. Often a delay in introducing an offering can cause a company to miss
a market opportunity. There can be no assurance that NCR will successfully
identify new product, service, system or solution opportunities and bring new
offerings to market in a timely manner, or that products, technologies or
services developed by others will not render NCR's current or future offerings
or technology investments obsolete or noncompetitive. In addition, there can be
no assurance that any of the technologies in which NCR is focusing its capital
expenditure and research and development investments will achieve broad
acceptance in the marketplace. Finally, there can be no assurance that NCR will
be able to attract and retain the highly skilled technical personnel necessary
to enable NCR to develop and sell new products, services, systems, and solutions
successfully. Any such factors could have a material adverse effect on NCR's
financial condition and results of operations.
Shortening product life cycles in the information technology industry pose
a challenge for the effective management of the transition from existing
products to new products. Product development or manufacturing delays,
variations in product costs, and delays in customer purchases of existing
products in anticipation of new product introductions are among the factors that
make a smooth transition from current products to new products difficult. The
transition to new products can also result in inventory of old or obsolete
products and components. In addition, competitors' introductions of new
offerings may coincide with periods leading up to NCR's own introduction of new
or enhanced offerings. Furthermore, some of NCR's own new products replace or
compete with other of NCR's current products. The foregoing factors may
materially adversely affect NCR's financial condition and results of operations.
RELIANCE ON SUPPLIERS AND PARTNERS
Due to NCR's focus on providing complex integrated solutions to customers,
NCR frequently relies on third parties to provide significant elements of NCR's
offerings, which must be integrated with the elements provided by NCR. Elements
provided by third parties can include operating software, software tools,
application specific software, hardware, components, services and other
technology. In addition, because NCR's business interacts with areas in which
other companies have greater technological, marketing, and service expertise,
NCR has from time to time formed alliances with third parties that have
complementary products, services, and skills. These business practices often
require NCR to rely on the performance and capabilities of third parties which
are beyond NCR's control. NCR may also compete against many of these third
parties in other parts of their businesses.
NCR's reliance on third parties introduces a number of risks to NCR's
business. In addition to the risk of non-performance by alliance partners or
other third parties, the need to integrate elements provided by NCR with those
of third parties could result in delays in the introduction of new products,
services, systems, or solutions. Further, the failure of any of these third
parties to provide products or services that conform to NCR's specifications or
quality standards could impair the ability of NCR to offer solutions that
include such third-party elements or may impair the quality of such solutions.
Any of these factors could have a material adverse impact on NCR's financial
condition and results of operations.
10
<PAGE> 17
A number of NCR's products and systems rely primarily on specific suppliers
for microprocessors, operating systems and other central components. For
example, the Company's computer systems are based on microprocessors and related
peripheral chip technology designed by Intel Corporation ("Intel"). In addition,
NCR incorporates UNIX and Microsoft Windows NT operating systems into its
products. NCR's High Availability Transaction Processing and Scalable Data
Warehousing solutions may utilize commercial databases from Oracle Corporation
("Oracle") or Informix Corporation ("Informix"). The failure of any of these
technologies to remain competitive, either individually or as part of a system
or solution, or the failure of these providers to continue such technologies,
could have a material adverse effect on NCR's financial condition and results of
operations.
NCR also uses many standard parts and components in its products and
believes there are a number of competent vendors for most parts and components.
However, a number of important components are developed by and purchased from
single sources due to price, quality, technology or other considerations. In
some cases, those components are available only from single sources. The process
of substituting a new producer of such parts could materially adversely affect
NCR's financial condition and results of operations. Some suppliers of certain
components require long lead times making it difficult for NCR to plan inventory
levels of components consistently to meet demand for NCR's products. Certain
other components have from time to time been subject to industry wide shortages.
Future shortages of components could materially adversely affect NCR's financial
condition and results of operations. In addition, if NCR is required to enter
into licensing or similar arrangements with third parties, who may be
competitors of NCR, to obtain intellectual property or other rights necessary
for its offerings, NCR may encounter delays or costs which may adversely affect
its ability to provide these offerings.
NCR must develop and implement effective strategies that anticipate
availability and pricing by suppliers as well as forecast customer demand for
its products. In order to secure components for production and introduction of
new products, NCR may make advance payments to certain suppliers and may enter
into noncancelable purchase commitments with vendors with respect to the
purchase of components. Many of the components used in NCR's products,
particularly microprocessors and memory, experience steep price declines over
their product lives. If NCR is unable to manage its purchases and utilization of
such components efficiently to maintain low inventory levels immediately prior
to major price declines, NCR could be unable to take immediate advantage of such
declines to lower its product costs, which could have a material adverse effect
on NCR's financial condition and results of operations.
COMPETITION
NCR faces significant competition in all geographic areas where it
operates. Its markets are characterized by continuous, rapid technological
change, the need to introduce products in a timely manner in order to take
advantage of market opportunities, short product life cycles, frequent product
performance improvements, and price reductions.
The methods of competition vary, depending on the product, service, system,
or solution being offered, but typically include product and system performance,
quality and reliability, price/performance ratio, global marketing and
distribution capabilities, technology, industry expertise, total cost of
ownership, industry knowledge of the vendor, availability and performance of
software, system expandability and upgrade capability, compatibility,
adaptability in support of new applications and software, availability and
performance of applications, ability to design, develop, introduce and deliver
products, services, systems, or solutions in a timely manner, product features
and functions, service and support, ease of system operation, compliance with
industry standards, and corporate reputation. Customers evaluating purchases
from NCR which contemplate continued performance or service by NCR over a period
of time may consider NCR's financial prospects relative to that of other more
well-capitalized companies as a factor in their purchasing decisions. In
addition, competitors and competitive factors vary by geographic area and by
business unit. See "Business -- Retail Systems Group -- Competition,"
"-- Financial Systems Group -- Competition," "-- Computer Systems
Group -- Competition," "-- Worldwide Services -- Competition" and "-- Systemedia
Group -- Competition."
11
<PAGE> 18
Present and potential competition in the various markets served by NCR
comes from domestic and international companies of various sizes and types, a
number of which have greater financial, technical, marketing and other
resources, larger installed bases of customers or a wider range of available
applications software than NCR. NCR's competitors include both some of the
largest and most well-capitalized domestic and international corporations and
newer, smaller companies which have historically had great success in making
major inroads in the information technology industry. In addition, companies not
currently in direct competition with NCR may introduce competing products in the
future. In the information technology industry, it is possible for companies to
be, at various times, competitors, customers, and collaborators.
The significant competition in the information technology industry has
decreased gross margins for many companies in recent years and could continue to
do so in the future. During the period 1992 through 1994, NCR experienced a
decline in gross margins greater than that of the industry generally. Future
operating results will depend in part on NCR's ability to mitigate such margin
pressure by maintaining a favorable mix of system, solutions, service, and other
revenues and by achieving component cost reductions and operating efficiencies.
SEASONALITY
NCR's sales are historically seasonal, with revenue higher in the fourth
quarter of each year. Consequently, during the three quarters ending in March,
June, and September, NCR has historically experienced less favorable results
than in the quarter ending in December. Such seasonality also causes NCR's
working capital cash flow requirements to vary from quarter to quarter depending
on, among other things, the variability in the volume, timing and mix of product
sales. In addition, in many quarters, a large portion of NCR's revenue is
realized in the third month of the quarter. Operating expenses are relatively
fixed in the short term and often cannot be materially reduced in a particular
quarter if revenue falls below anticipated levels for such quarter. As a result,
even a relatively small revenue shortfall may cause a period's results to be
materially below expectations. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Results of
Operations -- Seasonality."
RELIANCE ON AT&T ENTITIES; INDUSTRY FOCUS
In recent years, NCR's largest customer, measured by total revenue, has
been AT&T and its affiliated companies, including Lucent, although other
customers purchase more of certain systems and product lines. The contribution
of AT&T and its affiliated companies (including Lucent) to NCR's total revenue
and as a percentage of total revenue for the years ended December 31, 1995, 1994
and 1993 was $630 million (8%), $522 million (6%) and $385 million (5%),
respectively. For the six months ended June 30, 1996 and 1995, respectively, the
contribution of these companies to total revenue and as a percentage of total
revenue was $247 million (8%) and $281 million (7%). No other customer of NCR
accounted for more than 3% of consolidated revenue during the year ended
December 31, 1995 or during the six-month period ended June 30, 1996.
Except as set forth in the AT&T Volume Purchase Agreement (as defined
herein) expected to be entered into between NCR and AT&T and the Lucent Volume
Purchase Agreement (as defined herein) entered into between NCR and Lucent,
neither AT&T nor Lucent is obligated to make any minimum level of future
purchases from NCR or to provide NCR with binding forecasts of product purchases
for any future period. Moreover, with the spinoff of Lucent from AT&T on
1996, future decisions as to purchases by each company will be made
independently from the other company. Pursuant to the AT&T Volume Purchase
Agreement, AT&T and its designated affiliates (other than Lucent) expect to
commit to purchase an aggregate of at least $ million of offerings from NCR
during the -year period ending . Pursuant to the Lucent Volume
Purchase Agreement, Lucent has committed to purchase an aggregate of at least
$150 million of offerings from NCR during the three-year period ending December
31, 1998. As of June 30, 1996, approximately $65 million of such commitment had
been purchased by Lucent. See "Arrangements Among AT&T, NCR and
Lucent -- Purchase Agreements."
12
<PAGE> 19
In addition, NCR's focus on three industries -- retail, financial, and
communications -- may increase NCR's vulnerability to economic and business
conditions affecting customers in each such industry and to other events outside
of its control that could reduce technology spending in such industries. See
"Business -- Strategy."
RISK OF FOREIGN OPERATIONS AND FOREIGN EXCHANGE
For the year ended December 31, 1995, approximately $4.6 billion, or 56%,
of NCR's revenue was generated by its foreign operations. NCR's foreign
operations are subject to a number of risks inherent in operating abroad,
including, but not limited to, risks with respect to currency exchange rates,
foreign economic and political conditions or destabilization, other disruption
of capital and trading markets, restrictive actions by foreign governments (such
as restrictions on transfer of funds, trade protection measures including export
duties and quotas, and foreign customs duties and tariffs, and changes in
regulatory environments), import or export licensing requirements, risks
relating to the repatriation of funds from non-United States subsidiaries,
difficulty in obtaining distribution and support, nationalization, the laws and
policies of the United States affecting trade, foreign investment and loans,
natural disasters, and foreign tax laws. There can be no assurance that these
factors will not have a material adverse impact on NCR's ability to increase or
maintain its foreign sales or on its financial condition or results of
operations. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
A significant change in the value of the dollar or another functional
currency against the currency of one or more countries where NCR recognizes
revenues or earnings or maintains net asset investments may materially adversely
affect NCR's financial condition and results of operations. NCR attempts to
mitigate a portion of such changes through the use of foreign currency
contracts, although there can be no assurances that such attempts will be
successful.
CERTAIN LEGAL MATTERS; POTENTIAL ENVIRONMENTAL LIABILITIES
In the normal course of business, NCR is subject to regulations,
proceedings, lawsuits, claims, and other matters, including actions under laws
and regulations related to the environment, health and safety, among others.
Such matters are subject to the resolution of many uncertainties, and
accordingly, outcomes are not predictable with assurance. Although NCR believes
that amounts provided in its financial statements are currently adequate in
light of the probable and estimable liabilities, there can be no assurances that
the amounts required to discharge alleged liabilities from lawsuits, claims and
other legal proceedings and environmental matters, and to comply with applicable
environmental laws, will not exceed the amounts reflected in NCR's financial
statements or will not have a material adverse effect on the Company's
consolidated financial condition, results of operations or cash flows. Any
amounts of costs that may be incurred in excess of those amounts provided as of
June 30, 1996 cannot be determined.
Among the lawsuits and claims pending against NCR as of June 30, 1996,
there were approximately 100 individual product liability claims alleging that
the Company's products, including personal computers ("PCs"), supermarket
barcode scanners, cash registers and check encoders, caused so-called
"repetitive strain injuries" or "cumulative trauma disorders," such as carpal
tunnel syndrome. In such lawsuits, the plaintiff typically alleges that he or
she suffers from injuries caused by the design of the product at issue or a
failure to warn of alleged hazards. These plaintiffs seek compensatory damages
and, in many cases, punitive damages. Most other manufacturers of these products
have also been sued by plaintiffs on similar theories. Ultimate resolution of
the litigation against the Company may substantially depend on the outcome of
similar matters of this type pending in various state and federal courts. The
Company has denied the merits and basis for the pending claims against it and
intends to continue to contest these cases vigorously.
NCR's facilities and operations are subject to a wide range of
environmental protection laws in the United States and other countries related
to solid and hazardous waste disposal, the control of air emissions and water
discharges, and the mitigation of impacts to the environment from past
operations and practices. NCR has investigatory and remedial activities,
including characterization and cleanup actions, underway at a number of
currently and formerly owned or operated facilities to comply, or to determine
compliance, with
13
<PAGE> 20
applicable environmental protection laws. NCR has been identified, either by a
governmental agency or by a private party seeking contribution to site cleanup
costs, as a potentially responsible party ("PRP") at a number of sites pursuant
to a variety of statutory schemes, both state and federal, including the Federal
Water Pollution Control Act ("FWPCA") and comparable state statutes, and the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended ("CERCLA"), and comparable state statutes.
In February 1996, NCR received notice from the United States Department of
the Interior, Fish & Wildlife Service ("USF&WS") that USF&WS considers NCR a PRP
under the FWPCA and CERCLA with respect to alleged natural resource restoration
and damages to the Fox River and related Green Bay environment ("Fox River
System") due to, among other things, sediment contamination in the Fox River
System allegedly resulting from liability arising out of NCR's former carbonless
paper manufacturing operations at Appleton and Combined Locks, Wisconsin. USF&WS
has also notified a number of other manufacturing companies of their status as
PRPs under the FWPCA and CERCLA for natural resource restoration and damages in
the Fox River System resulting from their ongoing or former paper manufacturing
operations in the Fox River Valley. USF&WS and two Indian Tribes have stated
their intention to conduct a Natural Resource Damage Assessment to determine and
quantify the nature and extent of alleged injury to natural resources. In
addition, NCR has been identified, along with a number of other companies, by
the Wisconsin Department of Natural Resources ("WDNR") with respect to alleged
liability arising out of alleged past discharges that have contaminated
sediments in the Fox River System. NCR is also actively pursuing discussions
with the WDNR regarding the Company's alleged liability. NCR's share, if any, of
such cleanup costs or natural resource restoration and damages liability cannot
be predicted with certainty at this time due to (i) the unknown magnitude,
scope, and source of any alleged contamination, (ii) the absence of identified
remedial objectives and methods, and (iii) the uncertainty of the amount and
scope of any alleged natural resource restoration and damages. At this point,
NCR believes that there are additional PRPs who may be liable for such natural
resource damages and remediation costs. Further, in 1978, NCR sold the business
to which the claims apply and believes the claims described above are the
responsibility of the buyer and its former parent company pursuant to the terms
of the sales agreement. In this connection, NCR has commenced litigation against
the buyer to enforce its position.
It is difficult to estimate the future financial impact of environmental
laws, including potential liabilities. NCR accrues environmental provisions when
it is probable that a liability has been incurred and the amount of the
liability is reasonably estimable. Management expects that the amounts provided
as of December 31, 1995 and June 30, 1996 will be paid out over the period of
investigation, negotiation, remediation, and restoration for the applicable
sites, which may be 30 years or more. Provisions for estimated losses from
environmental remediation are, depending on the site, based primarily on
internal and third-party environmental studies, estimates as to the number and
participation level of any other PRPs, the extent of the contamination, and the
nature of required remedial and restoration actions. Accruals are adjusted as
further information develops or circumstances change. The amounts provided for
environmental matters in NCR's consolidated financial statements are the
estimated gross undiscounted amount of such liabilities, without deductions for
insurance or third-party indemnity claims. In those cases where insurance
carriers or third-party indemnitors have agreed to pay any amounts and
management believes that collectibility of such amounts is probable, the amounts
are reflected as receivables in the consolidated financial statements.
RISK OF INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS
NCR relies on patent, trademark, trade secret, and copyright laws both to
protect its proprietary technology and to protect NCR against claims from
others. NCR believes that it has direct intellectual property rights or rights
under licensing arrangements covering substantially all of its material
technologies and has not received notice of any infringement claims against it
which it believes are valid. However, given the technological complexity of
NCR's systems and products, rapid technological changes in the computer and
technology industries, extensive patent and copyright coverage, and the rapid
establishment of new copyright and patent rights, there can be no assurance that
claims of infringement will not be asserted against NCR or against NCR's
customers in connection with their use of NCR's systems and products. There can
14
<PAGE> 21
also be no assurance as to the outcome of any such claims. In addition, there
can be no assurance that NCR will be able to ensure that component supplies and
the cost of components are not adversely affected by legal proceedings in which
an adverse determination is made with respect to intellectual property rights of
NCR or one of its suppliers.
AT&T, Lucent and NCR have entered into certain defensive protection
agreements under which each company has the ability, subject to specified
restrictions, to assert infringement claims under specified patents against
companies that assert patent infringement claims against them. See "Arrangements
Among AT&T, NCR and Lucent -- Patent Licenses and Related Matters."
LIMITED RELEVANCE OF HISTORICAL FINANCIAL INFORMATION
The historical financial information included herein may not necessarily
reflect the results of operations, financial position and cash flows of NCR in
the future or the results of operations, financial position, and cash flows had
NCR operated as a separate, stand-alone entity during the periods presented. The
financial information included herein does not reflect any changes that may
occur in the funding and operations of NCR as a result of the Distribution. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
ABSENCE OF HISTORY AS A STAND-ALONE COMPANY
NCR has not operated as a stand-alone company since its merger with a
wholly owned subsidiary of AT&T in September 1991. After the Distribution, AT&T
will have no obligation to provide assistance to NCR or any of its subsidiaries
except as described in "Arrangements Among AT&T, NCR and Lucent -- Purchase
Agreements." Furthermore, AT&T will have no obligation to enter into new
arrangements with NCR as the existing arrangements expire.
ABSENCE OF A PUBLIC MARKET FOR NCR COMMON STOCK
There is currently no public market for NCR Common Stock. Although NCR
expects to apply to list the NCR Common Stock on the NYSE, there can be no
assurance as to the prices at which trading in NCR Common Stock will occur after
the Distribution. Until the NCR Common Stock is fully distributed and an orderly
trading market develops, the prices at which trading in such stock occurs may
fluctuate significantly. There can be no assurance that an active trading market
in NCR Common Stock will develop or be sustained in the future.
The prices at which NCR Common Stock trades will be determined by the
marketplace and may be influenced by many factors, including, among others,
NCR's performance and prospects, the depth and liquidity of the market for NCR
Common Stock, investor perception of NCR and of the information technology
industry, NCR's dividend policy, general financial and other market conditions,
and domestic and international economic conditions. In addition, financial
markets, including the NYSE, have experienced extreme price and volume
fluctuations that have affected the market price of many information technology
industry stocks and that, at times, could be viewed as unrelated or
disproportionate to the operating performance of such companies. Such
fluctuations have also affected the share prices of many newly public issuers.
Such volatility and other factors may materially adversely affect the market
price of NCR Common Stock.
POSSIBILITY OF SUBSTANTIAL SALES OF NCR COMMON STOCK
The planned Distribution will involve the distribution of an aggregate of
approximately shares of NCR Common Stock to the shareowners of
AT&T on the Distribution Date, representing all of the outstanding shares of NCR
Common Stock. Substantially all of such shares of NCR Common Stock will be
eligible for immediate resale in the public market. Neither AT&T nor NCR is able
to predict whether substantial amounts of NCR Common Stock will be sold in the
open market following the Distribution. Any sales of substantial amounts of NCR
Common Stock in the public market, or the perception that such sales
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might occur, whether as a result of the Distribution or otherwise, could
materially adversely affect the market price of NCR Common Stock. See "The
Distribution -- Listing and Trading of NCR Common Stock."
CERTAIN ANTITAKEOVER EFFECTS
The Charter and Bylaws, the Rights Plan, and applicable sections of the
Maryland General Corporation Law (the "GCL") contain several provisions that may
make more difficult the acquisition of control of NCR without the approval of
the NCR Board of Directors. Certain provisions of NCR's Charter and the Bylaws,
among other things: (i) classify the NCR Board of Directors into three classes,
each of which serve for staggered three-year terms; (ii) provide that a director
of NCR may be removed by the stockholders only for cause by the vote of 80% of
the stock entitled to vote generally in the election of directors (the "Voting
Stock"); (iii) provide that only the NCR Board of Directors or President or the
holders of at least a majority of the Voting Stock may call special meetings of
the stockholders; (iv) provide that the stockholders may take action without a
meeting of stockholders only by unanimous written consent (which as a practical
matter makes action by written consent impossible in a public corporation such
as NCR after the Distribution); (v) provide that stockholders must comply with
certain advance notice procedures in order to nominate candidates for election
to the NCR Board of Directors or to place stockholders' proposals on the agenda
for consideration at meetings of the stockholders; and (vi) provide that the
stockholders may amend or repeal any of the foregoing provisions of the Charter
or the Bylaws only by a vote of 80% of the Voting Stock. The Rights Plan would
cause substantial dilution to a person or group that attempts to acquire NCR on
terms not approved in advance by the NCR Board of Directors. The GCL generally
imposes certain restrictions on mergers and other business combinations between
NCR and any holder of 10% or more of the NCR Common Stock if the holder's
acquisition of such position was not approved in advance by the NCR Board of
Directors. In addition, under the GCL, the affirmative vote of the holders of
two-thirds of the NCR Common Stock is required to approve any merger or similar
business combination involving NCR, with certain exceptions. See "Description of
NCR Capital Stock" and "Certain Antitakeover Effects." In addition, certain of
the equity-based incentive plans of NCR are expected to contain provisions
providing for the acceleration or modification of benefits upon a Change of
Control (as defined) of NCR. See "Management."
THE DISTRIBUTION
BACKGROUND OF AND REASONS FOR THE DISTRIBUTION
NCR is currently a wholly owned subsidiary of AT&T, engaged in the
information technology business. The Distribution to AT&T shareowners of all the
outstanding shares of NCR Common Stock will complete the restructuring announced
by AT&T on September 20, 1995. Pursuant to the restructuring, AT&T has split
into three separate companies: NCR, Lucent and the continuing AT&T. Earlier this
year, Lucent was separated from AT&T by means of an initial public offering of
approximately 17.6% of the Lucent Common Stock on April 10, 1996, followed by
the Lucent Distribution on , 1996. AT&T also sold its 86% interest
in AT&T Capital as part of the sale of AT&T Capital consummated on ,
1996.
The restructuring of AT&T responds to changes in customer needs and
demands, public policy, and technology in the industries in which AT&T has
operated in the past. In AT&T's view, these changes are creating a new industry
structure in which, increasingly, the advantages of vertical integration are
outweighed by its costs and disadvantages. In particular, these changes have
resulted in, among other things, a situation in which, to varying degrees, many
of the actual and potential customers of Lucent and NCR are or will be
competitors of AT&T's communications services businesses. NCR believes that its
efforts to target the communications industry have been hindered by the
reluctance of AT&T's communications services competitors to make purchases from
an AT&T subsidiary, and that in some cases the unwillingness of these
competitors to share proprietary information, such as customer data and
marketing strategies, with NCR has made it more difficult for NCR to market
information technology solutions to these companies. Finally, the demands
created by this new industry structure have also heightened the need for focused
management time and attention in each of the businesses previously conducted by
AT&T, including the information technology
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business operated by NCR. For these reasons, AT&T determined to separate its
businesses by means of its restructuring.
MANNER OF EFFECTING THE DISTRIBUTION
It is expected that the Distribution Date will be December 31, 1996. At the
time of the Distribution, share certificates for NCR Common Stock will be
delivered to the Distribution Agent. Commencing on or about the date of the
Distribution, the Distribution Agent will begin mailing such share certificates
or making book-entry credits for shares of NCR Common Stock to holders of AT&T
Common Stock as of the close of business on the Record Date on the basis of one
share of NCR Common Stock for every shares of AT&T Common Stock held on the
Record Date. All such shares of NCR Common Stock will be fully paid,
nonassessable and free of preemptive rights. See "Description of NCR Capital
Stock."
No certificates or scrip representing fractional interests in a share of
NCR Common Stock will be issued to AT&T shareowners who receive certificates for
NCR shares or who would be entitled to less than one whole share of NCR Common
Stock as part of the Distribution. In lieu of receiving fractional interests in
shares, each such holder of AT&T Common Stock who would otherwise be entitled to
receive a fractional interest in a share of NCR Common Stock will receive cash
for such fractional interest. The Distribution Agent will, as soon as
practicable after the Distribution Date, aggregate and sell all such fractional
interests in shares at then prevailing prices and distribute the net proceeds to
stockholders entitled thereto. See "-- Certain Federal Income Tax Consequences
of the Distribution."
NO HOLDER OF AT&T COMMON STOCK WILL BE REQUIRED TO MAKE ANY PAYMENT FOR THE
SHARES OF NCR COMMON STOCK TO BE RECEIVED IN THE DISTRIBUTION OR TO SURRENDER OR
EXCHANGE SHARES OF AT&T COMMON STOCK OR TO TAKE ANY OTHER ACTION IN ORDER TO
RECEIVE NCR COMMON STOCK TO WHICH THEY ARE ENTITLED IN THE DISTRIBUTION.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE DISTRIBUTION
The Distribution is intended to qualify as a tax-free distribution under
Section 355 of the Code. The Distribution is conditioned upon receipt by AT&T of
a ruling to that effect from the IRS. Accordingly, so long as the Distribution
qualifies under Section 355 of the Code, neither AT&T nor NCR will recognize any
income, gain or loss with respect to the Distribution, and AT&T shareowners will
not recognize any income, gain or loss upon the receipt of NCR Common Stock
except with respect to cash received in lieu of fractional shares.
An AT&T shareowner's tax basis for the AT&T Common Stock with respect to
which NCR Common Stock is received will be apportioned between such shares of
AT&T Common Stock and such shares of NCR Common Stock (including any fractional
shares) in proportion to the fair market value of each on the Distribution Date.
Such allocation must be calculated separately for each block of shares of AT&T
Common Stock with respect to which NCR Common Stock is received, that is,
separately for each block of shares of AT&T Common Stock that was purchased at
different times or at different costs. The holding period for such NCR Common
Stock received will include the period during which such shares of AT&T Common
Stock were held, provided that such shares of AT&T Common Stock are held as a
capital asset.
Treasury regulations governing Section 355 of the Code require that each
AT&T shareowner who receives NCR Common Stock pursuant to the Distribution
attach a statement to his or her federal income tax return for the taxable year
in which he or she receives such stock, which statement shows the applicability
of Section 355 of the Code to the Distribution. AT&T will provide each AT&T
shareowner with the information necessary to comply with this requirement.
The IRS ruling will be based on certain factual representations and
assumptions by AT&T and NCR. Neither AT&T nor NCR is aware of any present facts
or circumstances which should cause such representations and assumptions to be
untrue. However, certain extraordinary purchases of AT&T Common Stock or NCR
Common Stock, events which are not within the control of AT&T or NCR, could
cause the Distribution not to qualify as tax-free. The NCR Distribution
Agreement provides that, notwithstanding
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anything to the contrary in the Separation and Distribution Agreement or the Tax
Sharing Agreement (as such terms are defined herein), if as a result of the
acquisition of all or a portion of the capital stock or assets of NCR the
Distribution fails to qualify as a tax-free distribution under Section 355 of
the Code, then NCR will be liable for any and all increases in Tax (as defined
in the Tax Sharing Agreement) attributable thereto. See "Arrangements Among
AT&T, NCR and Lucent -- Tax Agreements."
Should the Distribution ultimately be determined not to qualify under
Section 355 of the Code, AT&T shareowners would be required to recognize
ordinary dividend income upon their receipt of NCR Common Stock (including
fractional shares) in an amount equal to the fair market value of such NCR
Common Stock on the date of the Distribution. AT&T shareowners would have a tax
basis for such NCR Common Stock equal to such fair market value, and their tax
basis for their AT&T Common Stock would not be affected. AT&T would recognize
gain upon the Distribution equal to the excess, if any, of the fair market value
of the NCR Common Stock distributed on the date of the Distribution over AT&T's
tax basis for such NCR Common Stock.
THE FOREGOING SUMMARY OF THE FEDERAL INCOME TAX CONSEQUENCES OF THE
DISTRIBUTION IS FOR GENERAL INFORMATION ONLY AND MAY NOT APPLY TO AT&T
SHAREOWNERS WHO ACQUIRED THEIR SHARES IN CONNECTION WITH THE GRANT OF A SHARE OF
RESTRICTED STOCK OR OTHERWISE AS COMPENSATION, WHO ARE NOT CITIZENS OR RESIDENTS
OF THE UNITED STATES, OR WHO ARE OTHERWISE SUBJECT TO SPECIAL TREATMENT UNDER
THE CODE. ALL AT&T SHAREOWNERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE
PARTICULAR TAX CONSEQUENCES OF THE DISTRIBUTION TO THEM, INCLUDING THE
APPLICATION OF STATE, LOCAL AND FOREIGN TAX LAWS.
LISTING AND TRADING OF NCR COMMON STOCK
There is currently no public market for NCR Common Stock. There can be no
assurance as to the prices at which trading in NCR Common Stock will occur after
the Distribution. Until NCR Common Stock is fully distributed and an orderly
trading market develops, the prices at which trading in such stock occurs may
fluctuate significantly. There can be no assurance that an active trading market
in NCR Common Stock will develop or be sustained in the future.
The prices at which NCR Common Stock trades will be determined by the
marketplace and may be influenced by many factors, including, among others,
NCR's performance and prospects, the depth and liquidity of the market for NCR
Common Stock, investor perception of NCR and of the information technology
industry, NCR's dividend policy, general financial and other market conditions,
and domestic and international economic conditions. In addition, financial
markets, including the NYSE, have experienced extreme price and volume
fluctuations that have affected the market price of many information technology
industry stocks and that, at times, could be viewed as unrelated or
disproportionate to the operating performance of such companies. Such
fluctuations have also affected the share prices of many newly public issuers.
Such volatility and other factors may materially adversely affect the market
price of NCR Common Stock.
NCR initially will have approximately stockholders of record, based
on the number of record holders of AT&T Common Stock on the Record Date. The
Transfer Agent and Registrar for the NCR Common Stock will be
. For certain information regarding options and other
equity-based employee benefit awards involving NCR Common Stock that may become
outstanding after the Distribution, see "Management" and "Arrangements Among
AT&T, NCR and Lucent -- Employee Benefits Agreement."
Shares of NCR Common Stock distributed to AT&T shareowners in the
Distribution will be freely transferable, except for securities received by
persons who may be deemed to be "affiliates" of NCR under the Securities Act of
1933, as amended (the "Securities Act"). Persons who may be deemed to be
affiliates of NCR after the Distribution generally include individuals or
entities that control, are controlled by, or are under common control with, NCR
and may include certain officers and directors of NCR as well as principal
stockholders of NCR, if any. Persons who are affiliates of NCR will be permitted
to sell their shares of NCR Common Stock only pursuant to an effective
registration statement under the Securities Act or an exemption from the
registration requirements of the Securities Act, such as the exemption afforded
by Section 4(2) of the Securities Act (relating to private sales) or by Rule 144
under the Securities Act.
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See "Risk Factors -- Absence of a Public Market for NCR Common Stock" and
"-- Possibility of Substantial Sales of NCR Common Stock."
CONDITIONS; TERMINATION
The Distribution is conditioned upon, among other things: (a) the receipt
by AT&T of a ruling from the IRS to the effect that the Distribution qualifies
as a tax-free distribution under Section 355 of the Code; (b) the receipt of any
material governmental approvals and third party consents necessary to consummate
the Distribution; (c) the absence of any order, injunction, decree or other
legal restraint or prohibition preventing the consummation of the Distribution;
(d) the failure to occur of any other event that prevents the consummation of
the Distribution; (e) the acceptance for listing on a mutually agreed stock
exchange or quotations system, which is expected to be the NYSE, subject to
notice of issuance, of the NCR Common Stock (and related Rights); and (f) the
formal approval by the AT&T Board of the Distribution. The AT&T Board may, but
has no obligation to, waive any of these conditions. In addition, regardless of
whether these conditions are satisfied, the AT&T Board has reserved the right to
abandon, defer or modify the Distribution and the related transactions described
herein at any time prior to the Distribution Date. See "Arrangements Among AT&T,
NCR and Lucent -- NCR Distribution Agreement."
DIVIDEND POLICY
NCR does not anticipate the payment of any cash dividends on NCR Common
Stock in the foreseeable future. Payment of dividends on NCR Common Stock is
also expected to be subject to such limitations as may be imposed by NCR's
credit facilities. The declaration of dividends will be subject to the
discretion of the Board of Directors of NCR.
FINANCING
In order to meet its working capital needs, NCR anticipates that it will
enter into the unsecured revolving Credit Facility with a syndicate of
commercial banks and financial institutions. The Credit Facility is expected to
provide that NCR may borrow from time to time on a revolving credit basis an
aggregate principal amount of up to $600 million, subject to the terms and
conditions thereof. NCR expects to be able to use the available funds at any
time for capital expenditure needs, repayment of existing debt obligations,
working capital and general corporate purposes. NCR expects the Credit Facility
will initially mature within five years from the date of closing and contain
certain representations and warranties, conditions, affirmative, negative and
financial covenants, and events of default customary for such facilities.
Interest rates charged on borrowings outstanding under the Credit Facility are
expected to be primarily based on market rates which can vary over time. In
addition, a portion of the Credit Facility is expected to be available for the
issuance of letters of credit as required by NCR. See "Risk Factors -- Future
Capital Requirements; Absence of AT&T Funding" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Financial
Condition, Liquidity and Capital Resources."
BUSINESS
OVERVIEW
NCR designs, develops, markets, and services information technology
products, services, systems, and solutions worldwide. The Company's goal is to
be a world-class provider of commercial, open computing systems for High
Availability Transaction Processing and Scalable Data Warehousing solutions to
customers in all industries. NCR also seeks to take advantage of its expertise
and market presence in the retail, financial, and communications industries to
provide specific information technology solutions to customers in these targeted
industries. NCR's systems and solutions are supported by its Customer Support
Services and Professional Services offerings, and its Systemedia business, which
develops, produces, and markets a
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complete line of consumable and media products. These products, services,
systems, and solutions are described in greater detail in the product group
descriptions below.
NCR's offerings cover a broad range of its customers' information
technology needs: from consumers' interaction and data collection, with products
including point of sale workstations, barcode scanning equipment, and
self-service devices such as ATMs; through data processing, with NCR's High
Availability Transaction Processing solutions; to data storage, manipulation,
and usage, with NCR's Teradata relational database management system and
Scalable Data Warehousing offerings. The Company's computing platforms and
associated products span midrange servers, massively parallel processing
computer systems, computer network servers and software systems, imaging and
payment systems, workstations and peripherals, business forms, ink ribbons,
customized paper rolls, and other consumable supplies and processing media.
NCR also provides Worldwide Customer Support Services and Professional
Services that include hardware maintenance, software maintenance, data
warehousing service offerings, end-to-end networking service and design, and the
implementation, integration, and support of complex solutions.
RESTRUCTURING AND TURNAROUND
BACKGROUND EVENTS -- SEPTEMBER 1991 TO JUNE 1995
NCR was merged with a wholly owned subsidiary of AT&T in September 1991. In
connection with the merger, NCR assumed operation of portions of AT&T's Computer
Systems division. A key strategic objective behind the merger was to combine
NCR's strengths in the computer business with AT&T's communications expertise,
with the goal of taking advantage of a merging of computing and communications.
In February 1992, Teradata Corporation ("Teradata"), a provider of
massively parallel computers and related proprietary database software, was
merged with a subsidiary of NCR in exchange for AT&T Common Stock. Prior to this
merger, NCR had been involved in a joint research and development project with
Teradata.
In 1993, a series of changes to the Company's business strategy and
management model were initiated. The primary goal of these changes was to
improve NCR's profitability by increasing the rate of revenue growth. NCR's
revenues had not increased materially from 1991 to 1993. These changes included
developing programs designed to increase the breadth and competitiveness of the
Company's offerings, and implementing a revised business management model and
decision-making approach.
In addition to its historical strength in the retail and financial
industries, NCR targeted four additional industries where NCR did not have
significant prior presence. The Company also began to develop plans to become a
leading PC vendor, targeting a top five worldwide market share by 1997. A new
centrally located worldwide marketing organization was created with the goal of
strengthening NCR's marketing activities. As part of the new business management
model, the worldwide marketing organization was given responsibility for making
decisions regarding the Company's overall business direction. It was also
responsible for identifying customer requirements, working with the development
groups to provide industry solutions deployable to the worldwide salesforce, and
determining resource allocations in both the sales and the development
organizations.
A new matrix management organization approach was implemented, through
which industry marketing, product marketing and development, and the geographic
sales organizations collaborated on key business decisions. In addition, in an
effort to expedite decision making, employees at all levels within the Company
were given expanded decision making authority. NCR also took several actions to
balance its business portfolio, selling several non-strategic
businesses -- including the Microelectronics components business and Applied
Digital Data Systems, Inc. ("ADDS").
These changes did not work as planned. As a result of targeting additional
industries, resources dedicated to the financial and retail industries were
diluted and NCR's market position in these two industries declined. Further, NCR
was not successful in meeting its objectives in the other targeted industries.
Revenues in the
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product businesses other than PCs did not materially increase, and Computer
Products revenue declined 12% from 1993 to 1994, and another 12% from 1994 to
1995.
In the PC business, the level of competition intensified significantly, as
did the margin pressure faced by PC vendors. Given these margin pressures, PC
vendors needed to be low cost producers in order to be economically viable, and
needed particular competence in their supply line management and logistics
processes. NCR was not among the low cost producers and, while the Company was
successful in increasing the PC business revenues, the PC business was not
profitable for the Company.
The new matrix management organization approach also did not produce the
desired accountability. In addition, the interaction of the new matrix
management organization and the AT&T geographic management organization led to
internal conflicts that began to inhibit decision making.
During this period, the Company experienced substantial operating losses,
including an operating loss of $390 million for the first six months of 1995.
TURNAROUND PLAN -- JUNE 1995 TO SEPTEMBER 1996
In June 1995, Lars Nyberg was hired as Chief Executive Officer to assess
the NCR business, to prepare a turnaround plan, and to restore the Company to
competitive levels of profitability. In September of that year, a restructuring
of the Company was announced. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Restructuring." As discussed
below, the plan and related restructuring activities were based on five key
initiatives: focus, accountability, expense level reduction, process
improvements, and a sense of urgency.
NCR believes that this restructuring has significantly improved its results
of operations. Although NCR reported an operating loss of $1,981 million ($332
million before giving effect to restructuring and other charges) for the last
half of 1995, the beneficial impact of the restructuring plan has begun to be
reflected in operating results in the first half of 1996. The operating loss has
decreased from $390 million for the first half of 1995 to $26 million for the
first half of 1996. Selling, general and administrative expenses have declined
by $284 million, gross margins have improved by 4.9 percentage points, and
headcount (employees and contractors) has been reduced by approximately 8,100.
See "Risk Factors -- Risks Relating to Implementation of New Business Strategy."
Focus. A key component of the recovery strategy was to focus the Company
on its areas of strength. Consequently, NCR decided to reduce its focus from six
industries to three (retail, financial, and communications). With efforts
targeted at these three industries, greater attention was placed on NCR's Retail
Products and Financial Products businesses.
NCR decided to exit the PC manufacturing business and to eliminate sales of
PCs through high volume indirect channels. Instead, the Company put in place an
original equipment manufacturer ("OEM") arrangement to source a significantly
reduced volume of PCs, which would primarily be sold by NCR when required as
part of a solution in areas such as financial branch automation or point of sale
systems.
In the computer business, the Company targeted its efforts at midrange to
large systems, specifically focusing on solutions such as Scalable Data
Warehousing and High Availability Transaction Processing that have applicability
across a number of industries. Strategies were developed to take advantage of
the potential for synergies between the Systemedia and Data Services businesses
and the other NCR businesses. See "-- Systemedia Group." Finally, the Customer
Support Services and Professional Services businesses were targeted as areas of
further investment, and strategies were identified to incorporate these
resources in the offerings of the other business units. See "-- Worldwide
Services."
Accountability. As part of NCR's recovery plan, a revised business
management model was implemented. The five business units (Retail Systems Group,
Financial Systems Group, Computer Systems Group, Worldwide Services, and
Systemedia Group) were put in place and given full accountability to determine
the strategy for their offerings and industries, develop the marketing and
product programs required by NCR customers and the Company's salesforce, and
determine overall resource allocations. The three geographic
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sales regions (Americas, Europe/Middle East/Africa, and Asia/Pacific) were given
responsibility for executing the strategies developed by the business units, and
managing the sales and service activities in their respective territories. In
addition, the pending separation of NCR from AT&T is expected to help eliminate
the conflicts that resulted from attempting to balance broader AT&T priorities
with NCR priorities. Clear financial and operational objectives were established
for all organizations, and a consistent monthly and quarterly business review
process was implemented.
Expense Level Reduction. In order to reduce expenses, a plan for a
significantly reduced expense structure was designed and implemented. As part of
this plan, NCR is consolidating facilities globally and is reducing the
Company's employment (including contractors) by approximately 8,500. NCR has
also significantly reduced selling, general and administrative expenses. The
decision to exit both PC manufacturing and the high volume indirect channel PC
business led to significant expense reductions. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Restructuring."
Process Improvements. Process improvement initiatives were implemented to
address structural issues within the Company, including extensive use of
operational, customer satisfaction, employee satisfaction, and financial
metrics. Processes were implemented to drive towards best-in-class quality, and
product cost reductions were targeted through continued supply line management
improvements. The sales process has been revised and is being implemented, with
the goal of improving the suitability of solutions proposed to customer
requirements, increasing sales productivity and improving the focus on
customers. Support services processes have also been revised and are being
implemented. Pricing processes and compensation plans were modified, and product
development processes were standardized to help ensure that new offerings
effectively meet customer requirements and cost targets.
Sense of Urgency. As part of the business turnaround plan, NCR set an
objective of break-even operating results in 1996, as compared to the operating
loss (excluding restructuring and other charges) of $722 million in 1995. While
this presented a significant challenge, it also helped focus the entire
organization on the magnitude of improvement that was required. In order to make
this plan, the entire Company needed clarity on what needed to be done, and a
sense of urgency to execute the business turnaround plan.
Significant effort was spent communicating the business turnaround plan to
the organization, so that all NCR employees would understand the strategy behind
the plan to restore the Company to profitability, the expected contribution of
their organization in the turnaround, and what specific role they needed to play
in their organization.
In addition, in order to develop a broader sense of ownership and
participation in the economic results of executing this plan, the Company
implemented the WorldShares Plan, through which substantially all employees will
receive options for NCR Common Stock, based on certain NCR performance criteria.
See "Management -- NCR Stock Incentive Plans."
STRATEGY
NCR believes that the actions taken from September 1995 through June 1996
were the first steps in NCR's business turnaround plan. However, NCR does not
view these actions in and of themselves as sufficient to bring the Company back
to competitive levels of profitability.
Much of the reduction in the operating loss that was realized in the first
half of 1996 versus the first half of 1995 was attributable to two changes:
gross margin improvements due primarily to product mix changes, and the large
year over year reductions in expense levels. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" for further details.
NCR expects future profit improvements to come primarily from revenue growth and
continued improvements in sales and services and rentals gross margins and not
from additional expense reductions. NCR believes this revenue growth will depend
on the success of NCR's business strategy and conditions in the information
technology industry and the markets NCR serves. See "Risk Factors."
There are three basic components to NCR's business plan: the level of
resources to be deployed, the processes through which the Company manages the
business, and the market opportunities to be pursued.
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From a resource standpoint, NCR expects to target relatively flat headcount
levels and modest expense growth over the next few years. Within this overall
headcount level, the Company's objective is generally to reduce the headcount
dedicated to overhead functions, and increase headcount in those functions that
directly support the development, sale, and delivery of products, services,
systems, and solutions to NCR's customers.
Ongoing investment in research and development is a key requirement for
NCR's future success, and the Company will seek to make investments in research
and development in product and service offerings that will allow the Company to
remain competitive. As such, the Company expects that research and development
spending will grow at a faster rate than selling, general and administrative
spending.
NCR intends to continue to invest in improving the core operational
processes that support the business. Specific activities have been underway and
are in the deployment phase to improve two fundamental company processes -- the
worldwide sales process and the support services process. These activities are
intended to help the Company's efforts to drive continued productivity
improvements over the next several years.
From a market standpoint, NCR is focusing on increasing revenue by taking
advantage of the opportunities created by three interweaving trends: rising
consumer prominence, business globalization, and continuing advances in
information technology.
NCR expects that increasing demands by individuals for information will
require an expanding supply of relevant data for those businesses that serve and
transact with consumers. NCR believes that the retail, financial, and
communications industries are facing unprecedented challenges -- in terms of new
competitors, market convergence, and consolidation. In NCR's view, advances in
information technology are adding to this volatility; however, if this
technology is properly leveraged, it can produce new offers, new means of
servicing consumers, and new points of differentiation in these industries.
NCR believes that globalization presents another opportunity to take
advantage of NCR's strengths. While many businesses have begun the process of
globalization in the past decade, NCR has been a global company for much of its
history. The Company believes that its collective experience and presence in all
regions of the world provides a broad reaching network that gives it market
understanding and organizational knowledge which can be used by customers as
they expand into new geographic areas. NCR believes it can either understand and
address specific customer requirements on an individual, country by country
basis, or provide one common solution that can be replicated on a worldwide
basis.
Finally, NCR is focused on helping its customers apply information
technology to address their critical business issues. The Company's offerings
are targeted both at the point of transaction (such as point of sale, point of
financial exchange, or point of access) and at the point of storage and
retrieval of large volumes of data from transaction systems or other operational
systems.
NCR expects to shift its primary focus from delivering hardware products
towards providing solutions, including systems, software, services, and
supplies. The Company believes that focusing on providing systems and solutions,
versus simply providing hardware, will better enable the Company to protect and
improve gross margins in the future.
NCR does not intend to become a general purpose computing company in all
industry segments or to become a mainframe provider. Similarly, NCR does not
expect to shift to a proprietary platform or to become a broad-based general
information technology consulting firm. Rather, NCR believes that significant
opportunities exist to increase revenues in all its businesses at competitive
rates over the next few years in the three key industry segments targeted, and
in the Company's Scalable Data Warehousing and High Availability Transaction
Processing solutions offered to all industries.
The following NCR business unit descriptions discuss how NCR intends to
implement this strategy in the various NCR businesses.
BUSINESS UNIT OVERVIEW
NCR operates in one industry segment, the information technology industry,
which includes designing, developing, marketing, and servicing information
technology products, services, systems, and solutions
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worldwide. NCR addresses the information technology industry through five
business units: the Computer Systems Group, focusing on computing systems and
the communications industry; the Retail Systems Group, focusing on the retail
industry; the Financial Systems Group, focusing on the financial industry;
Worldwide Services, focusing on Customer Support Services and Professional
Services; and the Systemedia Group, focusing on consumable and media products
for information systems. Each business unit works closely with the Company's
three regional sales groups -- Americas, Europe/Middle East/Africa, and
Asia/Pacific.
NCR principally sells through the direct sales channel, although the
indirect channel is used for some specific offerings. In addition, NCR has a
contractual arrangement with AT&T Capital through which a broad range of
financing alternatives can be offered to NCR's customers in the United States,
Canada, the United Kingdom, France, and Germany. See "Arrangement Among AT&T,
NCR and Lucent -- Other Agreements."
The business units work with one another in a matrix environment that
balances product and industry responsibilities. Each business unit has direct
responsibility for developing certain products, services, and systems: the
Retail Systems Group develops Retail Products such as point of sale terminals
and barcode scanners; the Financial Systems Group develops Financial Products
such as ATMs and item processing equipment; the Computer Systems Group develops
Client/Entry Level Server Products and Computer Products, which include the
WorldMark family of computers, NCR's Teradata relational database management
systems, as well as supporting software such as LifeKeeper(R) and Top End(R);
the Worldwide Services organization develops and delivers a variety of Support
Services and Professional Services offerings; and the Systemedia Group develops
and delivers a broad range of consumable supplies.
In addition to this direct product responsibility, three business units
have responsibility for coordinating all of NCR's offerings into a particular
industry, where these offerings could include products, services, and systems
provided by other business units. The Retail Systems Group is responsible for
developing the strategies for all NCR products, services, systems and solutions
for the retail industry, including the Retail Products that this Group develops
and manufactures, as well as Computer Products and Client/Entry Level Server
Products from the Computer Systems Group, Support Services and Professional
Services offerings from Worldwide Services, Financial Products from the
Financial Systems Group, and Systemedia Products from the Systemedia Group.
Similarly, the Financial Systems Group has responsibility for coordinating the
strategies behind all of the offerings from the other business units for the
financial industry. The Computer Systems Group has responsibility for
coordinating NCR's strategy for the communications industry.
RETAIL SYSTEMS GROUP
OFFERINGS
The Retail Systems Group (in conjunction with other NCR business units)
designs, develops, markets, and services a full line of products, services,
systems, and solutions for the retail industry. These offerings include point of
sale terminals, barcode scanners and scanner-scales, networking and computer
server technology to link these terminals and scanners on both a local and wide
area basis, and in-store and enterprise-level decision support systems.
NCR point of sale terminals are found in the merchandise checkout area of
supermarkets, department stores, specialty stores, convenience stores, fast food
counters, and at hotel registration desks and restaurants. The sales price for a
typical point of sale system installation would range from as little as $2,500
for a single terminal to around $60,000 for an eight lane networked system in a
supermarket.
NCR barcode scanners complement the point of sale terminal as part of the
merchandise checkout process, and use low-power lasers to capture product and
price information from the Universal Product Code ("UPC") barcode information
printed on product labels. Scanner-scales combine in one product the ability to
weigh produce as well as scan barcodes. A typical barcode scanner installation
would range in price from $3,000 for a single scanner at a drug store to
$100,000 for a networked system in a large mass merchandiser.
These point of sale terminals and barcode scanners are typically linked via
an in-store network, which provides for an interconnection between these devices
as well as other in-store devices such as PCs. NCR
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provides the networking technology to link these products to NCR servers within
the store, and provides the capability for further linking to enterprise-wide
networks outside the individual store. NCR has alliance relationships with
applications developers who provide specialized retail store and enterprise
solutions as part of NCR's offerings to the retail industry.
The Retail Systems Group also provides in-store and enterprise-level
decision support solutions (such as Scalable Data Warehousing) based on products
and systems developed by NCR's Computer Systems Group. These solutions allow a
retailer to consolidate and analyze the individual transaction data generated by
the point of sale systems in order to determine trends in buyer preferences and
product sales. Analysis of this detailed data allows the retailer to make better
decisions about inventory, purchases, and distribution, which in turn should
help the retailer more accurately meet the needs of its customers.
The Retail Systems Group uses the Professional Services organization to
develop solutions to meet the needs of a variety of retail customers.
Professional Services provides consulting services to help customers design,
integrate, install and support in-store networks of scanners, point of sale
terminals, network servers, in-store and enterprise-level decision support, and
data warehousing systems. Professional Services incorporates third party
products and software as required to create individualized solutions for
specific customer needs.
Within the Retail Systems Group, NCR has two research organizations focused
on human-to-machine interface technology. These groups work closely with
customers to develop solutions designed to enhance customer service and employee
productivity, based on their research on how information technology systems can
be made easier to use. Their services include transaction performance modeling,
ergonomic assessments, checkstand design, training design and evaluation, user
interface design and technology assessment.
TARGET MARKET
The major segments of the retail industry market served by NCR are general
merchandise, food, and hospitality. The general merchandise segment includes
department stores, specialty retailers, mass merchandisers, and catalog stores;
the food segment includes supermarkets, hypermarkets, grocery, drug,
wholesalers, and convenience stores; and the hospitality segment includes
lodging (hotel/motel), fast food/quick service, and restaurants.
NCR believes that retail industry customers base their buying decisions on
a number of criteria including the quality of the solution or product, total
cost of ownership, industry knowledge of the vendor, and the quality of the
vendor's support and professional services.
BUSINESS STRATEGY
NCR believes that, over the past several years, a number of significant
trends have been reshaping the retail industry: major consolidations of
retailers, continuing cost and profit pressure, the increase in price/value
conscious and "time poor" consumers, growth in demand for offerings tailored for
and targeted at individual consumers, and a corresponding growth in the need for
superior customer service. NCR also believes that retailers must focus on four
key success factors: merchandising, brands offered, store location, and customer
intimacy. In NCR's view, the combined implication of these changes and success
factors for information technology providers is that retailers are searching for
products and services that will help them better understand and retain their
customers, reduce costs, increase productivity, and drive revenue growth.
NCR's product, services, systems, and solutions are targeted at addressing
these concerns. NCR believes its customers can improve customer retention and
increase productivity with the capture and analysis of detailed transaction data
using NCR's Scalable Data Warehousing solutions. Through use of Scalable Data
Warehousing technology, retailers can correlate customer purchase trends with
geographic information, time of year/time of day, or other data parameters. NCR
believes that this will allow the retailer to provide improved levels of service
by having the right inventory on hand at the right place, the right time, and
the right price.
In addition, NCR believes that this technology will facilitate retailers
implementing a "neighborhood retailing" approach, where retailers can manage
every location as if it were their only location, each product as
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if it were their only product, and each customer as if it were their only
customer. The decisions supporting this approach are based on an analysis of the
detailed activity in each location, using the information collected at point of
purchase and provided by the retailer's data warehouse. NCR's Scalable Data
Warehousing solutions allow a retailer to choose the size of a system based on
current requirements, yet readily expand the system as the retailer's business
and information needs grow.
NCR believes retailers are realizing productivity improvements through use
of NCR's point of sale/point of service terminals that are easy to use, readily
reconfigurable through software, and are networked to in-store or
enterprise-level servers for timely data capture and analysis and scanner-based
price verifiers that allow customers to check for themselves prices on
individual products.
NCR believes it is among a small group of vendors who are able to
incorporate all of these components of an information technology solution for
their worldwide retail customers. NCR also believes that the Company's broad
range of offerings and in-depth experience in the retailing industry will create
opportunities for it in the emerging countries in Europe, Latin America, and the
Pacific Rim to take advantage of the growing level of consumerism in those
regions.
DISTRIBUTION CHANNELS
NCR's Retail Products are marketed through a combination of direct and
indirect channels. The majority of the networked solutions and Scalable Data
Warehousing solutions sold into the retail industry are sold through the direct
sales force. In recent years, over 70% of the retail-specific product sales
(primarily barcode scanners and point of sale terminals) are sold by the direct
sales force; the remainder are sold through indirect channels.
In addition to being sold by NCR's direct sales force, NCR Retail Products
are sold to some 20,000 or more retailers through worldwide alliances with over
300 value-added resellers, distributors and dealers. NCR provides supporting
services, including collateral sales materials, sales leads, porting facilities,
and marketing programs, to this sales channel.
MANUFACTURING
The Retail Systems Group designs, develops and manufactures barcode
scanners and point of sale terminals at its headquarters facility in Atlanta,
Georgia. In addition, point of sale terminals are assembled at the NCR facility
in Dublin, Ireland. Receipt printers and low-end point of sale terminals are
sourced via OEM arrangements. Network servers and Scalable Data Warehousing
solutions are supplied by NCR's Computer System Group.
COMPETITION
NCR faces significant competition in the retail industry in all geographic
areas where it operates. The bases of competition can vary by geographic area
but typically include the quality, total cost of ownership, industry knowledge
of the vendor, and quality of the vendor's support and professional services.
Competitors also vary by product line and geographic area. See "Risk
Factors -- Competition."
At the store level, principal competitors include: Siemens Nixdorf
International ("SNI"), Fujitsu Ltd. ("Fujitsu"), ICL plc ("ICL"), and
International Business Machines Corporation ("IBM") for point of sale terminals
and peripherals; Spectra-Physics, Inc., Symbol Technologies, Inc., and
Metrologic Instruments, Inc. for barcode scanners; and IBM and Hewlett-Packard
Company ("Hewlett-Packard") for in-store networking and decision support. At the
enterprise level, scalable decision support and Scalable Data Warehousing
solutions can range from $300,000 for 10 gigabytes of data to over $10 million
for terabytes of data (over 1,000 gigabytes). Principal competitors for decision
support and Scalable Data Warehousing systems include IBM, Hewlett-Packard, and
Tandem Computers Incorporated ("Tandem").
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FINANCIAL SYSTEMS GROUP
OFFERINGS
The Financial Systems Group (in conjunction with other NCR business units)
designs, develops, markets, and services a broad line of products, services,
systems and solutions for the financial industry, with particular focus on
retail banking. These offerings include self-service devices, image and payment
systems, retail bank branch automation (in "virtual" as well as real bank
branches), and Relationship Management Solutions designed to enable financial
institutions to manage better their interaction with their customers.
NCR's self-service terminals include both traditional ATMs as well as
customer-operated information terminals. NCR offers a broad product family which
is feature rich, modular, and reliable, with ATMs ranging in price from $6,000
to $40,000. NCR believes that the combination of open systems architecture,
strong system management tools, and flexible application development tools
should allow customers to implement proactively new products and
services -- such as check cashing, bill payments, and smart cards -- quickly and
easily. NCR believes that its ATM product line reflects advanced functionality,
reliability, and industry focus, which has helped NCR to maintain its world
leadership position in ATM shipments. For 1995, based on number of units
shipped, NCR was ranked first in worldwide ATM shipments, according to The
Nilson Report published by HSN Consultants Inc., a financial research company.
NCR provides a full line of item/image processing products, services,
systems, and solutions which are designed to allow financial institutions to
provide better service while lowering their costs of processing paper, image,
and electronic transactions. NCR offers a complete set of imaging-based item
processing solutions designed to replace less efficient legacy check processing
systems. These imaging systems electronically capture a "picture" of the item
and, through handwriting recognition software algorithms, captures the amounts
written on the item for use in the settlement process. This offering is intended
to help banks reduce processing costs, while at the same time enhancing the
value of the information captured by the financial institution during the item
processing process.
NCR's Relationship Management Solutions are based on the Company's Scalable
Data Warehousing offerings, combined with the skills and knowledge of NCR's
Professional Services organization. The Relationship Management Solution
includes capabilities that address issues such as Customer Retention Analysis,
Transaction Analysis, and Campaign Management. These solutions help financial
institutions manage their interactions with individual customers, with the goal
of optimizing the level of service provided and increasing the profit
contribution of each customer. The decision support capabilities provided as
part of these solutions are designed to allow banks to transition from having
limited insight into detailed customer data, to being able to use detailed
information to support the management of their business. The benefits of this
transition can include improving risk management processes, implementing
marketing programs tailored for specific customer profiles, or allowing the
pricing of services based on the customer's transaction and balance history.
TARGET MARKET
The financial industry includes commercial banks, retail banks, credit
unions and thrifts, security and brokerage firms, credit card issuers, insurance
providers, and capital providers.
NCR serves a number of segments of the financial industry. These segments
include retail banking, which covers both traditional and new providers of
consumer banking services, financial services, such as the insurance and card
payment industries, and also the non-traditional financial services segment,
covering companies that have diversified into the financial services arena to
complement their core business. NCR's financial customers are located throughout
the world in both established and emerging markets. They range from very large
to very small financial service providers, reflecting, in NCR's view, its
ability to develop solutions suited to the broad spectrum of companies that make
up the world's financial services industry.
NCR believes that financial industry customers base their buying decisions
on a number of criteria, including the industry knowledge of the vendor, the
economic justification behind implementing the solution,
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the vendor's ability to provide and support a total end-to-end solution, the
vendor's ability to integrate new and existing systems, and the fit of the
vendor's strategic vision with the customer's strategic direction.
BUSINESS STRATEGY
Over the past few years, NCR believes that the financial industry has
experienced significant changes including the following. Consumers of financial
services are demanding better service and more choices, all at a lower cost.
They are much less loyal to their financial service providers, but expect a more
personalized approach to service delivery. In addition, the bank branch is no
longer the most important point of consumer access, as consumers increasingly
demand anytime, anywhere convenience, encouraging the growth of off-premises
service provision. The marketplace is also expanding with the entry of non-bank
providers of financial services, including major retailers and mutual fund
companies.
NCR believes that these changing consumer expectations and increased levels
of competition have led the providers of financial services to seek technology
that will reduce their operating costs, while at the same time increase their
levels of service. In NCR's view, many parallels can be drawn with the
experiences of the retail industry -- the information technology that helps
financial service providers offer more tailored services at lower cost is seen
to be the key to success in this changing and highly competitive industry, just
as it is with retailers.
Information technology provides solutions to many of the challenges faced
by the financial industry. Improvements in operational efficiency can be
achieved through the development of the automated bank branch. Information
technology also supports alternative delivery channels, such as self-service,
telephone, and Internet banking. NCR believes that Scalable Data Warehousing
technology will allow the intelligent and profitable use of customer information
during any financial transaction. Such activities can include marketing related
products and services during an ATM transaction, or providing a personalized
telephone banking service where a customer's financial history is instantly
available to the bank representative that has taken the call. ATM transactions
are becoming more sophisticated with on-line assistance provided from remote
banking representatives linked to the customer by video-conferencing technology.
NCR's strategy in the financial industry is focused on two key
opportunities. First, the Company believes that its range of information
technology offerings can help the world's financial institutions improve their
profits and competitive advantage by helping them better understand and serve
their customers. By continuing to build on NCR's self-service products,
item/image processing solutions, and Relationship Management Solutions, NCR
seeks to help the financial service provider capture and convert a mass of
customer data into a revenue generating asset.
Second, specific focus is being placed on the world's emerging markets such
as Central and Eastern Europe, China, India, and Indonesia, where the provision
of financial services is less developed, particularly in light of the growing
consumerism in these countries. New market opportunities are also being explored
in partnership with NCR's Retail Systems Group as non-financial customers, such
as retail chains, are purchasing ATMs for their stores and renting them to banks
and other financial services providers.
DISTRIBUTION CHANNELS
NCR has historically distributed most of its financial products, services,
systems, and solutions through a direct sales channel which is targeted at
larger customers, although some revenues are generated through distributors. The
Financial Systems Group expects to increase the level of business transacted
through indirect channels and partners, where appropriate, in current and
emerging markets.
MANUFACTURING
The Financial Systems Group designs, develops, and manufactures self
service terminals and image/item processing products in Dundee, Scotland and
Waterloo, Canada. Networked servers, Scalable Data Warehousing solutions, and
peripherals are supplied by NCR's Computer Systems Group. Specialized ATMs
marketed in Japan are sourced through an OEM arrangement.
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COMPETITION
NCR faces significant competition in the financial industry in all
geographic areas where it operates. The bases of competition can vary but
typically include the industry knowledge of the vendor, the economic
justification behind implementing the solution, the vendor's ability to provide
and support a total end-to-end solution, the vendor's ability to integrate new
and existing systems, and the fit of the vendor's strategic vision with the
customer's strategic direction. Competitors also vary by product line and
geographic area. NCR's primary competitors include Diebold, Incorporated,
Fujitsu, SNI, and Omron Electronics Inc. in ATMs, IBM and BancTec, Inc. in
image/item processing, and SNI, Hewlett-Packard, and Unisys Corporation
("Unisys") in data warehousing. See "Risk Factors -- Competition."
COMPUTER SYSTEMS GROUP
OFFERINGS
The Computer Systems Group (in conjunction with other NCR business units)
designs, develops, markets, and services computing products, services, systems,
and solutions which integrate hardware, operating software, middleware,
professional services, and support services. These solutions include products
and services from NCR as well as from other leading technology vendors. The
Computer Systems Group is also responsible for coordinating the development of
the strategies behind NCR's offerings to the communications industry.
As a part of these computing solutions, the Computer Systems Group designs,
develops, and markets a line of open scalable computers, under the WorldMark
brand, which range from midrange computer systems to very large massively
parallel enterprise-wide systems. These open products are based on
non-proprietary, industry standard components such as Intel microprocessors,
Microsoft Windows NT, and UNIX. The WorldMark servers are the foundation of
NCR's Scalable Data Warehousing and High Availability Transaction Processing
solutions. The Computer Systems Group also offers PCs, disk arrays, and
networking products sourced from other vendors in order to provide fully
integrated solutions to NCR's customers.
NCR's Scalable Data Warehousing solutions are intended to offer businesses
the ability to capture information about their customers, markets, and products
from a myriad of operational systems, and to give decision makers the ability to
access and analyze that information. These solutions incorporate NCR WorldMark
servers as well as NCR's Teradata relational database management system, other
commercial databases such as Oracle or Informix, software tools, and services.
The underlying technology provides customers with the ability to scale broadly
these systems -- from entry level 10 gigabyte systems to large data warehouses
containing terabytes of information -- all within the same hardware and software
platform. The Scalable Data Warehousing solutions also serve as the foundation
for a number of NCR's offerings to the communications industry.
NCR's High Availability Transaction Processing solutions are designed to
maximize computer uptime for critical business environments. These solutions are
based on the WorldMark server platform, combined with software and services
designed to ensure high system availability. NCR LifeKeeper software minimizes
downtime by recognizing and recovering hardware component or application faults
before a total system failure occurs. NCR Top End middleware software reroutes
transactions during a system failure, working in conjunction with LifeKeeper for
additional system protection.
In addition to developing the strategies behind NCR's offerings to the
communications industry, the Computer Systems Group works with the Retail
Systems Group, the Financial Systems Group, and Worldwide Services to bring
industry specific Scalable Data Warehousing and High Availability Transaction
Processing solutions to the retail and financial industries.
TARGET MARKET
The customers of NCR's Computer Systems Group are in a number of
industries. While a primary focus is in the retail, financial, and
communications industries, NCR also markets Scalable Data Warehousing and High
Availability Transaction Processing solutions to a number of other industries. A
number of companies in
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the communications industry are competitors of AT&T's communications services
business and have been reluctant to make purchases from an AT&T subsidiary. NCR
expects that its separation from AT&T will assist its efforts to market to these
companies.
BUSINESS STRATEGY
The majority of the Computer Systems Group's customers provide products and
services to individual consumers. NCR believes these consumers are becoming more
educated, are placing less focus on brand loyalty, and are expecting service to
be provided anytime, anywhere. NCR believes that information technology
advancements are helping fuel this change in consumer behavior and that, as
information technology becomes more broadly available and affordable, it will
further enable consumers to connect to each other and to the information and
services they want and need. Taken together, these changing consumer
demographics and technology advancements are in turn placing demands on
information technology infrastructures to extend their reach and connect
directly to end consumers.
The end consumer is expected to drive new priorities among the Computer
Systems Group's customers, such as requiring around the clock service to a
global customer base, increasing focus on customer retention, and analyzing
business information at a highly detailed level. As a result, information
technology priorities are expected to be delivery of systems designed for high
application availability, with greater flexibility; technology linkages between
customers, partners, and suppliers; access to decision support through data
warehousing systems; and integrated informational and transactional systems.
NCR's strategy in the Computer Systems business is focused on providing
commercial, open systems for data warehousing and transaction processing to
companies worldwide.
NCR's Scalable Data Warehousing solutions are intended to allow companies
to capture the most critical information about their customers, markets, and
products from a myriad of operational systems, and to give decision makers the
ability to analyze and manage their business at a new level of detail.
According to International Data Corporation ("IDC"), a computer industry
research company, NCR has the highest market share in the strategic business
analysis market segment, which consists of data warehousing. NCR believes it has
more experience in data warehousing (12 years) than any firm in the industry.
NCR has over 500 installed Scalable Data Warehousing customers worldwide,
ranging in size from small data warehouses to the world's largest commercial
enterprise data warehouse. Through its Computer Systems Group, NCR offers
scalable computers, the powerful Teradata relational database, software and
service partnerships, and programs to assist customers in the many aspects of
building a data warehouse. In addition, NCR's Professional Services organization
provides business and technical services needed to implement these solutions.
NCR's High Availability Transaction Processing solutions are designed to
give companies the ability to maximize computer uptime for those critical
business environments where downtime can mean significant loss of revenue and
customers. The rising costs of computer downtime (costing businesses almost $4
billion annually according to Network Computing, a computer industry
publication), combined with today's global business environment, have made
maximizing system uptime a primary concern, especially as businesses continue to
migrate to open systems. NCR is a leader in delivering highly available open
computing solutions, and offers customers in many industries the following
strategic investment in High Availability Transaction Processing: an integrated
hardware platform, commercial database and several business applications, a
comprehensive services portfolio, and partnerships with companies including
Microsoft and Intel.
The Computer Systems Group also develops strategies for using these
offerings in the communications industry. NCR has significant experience
marketing systems and solutions to both AT&T and Lucent. NCR provides solutions
in three areas. Utilizing NCR's Scalable Data Warehousing solutions, NCR
provides its telecommunications customers with solutions targeted at addressing
the areas of customer acquisition and customer retention. In partnership with
Lucent, NCR provides a suite of Operations and Support Systems offerings. NCR
also works with a number of third parties to provide solutions in the areas of
call center, billing, and collection. Based on this experience and experience
with other telecommunications companies,
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NCR expects to continue to provide Scalable Data Warehousing and High
Availability Transaction Processing solutions to the communications industry.
DISTRIBUTION CHANNELS
The Computer Systems Group's products and solutions are marketed through a
combination of direct and indirect channels. The direct sales force targets
major accounts, and approximately 85% of NCR's revenue for the Computer System
Group's offerings has historically come from the direct sales force. The
remaining revenues have been generated through the indirect channel, through
alliances with value-added resellers, distributors, and OEMs.
MANUFACTURING
The Computer Systems Group develops and manufactures computers in Columbia,
South Carolina, and Dublin, Ireland. The Company also maintains research and
development facilities in Rancho Bernardo and El Segundo, California. Selected
systems and components are sourced through various OEM arrangements.
COMPETITION
The Computer Systems Group faces significant competition in all geographic
areas where it operates. NCR believes that key competitive factors in this
market are experience, customer referrals, database sophistication, support and
professional service capabilities, quality of the solution or product, total
cost of ownership, industry knowledge of the vendor, and platform scalability.
Also the movement towards common industry standards (such as Intel processors
and UNIX and Microsoft operating systems) has accelerated product development,
but has also made differentiation more difficult. Commoditization has extended
beyond PCs into the server business. See "Risk Factors -- Competition."
NCR's competitors include traditional system vendors such as IBM,
Hewlett-Packard, Digital Equipment Corporation ("Digital"), Sun Microsystems,
Inc. ("Sun Microsystems"), Tandem, Sequent Computer Systems, Inc. ("Sequent"),
SNI, Pyramid Technology Corporation ("Pyramid"), Fujitsu, NEC Corporation,
Hitachi Ltd., Groupe Bull, Olivetti SpA, ICL, and Unisys. NCR also competes with
companies such as Compaq Computer Corporation and Dell Computer Corporation, who
have expanded their product lines to include servers. In the data warehousing
market, NCR competes primarily with IBM, Digital, Tandem, Sequent, Pyramid,
Hewlett-Packard, and Sun Microsystems.
In the transaction processing market, customers require robust software,
reliable hardware, and systems integration skills. Many competitors offer one or
two of these components, but NCR believes it is one of few companies that can
provide a complete, open solution. The primary competitors in this market are
Hewlett-Packard, IBM, Tandem, and Sun Microsystems.
WORLDWIDE SERVICES
OFFERINGS
NCR's Worldwide Services organization delivers a wide range of Professional
Services and Customer Support Services to customers in over 130 countries. The
Professional Services business delivers technology services intended to help
customers fully realize the benefits of their information technology solutions,
including consulting, integration, and education services. The Customer Support
Services business provides services required to implement and maintain a
customer's technology environment and provide high system availability,
including implementation services, multivendor services, system support
services, network maintenance and operations, and industry-specific support
services.
Worldwide Services plays a key role in NCR's business, and provides a core
skill set required in order to deliver complete products, services, systems, and
solutions to all of NCR's customers. The value delivered by Worldwide Services
is a key point of differentiation for many of NCR's offerings. The solutions
offered by each of NCR's business units involve the implementation of complex
technology in divergent customer
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environments and require an effective services organization -- both Professional
and Support Services -- to take this core technology and implement it within the
individual customer situation.
The Worldwide Services organization is comprised of approximately 20,000
service professionals. This organization provides services to customers both in
the Company's target industries and in other industries. Worldwide Services aims
to use its global infrastructure and comprehensive service portfolio to
strengthen NCR's service position in the three targeted industries. The Data
Services business focuses on providing a variety of data processing and
outsourcing solutions, primarily to the financial industry.
NCR has announced its intention to divide the current Worldwide Services
organization into two business units, and to combine NCR's internal information
systems organization with the Professional Services business. This will create a
sixth business unit, Professional Services and Information Systems. The plans
for this business unit are currently being developed, with the goal of
establishing this new business unit in early 1997. For the purposes of this
Information Statement, Professional Services will be considered to be part of
the Worldwide Services organization, as the planned change in organization
structure is not expected to have a significant impact on the core strategic
focus of the business.
TARGET MARKET
The markets for NCR's Worldwide Services offerings are principally in the
industries which are targeted by the other NCR business units. As a result,
Worldwide Service's primary focus is delivering professional and support
services worldwide in the retail, financial, and communications industries.
Worldwide Services also supports NCR's Scalable Data Warehousing and High
Availability Transaction Processing activities in all industries. In addition,
Worldwide Services provides services in geographic areas, outside the targeted
industries, where it can effectively leverage its current resources and
capabilities.
BUSINESS STRATEGY
Companies within NCR's targeted industries are implementing information
technology to address their business problems and become more competitive within
their markets. With the increasing pace of technology change, customers often do
not have sufficient internal resources and skills to implement information
technology solutions by themselves. Instead, they are increasingly relying on
information technology service vendors to provide assistance with the
implementations.
Customer Support Services provides installation and ongoing maintenance
services for both NCR and non-NCR systems. The Company believes that significant
opportunities for growth exist in the areas of network operations, help desk
services, and multivendor service management. NCR is also seeking to expand its
information technology implementation services business (system staging and
installation), while at the same time seeking to minimize declines in the
hardware maintenance business. NCR will continue to work to capitalize on the
remote monitoring and diagnostic capabilities of many of its products in order
to reduce costs and enhance the Company's ability to provide proactive support
to customers.
Key growth opportunities in Professional Services are expected to include
customer information consulting, data warehousing consulting, information
technology architecture consulting, network planning and design, and project
management. NCR believes that each of these services plays a major role in
allowing a customer to analyze its customer information and to link its
information technology architecture with its business strategies. Project
management services are offered to help customers implement solutions on time
and within budget.
Worldwide Services intends to continue to develop integrated service
solutions for key customer segments, such as the ATM business. Worldwide
Services intends to provide a support offering to ATM customers called Managed
Solutions for Self-Service. This offering will provide customers with a single
source approach to managing and maintaining their ATM network, and includes
support services such as first and second line maintenance, cash replenishment,
overall ATM performance management, and consumables management and
replenishment.
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<PAGE> 39
The value and quality of the offerings from Worldwide Services depend on
the strength of its people and the service delivery business processes.
Accordingly, Worldwide Services targets continued investment in the training and
development of its people and the systems and processes supporting their
activities.
These services are an essential component of NCR's solution offerings. The
services organization works with NCR customers to identify their specific
information management needs and then designs individualized NCR technology
solution and implementation plans for their businesses.
COMPETITION
NCR's Worldwide Services' businesses faces significant competition in all
geographic areas where it operates. NCR believes a key competitive factor in
these businesses is the ability of the service providers to deliver high quality
services, reflecting strong business and technical knowledge, within an agreed
upon cost and time commitment. Worldwide Services' major competitors in its two
main businesses include IBM, Digital, Hewlett-Packard, and Unisys in the
Customer Support Services business, and IBM, Electronic Data Systems Corporation
("EDS"), Andersen Consulting LLP, Hewlett-Packard, Unisys, and Cap Gemini Sogeti
S.A. in the Professional Services business. See "Risk Factors -- Competition."
SYSTEMEDIA GROUP
PRODUCTS
The Systemedia Group develops, produces, and markets a complete line of
consumable and media products for information systems, including transaction
processing media, business forms, and a full line of integrated equipment
solutions. Specific products offered include stock and custom paper rolls,
pressure sensitive labels, label/form combinations, thermal transfer ribbons,
impact inking media, high speed laser forms, encoding products, mailers, and ink
jet media.
Many of these products are offered as complementary parts of broader NCR
systems and solutions, including point of sale systems, ATMs, and item
processing systems. Systemedia products are also integral parts of NCR's overall
support service offerings to customers, such as the Managed Solutions for
Self-Service to be provided to NCR's ATM customers.
The Systemedia Group works closely with its customers to develop specific
solutions in areas such as inking, printer cassette design and manufacture, thin
film coating for thermal transfer ribbons, and labels and label/form
combinations.
TARGET MARKET
The major industry segments targeted by the Systemedia Group include
general merchandise, food and drug, hospitality, financial, and consumer goods
manufacturing.
BUSINESS STRATEGY
In NCR's view, a number of important changes have affected the consumable
products industry, including the growth in technologies such as electronic and
laser printed forms; the demand for high-speed laser printer consumables; the
growth in barcode printing applications (creating additional demand for thermal
transfer ribbons utilizing thin film coating technologies); and continued
recycling pressures driving demand for remanufactured inkjet and laser printer
cartridges.
NCR believes that each of these industry changes presents opportunities for
NCR, given its knowledge of label/form design, high-speed laser printer forms,
the life cycle of printer technology, thin film coating, paper roll
manufacturing, and printer cassette design and manufacture. Other industry
changes, including electronic data interchange, e-mail, and the decrease in
impact printer usage, present challenges for the Company.
Consumable media can have a significant impact on the overall cost of
ownership of many of the systems NCR offers to its customers, including point of
sale systems, ATMs, item processing systems, and high volume printer
applications. As such, a key business strategy is to integrate Systemedia Group
offerings with
33
<PAGE> 40
NCR systems. NCR believes that effective supply line management and alliance
relationships are key points of differentiation.
NCR believes that when consumables are integrated into NCR's Customer
Support Services offerings, these offerings are strengthened by providing
customers one seamless solution and point of accountability. In addition, NCR
also believes that system reliability is increased and the customer's total cost
of ownership is reduced by providing high quality media as part of the Customer
Support Services offering.
DISTRIBUTION CHANNELS
The Systemedia Group has a direct sales force in 19 countries focusing on
providing consumable products to major accounts. In addition, Systemedia Group
products are sold through office products resellers, value added resellers, and
an inbound and outbound telemarketing organization.
MANUFACTURING
The Systemedia Group's global manufacturing organization spans six
continents with 19 manufacturing plants, including six in the United States.
COMPETITION
Competition in the consumable products business is significant and varies
by geographic area and by product group. The primary areas of competitive
differentiation are typically product quality, logistics and supply chain
management expertise, and total cost of ownership. While price is always a
factor, Systemedia Group focuses on total cost of ownership for all its products
and services. Total cost of ownership takes into account not only the per unit
cost of the media, but also service, usage, and support costs over the life of
the system. Key competitors include The Standard Register Company, The Reynolds
and Reynolds Company, Wallace Computer Services, Inc., Sony Corporation, Moore
Corporation Limited, International Imaging Materials, Inc., Nu-Kote Holding,
Inc., Rittenhouse Paper Co., Sopano S.A., Rolltech Ltd., Katsumata, K.K., and
Paper Manufacturers Inc. See "Risk Factors -- Competition."
RESEARCH AND DEVELOPMENT
In the fiscal years ended December 31, 1995, 1994 and 1993, research and
development expenditures were $585 million, $500 million and $571 million,
respectively, which were, as a percent of sales, 7.2%, 5.9% and 7.9%,
respectively. In connection with the formation of Lucent, NCR entered into an
agreement with Lucent (the "Technology Access and Development Project
Agreement") governing the future commercial relationship between NCR and
Lucent's Bell Laboratories ("Bell Labs"). Pursuant to the Technology Access and
Development Project Agreement, NCR will have access to the results of certain
Bell Labs research and development activities, and Bell Labs will perform
specific research and development projects on a contract basis for NCR. NCR will
pay a periodic retainer fee for such access and an additional fee for each
research and development project. Such agreement will terminate on December 31,
1999, but is subject to renewal by mutual consent. See "Arrangements Among AT&T,
NCR and Lucent -- Other Agreements."
BACKLOG
NCR's operating results and the amount and timing of revenue are affected
by numerous factors, including the volume, mix, and timing of orders received
during a period and conditions in the information technology industry and in the
general economy. The Company believes that backlog is not a meaningful indicator
of future business prospects due to the shortening of product delivery
schedules, and the significant portion of revenue related to its Customer
Support Services business, for which order information is not recorded.
Therefore, the Company believes that backlog information is not material to an
understanding of its business.
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<PAGE> 41
SOURCES AND AVAILABILITY OF RAW MATERIALS
NCR uses many standard parts and components in its products and believes
there are a number of competent vendors for most parts and components. However,
a number of important components are developed by and purchased from single
sources due to price, quality, technology or other considerations. In some
cases, those components are available only from single sources. In order to
secure components for production and introduction of new products, NCR may make
advance payments to certain suppliers and may enter into noncancelable purchase
commitments with vendors with respect to the purchase of components. See "Risk
Factors -- Reliance on Suppliers and Partners."
PATENT AND TRADEMARKS
NCR owns approximately 1,150 patents in the United States and 1,250 in
foreign countries. These foreign patents are counterparts of NCR's United States
patents. Many of the patents owned by the NCR are licensed to others and NCR is
licensed to use certain patents owned by others. In connection with the
Distribution, NCR has entered into an extensive cross-licensing agreement with
AT&T and Lucent. See "Arrangements Among AT&T, NCR and Lucent -- Patent Licenses
and Related Matters." While NCR's portfolio of patents and patent applications
is of significant value to NCR, NCR does not believe that any particular
individual patent is itself of material importance to NCR's business as a whole.
NCR has registered certain trademarks in the United States and in a number
of foreign countries. NCR considers the trademark "NCR" and many other of its
trademarks to be valuable assets. NCR is currently involved in a trademark
dispute with Gartner Group, Inc. pursuant to which NCR is seeking a declaratory
judgment that its corporate logo is valid and does not infringe the corporate
logo of Gartner Group, Inc.
EMPLOYEES
At June 30, 1996, NCR had approximately 38,600 employees and contractors
including approximately 37,000 employees. Approximately 19,000 of NCR's
employees were located in the United States. Of these domestic employees,
approximately 3% are represented by unions. There have been no significant labor
disputes or work stoppages in the past five years. As part of its restructuring
plan, NCR's employment (including contractors) is being reduced by approximately
8,500, of which approximately 8,100 were separated prior to June 30, 1996. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Restructuring."
LEGAL PROCEEDINGS AND ENVIRONMENTAL MATTERS
In the normal course of business, NCR is subject to regulations,
proceedings, lawsuits, claims and other matters, including actions under laws
and regulations related to the environment, health and safety, among others.
Such matters are subject to the resolution of many uncertainties, and
accordingly, outcomes are not predictable with assurance. Although NCR believes
that amounts provided in its financial statements are currently adequate in
light of the probable and estimable liabilities, there can be no assurances that
the amounts required to discharge alleged liabilities from lawsuits, claims and
other legal proceedings and environmental matters, and to comply with applicable
environmental laws, will not exceed the amounts reflected in NCR's financial
statements or will not have a material adverse effect on the Company's
consolidated financial condition, results of operations or cash flows. Any
amounts of costs that may be incurred in excess of those amounts provided as of
June 30, 1996 cannot be determined.
Among the lawsuits and claims pending against NCR as of June 30, 1996,
there were approximately 100 individual product liability claims alleging that
the Company's products, including PCs, supermarket barcode scanners, cash
registers and check encoders, caused so-called "repetitive strain injuries" or
"cumulative trauma disorders," such as carpal tunnel syndrome. In such lawsuits,
the plaintiff typically alleges that he or she suffers from injuries caused by
the design of the product at issue or a failure to warn of alleged hazards.
These plaintiffs seek compensatory damages and, in many cases, punitive damages.
Most other manufacturers of these products have also been sued by plaintiffs on
similar theories. Ultimate resolution of the litigation against the Company may
substantially depend on the outcome of similar matters of this type pending in
35
<PAGE> 42
various state and federal courts. The Company has denied the merits and basis
for the pending claims against it and intends to continue to contest these cases
vigorously.
NCR's facilities and operations are subject to a wide range of
environmental protection laws in the United States and other countries related
to solid and hazardous waste disposal, the control of air emissions and water
discharges, and the mitigation of impacts to the environment from past
operations and practices. NCR has investigatory and remedial activities,
including characterization and cleanup actions, underway at a number of
currently and formerly owned or operated facilities to comply, or to determine
compliance, with applicable environmental protection laws. NCR has been
identified, either by a governmental agency or by a private party seeking
contribution to site cleanup costs, as a PRP at a number of sites pursuant to a
variety of statutory schemes, both state and federal, including the FWPCA and
comparable state statutes, and CERCLA, and comparable state statutes.
In February 1996, NCR received notice from the USF&WS that it considers NCR
a PRP under the FWPCA and CERCLA with respect to alleged natural resource
restoration and damages to the Fox River System due to, among other things,
sediment contamination in the Fox River System allegedly resulting from
liability arising out of NCR's former carbonless paper manufacturing operations
at Appleton and Combined Locks, Wisconsin. USF&WS has also notified a number of
other manufacturing companies of their status as PRPs under the FWPCA and CERCLA
for natural resource restoration and damages in the Fox River System resulting
from their ongoing or former paper manufacturing operations in the Fox River
Valley. USF&WS and two Indian Tribes have stated their intention to conduct a
Natural Resource Damage Assessment to determine and quantify the nature and
extent of alleged injury to natural resources. In addition, NCR has been
identified, along with a number of other companies, by the WDNR with respect to
alleged liability arising out of alleged past discharges that have contaminated
sediments in the Fox River System. NCR is also actively pursuing discussions
with the WDNR regarding the Company's alleged liability. NCR's share, if any, of
such cleanup costs or natural resource restoration and damages liability cannot
be predicted with certainty at this time due to (i) the unknown magnitude,
scope, and source of any alleged contamination, (ii) the absence of identified
remedial objectives and methods, and (iii) the uncertainty of the amount and
scope of any alleged natural resource restoration and damages. At this point,
NCR believes that there are additional PRPs who may be liable for such natural
resource damages and remediation costs. Further, in 1978, NCR sold the business
to which the claims apply and believes the claims described above are the
responsibility of the buyer and its former parent company pursuant to the terms
of the sales agreement. In this connection, the Company has commenced litigation
against the buyer to enforce its position.
It is difficult to estimate the future financial impact of environmental
laws, including potential liabilities. NCR accrues environmental provisions when
it is probable that a liability has been incurred and the amount of the
liability is reasonably estimable. Management expects that the amounts provided
as of December 31, 1995 and June 30, 1996 will be paid out over the period of
investigation, negotiation, remediation, and restoration for the applicable
sites, which may be 30 years or more. Provisions for estimated losses from
environmental remediation are, depending on the site, based primarily on
internal and third-party environmental studies, estimates as to the number and
participation level of any other PRPs, the extent of the contamination, and the
nature of required remedial and restoration actions. Accruals are adjusted as
further information develops or circumstances change. The amounts provided for
environmental matters in NCR's consolidated financial statements are the
estimated gross undiscounted amount of such liabilities, without deductions for
insurance or third-party indemnity claims. In those cases where insurance
carriers or third-party indemnitors have agreed to pay any amounts and
management believes that collectibility of such amounts is probable, the amounts
are reflected as receivables in the consolidated financial statements.
PROPERTIES
NCR operates 1,074 offices and 55 development and manufacturing facilities
in more than 130 countries around the world.
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<PAGE> 43
The Asia/Pacific Region is headquartered in Tokyo, Japan; the Europe/Middle
East/Africa Region in London, United Kingdom and the Americas Region in Dayton,
Ohio. The sales regions are further divided into 17 international areas,
including the United States.
The five business units have their headquarters in: Dayton, Ohio (Computer
Systems Group, Worldwide Services and Systemedia Group); London, United Kingdom
(Financial Systems Group); and Atlanta, Georgia (Retail Systems Group).
At August 1, 1996, NCR operated 39 manufacturing sites, of which 11 were
located in the United States, occupying in excess of 4.6 million square feet, of
which approximately 1.0 million square feet were leased. These sites were
located in 19 countries.
At August 1, 1996, NCR operated 16 research and development sites, of which
nine were located in the United States, occupying in excess of 1.0 million
square feet, of which approximately .6 million square feet were leased. These
sites were located in three countries.
At August 1, 1996, NCR operated 106 warehouse sites, of which 41 were
located in the United States, occupying in excess of 2.3 million square feet, of
which approximately 1.2 million square feet were leased. These sites were
located in 34 countries.
At August 1, 1996, NCR operated 744 office sites (sales, service,
administration and education), of which 220 were located in the United States,
occupying in excess of 11.5 million square feet, of which approximately 5.4
million square feet were leased. These sites were located in 81 countries.
At August 1, 1996, NCR operated 137 additional sites for miscellaneous
purposes (including land, residences, parking lots, aviation hanger and
recreational facilities), of which 38 were located in the United States,
occupying approximately 1.0 million square feet, of which approximately .5
million square feet were leased. These sites were located in 26 countries.
In addition, NCR has plans to sell or discontinue the lease of certain
facilities. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Restructuring."
For a summary of certain leases and subleases entered into in connection
with the Separation, see "Arrangements Among AT&T, NCR and Lucent -- Real Estate
Agreements."
NCR believes its plants and facilities are suitable and adequate, and have
sufficient productive capacity, to meet its current needs.
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<PAGE> 44
CAPITALIZATION
Set forth below is the historical capitalization of NCR as of June 30, 1996
and on an As Adjusted basis to give effect to the Distribution and certain
anticipated capital contributions as if the Distribution and such capital
contributions had occurred on June 30, 1996. The balance sheet data and the As
Adjusted balance sheet data set forth below should be read in conjunction with
the historical consolidated financial statements set forth elsewhere herein.
The As Adjusted capitalization presented herein does not purport to
represent the Company's consolidated financial position had the Distribution and
such capital contributions occurred on June 30, 1996 or to project the Company's
consolidated financial position for any future period. The As Adjusted data is
based upon currently available information and certain assumptions that the
Company believes are reasonable.
<TABLE>
<CAPTION>
AT JUNE 30, 1996
(UNAUDITED)
HISTORICAL AS ADJUSTED
---------- -----------
(DOLLARS IN MILLIONS)
<S> <C> <C>
DEBT OBLIGATIONS.................................. $139 $ 71(1)
SHAREHOLDER'S EQUITY
Preferred stock (authorized, not issued)........ -- --
Common stock.................................... -- --
Additional paid-in capital...................... -- --
Shareholder's net investment.................... 822 1,309(2)
Foreign currency translation.................... 74 74
Other........................................... (37) (37)
---- ------
Total shareholder's equity.............. 859 1,346
---- ------
TOTAL CAPITALIZATION.............................. $998 $ 1,417
==== ======
</TABLE>
NOTES:
(1) Reflects retirement or defeasance of a total of $68 of NCR debt
anticipated to occur on or before the Distribution Date. The effect on
reported interest expense included in the accompanying statements of
operations for the year ended December 31, 1995 and the six months ended
June 30, 1996 resulting from the retirement or defeasance of such debt is
not material.
(2) Reflects capital contribution from AT&T of $419 in cash (a portion of
which will be available to NCR prior to the Distribution Date), and
additional contributions of cash sufficient to retire or defease a total
of $68 of NCR debt (including payment of related expenses), anticipated to
occur on or before the Distribution Date.
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<PAGE> 45
SELECTED FINANCIAL DATA
The following table presents selected historical financial data of NCR. The
information set forth below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the historical consolidated financial statements and notes thereto included
elsewhere in this Information Statement. The consolidated statement of
operations data set forth below for each of the years ended December 31, 1995,
1994, and 1993 and the consolidated balance sheet data at December 31, 1995 and
1994 are derived from, and are qualified by reference to, the audited
consolidated financial statements included elsewhere in this Information
Statement, and should be read in conjunction with those financial statements and
notes thereto. The consolidated balance sheet data at December 31, 1993 are
derived from the audited consolidated balance sheet of NCR at December 31, 1993,
which is not included in this Information Statement. The consolidated statement
of operations data for each of the years ended December 31, 1992 and 1991 and
the consolidated balance sheet data at December 31, 1992 and 1991 are derived
from unaudited consolidated financial statements not included in this
Information Statement. The consolidated statement of operations data for each of
the six month periods ended June 30, 1996 and 1995, and the consolidated balance
sheet data as of June 30, 1996 are derived from, and are qualified by reference
to, the unaudited interim financial statements included elsewhere herein, and
should be read in conjunction with those financial statements and notes thereto.
See "Index to Financial Statements."
The historical financial information may not be indicative of NCR's future
performance and does not necessarily reflect the financial position and results
of operations of NCR had NCR operated as a separate, stand-alone entity during
the periods covered. See "Risk Factors -- Limited Relevance of Historical
Financial Information."
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30 YEARS ENDED DECEMBER 31
--------------- -----------------------------------------------
1996 1995 1995 1994 1993 1992 1991
------ ------ ------- ------- ------- ------- -------
(UNAUDITED) (DOLLARS IN MILLIONS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenues(3)(5)................................................ $3,265 $3,860 $ 8,162 $ 8,461 $ 7,265 $ 7,139 $ 7,246
Operating expenses(1)(6)
Cost of revenues............................................ 2,396 3,024 7,316 5,894 4,839 4,378 4,322
Selling, general and administrative expenses................ 711 995 2,632 2,169 2,136 1,938 2,113
Research and development expenses........................... 184 231 585 500 571 568 709
------ ------ ------- ------- ------- ------- -------
Income (loss) from operations................................. (26) (390) (2,371) (102) (281) 255 102
Interest expense.............................................. 26 46 90 44 41 77 85
Other income, net(2)(4)....................................... (3) (78) (45) (130) (42) (77) (87)
------ ------ ------- ------- ------- ------- -------
Income (loss) before income taxes and cumulative effects of
accounting changes.......................................... (49) (358) (2,416) (16) (280) 255 104
Income tax expense (benefit).................................. 34 31 (136) 187 138 157 387
------ ------ ------- ------- ------- ------- -------
Income (loss) before cumulative effects of accounting
changes..................................................... (83) (389) (2,280) (203) (418) 98 (283)
Cumulative effects of accounting changes(7)................... -- -- -- -- (869) -- --
------ ------ ------- ------- ------- ------- -------
Net income (loss)............................................. $ (83) $ (389) $(2,280) $ (203) $(1,287) $ 98 $ (283)
====== ====== ======= ======= ======= ======= =======
FINANCIAL POSITION AND OTHER DATA
Cash and short-term investments............................... $ 825 $ 638 $ 338 $ 661 $ 343 $ 436 $ 391
Accounts receivable, net...................................... 1,175 1,744 1,908 1,860 1,288 1,228 1,305
Inventories................................................... 561 1,072 621 952 781 620 504
Property, plant and equipment, net............................ 950 1,092 957 1,234 1,143 1,026 1,067
Total assets.................................................. 4,934 5,837 5,256 5,836 4,664 4,565 4,448
Short-term borrowings......................................... 40 70 45 73 40 118 105
Long-term debt................................................ 99 612 330 642 115 142 229
Shareholder's equity.......................................... 859 1,499 358 1,690 1,032 1,831 1,628
Headcount (employees and contractors)......................... 38,600 46,700 41,100 50,000 52,500 53,800 54,000
</TABLE>
- ---------------
(1) 1995 operating expenses include restructuring and other charges of $1,649.
(See Note 5 of Notes to Consolidated Financial Statements.)
(2) 1995 other income, net includes a gain on sale of the Microelectronics
components business of $51.
(3) The decrease in revenues beginning in the fourth quarter of 1995 and in the
six months ended June 30, 1996 is due largely to the Company's decision in
September 1995 to discontinue selling PCs through high volume indirect
channels.
(4) 1994 other income, net includes a gain on sale of certain assets of $110.
(5) The fiscal year-end for locations outside the U.S. was changed from November
to December in 1994 to conform the domestic and international reporting
periods. This change increased reported revenues in 1994 by $223, however
the effect on loss from operations was not significant.
(6) 1993 operating expenses include restructuring and other charges of $219.
(See Note 5 of Notes to Consolidated Financial Statements.)
(7) NCR changed its methods of accounting for postretirement benefits,
postemployment benefits, and income taxes effective in 1993. (See Note 3 of
Notes to Consolidated Financial Statements).
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<PAGE> 46
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
NCR designs, develops, markets, and services information technology
products, services, systems, and solutions worldwide. The Company's goal is to
be a world-class provider of commercial, open computing systems for High
Availability Transaction Processing and Scalable Data Warehousing solutions to
customers in all industries. NCR also seeks to take advantage of its expertise
and market presence in the retail, financial, and communications industries to
provide specific information technology solutions to customers in these targeted
industries. NCR's systems and solutions are supported by its Customer Support
Services and Professional Services offerings, and its Systemedia business, which
develops, produces, and markets a complete line of consumable and media
products.
NCR's offerings cover a broad range of its customers' information
technology needs: from consumers' interaction and data collection, with products
including point of sale workstations, barcode scanning equipment, and
self-service devices such as ATMs; through data processing, with NCR's High
Availability Transaction Processing solutions; to data storage, manipulation,
and usage, with NCR's Teradata relational database management system and
Scalable Data Warehousing offerings. The Company's computing platforms and
associated products span midrange servers, massively parallel processing
computer systems, computer network servers and software systems, imaging and
payment systems, workstations and peripherals, business forms, ink ribbons,
customized paper rolls, and other consumable supplies and processing media.
NCR also provides Worldwide Customer Support Services and Professional
Services that include hardware maintenance, software maintenance, data
warehousing service offerings, end-to-end networking service and design, and the
implementation, integration, and support of complex solutions.
NCR is a wholly owned subsidiary of AT&T. The Company was merged with a
wholly owned subsidiary of AT&T effective September 19, 1991. On September 20,
1995, AT&T announced its intention to separate into three independent public
companies: NCR, the continuing AT&T, and Lucent. AT&T also announced its
intention to distribute all of its interest in NCR to its shareowners by
December 31, 1996, subject to certain conditions.
NCR and AT&T and, in certain cases, Lucent and AT&T Capital, have entered
into or will enter into, on or prior to the Distribution Date, certain
agreements providing for the separation of the companies into independent
corporations and governing various interim and ongoing relationships between and
among the four companies, including an agreement between the Company and AT&T
providing for the purchase of products and services from the Company. See
"Arrangements Among AT&T, NCR and Lucent."
The consolidated financial statements of NCR have been carved out from the
financial statements of AT&T using the historical results of operations and
historical basis of the assets and liabilities of the businesses operated by
NCR. Additionally, the consolidated financial statements of the Company include
certain assets, liabilities, revenues and expenses that were not historically
recorded at the level of, but are primarily associated with, such businesses.
Management believes the assumptions underlying the Company's financial
statements are reasonable.
The financial information included herein, however, may not necessarily
reflect the results of operations, financial position and cash flows of NCR in
the future or the results of operations, financial position, and cash flows of
the Company had NCR operated as a separate, stand-alone entity during the
periods presented. This is due to the historical operation of the Company as
part of the larger AT&T enterprise. The financial information included herein
does not reflect any changes that may occur in the funding and operations of NCR
as a result of the Distribution.
The accompanying consolidated financial statements reflect AT&T's net
investment in NCR. Such investment represents capital contributions and
interest-bearing cash advances made by AT&T to NCR, net income (loss) of NCR,
and cost allocations from AT&T. NCR's financial requirements are primarily
provided through capital contributions and interest-bearing cash advances from
AT&T. The Company's historical
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<PAGE> 47
consolidated statements of operations include interest expense relating to such
interest-bearing cash advances, which were contributed to the Company by AT&T
and included in shareholder's net investment. General corporate overhead costs
related to AT&T's corporate headquarters and certain common support functions
were allocated to NCR to the extent such amounts were applicable to the Company
based on the ratio of the Company's external costs and expenses to AT&T's
external costs and expenses. Those allocations of AT&T's general corporate
overhead expense may not reflect NCR's actual general corporate overhead expense
as a separate entity. In addition, certain expenses incurred by the Company were
for services received from AT&T under direct contracting arrangements. Although
management believes the allocations and the charges for such services to be
reasonable, the costs of these services charged to the Company are not
necessarily indicative of the costs that would have been incurred if the Company
had been an independent entity and had otherwise contracted for or managed these
functions. Subsequent to the Distribution, the Company will be required to
manage these functions using its own resources or contract with third parties to
perform these services and, in addition, will be responsible for the costs and
expenses associated with the management of a public corporation. In addition,
income taxes were calculated as if the Company filed separate income tax
returns. However, AT&T's tax strategies are not necessarily reflective of the
tax strategies that the Company would have followed or will follow as a
stand-alone entity.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and revenues and expenses during the period reported. Actual results
could differ from those estimates. Estimates are used for allowances for
uncollectible accounts receivable, inventory obsolescence, product warranties,
asset depreciation and amortization, employee benefit plan amounts, income
taxes, restructuring charges, and environmental and other contingencies among
others. In addition, there are certain risks and uncertainties inherent in
operating the business, including the matters discussed below under "-- Results
of Operations -- Seasonality" and "-- Legal Proceedings and Environmental
Matters." Other areas where estimates and judgments are required are discussed
in Notes to Consolidated Financial Statements included elsewhere in this
Information Statement.
NCR has been funded principally by AT&T. See "Risk Factors -- Future
Capital Requirements; Absence of AT&T Funding." The Company anticipates that it
will put in place the Credit Facility to fund its domestic working capital
requirements. The consolidated financial statements do not include any debt
amounts relating to domestic working capital requirements since such operations
were historically funded through AT&T's contributions and advances which are
classified as part of its net investment. The outstanding debt at June 30, 1996
includes short-term debt which is used primarily to fund the working capital
needs of operations outside of the United States and long-term external debt,
including $75 million of medium term notes which NCR issued prior to its merger
with a subsidiary of AT&T in 1991. See "-- Financial Condition, Liquidity and
Capital Resources."
RESTRUCTURING
In 1993, a number of changes were implemented with the intent of
strengthening NCR's marketing function, increasing NCR's revenues, and improving
NCR's profitability. As part of these changes, a broader range of industries
(six as compared to two) was targeted, significant growth objectives were
established for the PC business, and a new marketing function and management
model was implemented.
These changes did not work as planned, and NCR was unsuccessful in meeting
its objectives in the targeted industries. NCR was able to increase PC revenue,
but due to margin pressure and cost structure, the PC business was not
profitable for NCR. In addition, the new management model did not produce the
desired accountability.
Lars Nyberg, NCR's Chief Executive Officer, began to implement a
restructuring plan in September 1995. This plan was based on five key
principles: focus, accountability, expense level reductions, process
improvements, and a sense of urgency. A key component of the recovery strategy
was to focus the Company on its areas of strength. Consequently, NCR decided to
reduce its focus from six industries to three (retail,
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<PAGE> 48
financial, and communications). With efforts targeted at these three industries,
greater attention was placed on NCR's Retail Products and Financial Products
businesses.
The Company's approach to the PC business was also changed. As part of the
restructuring, NCR decided to exit the PC manufacturing business and to
eliminate sales of PCs through high volume indirect channels. Instead, the
Company put in place an OEM arrangement to source a significantly reduced volume
of PCs, which would primarily be sold by NCR when required as part of a solution
in areas such as financial branch automation or retail point of sale systems.
In the computer business, the Company targeted its efforts at midrange to
large systems, specifically focusing on solutions such as Scalable Data
Warehousing and High Availability Transaction Processing that have applicability
across a number of industries.
NCR also implemented a revised business management model, under which
business units and geographic sales regions were given specific responsibilities
and accountabilities. Significant expense reductions were implemented, including
plans to separate approximately 8,500 employees and contractors. Additional
focus was placed on process improvements, and efforts were put in place to
ensure all employees understood the restructuring plan and were actively working
to execute the plan.
The total restructuring and other charges of $1,649 million for 1995 was
reflected in the consolidated statement of operations as $636 million of cost of
sales, $294 million of cost of services, $616 million of selling, general and
administrative expenses, and $103 million of research and development expenses.
These charges included $676 million for employee separation and other related
items, $549 million for asset write-downs, $147 million for closing, selling and
consolidating facilities, $227 million for contract settlements and related
charges, and $50 million for other items. Of the total charges, $145 million
represented cash payments in 1995, $311 million represented cash payments in the
first six months of 1996, and $507 million are expected to result in future cash
payments.
The Company expects to substantially complete its restructuring plan in
1996. The Company's policy is to assess the adequacy of its reserves and to make
adjustments to such reserves when events effecting these reserves occur or can
be reasonably estimated.
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<PAGE> 49
RESULTS OF OPERATIONS
GENERAL
The following table sets forth, for the periods indicated, the Company's
revenues (in millions) by product line. The Other product line includes
businesses sold and other items not directly associated with an individual
business unit.
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEARS ENDED
JUNE 30 DECEMBER 31
--------------------------- -------------------------------------------------
% INCREASE/ % INCREASE/ % INCREASE/
1996 DECREASE 1995 1995 DECREASE 1994 DECREASE 1993
------ ----------- ------ ------ ----------- ------ ----------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Retail Systems Group
Retail Products............ $ 195 2 $ 192 $ 424 -- $ 422 (12) $ 481
Financial Systems Group
Financial Products......... 441 (7) 473 1,026 (1) 1,037 7 972
Computer Systems Group
Computer Products.......... 602 37 440 1,078 (12) 1,219 (12) 1,392
Client/Entry Level Server
Products................. 271 (68) 845 1,724 5 1,649 62 1,020
Worldwide Services
Customer Support
Services................. 1,084 3 1,055 2,174 5 2,074 15 1,808
Professional Services...... 284 -- 285 638 10 578 33 435
Data Services.............. 64 (25) 85 167 (19) 206 (4) 214
Systemedia Group
Systemedia Products........ 272 (2) 277 577 4 553 14 486
Other........................ 52 (75) 208 354 (51) 723 58 457
----- --- ----- --- ----- ----- --- -----
Total...................... $3,265 (15) $3,860 $8,162 (4) $8,461 16 $7,265
===== === ===== === ===== ===== === =====
</TABLE>
The following table sets forth, for the periods indicated, the percentage
relationship to revenue of certain items in the Company's consolidated
statements of operations. The years ended 1995 and 1993, as adjusted, exclude
restructuring and other charges:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEARS ENDED
JUNE 30 DECEMBER 31
-------------- ------------------------------------------------------------------
1996 1995 1995 1995 1994 1993 1993
----- ----- ----- ----- ----- ----- -----
(AS ADJUSTED) (AS ADJUSTED)
<S> <C> <C> <C> <C> <C> <C> <C>
Sales revenue................ 55.5% 62.4% 63.0% 63.0% 65.3% 61.4% 61.4%
Services and rentals
revenue.................... 44.5 37.6 37.0 37.0 34.7 38.6 38.6
----- ----- ----- ----- ----- ----- -----
Total revenue.............. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== ===== ===== =====
Sales gross margin........... 28.3% 20.3% 20.9% 8.5% 32.4% 37.7% 37.3%
Services and rentals gross
margin..................... 24.6 24.0 23.2 13.5 26.5 30.3 27.1
----- ----- ----- ----- ----- ----- -----
Total gross margin......... 26.6 21.7 21.8 10.4 30.3 34.8 33.4
Selling, general and
administrative expenses.... 21.8 25.8 24.7 32.2 25.6 28.1 29.4
Research and development
expenses................... 5.6 6.0 5.9 7.2 5.9 7.6 7.9
----- ----- ----- ----- ----- ----- -----
Operating loss............. (0.8)% (10.1)% (8.8)% (29.0)% (1.2)% (0.9)% (3.9)%
===== ===== ===== ===== ===== ===== =====
</TABLE>
SEASONALITY
NCR's sales are historically seasonal, with revenue higher in the fourth
quarter of each year. Consequently, during the three quarters ending in March,
June, and September, NCR has historically experienced less favorable results
than in the quarter ending in December. Such seasonality also
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<PAGE> 50
causes NCR's working capital cash flow requirements to vary from quarter to
quarter depending on, among other things, the variability in the volume, timing
and mix of product sales. In addition, in many quarters, a large portion of
NCR's revenue is realized in the third month of the quarter. Operating expenses
are relatively fixed in the short term and often cannot be materially reduced in
a particular quarter if revenue falls below anticipated levels for such quarter.
As a result, even a relatively small revenue shortfall may cause a period's
results to be materially below expectations. See "Risk Factors -- Seasonality."
The following table sets forth the unaudited total revenues, gross margin
and operating income (loss) of NCR on a quarterly basis for each of the two
years ended December 31, 1995 and for each of the quarterly periods in the six
months ended June 30, 1996. The increase in fourth quarter revenues from third
quarter revenues in 1995 is not as pronounced as in 1994 due to the Company's
decision in September 1995 to discontinue selling PCs through high volume
indirect channels.
<TABLE>
<CAPTION>
SIX MONTHS
FIRST SECOND THIRD FOURTH ENDED
QUARTER QUARTER QUARTER (1) QUARTER (2)(3) JUNE 30
------- ------- ----------- -------------- -------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
1996
Total revenues........... $ 1,586 $ 1,679 $ 3,265
Gross margin............. 405 464 869
Operating income
(loss)................. (37) 11 (26)
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31
-------------
<S> <C> <C> <C> <C> <C>
1995
Total revenues........... $ 1,818 $ 2,042 $ 2,033 $2,269 $ 8,162
Gross margin............. 420 416 (508) 518 846
Operating income
(loss)................. (172) (218) (1,793) (188) (2,371)
1994
Total revenues........... $ 1,527 $ 2,011 $ 1,979 $2,944 $ 8,461
Gross margin............. 479 610 580 898 2,567
Operating income
(loss)................. (84) (12) (26) 20 (102)
</TABLE>
- ---------------
(1) The third quarter of 1995 includes restructuring and other charges of $1,597
(See Note 5 of Notes to Consolidated Financial Statements).
(2) The fourth quarter of 1995 includes restructuring and other charges of $52
(See Note 5 of Notes to Consolidated Financial Statements).
(3) The fourth quarter of 1994 includes revenue of $223 which represents an
additional month of international sales revenues, resulting from the change
to conform international and domestic reporting periods; the effect on
operating income was not significant.
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995
Reported revenues in all geographic regions declined from the prior period
by $595 million, or 15%. An overall weakening of foreign currencies against the
U.S. dollar (particularly the Japanese yen) unfavorably impacted this year to
year change. Adjusting for the year to year changes in foreign currency exchange
rates, reported revenues declined by 12%.
A key component of the Company's restructuring was to reduce its focus on
the PC business and concentrate on a core set of businesses. As a result of this
decision, PC revenues (which are included as a part of the Client/Entry Level
Server Product line) declined significantly. When Client/Entry Level Server
Products and businesses sold are excluded from both periods, revenues in the
remaining core set of businesses grew by 1%. Adjusting for the year to year
changes in foreign currency exchange rates, these core revenues grew by 4%.
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<PAGE> 51
Revenues from Retail Products were $195 million, an increase of $3 million
or 2% in 1996 compared with the 1995 period. Revenues from retail scanner
products drove the growth in revenues. Most of this growth was derived from
sales to customers in the United States.
Revenues from Financial Products were $441 million, a decrease of $32
million or 7% in 1996 compared with the 1995 period, primarily due to sales
declines in ATMs principally in the Europe/Middle East/Africa geographic region
due to general softness in the European banking and financial services markets.
Revenues from Computer Products were $602 million, an increase of $162
million or 37% in 1996 compared with the 1995 period. Revenues from WorldMark
enterprise servers drove the sales volume growth. All geographic regions
reported double digit growth in year-to-year comparisons as the Company
continues to achieve success in its plans to focus on opportunities for high-end
computer systems for Scalable Data Warehousing and High Availability Transaction
Processing.
Revenues from Client/Entry Level Server Products were $271 million, a
decrease of $574 million or 68% in 1996 compared with the 1995 period primarily
due to the Company's decision to exit the manufacturing of PCs and their sale
through high volume indirect channels. The Company plans to continue to offer
its customers Client/Entry Level Server Products sourced from third parties
primarily as part of overall solution sales.
Revenues from the services businesses were basically flat year to year.
Growth in revenues from Customer Support Services of 3% primarily due to new
service offerings for enterprise system support servers, managed self-service
financial solutions, and technology services plus continued expansion of
multivendor services was offset by a decline of 25% in Data Services due to the
Company's sale of its Data Services business in Switzerland at the beginning of
1996. Revenues from Professional Services of $284 million were basically flat
compared with the same period in 1995.
Sales of Systemedia Products of $272 million decreased $5 million or 2% in
1996 compared with the 1995 period. The decrease was principally attributable to
the unfavorable impact of the strengthening of the U.S. dollar as sales to
customers on a local currency basis worldwide were basically flat.
Gross margin as a percentage of revenue increased 4.9 percentage points
from 21.7% in 1995 to 26.6% in 1996. Excluding Client/Entry Level Server
Products, gross margin as a percentage of revenue increased 3.7 percentage
points. The overall gross margin improvement consisted of an 8.0 percentage
point improvement in sales gross margin and a 0.6 percentage point improvement
in services and rentals gross margin. The increase in sales gross margin
reflects a change in product mix as Client/Entry Level Server Products have
historically lower margins than other products offered by the Company, and
improved margins in Retail Products, Financial Products, and Computer Products
resulting from product cost reductions. Gross margins on all categories of
services revenue improved in 1996.
Selling, general and administrative expenses of $711 million decreased $284
million, or 29%, and declined by 4.0 percentage points of revenue. This decrease
was primarily attributable to the Company's business restructuring to focus on
industry solutions for the retail, financial, and communications industries, and
from its exit from the sale of PCs through high volume indirect channels. In
addition, the amount of general corporate overhead costs allocated to the
Company by AT&T decreased approximately $39 million from the corresponding
period in 1995. This decrease was due to several factors, including that NCR
began to manage certain additional corporate and administrative functions in
1996 which were previously provided substantially by AT&T, including corporate
public relations activities, certain human resource functions, financial systems
architecture and brand advertising, among others and a general reduction in AT&T
general corporate overhead costs due to its restructuring. The Company expects
to increase funding for expansion into emerging geographic markets.
Research and development expenses of $184 million decreased $47 million, or
20%, and declined by 0.4 percentage points of revenue. This decrease was
primarily attributable to the Company's exit from the PC manufacturing business
and the sale of its Microelectronics components business, as well as from
consolidation and elimination of redundant engineering activities and from a
refocusing of research and development
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<PAGE> 52
efforts on specific targeted industries using common platforms and technologies.
The Company plans to continue to invest in research and development at levels
that are consistent with its business strategies, taking into account
assessments of the levels of investment into new technologies and markets being
made by competitors throughout the industries in which the Company competes.
Further, the Company believes that a continued commitment to research and
development is required to remain competitive.
Other income, net decreased $75 million primarily due to the gain on sale
of the Company's Microelectronic components business in the prior period.
The provision for income taxes of $34 million increased $3 million. The
fluctuation in the Company's tax provision between years results from a normal
provision for income taxes in those foreign tax jurisdictions where the
Company's subsidiaries are profitable, and an inability on a stand-alone basis
to reflect tax benefits from net operating losses and tax credits in the United
States.
AT&T has been able to utilize substantially all of the United States tax
benefits generated by NCR through the inclusion of the Company in AT&T's
consolidated tax returns. In accordance with existing tax allocation agreements,
AT&T has reimbursed the Company for such losses utilized. The reimbursements
have been reflected as contributions to the Company's capital and recorded in
shareholder's net investment.
The 1996 first half net loss decreased to $83 million, an improvement of
$306 million from the $389 million loss in 1995 primarily due to the factors set
forth above. NCR expects future profit improvements to come primarily from
revenue growth and continued improvements in product and service margins instead
of additional expense reductions.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Reported revenues declined from the prior year by 4%, or $299 million. An
overall strengthening of foreign currencies against the U.S. dollar has slightly
mitigated the decline. Adjusting for the year to year changes in foreign
currency exchange rates, revenues declined by 5%.
In the fourth quarter of 1994, the Company elected to change the fiscal
year end of its international organizations from November 30 to December 31, in
order to align the international organizations with the United States fiscal
calendar. This change resulted in an additional month of international revenues
being included in the 1994 results, in the amount of $223 million. Adjusting for
this extra month of results in 1994, reported revenues in 1995 declined by 1%.
In addition, there was a significant negative impact on growth rates resulting
from the sale of the Microelectronics components business in the first quarter
of 1995, which is included in Other in the above table. When these revenues are
removed from both periods, the 4% decline in revenue in 1995 results in a 3%
increase.
Revenues from Retail Products were $424 million in 1995 which were
basically flat compared with 1994. Increased revenues from retail barcode
scanner products to customers in the Europe/Middle East/Africa and Asia/Pacific
geographic regions offset a decline in the United States.
Revenues from Financial Products were $1,026 million in 1995 which were
basically flat compared with 1994. Declines in ATMs revenues principally in the
United States were offset by increases in sales to customers in international
geographic regions.
Revenues from Computer Products were $1,078 million, a decrease of $141
million or 12% in 1995 compared with 1994. The decrease in revenue was primarily
attributable to a decline in large server revenues in the United States
resulting from a delay in transitioning customers from the 3600 product family
to the new WorldMark product family.
Revenues from Client/Entry Level Server Products were $1,724 million, an
increase of $75 million or 5% in 1995 compared with 1994. This growth rate was
significantly below the prior year as a result of the implementation of the
September 1995 decision to phase out of the sales of these products through high
volume indirect channels.
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<PAGE> 53
Revenues from the services businesses grew 4% year to year. This growth was
driven by the 10% increase in Professional Services revenues primarily due to
new service offerings, including information technology consulting, networking,
scalable data warehousing, and project management. Prior to 1995, Professional
Services offerings were focused more intensively on software implementation and
support, while in 1995 the focus shifted to information technology consulting
services. Customer Support Services growth of 5% also contributed to the revenue
increase. This growth was primarily due to increased focus on non-traditional
hardware maintenance services including multivendor services, implementation and
installation services, software services, and parts and cabling. These increases
were partially offset by a decline in Data Services revenues principally due to
a shrinking customer base for these offerings.
Sales of Systemedia Products of $577 million increased $24 million or 4% in
1995 compared with 1994 primarily attributable to increases in sales of custom
paper rolls in markets outside of the United States and in stock and fax paper
products and thermal transfer ribbons in the United States.
Gross margin as a percentage of revenue declined 19.9 percentage points
from 30.3% in 1994 to 10.4% in 1995. Business restructuring and other charges
accounted for over half of the reduction or a total of 11.4 points of revenue.
Excluding restructuring and other charges, both sales gross margins and services
and rentals gross margins declined. The reduction in sales gross margins
resulted from a higher mix of Client/Entry Level Server Products which
historically carry lower gross margins than other products offered by the
Company. These lower gross margins are due to competitive pricing pressures and
price erosion in excess of cost reductions. Services gross margins declined
primarily due to required utilization of higher cost external contractors to
assist in the delivery of new service offerings.
Selling, general and administrative expenses of $2,632 million increased
$463 million, or 21% in 1995 compared with 1994. This increase was due to $616
million in business restructuring and other charges principally to realign the
Company's cost structure and to exit certain businesses. Selling, general and
administrative expenses were 32.2% of revenues in 1995, an increase from 25.6%
of revenues in 1994, reflecting the restructuring and other charges. Excluding
the charges, selling, general and administrative expenses were 24.7% of revenues
in 1995. This reflects reduced selling expenses due to the reduction of expenses
from the sales of the Microelectronics components business in 1995, the sale of
the ADDS terminal business during 1994, and the benefits realized in the fourth
quarter of 1995 from the Company's restructuring plans.
Research and development expenses of $585 million increased $85 million, or
17% in 1995 compared with 1994. This increase was due to business restructuring
and other charges of $103 million. Excluding the charges, research and
development expenses decreased $18 million and represented 5.9% of revenues in
both years. This decrease in spending was primarily attributable to the sale of
the Microelectronics components and ADDS terminal businesses which more than
offset the increase in research and development for Computer Products and the
services offerings.
Other income, net decreased $85 million as the 1994 results included gains
on sale of real estate, principally in Hong Kong and Tokyo.
The income tax benefit of $136 million in 1995 reflects a $323 million
decrease from the $187 million expense in 1994. The benefit of $136 million was
primarily attributable to foreign operating losses largely resulting from the
1995 restructuring charges incurred in those foreign subsidiaries that have been
historically profitable, and an inability on a stand-alone basis to reflect tax
benefits from net operating losses and tax credits in the United States. See
Note 6 of Notes to Consolidated Financial Statements included elsewhere herein.
AT&T has been able to utilize substantially all of the United States tax
benefits generated by NCR through the inclusion of the Company in AT&T's
consolidated tax returns. In accordance with existing tax allocation agreements,
AT&T has reimbursed the Company for such utilized losses. The reimbursements
have been reflected as contributions to the Company's capital and recorded in
shareholder's net investment.
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<PAGE> 54
For 1995, the Company had a net loss of $2,280 million, reflecting $1,415
million of restructuring and other charges after tax ($1,649 pre-tax
restructuring and other charges). Excluding the charges, the net loss was $865
million, an increased loss of $662 million compared to 1994.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
Reported revenues increased from the prior year by 16%, or $1,196 million.
The net effect of the movement of foreign currencies against the U.S. dollar had
no material impact to this growth rate. When adjusted for the extra month of
international revenue in the fourth quarter of 1994, the growth rate from 1993
was 13%, or $973 million.
Revenues from Retail Products were $422 million, a decrease of $59 million
or 12% in 1994 compared with 1993. Most of this decrease resulted from a
reduction in sales to customers in the United States.
Revenues from Financial Products were $1,037 million, an increase of $65
million or 7% in 1994 compared with 1993, due mostly to higher demand for ATMs
primarily in the United States.
Revenues from Computer Products were $1,219 million, a decrease of $173
million or 12% in 1994 compared with 1993. The decrease was primarily
attributable to a decline in midrange servers revenues.
Revenues from Client/Entry Level Server Products were $1,649 million, an
increase of $629 million or 62% in 1994 compared with 1993 primarily due to the
increased focus being placed on growing this business.
Revenues from the services businesses grew 16% year to year. This growth
was driven by double digit gains in both Professional Services and Customer
Support Services revenues primarily due to increases in consulting services,
multivendor services, implementation and installation services, and software
services revenues. These increases were partially offset by a decline in Data
Services revenue principally due to a shrinking customer base for these
products.
Sales of Systemedia Products of $553 million increased $67 million or 14%
in 1994 compared with 1993 primarily attributable to increases in sales of
business forms and supplies outside the United States.
Gross margin as a percentage of revenue declined 3.1 percentage points from
33.4% in 1993 to 30.3% in 1994. After excluding the impact of restructuring
charges, the decline in gross margin was 4.5 percentage points. The reduction in
sales gross margins resulted primarily from a higher mix of lower margin
Client/Entry Level Server Products and a lower percentage mix of midrange and
large servers. Services gross margins declined primarily due to competitive
pricing pressures on maintenance support services.
Selling, general and administrative expenses of $2,169 million increased
$33 million or 2% but declined by 3.8 percentage points of revenue. Excluding
the impact of $95 million of business restructuring charges in 1993, selling,
general and administrative expenses increased $128 million or 6%. This increase
was primarily attributable to higher marketing expenses associated with the
expanded marketing organization focusing on a broader range of targeted
industries.
Research and development expenses of $500 million decreased $71 million or
12% and declined by 2.0 percentage points of revenue. Excluding the impact of
$19 million of business restructuring charges in 1993, research and development
expenses decreased $52 million or 9%. This decrease was primarily attributable
to a reduction in research and development for Computer Products.
Other income, net increased $88 million primarily due to the 1994 gains on
the sale of real estate, mainly in Hong Kong and Tokyo.
The provision for income taxes of $187 million increased $49 million. The
fluctuation in the Company's tax provision between years results from a normal
provision for income taxes in those foreign tax jurisdictions where the
Company's subsidiaries are profitable, and an inability on a stand-alone basis
to reflect tax benefits from net operating losses and tax credits in the United
States. See Note 6 of Notes to Consolidated Financial Statements included
elsewhere herein.
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AT&T has been able to utilize substantially all of the United States tax
benefits generated by NCR through the inclusion of the Company in AT&T's
consolidated tax returns. In accordance with existing tax allocation agreements,
AT&T has reimbursed the Company for such utilized losses. The reimbursements
have been reflected as contributions to the Company's capital and recorded in
shareholder's net investment.
The adoption of Statement of Financial Accounting Standards ("SFAS") No.
106, "Employers' Accounting for Postretirement Benefits Other Than Pensions,"
SFAS No. 112, "Employers' Accounting for Postretirement Benefits,"and SFAS No.
109, "Accounting for Income Taxes," effective January 1, 1993, resulted in an
after-tax charge of $869 million in 1993, representing the cumulative effect of
these accounting changes.
SFAS No. 106 requires accrual of estimated future retiree benefits, other
than pensions, during the years in which employees are working and accumulating
these benefits. Previously, health care benefits were expensed as claims were
incurred and life insurance benefits were expensed as plans were funded. A
one-time after-tax charge for these liabilities of $220 million was recorded in
1993 as a cumulative effect of accounting change upon adoption of this standard.
SFAS No. 112 requires the Company to accrue for estimated future
postemployment benefits, including separation and related payments, during the
years in which employees are working and accumulating these benefits, and for
disability payments when the disabilities occur. Previously, costs for
separations were recognized when approved and disability benefits were
recognized when paid. The Company recognized a $306 million after-tax charge
upon adoption of this standard.
SFAS No. 109 requires, among other provisions, the computation of deferred
tax amounts arising from temporary differences using the enacted jurisdictional
corporate income tax rates for the years in which the taxes will be paid or
refunds received. A cumulative effect of the accounting change results in a
one-time charge of $343 million which was recognized in 1993 related to adopting
this standard.
The reported net loss decreased to $203 million, an improvement of $1,084
million from the $1,287 million loss in 1993. Excluding the cumulative effect of
accounting changes in 1993, net loss in 1994 was $215 million less than in 1993.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
NCR's cash, cash equivalents, and short-term investments totaled $825
million at June 30, 1996 compared with $338 million at December 31, 1995 and
$661 million at December 31, 1994.
NCR used cash flows from operations of $824 million and $613 million during
the years ended 1995 and 1994, respectively, and generated cash flows from
operations of $42 million during the year ended December 31, 1993. The $824
million of cash flows used in operations in 1995 was due principally to the net
loss in 1995 and $171 million of cash payments relating to restructuring. The
inventory decrease from $952 million at December 31, 1994 to $621 million at
December 31, 1995 was primarily due to $417 million of inventory write downs
relating to the third quarter restructuring in 1995. Other current liabilities
increased from $640 million at year-end 1994 to $1,532 million at December 31,
1995 primarily due to restructuring liabilities of $820 million payable during
1996. The $613 million of cash flows used in operations in 1994 was due in large
part to increases in receivable and inventory balances driven by increased
demand for Client/Entry Level Server Products. Receivables increased $572
million from $1,288 million at December 31, 1993 to $1,860 million at December
31, 1994. Inventories totaled $952 million at December 31, 1994, an increase of
$171 million compared with December 31, 1993. The $42 million of cash flows
generated from operations in 1993 was due to cash generation from results of
operations, after adding back the non-cash impact of the cumulative accounting
changes of $1,171 million. Inventory balances increased $161 million from
December 31, 1992 to December 31, 1993. Other current liabilities increased $279
million, from $576 million at December 31, 1992 to $855 million at December 31,
1993, primarily due to the current restructuring liabilities incurred in 1993.
For the six month period ended June 30, 1996, NCR generated cash flows from
operations of $276 million. For the six month period ended June 30, 1995, NCR
used cash flows from operations of $381 million.
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<PAGE> 56
This improvement of $657 million was primarily due to a significant decline in
accounts receivable offset by cash payments for restructuring of $311 million.
Receivable balances decreased $569 million from June 30, 1995 to June 30, 1996
due to lower revenues associated with the Company's decision to no longer sell
PCs through high volume indirect channels and a reduction in receivable balances
due to the sale of the Switzerland Data Services business. Inventory balances
decreased $511 million from $1,072 million at June 30, 1995 to $561 million at
June 30, 1996 due to reduced inventories as a result of exiting the PC
manufacturing business and overall improved supply line management. Other
current liabilities were $373 million higher at June 30, 1996 than at June 30,
1995 primarily as a result of the 1996 restructuring liabilities that had not
yet been paid.
Cash flows used in investing activities were $11 million, $477 million and
$426 million in 1995, 1994 and 1993, respectively. The $11 million of net
investing activities in 1995 included proceeds of $338 million from the sale of
the Microelectronics components business. The $477 million of net investing
activities in 1994 included proceeds of $260 million from real estate sales in
Tokyo and Hong Kong and the sale of various non-core businesses, principally
ADDS. Capital expenditures, the largest component of investing activities, were
$498 million, $624 million and $596 million for the years ended 1995, 1994, and
1993, respectively. Capital expenditures generally relate to expenditures for
equipment and facilities used in manufacturing and research and development,
including expansion of manufacturing capacity, and expenditures for cost
reduction efforts and international growth.
For the six month period ended June 30, 1996, NCR used cash flows from
investing activities of $157 million. For the six month period ended June 30,
1995, NCR generated $167 million from investing activities. This change of $324
million was primarily due to the proceeds collected in 1995 from the sale of the
Microelectronics components business.
Net cash provided by financing activities was $696 million, $1,330 million,
and $320 million for the years ended 1995, 1994, and 1993, respectively. The
Company historically has relied on AT&T to provide financing for its operations.
The cash flows reflected as transfers from AT&T in the consolidated statements
of cash flows represent capital infusions that were used to fund the ongoing
operations and have been recorded in the consolidated financial statements as an
adjustment to shareholder's net investment. These cash flows are not necessarily
indicative of the cash flows that would have resulted if the Company was a
stand-alone entity. Net cash transfers from AT&T were $1,034 million, $770
million, and $425 million in 1995, 1994 and 1993, respectively. In addition,
$537 million of third-party debt was issued in 1994, of which $312 million was
repaid in 1995 and the remainder was assumed by AT&T in 1996 and is included in
shareholder's net investment.
For the six month period ended June 30, NCR generated cash flow from
financing activities of $358 million and $312 million in 1996 and 1995,
respectively. Cash flows generated were a result of transfers from AT&T and a
repayment of long-term debt of $231 million in the first six months of 1996.
The Company leases land, buildings and equipment through long-term lease
contracts that expire in various years. Rental expense under operating leases
was $96 million in 1995, $81 million in 1994 and $109 million in 1993. Future
minimum lease payments due under noncancelable operating leases at December 31,
1995 total $265 million. The Company expects to fund such commitments through
its working capital and funds generated from operations.
The Company operates in various markets, including international and
domestic locations. The most significant of the international operations of the
Company include France, Germany, Japan, Switzerland, and the United Kingdom.
Given that international transactions in these markets are customarily
denominated in the respective countries' currencies, the Company is subject to
foreign currency risk and other risks associated with foreign operations such as
the risks relating to foreign economic and political conditions, the potential
for restrictive actions by foreign governments, and risks relating to
repatriation of funds from non-U.S. subsidiaries. The Company uses foreign
exchange contracts to manage its exposures to changes in currency exchange
rates. The use of foreign exchange contracts allows NCR to reduce its exposures
to the risk that the ultimate net cash inflows and outflows will be adversely
affected by changes in currency exchange rates.
In the normal course of business the Company uses various financial
instruments, including derivative financial instruments, for purposes other than
trading. The Company does not use derivative financial
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instruments for speculative purposes. In addition to foreign currency exchange
contracts, these instruments include letters of credit and guarantees of debt.
By their nature all such instruments involve risk including the credit risk
of nonperformance by counterparties, and the Company's maximum potential loss
may exceed the amount recognized in the Company's balance sheet. However, as of
June 30, 1996 and December 31, 1995, in management's opinion, there was no
significant risk of loss in the event of nonperformance of the counterparties to
these financial instruments. The Company controls its exposure to credit risk
through credit approvals, credit limits, and monitoring procedures. There were
no past due amounts related to the Company's outstanding derivative contracts at
December 31, 1995, nor have there been any charge-offs during the three years
ended December 31, 1995. The Company does not have any significant exposure to
any individual customer or counterparty nor any major concentration of credit
risk related to any financial instruments.
For the reasons described under "-- Results of Operations -- Seasonality,"
the Company's working capital requirements and cash flows provided by operating
activities can vary greatly from quarter to quarter, depending on the volume of
production, the timing of deliveries, and the payment terms offered to
customers.
The Company estimates that the cash expenditures necessary after December
31, 1995 to implement the restructuring programs will be $818 million, including
$507 million after June 30, 1996. Such expenditures in 1996 are expected to be
funded through cash flows generated from operations, working capital
improvements and through capital contributions provided by AT&T.
In order to meet its working capital needs, the Company anticipates that it
will enter into the unsecured revolving Credit Facility with a syndicate of
commercial banks and financial institutions. The Credit Facility is expected to
provide that the Company may borrow from time to time on a revolving credit
basis an aggregate principal amount of up to $600 million, subject to the terms
and conditions thereof. The Company expects to be able to use the available
funds at any time for capital expenditure needs, repayment of existing debt
obligations, working capital, and general corporate purposes. The Company
expects the Credit Facility will initially mature within five years from the
date of closing and contain certain representations and warranties, conditions,
affirmative, negative and financial covenants, and events of default customary
for such facilities. Interest rates charged on borrowings outstanding under the
Credit Facility are expected to be primarily based on market rates which can
vary over time. In addition, a portion of the Credit Facility is expected to be
available for the issuance of letters of credit as required by the Company.
Historically, the Company's working capital and cash flow requirements have
been substantial. The aggregate net cash provided by financing activities as
reflected in the accompanying statements of cash flows, principally provided
through net cash contributions from AT&T, was $2,824 million from January 1,
1993 through June 30, 1996. After the Distribution, AT&T will no longer provide
such funds to NCR. See "Risk Factors -- Future Capital Requirements; Absence of
AT&T Funding." However, it is expected that, pursuant to the NCR Distribution
Agreement, AT&T will (i) make additional contributions of capital to NCR prior
to the Distribution Date and (ii) contribute intercompany advances outstanding
from AT&T to NCR as of June 30, 1996. The consolidated financial statements
included elsewhere herein reflect these advances in shareholder's equity as
having been contributed. The additional capital contributions are expected to
consist of $419 million in cash and the contribution of additional cash in an
amount sufficient to retire or defease a total of $68 million of NCR debt
(including payment of related expenses). A portion of the $419 million in cash
may be provided by means of additional intercompany advances from AT&T to NCR
after June 30, 1996 that will be contributed at the Distribution Date. See
"Capitalization."
NCR believes that cash flows from operations, availability under the Credit
Facility and other short and long-term debt financings, if any, will be
sufficient to satisfy its future working capital, capital expenditure, research
and development, and other financing requirements. However, NCR does not expect
to be able to obtain financing with interest rates or terms as favorable as
those historically experienced by AT&T, with the result that its cost of capital
will likely be higher than that reflected in NCR's historical financial
statements. NCR will also likely be subject to financial, operating, and other
covenants restricting its operations, although historically, as a wholly owned
subsidiary of AT&T, it has not been subject to any such restrictive covenants.
The Company further believes that it will be able to access capital markets on
terms and in amounts that will
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be satisfactory to it, although there can be no assurance that will be the case.
The Company believes that it will be able to obtain bid and performance bonds,
to arrange or provide customer financing as necessary, and to engage in hedging
transactions on commercially acceptable terms.
The Company believes that the business restructuring and turnaround
strategy implemented in 1995 has significantly contributed to its improved
results during the first six months of 1996. The loss from operations has
decreased from $390 million in the first half of 1995 to $26 million in the
first half of 1996. Selling, general and administrative expenses have declined
$284 million, gross margins have improved by 4.9 percentage points, and
headcount, consisting of both employees and contractors, was reduced by
approximately 8,100. The strategy to focus the Company on its core areas of
strength, implement a revised business management model, and initiate several
key business process improvements has resulted in, among other things,
significant expense level reductions and improvements in working capital
management. This in turn has caused significant improvement in the Company's
reported results of operations and increases in cash flows from operations, as
evidenced by the change from net cash used in operating activities of $381
million in the first half of 1995 compared to net cash provided by operating
activities of $276 million in the same period of 1996. The Company believes
these strategic initiatives will continue to favorably impact operating results
and cash flows, and does not foresee at this time a need to initiate additional
business restructurings.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
IMPAIRMENT OF LONG-LIVED ASSETS
Effective October 1, 1995, NCR adopted SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of."
This standard requires that long-lived assets and certain identifiable
intangibles held and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. The adoption of the standard did not materially impact
NCR's consolidated results of operations, financial condition or cash flows
because this was essentially the method NCR used in the past to measure and
record asset impairments.
STOCK-BASED COMPENSATION
In its Consolidated Financial Statements for the year ending December 31,
1996, NCR is required to adopt SFAS No. 123, "Accounting for Stock-Based
Compensation." This standard establishes a fair value method of accounting for,
or disclosing, stock-based compensation plans. NCR intends to adopt the
disclosure provisions of this standard which require disclosing the pro forma
consolidated net income and earnings per share amounts assuming the fair value
method was effective on January 1, 1995. The adoption of the disclosure
provisions will not affect consolidated financial condition, results of
operations, or cash flows.
PRODUCTS AND TECHNOLOGY
The markets for many of NCR's products are characterized by rapidly
changing technology, evolving industry standards, and frequent new product
introductions. Shortening product life cycles in the information technology
industry pose a challenge for the effective management of the transition from
existing products to new products. The transition to new products can also
result in inventories of old or obsolete products and components.
NCR uses many standard parts and components in its products and believes
there are a number of competent vendors for most parts and components. However,
a number of important components are developed by and purchased from single
sources due to price, quality, technology or other considerations. In some
cases, those components are available only from single sources. In order to
secure components for production and introduction of new products, NCR may make
advance payments to certain suppliers and may enter into noncancelable purchase
commitments with vendors with respect to the purchase of components. See "Risk
Factors -- Reliance on Suppliers and Partners."
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LEGAL PROCEEDINGS AND ENVIRONMENTAL MATTERS
In the normal course of business, NCR is subject to regulations,
proceedings, lawsuits, claims, and other matters, including actions under laws
and regulations related to the environment, health and safety, among others.
Such matters are subject to the resolution of many uncertainties, and
accordingly, outcomes are not predictable with assurance. Although NCR believes
that amounts provided in its financial statements are currently adequate in
light of the probable and estimable liabilities, there can be no assurances that
the amounts required to discharge alleged liabilities from lawsuits, claims and
other legal proceedings and environmental matters, and to comply with applicable
environmental laws, will not exceed the amounts reflected in NCR's financial
statements or will not have a material adverse effect on the Company's
consolidated financial condition, results of operations or cash flows. Any
amounts of costs that may be incurred in excess of those amounts provided as of
June 30, 1996 cannot be determined.
Among the lawsuits and claims pending against NCR as of December 31, 1995
and June 30, 1996, there were approximately 100 individual product liability
claims alleging that the Company's products, including PCs, supermarket barcode
scanners, cash registers and check encoders, caused so-called "repetitive strain
injuries" or "cumulative trauma disorders," such as carpal tunnel syndrome. In
such lawsuits, the plaintiff typically alleges that he or she suffers from
injuries caused by the design of the product at issue or a failure to warn of
alleged hazards. These plaintiffs seek compensatory damages and, in many cases,
punitive damages. Most other manufacturers of these products have also been sued
by plaintiffs on similar theories. Ultimate resolution of the litigation against
the Company may substantially depend on the outcome of similar matters of this
type pending in various state and federal courts. The Company has denied the
merits and basis for the pending claims against it and intends to continue to
contest these cases vigorously.
NCR's facilities and operations are subject to a wide range of
environmental protection laws in the United States and other countries related
to solid and hazardous waste disposal, the control of air emissions and water
discharges, and the mitigation of impacts to the environment from past
operations and practices. NCR has investigatory and remedial activities,
including characterization and cleanup actions, underway at a number of
currently and formerly owned or operated facilities to comply, or to determine
compliance, with applicable environmental protection laws. NCR has been
identified, either by a governmental agency or by a private party seeking
contribution to site cleanup costs, as a PRP at a number of sites pursuant to a
variety of statutory schemes, both state and federal, including the FWPCA and
comparable state statutes, and CERCLA, and comparable state statutes.
In February 1996, NCR received notice from the USF&WS that it considers NCR
a PRP under the FWPCA and CERCLA with respect to alleged natural resource
restoration and damages to the Fox River System due to, among other things,
sediment contamination in the Fox River System allegedly resulting from
liability arising out of NCR's former carbonless paper manufacturing operations
at Appleton and Combined Locks, Wisconsin. USF&WS has also notified a number of
other manufacturing companies of their status as PRPs under the FWPCA and CERCLA
for natural resource restoration and damages in the Fox River System resulting
from their ongoing or former paper manufacturing operations in the Fox River
Valley. USF&WS and two Indian Tribes have stated their intention to conduct a
Natural Resource Damage Assessment to determine and quantify the nature and
extent of alleged injury to natural resources. In addition, NCR has been
identified, along with a number of other companies, by the WDNR with respect to
alleged liability arising out of alleged past discharges that have contaminated
sediments in the Fox River System. NCR is also actively pursuing discussions
with the WDNR regarding the Company's alleged liability. NCR's share, if any, of
such cleanup costs or natural resource restoration and damages liability cannot
be predicted with certainty at this time due to (i) the unknown magnitude,
scope, and source of any alleged contamination, (ii) the absence of identified
remedial objectives and methods, and (iii) the uncertainty of the amount and
scope of any alleged natural resource restoration and damages. At this point,
NCR believes that there are additional PRPs who may be liable for such natural
resource damages and remediation costs. Further, in 1978, NCR sold the business
to which the claims apply and believes the claims described above are the
responsibility of the buyer and its former parent company pursuant to the terms
of the sales agreement. In this connection, the Company has commenced litigation
against the buyer to enforce its position.
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It is difficult to estimate the future financial impact of environmental
laws, including potential liabilities. NCR accrues environmental provisions when
it is probable that a liability has been incurred and the amount of the
liability is reasonably estimable. Management expects that the amounts provided
as of December 31, 1995 and June 30, 1996 will be paid out over the period of
investigation, negotiation, remediation, and restoration for the applicable
sites, which may be 30 years or more. Provisions for estimated losses from
environmental remediation are, depending on the site, based primarily on
internal and third-party environmental studies, estimates as to the number, and
participation level of any other PRPs, the extent of the contamination, and the
nature of required remedial and restoration actions. Accruals are adjusted as
further information develops or circumstances change. The amounts provided for
environmental matters in NCR's consolidated financial statements are the
estimated gross undiscounted amount of such liabilities, without deductions for
insurance or third-party indemnity claims. In those cases where insurance
carriers or third-party indemnitors have agreed to pay any amounts and
management believes that collectibility of such amounts is probable, the amounts
are reflected as receivables in the consolidated financial statements.
FORWARD LOOKING STATEMENTS
Management's Discussion and Analysis of Financial Condition and Results of
Operations contains information regarding management's planned revenue growth
and expenditure levels, its financing plans, and plans for information
technology development. These statements are forward looking statements that
involve a number of risks and uncertainties. The following is a list of factors,
among others, that could cause actual results to differ materially from the
forward looking statements: business conditions and growth in certain market
segments and industries; and the general economy; competitive factors including
increased competition and price pressures; availability of third party component
products at reasonable prices; technological obsolescence; foreign currency
exposure; financial condition of business partners; changes in product mix
between and among product lines; lower than expected customer orders and
quarterly seasonal fluctuation of those orders; and product shipment
interruptions. See "Risk Factors."
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF NCR
Set forth below is certain information concerning the directors and
executive officers of NCR. Of the current directors, only Mr. Nyberg will
continue to serve as a director after the Distribution. In addition to Mr.
Nyberg, NCR's new board is expected to consist of directors, who are not
officers or employees of NCR. NCR's Board of Directors is divided into three
classes. Commencing with the annual meeting of stockholders to be held in 1997,
directors for each class will be elected at the annual meeting of stockholders
held in the year in which the term for such class expires and will serve
thereafter for three years. See "Certain Antitakeover Effects -- Board of
Directors."
<TABLE>
<CAPTION>
NAME AGE POSITION AND OFFICES HELD
- ----------------------------------- --- --------------------------------------------
<S> <C> <C>
Lars Nyberg........................ 45 Chairman of the Board, Chief Executive
Officer and President
Raymond G. Carlin.................. 41 Senior Vice President, Americas Region
Robert R. Carpenter................ 41 Senior Vice President, Worldwide Customer
Support Services
Robert A. Davis.................... 46 Senior Vice President and Chief Quality
Officer
William J. Eisenman................ 50 Senior Vice President, Computer Systems
Group
Daniel J. Enneking................. 49 Senior Vice President, Systemedia Group
Richard H. Evans................... 50 Senior Vice President, Global Human
Resources and Chief Strategy Officer
Anthony Fano....................... 53 Senior Vice President, Retail Systems Group
John L. Giering.................... 52 Senior Vice President and Chief Financial
Officer, and a Director
Jonathan S. Hoak................... 47 Senior Vice President and General Counsel,
and a Director
Per-Olof Loof...................... 46 Senior Vice President, Financial Systems
Group
Alice H. Lusk...................... 48 Senior Vice President, Worldwide
Professional Services and Information
Systems Operations
Dennis Roberson.................... 47 Senior Vice President and Chief Technical
Officer
Jose Luis Solla.................... 48 Senior Vice President, Europe/Middle
East/Africa Region
Hideaki Takahashi.................. 48 Senior Vice President, Asia/Pacific Region
Michael P. Tarpey.................. 51 Senior Vice President, Public Relations
</TABLE>
Lars Nyberg. Mr. Nyberg was named Chairman of the Board, Chief Executive
Officer and President of NCR effective June 1, 1995. From June 1995 to December
1995, Mr. Nyberg also served as Executive Vice President, AT&T. From 1993 to
1995, Mr. Nyberg held the position of Chairman and Chief Executive Officer of
the Communication Division of Philips Electronics NV ("Philips"), an electronics
and electrical products company. At that time, Mr. Nyberg was a member of the
Philips Group Management Committee. In 1992, Mr. Nyberg was appointed Managing
Director, Philips Consumer Electronics Division. From 1990 to 1992, he was the
Chairman and Chief Executive Officer of Philips Computer Division.
Raymond G. Carlin. Mr. Carlin became Senior Vice President of NCR in
January 1995, responsible for all sales and services activities in the Americas
Region. From 1994 to 1995, Mr. Carlin was Vice President, U.S. Area, and from
1993 to 1994, Mr. Carlin was Vice President, NCR Worldwide Industry Marketing.
In 1992, Mr. Carlin was appointed an officer by the Board of Directors of NCR
and served as Vice President, U.S. Retail Systems Division. Prior to that, he
was Vice President of the Northeast Division, NCR U.S. Group.
Robert R. Carpenter. Mr. Carpenter became Senior Vice President, Worldwide
Customer Support Services for NCR in September 1996. From 1994 to 1996, he was
Senior Vice President, Worldwide Services for NCR. Mr. Carpenter joined AT&T in
1992 as Vice President, Marketing and Sales Operations for AT&T
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Network Systems. From 1988 to 1992, Mr. Carpenter held the position of Corporate
Vice President, Support Operations, for Square D Corporation, a maker of
electrical distribution, automation and industrial control products, systems and
services.
Robert A. Davis. Mr. Davis became Senior Vice President and Chief Quality
Officer in 1995. From 1994 to 1995, Mr. Davis was with Ideon Group, Inc., a
provider of credit card registry services, as Senior Vice President and Chief
Quality Officer. From 1990 to 1994, Mr. Davis was Vice President and Chief
Quality Officer with AT&T Universal Card Services.
William J. Eisenman. Mr. Eisenman became Senior Vice President, Computer
Systems Group in 1995. In 1994, he was appointed Vice President, NCR Worldwide
Services, Global Remote Services. From 1991 to 1994, he was Vice President, NCR
Large Computer Products Division.
Daniel J. Enneking. Mr. Enneking became Senior Vice President, Systemedia
Group in 1993. Mr. Enneking was appointed an officer by the Board of Directors
of NCR in 1991, and from 1991 to 1993, Mr. Enneking held the position of Vice
President, Finance & Administration, NCR U.S. Group.
Richard H. Evans. Mr. Evans became Senior Vice President, Global Human
Resources and Chief Strategy Officer for NCR in November 1995. Prior to his
appointment with NCR, Mr. Evans was Global Human Resources Vice President for
AT&T. From 1991 to 1993, Mr. Evans was President and Regional Managing Director
for AT&T's International Operations Division Asia/Pacific in Hong Kong.
Anthony Fano. Mr. Fano became Senior Vice President, Retail Systems Group
in 1995. From 1994 to 1995, Mr. Fano was Senior Vice President, NCR Europe and
Middle East/Africa, responsible for all NCR sales and services activity in that
geographic region. From 1993 to 1994, he was Senior Vice President, Quality and
Re-engineering. From 1991 to 1993, he was Vice President, NCR Latin
America/Middle East/Africa Group.
John L. Giering. Mr. Giering has held the position of Senior Vice
President and Chief Financial Officer of NCR since 1990. He has been a director
of the Company since January 1994.
Jonathan S. Hoak. Mr. Hoak became Senior Vice President and General
Counsel in December 1993 and a director of the Company effective September 3,
1996. From 1990 to 1993, Mr. Hoak was with AT&T Federal Systems as a General
Attorney.
Per-Olof Loof. Mr. Loof became Senior Vice President, Financial Systems
Group in November 1995. From 1994 to 1995, Mr. Loof was President and Chief
Executive Officer, AT&T Istel Co. Mr. Loof served as Vice President, Sales and
Marketing for Europe with Digital, a computer and related equipment and software
company, in 1994, and from 1990 to 1993 was Vice President, Financial Industry,
with Digital Europe.
Alice H. Lusk. Ms. Lusk became Senior Vice President, Worldwide
Professional Services and Information Systems Operations effective September 23,
1996. From 1992 to 1995, she was Corporate Vice President and Group Executive
for Healthcare and Life, Property, Casualty and Workers Compensation Insurance
Business Units at EDS, an information technology services company. Ms. Lusk
served as President, Healthcare Strategic Business Unit at EDS from 1991 to
1992. Ms. Lusk is a director of Access Health, Inc.
Dennis Roberson. Mr. Roberson became Senior Vice President and Chief
Technical Officer in September 1995. Mr. Roberson joined NCR as Vice President,
NCR Computer Products and Systems in May 1994. From 1988 to 1994, Mr. Roberson
was Vice President, Software, with Digital.
Jose Luis Solla. Mr. Solla became Senior Vice President in November 1995,
responsible for all sales and services activities in the Europe/Middle
East/Africa Region. Mr. Solla joined AT&T Iberia as a Country Leader in 1995.
During 1995, Mr. Solla also held the position of Area Manager, Iberia with
Olivetti, an office and computer equipment company. Mr. Solla joined Olivetti
Spain in 1992 and held the position of Managing Director until 1995. Prior to
1992, Mr. Solla was Area Director, ICL Spain, a computer and telecommunications
systems company.
Hideaki Takahashi. Mr. Takahashi became Senior Vice President in January
1996, responsible for all sales and services activities in the Asia/Pacific
Region. In July 1994, Mr. Takahashi was appointed Vice
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President Asia/Pacific Region. From 1992 to 1994, Mr. Takahashi was Vice
President, Operations, Japan. In 1992 he became Director, NCR Japan, Ltd. From
1987 to 1992, he was General Manager of NCR's engineering and manufacturing
facility in Oiso, Japan.
Michael P. Tarpey. Mr. Tarpey was appointed Senior Vice President of
Public Relations in January 1996. From 1994 to 1995, Mr. Tarpey was Public
Relations Vice President for AT&T's Consumer Communications Services business.
From 1990 to 1993, he was Vice President, Public Relations for AT&T's Business
Long Distance Unit.
COMMITTEES OF THE NCR BOARD OF DIRECTORS
Shortly after the Distribution Date, the NCR Board of Directors is expected
to establish the following committees: the Audit and Finance Committee, the
Compensation Committee, and the Committee on Directors. The NCR Board of
Directors may also establish other committees to facilitate its work.
The Audit and Finance Committee, which is expected to be comprised of at
least three non-employee directors, will be primarily responsible for providing
a means of direct contact and communication between NCR's independent
accountants and the NCR Board of Directors. The Audit and Finance Committee will
review (a) NCR's accounting principles and policies; (b) NCR's internal and
independent auditors' reports; (c) the adequacy of NCR's internal controls; (d)
NCR's annual audited financial statements; and (e) compliance with NCR's Code of
Conduct and key regulatory issues. The Audit and Finance Committee will also be
responsible for recommending to the Board of Directors the appointment of NCR's
independent accountants, reviewing, approving and recommending to the Board of
Directors NCR's financial policies and strategies, and reviewing significant
capital or other expenditures.
The Compensation Committee will consist of at least three non-employee
directors. Its primary functions will be to review the performance of NCR's
executive officers and make recommendations to the Board of Directors with
respect to the compensation of NCR's directors and executive officers. In
addition, the Compensation Committee will review NCR's executive compensation
plans in relation to its corporate strategies, NCR's stock option and other
incentive plans, and NCR's plans for management succession and development.
The Committee on Directors will establish procedures for the selection and
retention of directors, review the composition of the NCR Board of Directors and
the qualifications of persons identified as prospective directors, and recommend
for approval by the Board of Directors the candidates to be nominated for
election as directors. The Committee on Directors will consist of Mr. Nyberg and
at least two non-employee directors.
COMPENSATION OF DIRECTORS
NCR expects that each non-employee director will receive an annual retainer
of approximately $30,000, consisting of cash, deferred equity compensation, or a
combination thereof. The equity portion of the retainer is expected to be
granted on the date of each annual stockholders meeting and to vest pro rata
over the year that service is rendered. Cash payments would be made pro rata on
a quarterly basis.
The deferred equity component of the retainer will be in the form of
deferred shares credited to an NCR Common Stock equivalent account. Dividend
payments on NCR Common Stock, if any, will be reinvested in additional deferred
shares. It is further contemplated that, at the time of the grant, NCR's
non-employee directors will be entitled to elect either (a) to defer until
retirement the receipt of shares of NCR Common Stock with a value equivalent to
that of their respective vested deferred shares, or (b) to receive such shares
annually over a predetermined period of time.
NCR also plans to offer its new non-employee directors a one-time stock
option or deferred share grant upon their election to the Board of Directors. It
is contemplated that the amount of this grant will be one to two times the
annual retainer.
In addition to an annual retainer, NCR's non-employee directors will
receive stock option grants at each annual stockholders meeting with a value,
based on a specified formula, of approximately $30,000. Such stock
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<PAGE> 64
option grants will vest pro rata during the subsequent year of service and will
be fully exercisable one year from the date of the grant. The options will have
an exercise price equal to the fair market value of the underlying shares of NCR
Common Stock on the date of the grant.
ANNUAL MEETING
The NCR Bylaws provide that the Company's annual meetings of stockholders
will be held during the 31 day period commencing the third Thursday of April of
each year at NCR's principal office or on such other date and at such other
place and time as may be fixed by resolution of the NCR Board of Directors. The
first annual meeting for which proxies will be solicited from stockholders will
be held in 1997.
STOCK OWNERSHIP OF EXECUTIVE OFFICERS AND DIRECTORS
No present or future executive officer or director currently owns any
shares of NCR Common Stock, all of which are currently owned by AT&T. Such
executive officers and directors will receive shares of NCR Common Stock in the
Distribution in respect of shares of AT&T Common Stock held by them on the
Record Date. In addition, with certain exceptions, existing benefit plan awards
under NCR and AT&T benefit plans based on AT&T Common Stock will be converted
into comparable awards based on NCR Common Stock under the NCR Management Stock
Plan (the "NCR Stock Plan") as described below. See "-- NCR Stock Incentive
Plans" and "Arrangements Among AT&T, NCR and Lucent -- Employee Benefits
Agreement." The following table sets forth the number of shares of AT&T Common
Stock beneficially owned on , 1996 by each of NCR's directors, the
executive officers named in the Summary Compensation Table below, and all
directors and executive officers of NCR as a group. Except as otherwise noted,
the individual director or executive officer or his or her family members had
sole voting and investment power with respect to such securities.
<TABLE>
<CAPTION>
BENEFICIALLY
NAME OWNED(1)(2)
- ------------------------------------------------------------------------------ -----------
<S> <C>
Lars Nyberg...................................................................
Raymond G. Carlin.............................................................
Robert R. Carpenter(3)........................................................
Anthony Fano..................................................................
John L. Giering...............................................................
Directors and Executive Officers as a Group (16 persons)......................
</TABLE>
- ---------------
(1) No individual director, director nominee or named executive officer
beneficially owns 1% or more of the outstanding AT&T Common Stock, nor do
the directors and executive officers as a group.
(2) Includes beneficial ownership of the following number of shares of AT&T
Common Stock which may be acquired within 60 days of , 1996
pursuant to stock options awarded under employee incentive compensation
plans of AT&T. Mr. Nyberg - ; Mr. Carlin - ; Mr.
Carpenter - ; Mr. Fano - ; Mr. Giering - ; and
all other executive officers as a group - .
(3) Does not include share units representing shares of AT&T Common Stock
held in elective deferred compensation accounts.
To the knowledge of AT&T and NCR, no person or entity beneficially owns
more than 5% of the outstanding AT&T Common Stock. Options to purchase NCR
Common Stock and other awards based on NCR Common Stock are expected to be
granted in the future to NCR directors, officers and employees under NCR's
benefit plans. See "-- NCR Stock Incentive Plans" and "Arrangements Among AT&T,
NCR and Lucent -- Employee Benefits Agreement."
58
<PAGE> 65
EXECUTIVE COMPENSATION
The following table sets forth certain compensation information for Lars
Nyberg, the Chairman of the Board, Chief Executive Officer and President of NCR,
and the four other executive officers of NCR as of December 31, 1995 who, based
on employment with NCR, AT&T or their respective subsidiaries, were the most
highly compensated executive officers for the year ended December 31, 1995.
Information set forth in the table reflects compensation earned by such
individuals for services with NCR, AT&T or their respective subsidiaries.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION(2)
----------------------------------
ANNUAL COMPENSATION(2) AWARDS PAYOUTS
-------------------------------------- ------------------------ -------
OTHER AT&T AT&T ALL
ANNUAL RESTRICTED AT&T LTIP OTHER
SALARY BONUS COMPENSA- STOCK OPTIONS PAYOUTS COMPENSA-
NAME AND POSITION(1) YEAR ($) ($) TION($)(3) AWARD($)(4E) (#) ($)(5) TION($)(6)
- --------------------------- ---- ------- ------- ------------ ------------ ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Lars Nyberg(7)............. 1995 295,384 760,506 122,198 990,942(4a) 438,484 0 0
Chairman of the Board, 45,036(4b)
Chief Executive Officer 2,222,500(4c)
and President 1994 0 0 0 0 0 0
1993 0 0 0 0 0 0
Raymond G. Carlin.......... 1995 265,000 64,382 9,080 178,054(4a) 13,200 50,000 5,625
Senior Vice President 39,774(4b)
Americas Region 1994 215,771 115,700 9,859 27,049(4b) 8,760 49,140 5,625
1993 156,780 58,821 11,481 23,520(4b) 4,500 63,000 5,635
Robert R. Carpenter........ 1995 305,000 167,900 62,451 171,806(4a) 6,219 92,598 25,904
Senior Vice President 1994 283,333 220,400 39,671 0 5,278 88,856 20,374
Worldwide Customer 1993 235,000 110,900 29,261 0 5,278 51,549 21,371
Support Services
Anthony Fano............... 1995 286,000 45,383 94,772 204,452(4a) 15,380 80,900 5,625
Senior Vice President 1994 225,000 120,998 9,785 501,165(4d) 9,220 79,560 5,625
Retail Systems Group 1993 196,000 93,379 9,510 0 9,140 102,000 11,230
John L. Giering............ 1995 310,000 84,476 15,523 303,832(4a) 21,280 144,000 399,149
Senior Vice President 1994 297,570 167,364 14,143 0 20,120 141,570 281,495
& Chief Financial Officer 1993 273,000 122,276 25,808 0 20,420 181,500 252,784
</TABLE>
- ---------------
(1) Includes the Chief Executive Officer and the four other most highly
compensated executive officers as measured by salary and bonus.
(2) Compensation deferred at the election of named executive officers is
included in the category (e.g., salary, bonus, long term incentive plan
payouts, etc.) and year it would have otherwise been reported had it not
been deferred.
(3) Includes (a) dividend equivalents paid with respect to long-term performance
shares prior to the end of the three-year performance period, (b) tax
payment reimbursements, (c) the value of certain personal benefits and
perquisites, (d) relocation reimbursements, and (e) payments of above-market
interest on deferred compensation.
(4) (a) During 1995, awards classified as performance share awards were granted
to Messrs. Nyberg, Carlin, Carpenter, Fano, and Giering. At the time of such
grant, the payout of such awards was tied to achieving specified levels of
performance, customer satisfaction, or employee satisfaction. The target
amount would be earned if 100% of each participant's specific objectives was
achieved over a three-year period. At its December 1995 meeting, the
Compensation Committee of the AT&T Board recommended and approved that the
performance amounts for the 1995-1997 performance cycle be deemed to have
been met at the target level. This action was taken in acknowledgment that
AT&T's restructuring had rendered the original performance criteria
inapplicable and of the difficulty of establishing revised criteria while
the restructuring was in process. Awards will be distributed as common
stock, or as cash in such an amount equal to the value of these shares, or
partly in common stock and partly in cash. As a result of such action, this
award will vest in one installment and be payable in the first quarter of
1998 if the participant remains in the employ of NCR for the three full
years ending December 31, 1997, with certain exceptions
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<PAGE> 66
in the case of death, disability, or retirement. Dividend equivalents on
such awards are paid in cash. The number of shares of AT&T Common Stock
represented by the awards made for the 1995-1997 performance cycle for
Messrs. Nyberg, Carlin, Carpenter, Fano, and Giering, respectively, were
10,555, 2,123, 1,798, 2,291, and 3,104. The value of such awards at the date
of grant is reflected in the table above.
A similar determination was made by such Compensation Committee with respect
to the 1994-1996 cycle for similar awards. Accordingly, such awards will
vest in one installment and be payable in the first quarter of 1997 if the
participant remains in the employ of NCR through December 31, 1996, subject
to the same exceptions described above. The number of shares of AT&T Common
Stock represented by the 1994-96 awards for Messrs. Nyberg, Carlin,
Carpenter, Fano, and Giering, respectively, were 8,783, 1,364, 1,553, 1,705,
and 2,818. The value of such awards at the date of grant is reflected in the
table above.
(b) Messrs. Nyberg and Carlin received 834 and 754 restricted shares of AT&T
Common Stock, respectively, in 1995, and Mr. Carlin received 514 and 448
restricted shares of AT&T Common Stock in 1994 and 1993, respectively, in
each case pursuant to the Officer Plan (as defined below). Dividends on
these shares are reinvested in additional shares of restricted stock. The
value of such awards at the date of grant is reflected in the table above.
(c) During 1995, Mr. Nyberg received a special restricted stock unit grant
of 35,000 shares of AT&T Common Stock. The grant to Mr. Nyberg is part of an
AT&T special equity incentive/retention program. The grant vests four years
after the date of grant and carries stringent penalties for competition and
other specified adverse activities. Dividends on such units are paid in
cash. The grant to Mr. Nyberg will not be converted into awards based on NCR
Common Stock on the Distribution Date but will remain restricted stock units
based on AT&T Common Stock. The value of this award at the date of grant is
reflected in the table above.
(d) In March 1994, Mr. Fano received a phantom stock grant equivalent to
9,546 shares of AT&T Common Stock. The phantom stock vests after four years,
except in the event of death or disability, in which event the grant vests
ratably over the four-year period. The phantom stock is payable in cash, and
dividends are reinvested in additional shares of phantom stock. The value of
this award at the date of grant is reflected in the table above.
(e) The aggregate value at December 31, 1995 (based on an AT&T Common Stock
price of $64 1/2 per share) for the 1995-1997 and 1994-1996 performance
share awards for Messrs. Nyberg, Carlin, Carpenter, Fano, and Giering,
respectively, was $1,252,135, $225,783, $216,977, $258,741, and $383,450.
The aggregate value at December 31, 1995 (based on an AT&T Common Stock
price of $64 1/2 per share) for awards of restricted shares of AT&T Common
Stock, restricted stock units, or phantom share units for Messrs. Nyberg,
Carlin, and Fano, respectively, was $2,311,293, $110,682, and $615,717.
(5) Includes distribution in 1995 to Messrs. Carlin, Carpenter, Fano, and
Giering of performance units for the three-year performance period ended
December 31, 1994.
(6) Includes in 1995 for Mr. Carpenter, AT&T contributions to the AT&T Savings
Plan of $6,000, AT&T contributions under a non-qualified savings plan of
$5,201, and premiums for split-dollar life insurance policies of $14,885.
Also, includes in 1995 for each of Mr. Fano and Mr. Carlin, NCR
contributions to the Savings Plan of $5,625. For Mr. Giering, includes in
1995, NCR contributions to the Savings Plan of $5,625 and accrued interest
of $393,524 on a lump-sum amount payable in 1997 pursuant to an employment
agreement. See "-- Employment Agreements."
(7) Mr. Nyberg became Chairman of the Board, Chief Executive Officer and
President of NCR effective June 1995. For a summary of his employment
agreements, see "-- Employment Agreements" below.
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<PAGE> 67
OPTION AND SAR GRANTS OF AT&T COMMON STOCK TO EXECUTIVE OFFICERS
The following tables disclose information regarding stock options and stock
appreciation rights granted to the executive officers named in the Summary
Compensation Table above in respect of shares of AT&T Common Stock under the
AT&T 1987 Long Term Incentive Plan (the "AT&T Stock Plan").
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------------------------
NUMBER OF PERCENT OF GRANT
SHARES TOTAL DATE
UNDERLYING OPTIONS EXERCISE PRESENT
OPTIONS GRANTED TO PRICE EXPIRATION VALUE
NAME(1) GRANTED(#)(2) EMPLOYEES(3) ($/Sh) DATE ($)(4)
- ------------------------------- ------------- ------------ -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Lars Nyberg.................... 38,484 54.0000 7/5/05 451,032
400,000 3.29% 63.5000 9/25/05 5,384,000
Raymond G. Carlin.............. 13,200 0.10% 49.9375 1/3/05 175,428
Robert R. Carpenter............ 6,219 0.05% 49.9375 1/3/05 83,894
Anthony Fano................... 15,380 0.12% 49.9375 1/3/05 204,400
John L. Giering................ 21,280 0.16% 49.9375 1/3/05 282,811
</TABLE>
- ---------------
(1) Includes the Chief Executive Officer and the four other most highly
compensated executive officers as measured by salary and bonus.
(2) Includes the regular annual January 1995 grant of options to Messrs. Carlin,
Carpenter, Fano, and Giering. For Mr. Nyberg, includes a July 1995 grant in
connection with his initial employment and a special AT&T September 1995
equity incentive/retention grant following the announcement of AT&T's
restructuring. The options granted in January 1995 to Messrs. Fano, and
Giering vest in equal annual installments over four years. Grants to Messrs.
Carlin and Carpenter, and to Mr. Nyberg in January and July, respectively,
vest in equal annual installments over three years. Options granted in
September 1995 to Mr. Nyberg become exercisable four years after the date of
grant provided that applicable price performance criteria have been
satisfied. Regardless of price performance, all options granted in September
1995 will vest six years after the date of grant. All options expire on the
tenth anniversary of the date of grant.
(3) Percent of total options granted based on total options granted to AT&T
employees.
(4) In accordance with Commission rules, the Black-Scholes option pricing model
was chosen to estimate the grant date present value of the options set forth
in this table. NCR's use of this model should not be construed as an
endorsement of its accuracy at valuing options. All stock option valuation
models, including the Black-Scholes model, require certain assumptions to be
made. The following assumptions were made for purposes of calculating the
Grant Date Present Value: for the January grant, an option term of 7 years,
a standard deviation of 17.69%, a dividend yield of 2.77%, an interest rate
of 7.83%, and a 3% per year discount for each year in the vesting period for
risk of forfeiture over the three or four-year vesting schedule, as
appropriate; for the July grant, an option term of 7 years, a standard
deviation of 15.72%, a dividend yield of 2.66%, an interest rate of 6.10%,
and a 3% per year discount for each year in the vesting period for risk of
forfeiture over a three-year vesting schedule; and for the September grant,
an option term of 7 years, a standard deviation of 15.72%, a dividend yield
of 2.66%, an interest rate of 6.40%, and a 3% per year discount for each
year in the vesting period for risk of forfeiture over the four-year cliff
vesting period. The real value of the options in this table depends upon the
actual performance of the stock underlying the options during the applicable
period.
61
<PAGE> 68
AGGREGATED OPTION/STOCK APPRECIATION RIGHTS
EXERCISES IN 1995 AND YEAR-END VALUES
<TABLE>
<CAPTION>
VALUE OF
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
YEAR END(#)(2) YEAR END($)(2)
SHARES --------------- ---------------
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME(1) EXERCISE(#) REALIZED($) UNEXERCISABLE UNEXERCISABLE
- ------------------------------------- ----------- ----------- --------------- ---------------
<S> <C> <C> <C> <C>
Lars Nyberg.......................... 0 0 0 0
438,484 913,703
Raymond G. Carlin.................... 8,095 205,458 4,440 57,503
23,385 340,804
Robert R. Carpenter.................. 5,278 156,031 21,556 425,318
6,219 92,119
Anthony Fano......................... 7,974 228,758 15,155 306,490
29,625 445,818
John L. Giering...................... 0 0 34,050 691,408
52,850 800,669
</TABLE>
- ---------------
(1) Includes the Chief Executive Officer and the four other most highly
compensated executive officers as measured by salary and bonus. Sets forth
information regarding options regardless of year of grant.
(2) None of the individuals set forth in the table above have stock appreciation
rights.
EMPLOYMENT AGREEMENTS
AT&T entered into letter employment agreements with Lars Nyberg on April
18, 1995 (the "1995 Agreement") and June 7, 1996 (the "1996 Agreement")
providing for Mr. Nyberg's employment with NCR. The 1995 Agreement provides for
an initial base salary of $600,000 per year, a guaranteed 1995 annual incentive
award of $590,000, and awards under the AT&T Stock Plan of 10,555 performance
units and options to purchase 38,484 shares of AT&T Common Stock. The 1995
Agreement also provides for an award to Mr. Nyberg of 7,397 performance units
that were payable in the first quarter of 1996 and 8,783 performance units that
are payable in the first quarter of 1997. At the time of the Distribution, such
performance units will be converted into comparable awards based on NCR Common
Stock under the NCR Stock Plan, as more fully set forth below under
"Arrangements Among AT&T, NCR and Lucent -- Employee Benefits Agreement."
The 1996 Agreement supplements the 1995 Agreement and provides for an
annual bonus of $375,000, payable by NCR to Mr. Nyberg on June 1 of each of the
years 1996 through 1998, and a bonus of $3,875,000, payable by NCR to Mr. Nyberg
on June 1, 1999, provided in each case that Mr. Nyberg is employed by NCR on
such dates. In the event his employment is terminated as a result of death,
Disability, involuntary termination other than for Cause, or Termination for
Good Reason (as such terms are defined in the 1996 Agreement), Mr. Nyberg (or
his estate) will receive a one-time payment of $5,000,000, less any bonus
payments already received. The 1996 Agreement also provides for a bonus of
$2,000,000 to be paid to Mr. Nyberg on or after June 1, 1999 upon execution of
an employment contract with NCR for an additional two-year period beyond June 1,
1999.
The 1996 Agreement provides that, after the Distribution, 400,000 stock
options for AT&T Common Stock and 35,000 AT&T restricted stock units that were
granted to Mr. Nyberg in September 1995 will continue to become exercisable or
vest, as applicable, in accordance with the terms under which such awards were
granted, and that such restricted stock units will not be converted into
comparable awards based on NCR Common Stock but will remain outstanding. The
1996 Agreement also provides that, after the Distribution, NCR will provide Mr.
Nyberg with (i) a grant of options to purchase a number of shares of NCR Common
Stock such that the market price per share of NCR Common Stock at the date of
grant multiplied by such number of shares equals $5,000,000, and (ii) a grant of
a number of restricted shares of NCR Common Stock such that the market price per
share of NCR Common Stock at the date of grant multiplied by such number
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<PAGE> 69
of restricted shares equals $5,000,000. Such options and restricted shares will
become exercisable or vest, as applicable, in September 1999. Finally, the 1996
Agreement also provides for a lump-sum cash payment by AT&T to Mr. Nyberg of
$1,900,000 upon consummation of the Distribution in lieu of benefits and
entitlements payable to Mr. Nyberg under a special pension arrangement
established for him by AT&T.
AT&T and NCR entered into an employment agreement with John L. Giering on
September 23, 1991, which provides for Mr. Giering's employment as Senior Vice
President, Finance and Administration of NCR, commencing on the date of the
agreement and ending on December 31, 1996. Thereafter, Mr. Giering's employment
with NCR will be "at will" and upon such terms and conditions as NCR and Mr.
Giering may agree. Pursuant to the terms of the employment agreement, Mr.
Giering is entitled to receive a lump sum payment of $2,275,000 plus interest,
within 45 business days following December 31, 1996.
AT&T entered into an employment agreement with Robert R. Carpenter on March
2, 1992, which provides for Mr. Carpenter's employment with AT&T through March
2, 1997. Pursuant to the terms of the employment agreement, if Mr. Carpenter is
terminated by AT&T other than for cause (as defined in the agreement) during the
term of the agreement, Mr. Carpenter will be entitled to the greater of $225,000
or 100% of his annual base salary in effect on the date of termination. NCR
entered into a letter agreement with Mr. Carpenter on February 18, 1994, which
provides for Mr. Carpenter's assignment to NCR as Senior Vice
President -- Worldwide Services, but which does not negate any rights under the
1992 agreement.
SAVINGS PLAN
All eligible NCR employees in the United States may elect to participate in
the NCR Savings Plan (the "Savings Plan"). The Savings Plan is a qualified plan
under the Code. A participant in the Savings Plan may elect to contribute, on a
"pre-tax" basis, up to a fixed percentage (ranging from 7% to 16% depending on a
participant's pay) of his or her pay, collected through payroll deductions. A
participant also can contribute, on an "after-tax" basis, provided, however,
that a participant's total contribution (both pre-tax and after-tax) cannot
exceed a fixed percentage (ranging from 11% to 20% depending on a participant's
pay) of his or her pay. By law, no participant can contribute more than $9,500
on a pre-tax basis in 1996. NCR makes matching contributions equal to 75% of the
amount contributed by the participating employee up to 3% of pay and matching
contributions equal to 50% of the amount contributed by the participating
employee from 4% to 6% of pay.
Participants may invest both their own contributions and NCR's matching
contributions to the Savings Plan in one or more of several funds, including a
company stock fund consisting of shares of AT&T Common Stock. At the
Distribution Date, an investment fund consisting solely of shares of NCR Common
Stock will be added to the Savings Plan. During the one-year period following
the Distribution Date, participants will not be able to direct investments into
the AT&T Common Stock fund, but will be able to transfer investments out of such
fund. At the end of such one-year period, all remaining investments in the AT&T
Common Stock fund will be automatically transferred to the Saving Plan's money
market fund and the AT&T Common Stock fund will be terminated.
A participant's contributions to the Savings Plan are always fully vested;
matching contributions by NCR vest in one-fifth increments over a five-year
period which begins on the first day of the employee's employment and vest no
later than the employee's attainment of age 65. Also, in the event of death,
disability or termination of employment due to a reduction-in-force, a
participant becomes fully vested in all matching contributions made by NCR and
is entitled to full distribution of all amounts held for his or her account
under the Savings Plan. If a participant's employment is terminated for any
other reason, all non-vested NCR matching contributions will be forfeited.
Subject to a tax penalty, withdrawals may be made from the Savings Plan during a
participant's employment in the case of a "hardship" (as defined in the Savings
Plan). A participant may receive a loan from his or her vested account balances
of up to the lesser of $50,000 or 50% of the vested account balances.
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<PAGE> 70
RETIREMENT BENEFITS
Employees of NCR are covered by a variety of retirement plans. The NCR
Pension Plan (the "Pension Plan") is a qualified, non-contributory defined
benefit plan which provides retirement benefits to most employees based in the
United States who are not covered by a collective bargaining agreement,
including executive officers of NCR, who have completed one year of service and
meet certain age requirements. Benefits payable under the Pension Plan are
funded solely by contributions made by NCR on an actuarial basis to a trust.
Generally, benefits are based on a participant's years of credited service with
NCR and its subsidiaries and the participant's Modified Average Pay (as defined
in the Pension Plan). For each year of credited service, a participant receives
between 1.3% and 1.7% of his or her Modified Average Pay. Benefits payable under
the Pension Plan will vest after a participant has completed five years of
service with NCR or its subsidiaries. In addition, all benefits vest at age 65.
The Pension Plan also provides an additional benefit (the "PensionPlus
benefits") equivalent to 1.5% of a participant's Compensation (as defined in the
Pension Plan) paid in each month since January 1, 1992 and 2% of Compensation
paid in 1991.
NCR also sponsors several qualified, non-contributory defined benefit plans
for non-exempt employees at certain manufacturing locations and for certain
employees represented by collective bargaining units. Benefits under these plans
are generally based upon a specific dollar amount and years of service.
The NCR Nonqualified Excess Plan (the "Excess Plan") provides supplemental
retirement benefits to the employees of NCR whose retirement benefits under the
Pension Plan are affected by Code limits. The supplemental pension benefits
provided by the Excess Plan equal the difference between the benefits under the
Pension Plan without regard to Code limits and the actual pension benefits
payable under the Pension Plan. The supplemental benefits under the Excess Plan
will be paid at the same time and in the same form as the benefits under the
Pension Plan. The Excess Plan is a nonqualified plan, funded from general
corporate assets.
NCR also maintains two nonqualified, unfunded supplemental retirement plans
for executive officers designated as participants thereunder by NCR's Board of
Directors (the "Plan Committee"). The NCR Senior Executive Retirement, Death &
Disability Plan (the "Senior Plan") covers three active executive officers. The
Retirement Plan for Officers of NCR (the "Officer Plan") is generally designed
to replace the Senior Plan for executive officers appointed after November 30,
1988 and covers 12 active executive officers.
The Senior Plan provides monthly benefits upon termination of employment
based upon 4% of a final average monthly pay per year of service. Final average
monthly pay is determined by taking into account the participant's highest
consecutive 36 months of compensation (i.e., salary, any Management Incentive
Plan (the "MIP") award and 50% of certain long-term incentive plan awards)
during the last 6 years of employment. The benefit is actuarially reduced to the
extent that the participant is under age 62 at the time of termination. The
benefit is offset by the participant's Social Security primary insurance amount,
by the benefit under the Pension Plan, the Excess Plan or under any other
pension, profit sharing, savings or other retirement plan of NCR, an NCR
affiliate or a prior employer, and any disability income benefits received
pursuant to a disability income plan sponsored by NCR. The Senior Plan also
provides for disability benefits in the event that a participant's employment is
terminated due to total disability and for death benefits in a reduced amount.
No benefits are payable under the Senior Plan if a participant voluntarily
terminates employment with NCR before attaining age 55, or is involuntarily
terminated by the Company before attaining age 52. The Plan Committee has
discretion to disallow benefits in the event that a participant engages in
certain competition with NCR during the three-year period following termination
of employment with NCR.
The Senior Plan contains a change in control provision that, upon the
occurrence of any of certain enumerated events, enhances the benefits of an
officer who has been a participant for at least one year prior to a change in
control. Upon termination of employment for any reason, certain executive
officers identified by NCR's Board of Directors ("Designated Officer") are
entitled to an additional five years of service and a guaranteed minimum
compensation amount for purposes of calculating the pension benefit under the
Senior Plan, and may commence receiving benefits at any time after attaining age
50, subject to more favorable early retirement reduction factors. Other NCR
officers who are not Designated Officers become entitled to these enhanced
benefits if involuntarily terminated within three years after a change in
control, or if terminated for
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<PAGE> 71
any reason thereafter. The change in control provision was triggered when NCR's
stockholders approved the merger of NCR with a wholly owned subsidiary of AT&T.
Messrs. Giering and Fano are entitled to benefits under the Senior Plan
that are enhanced by the change in control provision.
The Officer Plan provides for monthly benefits upon termination of
employment based upon 2.5% of career average monthly salary for service as an
executive officer, including salary, the MIP award and certain long-term
incentive plan awards. The monthly benefit is actuarially reduced to the extent
that the participant is under age 62 at the time of termination. The monthly
benefit is offset by the participant's benefit under the Pension Plan (other
than the PensionPlus benefits) and any employer-provided benefit under any other
retirement plan of NCR, an NCR affiliate or a prior employer, and any disability
income benefits received pursuant to a disability income plan sponsored by NCR.
The Officer Plan permits participants to elect a joint and survivor form of
annuity providing for reduced lifetime benefits and an annuity for the life of
the participant's surviving spouse. Under the Officer Plan, no benefit is
payable if the officer terminates employment prior to one year from the
effective date of participation in the plan. In addition, a participant whose
employment is terminated prior to age 55 for any reason other than death
receives no benefits, unless he or she has been employed by NCR for at least ten
years prior to termination of employment. The Officer Plan also provides death
benefits in reduced amount. The Plan Committee has discretion to disallow
benefits in the event that a participant engages in certain competition with NCR
during the three-year period following termination of employment with NCR.
Officers participating in the Officer Plan also have received annual grants of
restricted AT&T Common Stock ("Restricted Stock") equal to 15% of annual base
pay. The Restricted Stock vests when the officer reaches age 55 while still
employed by AT&T, or upon death, retirement or total and permanent disability,
and the restrictions on transferability lapse at age 62. After the Distribution,
this program will be discontinued and outstanding awards will be converted into
awards based on NCR Common Stock.
The Officer Plan contained a change of control provision that became
effective when NCR's stockholders approved the merger of NCR with a wholly owned
subsidiary of AT&T. Officers who had been participants in the Officer Plan for
at least one year prior to the effective date of the merger became eligible for
certain enhanced pension benefits. Upon termination of employment for any
reason, executive officers were entitled to an additional five years of service
and a guaranteed minimum compensation amount for purposes of calculating the
pension benefit under the Officer Plan, and could commence receiving benefits at
any time after attaining age 50, subject to more favorable early retirement
reduction factors. Officers who were not executive officers became entitled to
these enhanced benefits if involuntarily terminated within three years after the
merger, or if terminated for any reason thereafter.
In 1995, Mr. Nyberg entered into an individual pension arrangement with
AT&T that required certain minimum service requirements. Since this arrangement
terminates upon the Distribution, pursuant to the 1996 Agreement, Mr. Nyberg
will not attain the minimum service requirements. Upon the Distribution, AT&T
has agreed to pay $1.9 million to Mr. Nyberg in lieu of all potential benefits
and entitlements under his individual pension arrangements.
NCR also maintains two nonqualified, unfunded supplemental retirement plans
for officers meeting specified requirements. The Supplemental Pension Plan for
Transfers Between AT&T and NCR (the "Transfer Plan") pays a benefit to an
individual who transfers employment directly from AT&T to NCR at a level of
"D-Band" (middle management) or above, who serves a total of at least five years
at the "E-Band" level or above at NCR (officer/key employee), and who is
eligible for an immediate pension from both AT&T and NCR at the time of
termination of employment with NCR. The benefit equals the difference, if any,
between the total retirement benefits that the participant would have received
if he or she had remained with AT&T, and the total retirement benefits actually
received from AT&T and NCR. NCR intends to amend the Transfer Plan effective as
of the Distribution Date to allow no further participants in the plan. Current
participants as of the Distribution Date will continue to be entitled to a
benefit, provided the eligibility requirements are satisfied at termination of
employment. The Transfer Plan covers three active executive officers.
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The NCR Mid-Career Hire Supplemental Pension Plan (the "Mid-Career Plan")
pays a benefit to an employee hired by NCR for the first time at age 35 or over,
at a level of D-Band or higher, who is working at a level of E-Band or higher at
termination of employment from NCR, and whose total service with NCR and its
affiliates at the E-Band level is five or more years. An employee is also
eligible if he or she transfers to NCR from AT&T and was covered by the AT&T
Mid-Career Pension Plan. The benefit equals 1% of annual pay for each "Pension
Credit Year," which is each year worked for NCR, up to a maximum equal to the
number of years between age 30 and the age on the date of hire with NCR. NCR
intends to amend the Mid-Career Plan effective as of the Distribution Date to
cease recognition of service with AT&T after the Distribution Date. The
Mid-Career Plan covers five active executive officers.
Certain of NCR's non-qualified executive pension plan benefits are
supported by a benefits trust, the assets of which are subject to the claims of
NCR's creditors.
If Messrs. Nyberg, Carlin, Fano, and Giering continue in their current
positions, at current salaries and at target bonus levels and retire at age 62
from NCR, the estimated annual pension amounts payable from NCR's qualified and
non-qualified defined benefit pension plans, including supplemental pension
plans, would be $823,685, $423,512, $301,880, and $391,200, respectively. For
Mr. Carpenter, the estimated annual pension amount so payable under AT&T's
qualified and non-qualified defined benefit pension plans, including
supplemental pension plans, would be $ .
NCR STOCK INCENTIVE PLANS
Substitute Awards. Prior to the Distribution, eligible employees of NCR
participated in the AT&T Stock Plan under which they were granted stock option
awards and other equity-based awards. On the Distribution Date, with certain
exceptions, such awards will be converted into comparable awards based on NCR
Common Stock under the NCR Stock Plan as described under "Arrangements Among
AT&T, NCR and Lucent -- Employee Benefits Agreement."
NCR Stock Plan. NCR intends to adopt, with the approval of AT&T in its
capacity as the sole stockholder of NCR, the NCR Stock Plan. The NCR Stock Plan
will be administered by the Compensation Committee of the NCR Board of
Directors. In order to assure that compensation paid pursuant to the NCR Stock
Plan can qualify as "performance-based compensation" not subject to the
limitations on deductibility of certain executive compensation in excess of $1
million, NCR intends to seek stockholder approval of the material terms of the
performance goals under the NCR Stock Plan at either its 1997 or 1998 annual
meeting of stockholders. Such stockholder approval is not required for any other
purpose.
The NCR Stock Plan provides for the grant of incentive stock options that
qualify under Section 422 of the Code ("ISOs"), nonstatutory stock options,
stock appreciation rights, restricted stock awards, performance awards, other
stock unit awards and other rights, interests or options relating to shares of
NCR Common Stock or other securities of NCR (collectively, "Awards"). No
determination has been made as to the number of employees of NCR who will
participate in the NCR Stock Plan. However, as described under "Arrangements
Among AT&T, NCR and Lucent -- Employee Benefits Agreement," employees of NCR who
hold awards under the AT&T Stock Plan ("AT&T Stock Awards") (approximately 850
individuals as of August 31, 1996) are expected to receive Awards under the NCR
Stock Plan (the "Substitute Awards") in substitution therefor, following the
consummation of the Distribution. NCR expects that additional awards under the
NCR Stock Plan will be made.
The NCR Stock Plan contains a formula for establishing an annual limit on
the number of shares of NCR Common Stock that may be awarded (or with respect to
which non-stock Awards may be made) in any given year, except that Substitute
Awards will not be counted against such limit. Subject to customary anti-
dilution adjustments, the total number of shares of NCR Common Stock available
for grant under the NCR Stock Plan is % for 1997 and % in each calendar
year thereafter of the total outstanding shares of NCR Common Stock as of the
first day of such year for which the NCR Stock Plan is in effect; provided that
such number will be increased in any year by the number of shares of NCR Common
Stock available for grant under the NCR Stock Plan in previous years but not
covered by Awards granted thereunder in such years; provided, further, that no
more than million shares of NCR Common Stock will be cumulatively available
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for the grant of ISOs. Any shares of NCR Common Stock issued by NCR throughout
the assumption or substitution of outstanding grants from an acquired company
("Rollover Awards") will not reduce the number of shares of NCR Common Stock
available for grants thereunder. In addition, no one individual may be granted
Awards with respect to more than shares of NCR Common Stock in any one
year (not including Substitute Awards or Rollover Awards).
The Compensation Committee, which will be comprised of at least three
non-employee directors, none of whom may receive any Awards under the NCR Stock
Plan, will administer the NCR Stock Plan after the Distribution. Except in the
case of Substitute Awards and Rollover Awards, the purchase price per share of
NCR Common Stock purchasable under stock options granted pursuant to the NCR
Stock Plan will be determined by the Compensation Committee, in its sole
discretion, provided that such purchase price will not be less than the Fair
Market Value (as defined in the NCR Stock Plan) of a share of NCR Common Stock
on the date of grant of the stock options. The NCR Stock Plan also provides
that, unless the Compensation Committee determines otherwise at the time of
grant with respect to a particular award, in the event of a Change in Control
(as defined in the NCR Stock Plan), with certain exceptions, Awards will, among
other things, become fully exercisable and vested, earned and payable in full,
or otherwise free of all restrictions, limitations and other conditions, as
applicable to the particular type of Award.
NCR intends to adopt a new NCR Long Term Incentive Program, offered under
the NCR Stock Plan, after the Distribution Date. Awards for the 1996-1998
performance cycle will be offered under the NCR Stock Plan, with performance
targets to be established by NCR's Compensation Committee.
NCR also expects to grant certain executive officers and key employees (62
individuals) options to acquire shares of NCR Common Stock, which shares have an
aggregate fair market value at time of grant of $27 million, including grants
for shares of NCR Common Stock, which shares have a fair market value of $1
million to each of Messrs. Carlin, Carpenter, Fano, and Giering. Such options
will have an exercise price equal to the fair market value of the NCR Common
Stock on the Distribution Date, will vest at the end of two years, and will
expire five years after the date of grant. See "-- Employment Agreements."
NCR WorldShares Plan. NCR intends to adopt, with the approval of AT&T in
its capacity as the sole stockholder of NCR, the NCR WorldShares Plan
("WorldShares Plan") effective as of the Distribution Date.
The WorldShares Plan provides for the grant of nonstatutory stock options
to substantially all NCR's employees in the United States and abroad. The
WorldShares Plan will be administered by the Compensation Committee of the NCR
Board of Directors (the "Administrator"). The Administrator will have the
discretion to modify the terms and conditions of the options, substitute
alternative benefits (including phantom stock grants), or establish subplans,
for foreign jurisdictions where it deems necessary to accomplish the purposes of
the WorldShares Plan.
NCR intends to grant nonstatutory stock options, or substitute benefits
where deemed necessary by the Administrator in foreign jurisdictions, to
substantially all NCR's employees following the Distribution Date for a number
of shares of NCR Common Stock with a value as of the Distribution Date of
$3,000, or of $4,500 if certain performance goals for NCR are met in 1996. Such
options will have an exercise price of the market value of the NCR Common Stock
on the Distribution Date and will have a five year expiration period.
Participants will be fully vested and able to exercise their options one year
after the date of grant.
Copies of the NCR Stock Plan and the WorldShares Plan will be filed as
Exhibits to the Registration Statement, and the foregoing summaries are
qualified in their entirety by reference thereto. See "Available Information."
OTHER BENEFIT PLANS
Prior to the Distribution Date, eligible employees of NCR participated in
the 1994 Employee Stock Purchase Plan for NCR (the "1994 Stock Purchase Plan"),
which provided full-time employees of NCR and of designated participating
subsidiaries who completed six months of eligible service with an opportunity to
purchase AT&T Common Stock through payroll deductions. Effective at the
Distribution Date, the 1994
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Stock Purchase Plan will terminate. NCR intends to adopt, with the approval of
AT&T in its capacity as the sole shareholder of NCR, the 1997 NCR Employee Stock
Purchase Plan (the "New Stock Purchase Plan") that will provide eligible
employees with an opportunity to purchase NCR Common Stock through payroll
deductions. The New Stock Purchase Plan will allow participants to purchase NCR
Common Stock through payroll deductions during monthly purchase periods.
Eligible employees on each offering date will each be allowed to purchase shares
of NCR Common Stock through payroll deductions of up to 10% of compensation. The
purchase price will be 85% of the fair market value of a share of NCR Common
Stock on the last day of the applicable purchase period. The New Stock Purchase
Plan is expected to remain in effect until December 31, 2006, unless terminated
prior thereto in accordance with its terms.
Prior to the Distribution Date, eligible management and key employees
participated in the NCR MIP, which paid an annual cash bonus if certain
specified objectives were met. In 1996, the objectives were based on NCR's
worldwide profits and asset turnover, levels of customer satisfaction and
employee satisfaction, and discretionary objectives that varied by work groups.
MIP bonuses for a particular year are paid in the first quarter of the following
year. To receive a MIP bonus, an employee must be employed throughout the
applicable year, or terminate employment during the year on account of
retirement, death, disability or transfer of employment, in which cases a
prorated bonus is awarded. NCR intends to continue the MIP after the
Distribution Date.
NCR also maintains a number of benefit plans that provide certain welfare
benefits to both active and retired employees of NCR, including medical, dental,
vision, prescription drug, short- and long-term disability, life insurance,
severance and other benefits.
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ARRANGEMENTS AMONG AT&T, NCR AND LUCENT
For the purposes of governing certain of the relationships among AT&T,
Lucent and NCR following the Distribution, AT&T, NCR and, in certain cases,
Lucent have entered into, or expect to enter into, a series of agreements. These
agreements include (a) the Separation and Distribution Agreement, dated as of
February 1, 1996, as amended and restated as of March 29, 1996, by and among
AT&T, Lucent and NCR (the "Separation and Distribution Agreement") and certain
ancillary agreements related thereto (collectively, the "Ancillary Agreements,"
and, collectively with the Separation and Distribution Agreement, the "Initial
Transaction Agreements") executed prior to the initial public offering of Lucent
Common Stock and (b) the Distribution Agreement, dated as of , 1996,
by and between AT&T and NCR (the "NCR Distribution Agreement") and certain
ancillary agreements related thereto (collectively, the "NCR Ancillary
Agreements," and, collectively with the NCR Distribution Agreement, the "NCR
Transaction Agreements," and, collectively with the NCR Distribution Agreement
and the Initial Transaction Agreements, the "Transaction Agreements"). The
Initial Transaction Agreements include the Interim Services and Systems
Replication Agreement; the Patent License Agreement and other patent-related
agreements; the Technology License Agreement and other technology-related
agreements; the Tax Sharing Agreement (as such terms are defined in the Initial
Transaction Agreements) and other tax-related agreements; certain agreements
providing for the assignment of, and the establishment of transitional
arrangements with respect to, real property; the Technology Access and
Development Project Agreement governing the future commercial relationship
between NCR and Bell Labs; and agreements pursuant to which NCR will sell
certain products to Lucent. The NCR Transaction Agreements include the NCR
Employee Benefits Agreement and the AT&T Volume Purchase Agreement (as such
terms are defined in the NCR Distribution Agreement.)
Certain of the Transaction Agreements summarized below have been filed (or
incorporated by reference) as exhibits to the Registration Statement and the
summaries of such agreements are qualified in their entirety by reference to the
full text of such agreements. See "Available Information." Certain capitalized
terms used in this Section without definition have the respective meanings
assigned to them in the Transaction Agreements.
NCR DISTRIBUTION AGREEMENT
The NCR Distribution Agreement provides that, subject to the terms and
conditions thereof, AT&T will effect the Distribution.
CONDITIONS; TERMINATION
Pursuant to the NCR Distribution Agreement, the AT&T Board has the sole
discretion to determine the Record Date and the Distribution Date and all
appropriate procedures in connection with the Distribution, provided that the
Distribution will not occur prior to such time as each of the following
conditions have been satisfied or waived by the AT&T Board in its sole
discretion:
(i) a private letter ruling from the IRS shall have been obtained, and
shall continue in effect, to the effect that, among other things, the
Distribution will qualify as a tax-free distribution for federal income tax
purposes under Section 355 of the Code, and such ruling shall be in form
and substance satisfactory to AT&T in its sole discretion;
(ii) any material Governmental Approvals and Consents necessary to
consummate the Distribution shall have been obtained and be in full force
and effect;
(iii) no order, injunction or decree issued by any court or agency of
competent jurisdiction or other legal restraint or prohibition preventing
the consummation of the Distribution shall be in effect and no other event
shall have occurred or failed to occur that prevents the consummation of
the Distribution;
(iv) the Registration Statement on Form 10 of which this Information
Statement forms a part shall have been declared effective by the
Commission;
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(v) AT&T shall have received a favorable response from the Staff of
the Commission to a request for a no-action letter concerning, among other
matters, whether the Distribution and related transactions may be effected
without registration of the NCR Common Stock (and related Preferred Share
Purchase Rights) under the Securities Act;
(vi) the NCR Common Stock (and related Preferred Share Purchase
Rights) shall have been accepted for listing on a mutually agreed stock
exchange or quotations system, which is expected to be the NYSE; and
(vii) the AT&T Board shall have formally approved the Distribution;
provided that the satisfaction of such conditions will not create any obligation
on the part of AT&T, NCR or any other Person to effect or to seek to effect the
Distribution or in any way limit AT&T's right to terminate the NCR Distribution
Agreement or alter the consequences of any such termination from those specified
therein.
The NCR Distribution Agreement may be terminated at any time prior to the
Distribution Date by AT&T. In the event of any such termination, no party
thereto (or any of its directors or officers) will have any Liability or further
obligation to any other party.
RELEASES AND INDEMNIFICATION
The NCR Distribution Agreement provides for a full and complete discharge
effective as of the Distribution Date of all Liabilities whatsoever existing or
arising from all acts and events occurring or failing to occur or alleged to
have occurred or to have failed to occur and all conditions existing or alleged
to have existed on or before the Distribution Date, between or among NCR or any
member of the NCR Group, on the one hand, and AT&T or any member of the AT&T
Services Group, on the other hand (including any contractual agreements or
arrangements existing or alleged to exist between or among any such members on
or before the Distribution Date), except as expressly set forth in the NCR
Distribution Agreement.
Pursuant to the NCR Distribution Agreement, NCR has agreed to indemnify,
defend and hold harmless AT&T and each other AT&T Indemnitee from and against
any and all Liabilities of the AT&T Indemnitees relating to, arising out of or
resulting from any of the following, in each case whether arising before, on or
after the Distribution Date: (i) the failure of NCR or any other member of the
NCR Group or any other Person to pay, perform or otherwise promptly discharge
any Liabilities of any member of the NCR Group in accordance with their
respective terms, whether prior to or after the Distribution Date or the date
thereof; (ii) the NCR Business, any Liability of any member of the NCR Group or
any NCR Covered Liability; (iii) any Asset (including contracts, agreements,
real property and leasehold interests) of any member of the NCR Group at any
time (other than Assets transferred to any member of the AT&T Services Group
prior to the Distribution Date), and contracts, agreements, letters of credit or
other commitments or obligations for which NCR has primary responsibility; (iv)
the operation of the NCR Business, as conducted at any time prior to, on or
after the Distribution Date (including any Liability relating to, arising out of
or resulting from any act or failure to act by any director, officer, employee,
agent or representative (whether or not such act or failure to act is or was
within such Person's authority)); (v) any guarantee, indemnity, representation,
warranty or other Liability of or made by any member of the AT&T Services Group
in respect of any Liability or alleged Liability of any member of the NCR Group;
(vi) any breach by NCR or any member of the NCR Group of the NCR Distribution
Agreement, the Separation and Distribution Agreement, any Ancillary Agreement or
any of the NCR Ancillary Agreements; (vii) any Liabilities relating to, arising
out of or resulting from the NCR Business (including any NCR Covered
Liabilities) for which AT&T has agreed to indemnify and hold harmless the Lucent
Indemnitees pursuant to the Separation and Distribution Agreement; (viii)
actions taken by any member of the AT&T Group on behalf of any member of the NCR
Group pursuant to the Separation and Distribution Agreement or any Ancillary
Agreement; (ix) any untrue statement or alleged untrue statement of a material
fact or omission or alleged omission to state a material fact required to be
stated therein or necessary to make the statements therein not misleading, with
respect to all information contained in this Information Statement or the Form
10; and (x) any Liability relating to, arising out of or resulting from any
actual or threatened Action or other claim alleging that any Liability was
improperly allocated to the
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NCR Group or that any Asset was improperly withheld from the NCR Group, in each
case pursuant to any of the Transaction Agreements.
Pursuant to the NCR Distribution Agreement, AT&T has agreed to indemnify,
defend and hold harmless NCR and each other NCR Indemnitee from and against any
and all Liabilities of the NCR Indemnitees relating to, arising out of or
resulting from any of the following, in each case whether arising before, on or
after the Distribution Date: (i) the failure of AT&T or any other member of the
AT&T Group or any other Person to pay, perform or otherwise promptly discharge
any Liabilities of the AT&T Services Group whether prior to or after the
Distribution Date or the date thereof; (ii) the AT&T Services Business or any
Liability of the AT&T Services Group; and (iii) any breach by AT&T or any member
of the AT&T Services Group of any Transaction Agreement; provided however that
such provision will not apply to any Liability relating to the NCR Business.
The NCR Distribution Agreement also specifies certain procedures with
respect to claims subject to indemnification and related matters. The dispute
resolution procedures (including the arbitration provisions) of the Separation
and Distribution Agreement apply to disputes under the NCR Transaction
Agreements, unless otherwise expressly provided therein. See "--Separation and
Distribution Agreement -- Dispute Resolution" below.
NO REPRESENTATIONS OR WARRANTIES
Except as expressly set forth in any Transaction Agreement, no party to any
Transaction Agreement or any other agreement or document contemplated by any
Transaction Agreement either has or is representing or warranting in any way as
to the Assets, businesses or Liabilities retained, transferred or assumed as
contemplated thereby, as to any consents or approvals required in connection
therewith, as to the value or freedom from any Security Interests of, or any
other matter concerning, any Assets of such party, or as to the absence of any
defenses or right of setoff or freedom from counterclaim with respect to any
claim or other Asset, including any accounts receivable, of any party, or as to
the legal sufficiency of any assignment, document or instrument delivered
thereunder to convey title to any Asset or thing of value upon the execution,
delivery and filing thereof. Except as may expressly be set forth in any
Transaction Agreement, all such Assets were, or are being, transferred, or are
being retained, on an "as is," "where is" basis (and, in the case of any real
property, by means of a quitclaim or similar form deed or conveyance) and the
respective transferees will bear the economic and legal risks that any
conveyance will prove to be insufficient to vest in the transferee good and
marketable title, free and clear of any Security Interest.
QUALIFICATION AS TAX-FREE DISTRIBUTION
Pursuant to the NCR Distribution Agreement, each of AT&T and NCR has agreed
that it will not take, or permit any member of its respective Group to take, any
action after the Distribution Date which could reasonably be expected to prevent
the Distribution from qualifying as a tax-free distribution within the meaning
of Section 355 of the Code or any other transaction contemplated by the NCR
Distribution Agreement or any other Transaction Agreement which is intended by
the parties to be tax-free from failing so to qualify. In addition, each of AT&T
and NCR has agreed that it will not take, or permit any member of its respective
group to take, any action after the Distribution Date which could reasonably be
expected to have a material adverse impact on the known tax consequences to the
other party (except that each party may take any actions in the ordinary course
or in connection with any tax audit or filing).
The NCR Distribution Agreement provides that, notwithstanding anything to
the contrary in any Transaction Agreement, if as a result of the acquisition of
all or a portion of the capital stock or assets of NCR, the Distribution fails
to qualify as a tax-free distribution under Section 355 of the Code, then NCR
will be liable for any and all increases in Tax attributable thereto.
AMENDMENTS; FURTHER ASSURANCES
No provision of the NCR Distribution Agreement or any NCR Ancillary
Agreement will be deemed waived, amended, supplemented or modified by any party,
unless such waiver, amendment, supplement or modification is in writing and
signed by the authorized representative of the party against whom it is sought
to enforce such waiver, amendment, supplement or modification.
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In addition to the actions specifically provided for elsewhere in the NCR
Distribution Agreement, each of the parties thereto has agreed to use its
reasonable best efforts, prior to, on and after the Distribution Date, to take,
or cause to be taken, all actions, and to do, or cause to be done, all things,
reasonably necessary, proper or advisable under applicable laws, regulations and
agreements to consummate and make effective the transactions contemplated by the
NCR Distribution Agreement and the NCR Ancillary Agreements.
FRACTIONAL SHARES
The NCR Distribution Agreement provides that as soon as practicable after
the Distribution Date, AT&T will direct the Distribution Agent to determine the
number of fractional shares of NCR Common Stock allocable to each holder of
record or beneficial owner of AT&T Common Stock as of the Record Date who
receives certificates for shares of NCR Common Stock or who would be entitled to
less than one whole share of NCR Common Stock, to aggregate all such fractional
shares and sell the whole shares obtained by aggregating such fractional shares
either in open market transactions or otherwise, in each case at then prevailing
trading prices, and to cause to be distributed to each such holder or for the
benefit of each such beneficial owner, in lieu of a fractional share, such
holder's or owner's ratable share of the proceeds of such sale, after making
appropriate deductions of the amount required to be withheld for federal income
tax purposes and after deducting an amount equal to all brokerage charges,
commissions and transfer taxes attributed to such sale.
ADDITIONAL CAPITAL CONTRIBUTIONS
It is expected that, pursuant to the NCR Distribution Agreement, AT&T will
(i) make additional contributions of capital to NCR prior to the Distribution
Date and (ii) contribute intercompany advances outstanding from AT&T to NCR as
of June 30, 1996. The consolidated financial statements included elsewhere
herein reflect these advances in shareholder's equity as having been
contributed. The additional capital contributions are expected to consist of
$419 million in cash and the contribution of additional cash in an amount
sufficient to retire or defease a total of $68 million of NCR debt (including
payment of related expenses). A portion of the $419 million in cash may be
provided by means of additional intercompany advances from AT&T to NCR after
June 30, 1996 that will be contributed at the Distribution Date. See
"Capitalization."
SEPARATION AND DISTRIBUTION AGREEMENT
The Separation and Distribution Agreement sets forth the agreements among
AT&T, NCR and Lucent with respect to the principal corporate transactions
required to effect the separation of the Lucent business from AT&T and NCR and
to effect the transactions relating to the Lucent initial public offering and
distribution of shares of Lucent Common Stock. In addition, the Separation and
Distribution Agreement sets forth certain on-going agreements governing the
relationship among AT&T, NCR and Lucent.
RELEASES AND INDEMNIFICATION
The Separation and Distribution Agreement provides for a full and complete
release and discharge as of the closing date of the Lucent initial public
offering (April 10, 1996) (the "Closing Date") of all Liabilities existing or
arising from all acts and events occurring or failing to occur or alleged to
have occurred or to have failed to occur and all conditions existing or alleged
to have existed on or before the Closing Date, between or among Lucent or any
member of the Lucent Group, on the one hand, and AT&T, NCR or any member of the
AT&T Services Group or the NCR Group, on the other hand (including any
contractual agreements or arrangements existing or alleged to exist between or
among any such members on or before the Closing Date), except as expressly set
forth in the Separation and Distribution Agreement.
Except as provided in the Separation and Distribution Agreement, Lucent has
agreed to indemnify, defend and hold harmless each of AT&T and NCR, each member
of the AT&T Group and the NCR Group, and each of their respective directors,
officers and employees, from and against all Liabilities relating to, arising
out of or resulting from (i) the failure of Lucent or any member of the Lucent
Group or any other
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Person to pay, perform or otherwise promptly discharge any Lucent Liabilities,
any Environmental Liabilities of a Subsidiary of Lucent not directly assumed by
Lucent, or any Lucent Contract, in accordance with their respective terms, (ii)
the Lucent Business, any Lucent Liability, the Environmental Liabilities
referred to above or any Lucent Contract, (iii) any breach by Lucent or any
member of the Lucent Group of the Separation and Distribution Agreement or any
of the Ancillary Agreements, and (iv) any untrue statement or alleged untrue
statement of a material fact or omission or alleged omission to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading, with respect to all information contained in the Prospectus or
the registration statement of which it forms a part relating to the initial
public offering of the Lucent Common Stock. Also, in the Separation and
Distribution Agreement, Lucent has indemnified the members of the AT&T Group,
subject to limited exceptions, against any claims of patent, copyright or
trademark infringement or trade secret misappropriation with respect to any
product, software or other material provided by or ordered from Lucent Business
(whether alone or in combination with other items provided by Lucent Business or
third parties) prior to the Closing Date.
AT&T has agreed to indemnify, defend and hold harmless Lucent, each member
of the Lucent Group and each of their respective directors, officers and
employees from and against all Liabilities relating to, arising out of or
resulting from (i) the failure of AT&T or any member of the AT&T Group or any
other Person to pay, perform or otherwise promptly discharge any Liabilities of
the AT&T Group other than Lucent Liabilities or the NCR Covered Liabilities,
(ii) the AT&T Services Business or any Liability of the AT&T Group other than
Lucent Liabilities and the NCR Covered Liabilities, and (iii) any breach by AT&T
or any member of the AT&T Services Group of the Separation and Distribution
Agreement or any of the Ancillary Agreements.
NCR has agreed to indemnify, defend and hold harmless Lucent, each member
of the Lucent Group and each of their respective directors, officers and
employees from and against all liabilities relating to, arising out of or
resulting from (i) the failure of NCR or any member of the NCR Group or any
other Person to pay, perform or otherwise promptly discharge any Exclusive NCR
Contingent Liability or any Shared NCR Percentage of any Shared Contingent
Liability, and (ii) any breach by NCR or any member of the NCR Group of the
Separation and Distribution Agreement or any of the Ancillary Agreements, or any
other agreement that is not contemplated to be terminated as of the Closing Date
pursuant to the Separation and Distribution Agreement. NCR has also agreed to
indemnify, defend and hold harmless each AT&T Indemnitee from and against any
and all Liabilities of the AT&T Indemnitees relating to, arising out of or
resulting from any NCR Covered Liability.
The Separation and Distribution Agreement also specifies certain procedures
with respect to claims subject to indemnification and related matters.
CONTINGENT LIABILITIES AND CONTINGENT GAINS
The Separation and Distribution Agreement provides for indemnification by
Lucent, AT&T and NCR with respect to Contingent Liabilities primarily relating
to their respective businesses or otherwise assigned to them ("Exclusive
Contingent Liabilities"), subject to the sharing provisions described below. In
the event the aggregate Value (as defined herein) of all amounts paid by Lucent,
AT&T or NCR (in each case, together with any members of its respective Group) in
respect of any single Exclusive Contingent Liability of such Group or any set or
group of Related Exclusive Contingent Liabilities of such Group is in excess of
$100 million, NCR, AT&T and Lucent will share such portion in excess of $100
million (the "Excess Portion") in accordance with the following percentages:
(i) if the Exclusive Contingent Liability primarily relates to the
business of AT&T, AT&T will bear 75% of such Excess Portion, Lucent will
bear 22% of such Excess Portion, and NCR will bear 3% of such Excess
Portion;
(ii) if the Exclusive Contingent Liability primarily relates to the
business of Lucent, Lucent will bear 50% of such Excess Portion, AT&T will
bear 47% of such Excess Portion, and NCR will bear 3% of such Excess
Portion; and
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(iii) if the Exclusive Contingent Liability primarily relates to the
business of NCR, NCR will bear 50% of such Excess Portion, AT&T will bear
37% of such Excess Portion, and Lucent will bear 13% of such Excess
Portion.
For purposes of the foregoing, the term "Value" is defined as the aggregate
amount of all cash payments, the fair market value of all non-cash payments and
the incremental cost of providing any goods or services made or provided in
respect of any Exclusive Contingent Liability or Related Exclusive Contingent
Liabilities, net of: (a) any Insurance Proceeds received or realized in respect
of the applicable Exclusive Contingent Liability or Related Exclusive Contingent
Liabilities, (b) any Tax benefits associated with such payments or the provision
of such goods or services (calculated in the manner specified in the Separation
and Distribution Agreement), (c) any amounts received pursuant to certain
specified third party agreements in respect of the Exclusive Contingent
Liability or Related Exclusive Contingent Liabilities, (d) any other amounts
recovered (including by way of set off) from a third party in connection with
any such Action or threatened Action and (e) the amount of any reserve, account
payable or similar accrual in respect of the Exclusive Contingent Liability or
Related Exclusive Contingent Liabilities (net of any offsetting receivables in
respect of such Exclusive Contingent Liability or Related Exclusive Contingent
Liabilities), in each case as reflected on the Lucent Balance Sheet or the
audited consolidated balance sheet of AT&T, including the notes thereto, as of
December 31, 1995 (and without giving effect to any subsequent adjustment of any
such reserve, account payable, accrual or offsetting receivable).
As a result of the foregoing provisions, if the Value of amounts paid in
respect of any Exclusive Contingent Liability or Related Exclusive Contingent
Liabilities of AT&T or Lucent exceeds $100 million, NCR will be required to pay
3% of the Excess Portion, notwithstanding the fact that the Exclusive Contingent
Liability or Related Exclusive Contingent Liabilities do not relate to the
business and operations of NCR or any other member of the NCR Group. Conversely,
if the Value of amounts paid in respect of any NCR Exclusive Contingent
Liability or Related Exclusive Contingent Liabilities exceeds $100 million, NCR
will be entitled to reimbursement from AT&T and Lucent of 50%, in the aggregate,
of the Excess Portion, notwithstanding the fact that the Exclusive Contingent
Liability or Related Exclusive Contingent Liabilities do not relate to the
business and operations of AT&T or Lucent or the members of their Groups.
The Separation and Distribution Agreement also provides for the sharing of
Shared Contingent Liabilities, which are defined as (a) any Contingent
Liabilities that are not Exclusive AT&T Contingent Liabilities, Exclusive Lucent
Contingent Liabilities or Exclusive NCR Contingent Liabilities, (b) any RBOC
Liability, and (c) certain specifically identified Liabilities, including
certain Liabilities relating to terminated, divested or discontinued businesses
or operations of AT&T or its current or former Affiliates. With respect to any
Shared Contingent Liability, the parties have agreed that AT&T will be
responsible for 75%, Lucent for 22% and NCR for 3% of such Shared Contingent
Liability. AT&T will assume the defense of, and may seek to settle or
compromise, any Third Party Claim that is a Shared Contingent Liability, and the
costs and expenses thereof will be included in the amount to be shared by the
parties.
The Separation and Distribution Agreement provides that Lucent, AT&T and
NCR will have the exclusive right to any benefit received with respect to any
Contingent Gain that primarily relates to the business of, or that is expressly
assigned to, Lucent, AT&T or NCR, respectively (an "Exclusive Contingent Gain").
Each of Lucent, AT&T and NCR will have sole and exclusive authority to manage,
control and otherwise determine all matters whatsoever with respect to an
Exclusive Contingent Gain that primarily relates to its respective business. The
parties have agreed to share any benefit that may be received from any
Contingent Gain that is not an Exclusive Contingent Gain (a "Shared Contingent
Gain"), with AT&T receiving 75%, Lucent receiving 22% and NCR receiving 3% of
any such benefit. The parties have agreed that AT&T will have the sole and
exclusive authority to manage, control and otherwise determine all matters
whatsoever with respect to any Shared Contingent Gain. Pursuant to the
Separation and Distribution Agreement, each of Lucent and NCR acknowledges that
AT&T may elect not to pursue any Shared Contingent Gain for any reason
whatsoever (including a different assessment of the merits of any Action, claim
or right than Lucent or NCR or any business reasons that are in the best
interests of AT&T or a member of the AT&T Services Group, without regard to the
best interests of any member of Lucent Group or
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the NCR Group) and that no member of the AT&T Group will have any liability to
any Person (including any member of Lucent Group or the NCR Group) as a result
of any such determination.
The Separation and Distribution Agreement provides for the establishment of
a Contingent Claims Committee comprised of one representative designated from
time to time by each of AT&T, Lucent and NCR and sets forth procedures for the
purpose of resolving disagreements among the parties as to Contingent Gains and
Contingent Liabilities.
DISPUTE RESOLUTION
The Separation and Distribution Agreement contains provisions that govern,
except as otherwise provided in any Ancillary Agreement, the resolution of
disputes, controversies or claims ("disputes") that may arise between or among
the parties. These provisions contemplate that efforts will be made to resolve
disputes by escalation of the matter to senior management (or other mutually
agreed) representatives of the parties. If such efforts are not successful, any
party may submit the dispute to mandatory, binding arbitration, subject to the
provisions of the Separation and Distribution Agreement. The Separation and
Distribution Agreement contains procedures for the selection of a sole
arbitrator of the dispute and for the conduct of the arbitration hearing,
including certain limitations on discovery rights of the parties. These
procedures are intended to produce an expeditious resolution of any such
dispute.
In the event that any dispute is, or is reasonably likely to be, in excess
of $100 million, or in the event that an arbitration award in excess of $100
million is issued in any arbitration proceeding commenced under the Separation
and Distribution Agreement, subject to certain conditions, any party may submit
such dispute to a court of competent jurisdiction and the arbitration provisions
contained in the Separation and Distribution Agreement will not apply. In the
event that the parties do not agree that the amount in controversy is in excess
of $100 million, the Separation and Distribution Agreement provides for
arbitration of such disagreement.
CERTAIN BUSINESS TRANSACTIONS
The Separation and Distribution Agreement states that, subject to the terms
and conditions thereof, no member of any Group will have any duty to refrain
from engaging in the same or similar activities or lines of business as any
member of any other Group, or from doing business with any potential or actual
supplier or customer of any member of any other Group.
EMPLOYEE BENEFITS AGREEMENT
AT&T and NCR expect to enter into the NCR Employee Benefits Agreement
pursuant to which NCR will assume or retain, as applicable, and agree to pay,
perform, fulfill and discharge, in accordance with their respective terms, with
certain exceptions: (i) all Liabilities to or relating to persons who are, as of
the Distribution Date, NCR employees and former employees ("NCR Individuals")
relating to, arising out of or resulting from employment by AT&T, an AT&T
Entity, NCR or an NCR Entity before the Close of the Distribution Date
(including Liabilities under NCR Plans); (ii) all other Liabilities to or
relating to NCR Individuals and other employees or former employees of NCR or an
NCR Entity, and their dependents and beneficiaries, relating to, arising out of
or resulting from employment with NCR or an NCR Entity after the Close of the
Distribution Date (including Liabilities under NCR Plans); (iii) all Liabilities
relating to, arising out of or resulting from any other actual or alleged
employment relationship with NCR or an NCR Entity; (iv) all other Liabilities
relating to, arising out of or resulting from obligations, liabilities and
responsibilities expressly assumed or retained by NCR, an NCR Entity, or an NCR
Plan pursuant to the NCR Employee Benefits Agreement; and (v) all Liabilities
relating to, arising out of or resulting from NCR Plans (other than Liabilities
to AT&T employees under certain executive benefit plans).
The NCR Employee Benefits Agreement will also provide that NCR will use its
reasonable best efforts to take all actions necessary or appropriate so that,
with certain exceptions, each outstanding Award based on AT&T Common Stock
granted under any AT&T Long Term Incentive Plan held by any NCR employee as of
the Close of the Distribution Date will be replaced, effective immediately after
the Distribution Date, with an Award based on NCR Common Stock, as described
below. Pursuant to the NCR Employee Benefits
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Agreement, each such Award consisting of an AT&T Option will be replaced,
effective immediately after the Distribution Date, with an NCR Option. Such NCR
Option will provide for the purchase of a number of shares of NCR Common Stock
equal to the number of shares of AT&T Common Stock subject to such AT&T Option
as of the Close of the Distribution Date, multiplied by the Ratio, (as defined
below) and then rounded down to the nearest whole share. The per-share exercise
price of such NCR Option will equal the per-share exercise price of such AT&T
Option as of the Close of the Distribution Date divided by the Ratio. Each such
Award consisting of AT&T performance shares or AT&T stock units will be
replaced, with certain exceptions, with a new performance share award or a new
stock unit award, as the case may be, consisting of a number of NCR performance
shares or NCR stock units, as the case may be, equal to the number of AT&T
performance shares or AT&T stock units, as the case may be, constituting such
Award as of the Close of the Distribution Date, multiplied by the Ratio, and
then rounded down to the nearest whole share.
Each such Award consisting of non-vested restricted shares of AT&T Common
Stock or restricted stock units relating to shares of AT&T Common Stock, with
certain exceptions, will be replaced with either a replacement Award or such
other form of compensation not based on NCR Common Stock as NCR may determine.
Any such replacement Award will be a new Award consisting of a number of
non-vested restricted shares of NCR Common Stock and/or restricted stock units
relating to shares of NCR Common Stock equal to the number of non-vested
restricted shares or restricted stock units of AT&T Common Stock constituting
such Award as of the Close of the Distribution Date multiplied by the Ratio, and
then rounded down to the nearest whole share.
Each replacement Award described above will otherwise have the same terms
and conditions as were applicable to the corresponding AT&T Award as of the
Close of the Distribution Date, except that references to AT&T and its
Affiliates will be amended to refer to NCR and its Affiliates and dividend
equivalent payments, if any, with respect to dividends, the record date for
which is payable after the Distribution Date will be paid with reference to
dividends, if any, on NCR Common Stock. For purposes of the replacements
described above, the "Ratio" means the amount obtained by dividing (a) the
average of the daily high and low per-share prices of the AT&T Common Stock
during each of the five trading days immediately preceding the Distribution Date
by (b) the average of the daily high and low per-share prices of the NCR Common
Stock on a when-issued basis during each of the five trading days immediately
preceding the Distribution Date.
If, at any time after the Close of the Distribution Date, AT&T is required
to deliver shares of AT&T Common Stock, or shares of AT&T Common Stock vest,
pursuant to an Award that NCR fails to replace as summarized above, with certain
exceptions, NCR will pay AT&T the following amounts: (i) with respect to each
such Award that is an AT&T Option, the Spread on such Option; (ii) with respect
to the vesting or delivery of shares of AT&T Common Stock pursuant to such an
Award (other than an AT&T Option), the Value of such AT&T Common Stock on the
date of such vesting or delivery and (iii) with respect to each such Award, the
amount of any withholding taxes with respect thereto which are not paid or
reimbursed to AT&T by the holder of such Award. The "Spread" on an Option means
the excess, if any, of the Value of the purchased shares on the date of exercise
of such Option over the price paid for such shares. The "Value" of a share of
AT&T Common Stock on a given date means the average of the high and the low
per-share prices of the AT&T Common Stock as listed on the NYSE on such date, or
if there is no trading on the NYSE on such date, on the most recent previous
date on which such trading takes place. NCR will also pay cash in lieu of
fractional shares or other interests in the case of all of the foregoing
replacements and substitutions.
PURCHASE AGREEMENTS
NCR and AT&T expect to enter into the AT&T Volume Purchase Agreement and
certain related agreements, including a General Procedures Agreement (the "AT&T
Procedures Agreement"), pursuant to which NCR will provide products and services
to AT&T and certain affiliates of AT&T (other than Lucent). The AT&T Volume
Purchase Agreement provides that payments through , made to NCR
for purchases of products and services by AT&T and such affiliates will total at
least $ million cumulatively.
The AT&T Procedures Agreement sets forth certain terms, conditions and
procedures with respect to transactions between NCR and AT&T, including
provisions governing (i) ordering and delivery, (ii) payment
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terms, (iii) certain intellectual property matters, (iv) warranties and
indemnities, (v) product support and documentation, (vi) site preparation,
installation, maintenance and other services, and (vii) dispute resolution. NCR
and AT&T also expect to enter into an agreement setting forth the specific terms
and conditions applicable to the provision by NCR to AT&T of certain product
support and maintenance services.
NCR and Lucent have entered into a Volume Purchase Agreement (the "Lucent
Volume Purchase Agreement") under which Lucent has committed to purchase at
least $150 million of products and services from NCR during the three-year
period ending December 31, 1998.
INTERIM SERVICES AND SYSTEMS REPLICATION AGREEMENT
NCR, AT&T and Lucent have entered into the Interim Services and Systems
Replication Agreement, governing the provision by each to one or more of the
others, on an interim basis, of certain data processing and telecommunications
services (including voice telecommunications and data transmission), and certain
corporate support services (including accounting, financial management, tax,
payroll, stockholder and public relations, legal, human resources
administration, procurement, real estate management and other administrative
functions), each as specified and on the terms set forth therein and in the
schedules thereto. Specified charges for such services are generally intended to
allow the providing company to recover the fully allocated direct costs of
providing the services, plus all out-of-pocket costs and expenses, but without
any profit. The Interim Services and System Replication Agreement also provides
for the provision of certain additional services identified from time to time
after the Closing Date that a party reasonably believes were inadvertently or
unintentionally omitted from the specified services, or that are essential to
effectuate an orderly transition under the Separation and Distribution Agreement
(so long as the provision of such services would not significantly disrupt the
providing party's operations).
In addition, the Interim Services and Systems Replication Agreement
provides for the replication and transfer, from each party to one or more of the
others, of certain computer systems, including hardware, software, data storage
or maintenance and support components, specified therein and in the schedules
thereto. Except where otherwise specified, the costs and expenses of separating
or replicating a system are intended to be borne by the parties in proportion to
their prior usage of the system. Costs and expenses of purchasing new hardware
or obtaining new software licenses will be borne by the party purchasing the new
hardware or licensing the new software.
With limited exceptions, these interim services are not expected to extend
beyond January 1, 1998 and many are expected to terminate at or prior to the
Distribution.
PATENT LICENSES AND RELATED MATTERS
Lucent, AT&T and NCR have executed and delivered assignments and other
agreements, including a patent license agreement, related to patents owned or
controlled by AT&T and its subsidiaries. The patent assignments divide ownership
of patents, patent applications and foreign counterparts among Lucent, AT&T and
NCR, with the substantial portion of those previously owned or controlled by
AT&T and its subsidiaries (other than NCR) being assigned to Lucent and the
substantial portion of those previously owned or controlled by NCR and its
subsidiaries being retained by NCR. Certain patents and patent applications
previously owned or controlled by AT&T and its subsidiaries were assigned to
NCR. A small number of the patents assigned to Lucent are jointly owned with
NCR. The patents that Lucent jointly owns with NCR are subject to a defensive
protection agreement under which Lucent holds most ownership rights in the
patents exclusively. Under this defensive protection agreement, NCR has the
ability, subject to specified restrictions, to assert infringement claims under
the patents against companies that assert patent infringement claims against
NCR, and has consent rights in the event Lucent wishes to license the patents to
certain third parties. The defensive protection agreement also provided for a
one-time payment from NCR to Lucent, which has been paid.
The patent license agreement entered into by Lucent, AT&T and NCR provides
for cross-licenses to each company, under each of the other company's patents
that are covered by the licenses, to use, lease, sell and import any and all
products and services of the businesses in which the licensed company (including
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specified related companies) is now or hereafter engaged. Except for the payment
of specified up-front amounts, such cross-licenses are royalty-free. The
cross-licenses also permit each company, subject to specified limitations, to
have third parties make items under the other companies' patents, as well as to
pass through to customers certain rights under the other companies' patents with
respect to products and services furnished to customers by the licensed company.
In addition, the rights granted to Lucent and AT&T include the right to license
third parties under each of the other company's patents to the extent necessary
to meet existing patent licensing obligations.
The cross-licenses between AT&T and NCR cover all of each company's
patents, including patents issued on patent applications filed on or before
December 31, 1999, except for certain patents and patents on filed applications
owned or controlled by AT&T Wireless. The cross-licenses between Lucent and NCR
cover all of each company's patents, including patents issued on patent
applications filed on or before December 31, 1999. In the event of a change in
control of NCR or certain acquisitions by NCR, the licenses granted to NCR under
the patent license agreement will extend only to a specific annual volume of
products and services of a kind offered by NCR prior to the change in control or
specified acquisition.
TECHNOLOGY LICENSES AND RELATED MATTERS
Lucent, AT&T and NCR have executed and delivered assignments and other
agreements, including the Technology License Agreement, related to technology
previously owned or controlled by AT&T and its subsidiaries. Technology includes
copyrights, mask works and other intellectual property other than trademarks,
trade names, trade dress, service marks and patent rights. The technology
assignments divide ownership of technology among Lucent, AT&T and NCR, with
Lucent and AT&T owning technology that was developed by or for, or purchased by,
Lucent's business or AT&T's services business, respectively, and NCR owning
technology that was developed by or for, or purchased by, NCR. Technology that
is not covered by any of these categories is owned jointly by Lucent and AT&T
or, in the case of certain specified technology, owned jointly by Lucent, AT&T
and NCR.
The Technology License Agreement entered into by Lucent, AT&T and NCR
provides for royalty-free cross-licenses to each company to use the other
companies' technology existing as of the Closing Date, except for specified
portions of each company's technology as to which use by the other companies is
restricted or prohibited.
TAX AGREEMENTS
TAX ALLOCATION AGREEMENTS
The parties have entered into agreements to govern the allocation of
consolidated or combined federal and state and local income tax liabilities (the
"Tax Allocation Agreements") among AT&T, Lucent, NCR and all other domestic
subsidiaries of AT&T for the period before the Distribution Date. The Tax
Allocation Agreement applies to Lucent in respect of the period prior to the
date of the Lucent Distribution. No party will pay an amount of income tax
greater than the income tax it would have paid had it filed its income tax
return as a separate entity (prior to credits), except in cases in which the
consolidated or combined group as a whole realizes a detriment from
consolidation or combination. The Tax Allocation Agreements also provide that
profitable entities will compensate loss entities to the extent that the losses
are utilized in the consolidated tax return. No loss entity, however, will be
compensated for an amount of losses in excess of the amount of losses that it
would have shown had it filed its income tax return separately. Consolidated or
combined credits allowed against tax on a consolidated or combined income tax
return will be allocated to each entity in proportion to the creditable
expenditures by such entity (or, in the case of credits not based on
expenditures, in proportion to its contribution to such credits). To the extent
that the consolidated or combined group is subject to alternative minimum tax
("AMT"), such AMT will be allocated proportionately among those members of the
group that would have owed AMT had they filed their income tax return
separately.
TAX SHARING AGREEMENT
The Tax Sharing Agreement, by and among Lucent, AT&T and NCR (the "Tax
Sharing Agreement"), governs contingent tax liabilities and benefits, tax
contests and other tax matters with respect to tax returns
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filed with respect to tax periods ending or deemed to end on or before the
Distribution Date. The Tax Sharing Agreement applies to Lucent in respect of the
period prior to the date of the Lucent Distribution. Under the Tax Sharing
Agreement, Adjustments (as defined in the Tax Sharing Agreement) to Taxes (other
than state, local, or municipal income or franchise taxes) that are clearly
attributable to the business of one party will be borne solely by that party.
Under the Tax Sharing Agreement, Adjustments to state, local, or municipal
income or franchise taxes will be borne by each party in accordance with a
specified formula. Adjustments to all other Tax liabilities will be borne 75% by
AT&T, 22% by Lucent and 3% by NCR.
REAL ESTATE AGREEMENTS
AT&T, Lucent and NCR have executed a series of instruments that assign
AT&T's worldwide real estate portfolio, consisting of both owned and leased
property, among the parties. Generally, such real estate was assigned by
reference to which party was the dominant tenant in the applicable facility. The
parties also have agreed to share, pursuant to intercompany leases, subleases
and sub-subleases, certain facilities, consisting predominantly of office space
and laboratory sites.
With certain exceptions the terms of such leases, subleases and
sub-subleases are substantially the same regardless of which company is tenant
or landlord. In the case of owned real estate to be leased, the lease terms will
be either two or three years, except that a limited number of leases for smaller
premises may be terminated on 90 days' notice by the tenant. In the case of
subleases or sub-subleases of property, the lease term will generally coincide
with the remaining term of the primary lease or sublease, respectively. In the
case of owned property, rent payments are generally determined by reference to
prevailing market rents or previously specified internal budget levels. In the
case of subleases of third-party leases, or sub-subleases, rent payments are
generally determined by reference to the rent specified in the underlying lease
or sublease, plus an administrative fee. The leases, subleases and sub-subleases
provide generally that the owner, landlord or sub-landlord will provide property
services for specified fees. In the case of owned property, furniture becomes
the property of the owner, but may be used by the tenant. In the case of leased
property, the furniture becomes the property of the occupant.
OTHER AGREEMENTS
Pursuant to the Technology Access and Development Project Agreement, NCR
will have access to the results of certain Bell Labs research and development
activities, and Bell Labs will perform specific research and development
projects on a contract basis for NCR. NCR will pay a periodic retainer fee for
such access and an additional fee for each research and development project.
Such agreement will terminate on December 31, 1999, but is subject to renewal by
mutual consent.
Prior to , 1996, AT&T owned approximately 86% of the common stock
of AT&T Capital. In 1993, in connection with the initial public offering of a
minority interest in AT&T Capital, AT&T and AT&T Capital entered into an
operating agreement (the "Operating Agreement") pursuant to which AT&T provides
AT&T Capital with the right to be the preferred provider of leasing and
financing services for AT&T's products. The Operating Agreement expires in
August 2000. NCR, as a subsidiary of AT&T, has operated under the Operating
Agreement and, pursuant to the terms thereof, has entered into a comparable
operating agreement with AT&T Capital having the same term. In connection
therewith, NCR has also agreed that AT&T Capital and certain subsidiaries will
be entitled to use certain of NCR's marks for use in connection with the
provision of financing services under the operating agreement in accordance with
the existing license agreement between AT&T and AT&T Capital. NCR has further
agreed that it will continue to be bound by the provisions of an intercompany
agreement between AT&T and AT&T Capital to the extent NCR is currently bound
thereby under which NCR will continue to give AT&T Capital the right to bid for
the provision of leasing and financing services in connection with NCR's
internal equipment purchasing and leasing in the United States, Canada, the
United Kingdom, France, and Germany.
AT&T and NCR have also entered into a trademark licensing agreement
pursuant to which NCR will be entitled to use the "AT&T" name and related logo
for a specified royalty in connection with the sale of certain of its products
to a specified customer for up to two years.
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DESCRIPTION OF NCR CAPITAL STOCK
AUTHORIZED CAPITAL STOCK
Immediately after the Distribution, NCR's authorized capital stock will
consist of million shares of preferred stock, par value $0.01 per share
(the "Preferred Stock"), and million shares of NCR Common Stock.
Immediately following the Distribution, approximately shares of NCR
Common Stock are expected to be outstanding. All of the shares of NCR Common
Stock that will be outstanding immediately following the Distribution will be
validly issued, fully paid and nonassessable, free of preemptive rights. The
following summarizes certain Charter provisions as they are expected to be in
effect after the Distribution.
COMMON STOCK
The holders of NCR Common Stock will be entitled to one vote for each share
on all matters voted on by stockholders, including elections of directors, and,
except as otherwise required by law or provided in any resolution adopted by the
NCR Board of Directors with respect to any series of Preferred Stock, the
holders of such shares will possess all voting power. There is no cumulative
voting in the election of directors. Subject to any preferential rights of any
outstanding series of Preferred Stock created by the NCR Board of Directors from
time to time, the holders of NCR Common Stock will be entitled to such dividends
as may be declared from time to time by the NCR Board of Directors from funds
available therefor, and upon liquidation will be entitled to receive pro rata
all assets of NCR available for distribution to such holders. See "Dividend
Policy."
PREFERRED STOCK
The Charter authorizes the NCR Board of Directors to establish one or more
series or classes of Preferred Stock and to determine, with respect to any
series of Preferred Stock, the terms and rights of such series.
NCR believes that the ability of the NCR Board of Directors to issue one or
more series of Preferred Stock will provide NCR with flexibility in structuring
possible future financings and acquisitions, and in meeting other corporate
needs which might arise. The authorized shares of Preferred Stock, as well as
shares of NCR Common Stock, will be available for issuance without further
action by NCR's stockholders, unless such action is required by applicable law
or the rules of any stock exchange or automated quotation system on which NCR's
securities may be listed or traded. The NYSE currently requires stockholder
approval as a prerequisite to listing shares in several instances, including
where the present or potential issuance of shares could result in an increase in
the number of shares of common stock, or in the amount of voting securities,
outstanding of at least 20%. If the approval of NCR's stockholders is not
required for the issuance of shares of Preferred Stock or NCR Common Stock, the
NCR Board of Directors may determine not to seek stockholder approval.
Although the NCR Board of Directors has no intention at the present time of
doing so, it could issue a series of Preferred Stock that could, depending on
the terms of such series, impede the completion of a merger, tender offer or
other takeover attempt. The NCR Board of Directors will make any determination
to issue such shares based on its judgment as to the best interests of NCR and
its stockholders. The NCR Board of Directors, in so acting, could issue
Preferred Stock having terms that could discourage an acquisition attempt
through which an acquiror may be able to change the composition of the NCR Board
of Directors, including a tender offer or other transaction that some, or a
majority, of NCR's stockholders might believe to be in their best interests or
in which stockholders might receive a premium for their stock over the then
current market price of such stock.
As of the Distribution Date, Junior Preferred Shares (as defined
herein) will be reserved for issuance upon exercise of the Rights. See "Certain
Antitakeover Effects -- Rights Plan."
Copies of the Charter, Bylaws and Rights Plan are filed as Exhibits to the
Registration Statement and the summaries thereof in this Information Statement
are qualified in their entirety by reference thereto. See "Available
Information."
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<PAGE> 87
CERTAIN ANTITAKEOVER EFFECTS
BOARD OF DIRECTORS
The Charter provides that the directors, other than those who may be
elected in accordance with the terms of any Articles Supplementary relating to
any series of Preferred Stock created from time to time, will be divided into
three classes. Each such class will consist, as nearly as may be possible, of
one-third of the total number of directors. The Charter also provides that
except as otherwise fixed by or pursuant to the provisions of any Articles
Supplementary, NCR will have directors, which number may be increased or
decreased from time to time in such lawful manner as the Bylaws provide. The
Bylaws provide that the number of directors may be increased to not more than 20
or decreased to not less than 3 from time to time by a majority of the total
number of directors which NCR would have if there were no vacancies (the "Whole
Board"). Except as provided by law with respect to directors elected by
stockholders of a class or series, any director or the entire Board of Directors
may be removed for cause, by the affirmative vote of the holders of not less
than 80% of the voting power of all Voting Stock then outstanding, voting
together as a single class.
Except as provided by law with respect to directors elected by stockholders
of a class or series, a vacancy on the Board of Directors which results from the
removal of a director may be filled by the affirmative vote of the holders of
not less than 80% of the voting power of the then outstanding Voting Stock,
voting together as a single class, and a vacancy which results from any such
removal or from any other cause may be filled by a majority of the remaining
directors, whether or not sufficient to constitute a quorum.
These provisions would preclude a third party from removing incumbent
directors and simultaneously gaining control of the NCR Board of Directors by
filling the vacancies created by removal with its own nominees. Under the
classified board provisions described above, it would take at least two
elections of directors for any individual or group to gain control of the NCR
Board of Directors. Accordingly, these provisions could discourage a third party
from initiating a proxy contest, making a tender offer or otherwise attempting
to gain control of NCR.
STOCKHOLDER ACTION BY UNANIMOUS WRITTEN CONSENT; LIMITATIONS ON CALL OF SPECIAL
MEETINGS
The Charter provides that except as may be provided in any Articles
Supplementary, any corporate action upon which a vote of stockholders is
required or permitted may be taken without a meeting or vote of stockholders
only with the unanimous written consent of stockholders entitled to vote
thereon. As a practical matter, this provision will make action by written
consent impossible in a public corporation such as NCR after the Distribution
Date.
The Charter further provides that except as otherwise required by the GCL
or as provided in any Articles Supplementary, special meetings of stockholders
of NCR for any purpose or purposes may be called only by the Board of Directors
or by the President of NCR. No business other than that stated in the notice
will be transacted at any such special meeting. Each of the Board of Directors,
the President and Secretary of NCR will have the maximum power and authority
permitted by the GCL with respect to the establishment of the date of any
special meeting of stockholders, the establishment of the record date for
stockholders entitled to vote thereat, the imposition of conditions on the
conduct of any special meeting of stockholders and all other matters relating to
the call, conduct, adjournment or postponement of any such special meeting,
regardless of whether the meeting was convened by the Board of the Directors,
the President, the stockholders of NCR or otherwise. Under current provisions of
the GCL and the Bylaws, the holders of a majority of the outstanding shares of
NCR Common Stock may require the Secretary of NCR to call a special meeting of
stockholders of NCR.
These provisions may have the effect of delaying consideration of a
stockholder proposal until the next annual meeting unless a special meeting is
called by the NCR Board of Directors, the President or a majority of the holders
of the shares of NCR Common Stock.
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ADVANCE NOTICE PROCEDURES
The Bylaws establish an advance notice procedure for stockholders to make
nominations of candidates for election as directors or to bring other business
before an annual meeting of stockholders of NCR (the "Stockholder Notice
Procedure"). The Stockholder Notice Procedure provides that only persons who are
nominated by, or at the direction of, the Board of Directors, or by a
stockholder who has given timely written notice to the Secretary of NCR prior to
the meeting at which directors are to be elected, will be eligible for election
as directors of NCR. The Stockholder Notice Procedure also provides that at an
annual meeting only such business may be conducted as has been brought before
the meeting by, or at the direction of, the NCR Board of Directors, or by a
stockholder who has given timely written notice to the Secretary of NCR of such
stockholder's intention to bring such business before such meeting. Under the
Stockholder Notice Procedure, for notice of stockholder nominations to be made
at an annual meeting to be timely, such notice must be received by NCR not later
than the close of business on the 90th calendar day nor earlier than the close
of business on the 120th calendar day prior to the first anniversary of the
preceding year's annual meeting (except that, in the event that the date of the
annual meeting is more than 30 calendar days before or more than 60 calendar
days after such anniversary date, notice by the stockholder to be timely must be
so delivered not earlier than the close of business on the 120th calendar day
prior to such annual meeting and not later than the close of business on the
later of the 90th calendar day prior to such annual meeting or the 10th calendar
day following the day on which public announcement of a meeting date is first
made by NCR). For purposes of the Stockholder Notice Procedure, the first
anniversary of the 1996 annual meeting will be deemed to be , 1997.
Notwithstanding the foregoing, in the event that the number of directors to
be elected to the NCR Board of Directors is increased and there is no public
announcement by NCR naming all of the nominees for director or specifying the
size of the increased NCR Board of Directors at least 100 calendar days prior to
the first anniversary of the preceding year's annual meeting, a stockholder's
notice also will be considered timely, but only with respect to nominees for any
new positions created by such increase, if it is delivered not later than the
close of business on the 10th calendar day following the day on which such
public announcement is first made by NCR. Under the Stockholder Notice
Procedure, for notice of a stockholder nomination to be made at a special
meeting at which directors are to be elected to be timely, such notice must be
received by NCR not earlier than the close of business on the 120th calendar day
prior to such special meeting and not later than the close of business on the
later of the 90th calendar day prior to such special meeting or the 10th
calendar day following the day on which public announcement is first made of the
date of the special meeting and of the nominees proposed by the NCR Board of
Directors to be elected at such meeting.
In addition, under the Stockholder Notice Procedure, a stockholder's notice
to NCR proposing to nominate a person for election as a director or relating to
the conduct of business other than the nomination of directors must contain
certain specified information. If the chairman of a meeting determines that an
individual was not nominated, or other business was not brought before the
meeting, in accordance with the Stockholder Notice Procedure, such individual
will not be eligible for election as a director, or such business will not be
conducted at such meeting, as the case may be.
Although the Stockholder Notice Procedures do not give the NCR Board of
Directors any power to approve or disapprove stockholder nominations for the
election of directors or proposals for action, they may have the effect of
precluding a contest for the election of directors or the consideration of
stockholder proposals if the proper procedures are not followed and of
discouraging or deterring a third party from conducting a solicitation of
proxies to elect its own slate of directors or to approve its own proposal,
without regard to whether consideration of such nominees or proposals might be
harmful or beneficial to NCR and its stockholders.
AMENDMENT
The Charter provides that the affirmative vote of the holders of at least
80% of the Voting Stock, voting together as a single class, is required to amend
provisions of the Charter relating to stockholder action without a meeting; the
calling of special meetings; the number, election and term of NCR's directors;
the filling of
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vacancies; and the removal of directors. The Charter further provides that the
related Bylaws described above (including the Stockholder Notice Procedure) may
be amended only by the NCR Board of Directors or by the affirmative vote of the
holders of at least 80% of the voting power of the outstanding shares of Voting
Stock, voting together as a single class. Other amendments to the Charter
require the affirmative vote of the holders of at least a majority of the Voting
Stock, voting together as a single class. In all cases, amendments to the
Charter require that the Board of Directors of NCR determine that the proposed
amendment is advisable.
RIGHTS PLAN
The NCR Board of Directors currently expects to adopt the Rights Plan on or
prior to the Distribution Date. Pursuant to the Rights Plan, the NCR Board of
Directors will cause to be issued one Right for each outstanding share of NCR
Common Stock. The Rights have certain antitakeover effects. The Rights will
cause substantial dilution to a person or group of persons that attempts to
acquire NCR on terms not approved by the NCR Board of Directors. The Rights
should not interfere with any merger or other business combination approved by
the NCR Board of Directors prior to the time that a person or group has acquired
beneficial ownership of 15% percent or more of the NCR Common Stock since the
Rights may be redeemed by NCR until such time.
Each Right will entitle the registered holder to purchase from NCR one
one-hundredth of a share of a new series of Series A Junior Participating
Preferred Stock, par value $.01 per share (the "Junior Preferred Shares"), of
NCR at a price of $ per share (the "Purchase Price"), subject to adjustment.
The description and terms of the Rights will be set forth in a Rights Agreement
(the "Rights Agreement"), between NCR and the designated Rights Agent (the
"Rights Agent"). The description set forth below is intended as a summary only
and is qualified in its entirety by reference to the form of the Rights
Agreement, which will be filed as an exhibit to the Registration Statement. See
"Available Information."
Until the earlier to occur of (i) 10 days following a public announcement
that a person or group of affiliated or associated persons (an "Acquiring
Person") have acquired beneficial ownership of 15% or more of the outstanding
shares of NCR Common Stock or (ii) 10 business days (or such later date as may
be determined by action of the NCR Board of Directors prior to such time as any
person becomes an Acquiring Person) following the commencement of, or
announcement of an intention to make, a tender offer or exchange offer the
consummation of which would result in the beneficial ownership by a person or
group of 15% or more of such outstanding shares of NCR Common Stock (the earlier
of such dates being called the "Rights Distribution Date"), the Rights will be
evidenced by the certificates representing the NCR Common Stock.
The Rights Agreement will provide that, until the Rights Distribution Date
(or earlier redemption or expiration of the Rights), the Rights will be
transferred with and only with the NCR Common Stock. Until the Rights
Distribution Date (or earlier redemption or expiration of the Rights), the NCR
Common Stock certificates will contain a notation incorporating the Rights
Agreement by reference. As soon as practicable following the Rights Distribution
Date, separate certificates evidencing the Rights (the "Right Certificates")
will be mailed to holders of record of the NCR Common Stock as of the close of
business on the Rights Distribution Date and such separate Right Certificates
alone will evidence the Rights.
The Rights will not be exercisable until the Rights Distribution Date. The
Rights will expire on December 31, 2006 (the "Final Expiration Date"), unless
the Final Expiration Date is extended or unless the Rights are earlier redeemed
or exchanged by NCR, in each case, as summarized below.
In the event that any person or group of affiliated or associated persons
become an Acquiring Person, proper provision will be made so that each holder of
a Right, other than Rights beneficially owned by the Acquiring Person (which
will thereafter be void), will thereafter have the right to receive upon
exercise that number of shares of NCR Common Stock having a market value of two
times the exercise price of the Right. In the event that NCR is acquired in a
merger or other business combination transaction or 50% or more of its
consolidated assets or earning power are sold after a person or group of
affiliated or associated persons becomes an Acquiring Person, proper provision
will be made so that each holder of a Right will thereafter have the right to
receive, upon the exercise thereof at the then-current exercise price of the
Right, that number
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of shares of common stock of the acquiring company which at the time of such
transaction will have a market value of two times the exercise price of the
Right.
At any time after the acquisition by a person or group of affiliated or
associated persons of beneficial ownership of 15% or more of the then
outstanding NCR Common Stock and prior to the acquisition by such person or
group of 50% or more of the outstanding NCR Common Stock, the NCR Board of
Directors may exchange the Rights (other than Rights owned by such person or
group which have become void), in whole or in part, at an exchange ratio of one
share of NCR Common Stock, or one one-hundredth of a Junior Preferred Share, per
Right (subject to adjustment).
At any time prior to the acquisition by a person or group of affiliated or
associated persons of beneficial ownership of 15% or more of the then
outstanding NCR Common Stock, the NCR Board of Directors may redeem the Rights
in whole, but not in part, at a price of $.01 per Right (the "Redemption
Price"). The redemption of the Rights may be made effective at such time on such
basis and with such conditions as the NCR Board of Directors, in its sole
discretion, may establish. Immediately upon any redemption of the Rights, the
right to exercise the rights will terminate and the only right of the holders of
the Rights will be eligible to receive the Redemption Price.
The terms of the Rights may be amended by the NCR Board of Directors
without the consent of the holders of the Rights; provided, however, that, from
and after such time as any person or group of affiliated or associated persons
becomes an Acquiring Person, no such amendment may adversely affect the
interests of the holders of the Rights. Until a Right is exercised, the holder
thereof, as such, will have no rights as a stockholder of NCR, including,
without limitation, the right to vote or to receive dividends.
The number of outstanding Rights and the number of one one-hundredths of a
Junior Preferred Share issuable upon exercise of each Right also will be subject
to adjustment in the event of a stock split of the NCR Common Stock or a stock
dividend on the NCR Common Stock payable in NCR Common Stock or subdivisions,
consolidations or combinations of the NCR Common Stock occurring, in any such
case, prior to the Rights Distribution Date. The Purchase Price payable, and the
number of Junior Preferred Shares or other securities or property issuable, upon
exercise of the Rights will be subject to adjustment from time to time to
prevent dilution (i) in the event of a stock dividend on, or a subdivision,
combination or reclassification of, the Junior Preferred Shares, (ii) upon the
grant to holders of the Junior Preferred Shares of certain rights or warrants to
subscribe for or purchase Junior Preferred Shares at a price, or securities
convertible into Junior Preferred Shares with a conversion price, less than the
then-current market price of the Junior Preferred Shares or (iii) upon the
distribution to holders of the Junior Preferred Shares of evidences of
indebtedness or assets (excluding regular periodic cash dividends paid out of
earnings or retained earnings or dividends payable in Junior Preferred Shares)
or of subscription rights or warrants (other than those referred to above).
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least one
percent in such Purchase Price. No fractional Junior Preferred Shares will be
issued (other than fractions which are integral multiples of one one-hundredth
of a Junior Preferred Share, which may, at the election of NCR, be evidenced by
depositary receipts) and in lieu thereof, an adjustment in cash will be made
based on the market price of the Junior Preferred Shares on the last trading day
prior to the date of exercise.
Junior Preferred Shares purchasable upon exercise of the Rights will not be
redeemable. Each Junior Preferred Share will be entitled to a minimum
preferential quarterly dividend payment of $1.00 per share but will be entitled
to an aggregate dividend of 100 times the dividend declared per share of NCR
Common Stock. In the event of liquidation, the holders of the Junior Preferred
Shares will be entitled to a minimum preferential liquidation payment of $100
per share but will be entitled to an aggregate payment of 100 times the payment
made per share of NCR Common Stock. Each Junior Preferred Share will have 100
votes voting together with the NCR Common Stock. Finally, in the event of any
merger, consolidation or other transaction in which shares of NCR Common Stock
are exchanged, each Junior Preferred Share will be entitled to receive 100 times
the amount received per NCR Common Stock. These rights are protected by
customary antidilution provisions.
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Due to the nature of the Junior Preferred Shares' dividend, liquidation and
voting rights, the value of the one one-hundredth interest in a Junior Preferred
Share purchasable upon exercise of each Right should approximate the value of
one share of NCR Common Stock.
MARYLAND BUSINESS COMBINATION STATUTE
Section 3-602 of the GCL provides that, subject to certain exceptions
specified therein, any holder of 10% of the voting stock of a Maryland
corporation (an "interested stockholder") may not engage in any merger or other
business combination with the corporation for a five-year period following the
date that such stockholder becomes an interested stockholder unless prior to
such date, the board of directors of the corporation approved the 10%
acquisition. After such five-year period, any such business combination must be
recommended by the board of directors of the corporation and approved by the
affirmative vote of at least 80% of the outstanding Voting Stock and 66 2/3% of
the outstanding Voting Stock which is not owned by the interested stockholder,
unless certain fair price and other conditions are met.
The provisions of Section 3-602 will apply to NCR. Under certain
circumstances, Section 3-602 makes it more difficult for a person who would be
an interested stockholder to effect various business combinations with a
corporation for a five-year period. Such provisions could make it more difficult
to accomplish transactions which NCR's stockholders may otherwise deem to be in
their best interests. Such provision may also have the effect of preventing
changes in the management of NCR.
GCL BUSINESS COMBINATION VOTE REQUIREMENTS
Pursuant to the GCL, with certain exceptions, the affirmative vote of the
holders of at least two-thirds of all votes entitled to be cast on the matter is
required to approve any merger, consolidation, share exchange, or transfer of
assets outside the ordinary course of business.
CONTROL SHARE ACQUISITION STATUTE
NCR has elected not to be covered by the "Control Share Acquisition
Statute" of the GCL.
Copies of the Charter, Bylaws and Rights Plan are filed as Exhibits to the
Registration Statement and the summaries thereof in this Information Statement
are qualified in their entirety by reference thereto. See "Available
Information."
LIABILITY OF DIRECTORS AND OFFICERS; INDEMNIFICATION
NCR's Charter limits the personal liability of its directors and officers
to NCR and its stockholders for money damages to the maximum extent permitted by
Maryland law. The Charter provides that, to the fullest extent permitted by
Maryland statutory or decisional law, as amended or interpreted, no director or
officer of NCR will be personally liable to NCR or its stockholders for money
damages. No amendment of the Charter or repeal of any of its provisions will
limit or eliminate the benefits provided to directors and officers thereunder
with respect to any act or omission which occurred prior to such amendment or
repeal or with respect to any cause of action, suit or claim that, but for such
provision would accrue or arise, prior to such amendment or repeal.
As a result, neither NCR nor any NCR stockholder can hold the directors or
officers personally liable for monetary damages, if they acted in good faith,
with a reasonable belief that they were acting in the best interests of NCR, and
with the care that an ordinarily prudent person in a like position would use
under similar circumstances. Under current law, however, such limitation does
not apply (a) to the extent that a director or officer received an improper
benefit; or (b) to the extent an award was based on a finding that the director
or officer was actively and deliberately dishonest and such finding was material
to the cause of action.
The NCR Charter provides that NCR will indemnify (a) its directors and
officers, whether serving NCR or, at its request, any other entity, to the
fullest extent required or permitted by the General Laws of the State of
Maryland now or hereafter in force, including the advance of expenses under the
procedures and to the
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fullest extent permitted by law and (b) other employees and agents to such
extent as shall be authorized by the Board of Directors or the Bylaws and be
permitted by law. The foregoing rights of indemnification are not exclusive of
any other rights to which those seeking indemnification may be entitled. The
Board of Directors may take such action as is necessary to carry out such
indemnification provisions and is expressly empowered to adopt, approve and
amend from time to time such bylaws, resolutions or contracts implementing such
provisions or such further indemnification arrangements as may be permitted by
law. No amendment of the NCR Charter, or of any such bylaw, resolution or
contract, or repeal of any of their provisions will limit or eliminate the right
to indemnification provided thereunder with respect to acts or omissions
occurring prior to such amendment or repeal. The NCR Bylaws currently contain
provisions implementing the foregoing.
Under current law, directors and officers will be indemnified when serving
in their capacity as directors or officers, unless it is established that (a)
the act or omission of the director or officer was material to the matter giving
rise to the proceeding brought against him or her and was either committed in
bad faith or was the result of active and deliberate dishonesty; (b) the
director or officer actually received an improper personal benefit; or (c) in
the case of a criminal proceeding, the director or officer had reasonable cause
to believe that the act or omission was unlawful.
NCR also expects to purchase insurance for the benefit of its directors and
officers in order to protect them against liability, including with respect to
the matters covered by the foregoing indemnities.
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NCR CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants..................................................... F-2
Consolidated Statements of Operations for the three years ended December 31, 1995 and
for the six months ended June 30, 1996 and 1995 (Unaudited)......................... F-3
Consolidated Balance Sheets at December 31, 1995 and 1994 and at June 30, 1996
(Unaudited)......................................................................... F-4
Consolidated Statements of Cash Flows for the three years ended December 31, 1995 and
for the six months ended June 30, 1996 and 1995 (Unaudited)......................... F-5
Consolidated Statements of Changes in Shareholder's Equity for the three years ended
December 31, 1995................................................................... F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE> 94
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholder of NCR Corporation:
We have audited the consolidated balance sheets of NCR Corporation and
subsidiaries (NCR) at December 31, 1995 and 1994 and the related consolidated
statements of operations, changes in shareholder's equity, and cash flows for
the three years ended December 31, 1995. We have also audited the financial
statement schedule of NCR appearing on page S-1 of this Form 10. These financial
statements and financial statement schedule are the responsibility of
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of NCR at December
31, 1995 and 1994, and the consolidated results of their operations, changes in
their shareholder's equity, and their cash flows for the three years ended
December 31, 1995, in conformity with generally accepted accounting principles.
In addition, in our opinion the financial statement schedule referred to above,
when considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
As discussed in Note 3 to the consolidated financial statements, in 1993
NCR changed its methods of accounting for postretirement benefits,
postemployment benefits and income taxes.
Coopers & Lybrand L.L.P.
Dayton, Ohio
January 25, 1996
F-2
<PAGE> 95
NCR CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
30 YEARS ENDED DECEMBER 31
--------------------- ------------------------------
1996 1995 1995 1994 1993
------ ------ ------- ------ -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES
Sales............................... $1,812 $2,409 $ 5,138 $5,524 $ 4,460
Services and rentals................ 1,453 1,451 3,024 2,937 2,805
------ ------ -------- ------- --------
TOTAL REVENUES............ 3,265 3,860 8,162 8,461 7,265
OPERATING EXPENSES
Cost of sales....................... 1,300 1,921 4,699 3,736 2,795
Cost of services and rentals........ 1,096 1,103 2,617 2,158 2,044
Selling, general and administrative
expenses.......................... 711 995 2,632 2,169 2,136
Research and development expenses... 184 231 585 500 571
------ ------ -------- ------- --------
TOTAL OPERATING
EXPENSES................ 3,291 4,250 10,533 8,563 7,546
------ ------ -------- ------- --------
LOSS FROM OPERATIONS................ (26) (390) (2,371) (102) (281)
Interest expense.................... 26 46 90 44 41
Other (income), net................. (3) (78) (45) (130) (42)
------ ------ -------- ------- --------
LOSS BEFORE INCOME TAXES
AND CUMULATIVE EFFECTS OF
ACCOUNTING CHANGES................ (49) (358) (2,416) (16) (280)
Income tax expense (benefit)........ 34 31 (136) 187 138
------ ------ -------- ------- --------
LOSS BEFORE CUMULATIVE EFFECTS OF
ACCOUNTING CHANGES................ (83) (389) (2,280) (203) (418)
Cumulative effects of accounting
changes, net of taxes............. -- -- -- -- (869)
------ ------ -------- ------- --------
NET LOSS............................ $ (83) $ (389) $(2,280) $ (203) $(1,287)
====== ====== ======== ======= ========
</TABLE>
The notes on pages F-7 through F-29 are an integral part of the consolidated
financial statements
F-3
<PAGE> 96
NCR CORPORATION
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
AT JUNE 30 AT DECEMBER 31
----------- -----------------
1996 1995 1994
----------- ------ ------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents................................... $ 784 $ 314 $ 463
Short-term investments...................................... 41 24 198
Accounts receivable, net.................................... 1,175 1,908 1,860
Inventories................................................. 561 621 952
Deferred income taxes....................................... 240 320 98
Other current assets........................................ 119 131 121
------ ------ ------
TOTAL CURRENT ASSETS................................ 2,920 3,318 3,692
Rental equipment and service parts, net....................... 299 258 228
Property, plant and equipment, net............................ 950 957 1,234
Other assets.................................................. 765 723 682
------ ------ ------
TOTAL ASSETS........................................ $ 4,934 $5,256 $5,836
====== ====== ======
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities
Short-term borrowings....................................... $ 40 $ 45 $ 73
Accounts payable............................................ 352 478 493
Taxes payable............................................... 99 118 47
Payroll and benefits liabilities............................ 381 367 392
Customers' deposits and deferred service revenue............ 449 381 353
Other current liabilities................................... 936 1,532 640
------ ------ ------
TOTAL CURRENT LIABILITIES........................... 2,257 2,921 1,998
Long-term debt................................................ 99 330 642
Pension and indemnity liabilities............................. 308 329 264
Postretirement and postemployment benefit liabilities......... 754 718 637
Other liabilities............................................. 360 276 271
Minority interests............................................ 297 324 334
------ ------ ------
TOTAL LIABILITIES................................... 4,075 4,898 4,146
Commitments and contingencies
Shareholder's equity
Shareholder's net investment................................ 822 310 1,556
Foreign currency translation................................ 74 85 149
Other....................................................... (37) (37) (15)
------ ------ ------
TOTAL SHAREHOLDER'S EQUITY.......................... 859 358 1,690
------ ------ ------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY.......... $ 4,934 $5,256 $5,836
====== ====== ======
</TABLE>
The notes on pages F-7 through F-29 are an integral part of the consolidated
financial statements
F-4
<PAGE> 97
NCR CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30 YEARS ENDED DECEMBER 31
-------------- ----------------------------
1996 1995 1995 1994 1993
----- ----- ------- ------ -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss......................................... $ (83) $(389) $(2,280) $ (203) $(1,287)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities
Restructuring and other charges................ -- -- 1,649 -- 219
Cumulative effects of accounting changes....... -- -- -- -- 1,171
Depreciation and amortization.................. 102 181 350 415 457
Deferred income taxes.......................... 20 -- (236) 73 (271)
Net (gain) loss on sale of assets.............. 11 (44) (1) (110) --
Changes in operating assets and liabilities
Receivables.................................... 733 73 (102) (572) (60)
Inventories.................................... 61 (187) (72) (171) (161)
Payables and other current liabilities......... (658) 149 31 (202) 125
Other operating assets and liabilities......... 90 (164) (163) 157 (151)
----- ----- ------- ------ -------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES....................................... 276 (381) (824) (613) 42
INVESTING ACTIVITIES
Purchases of short-term investments.............. (148) (384) (493) (875) (892)
Sales of short-term investments.................. 131 564 667 820 927
Expenditures for rental equipment & service
parts.......................................... (58) (104) (172) (253) (216)
Expenditures for property, plant & equipment..... (100) (197) (326) (371) (380)
Proceeds from sale of assets..................... 42 361 415 260 85
Other investing activities....................... (24) (73) (102) (58) 50
----- ----- ------- ------ -------
NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES....................................... (157) 167 (11) (477) (426)
FINANCING ACTIVITIES
Short-term borrowings, net....................... (6) (3) (35) 33 (78)
Proceeds from issuance of long-term debt......... -- -- 9 537 --
Repayments of long-term debt..................... (231) (30) (312) (10) (27)
Transfers from AT&T, net......................... 595 345 1,034 770 425
----- ----- ------- ------ -------
NET CASH PROVIDED BY FINANCING ACTIVITIES........ 358 312 696 1,330 320
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH
EQUIVALENTS.................................... (7) 60 (10) 23 6
----- ----- ------- ------ -------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS...................................... 470 158 (149) 263 (58)
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD......................................... 314 463 463 200 258
----- ----- ------- ------ -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD....... $ 784 $ 621 $ 314 $ 463 $ 200
===== ===== ======= ====== =======
</TABLE>
The notes on pages F-7 through F-29 are an integral part of the consolidated
financial statements
F-5
<PAGE> 98
NCR CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
FOREIGN
SHAREHOLDER'S CURRENCY
NET INVESTMENT TRANSLATION OTHER TOTAL
-------------- ----------- ----- -------
<S> <C> <C> <C> <C>
January 1, 1993.................................. $ 1,851 $ (6) $ (14) $ 1,831
Net loss....................................... (1,287) -- -- (1,287)
Foreign currency translation................... -- 69 -- 69
Other, principally additional minimum pension
liability................................... -- -- (6) (6)
Transfers from AT&T, net....................... 425 -- -- 425
------- ---- ---- -------
December 31, 1993................................ 989 63 (20) 1,032
Net loss....................................... (203) -- -- (203)
Foreign currency translation................... -- 86 -- 86
Other, principally additional minimum pension
liability................................... -- -- 5 5
Transfers from AT&T, net....................... 770 -- -- 770
------- ---- ---- -------
December 31, 1994................................ 1,556 149 (15) 1,690
Net loss....................................... (2,280) -- -- (2,280)
Foreign currency translation................... -- (64) -- (64)
Other, principally additional minimum pension
liability................................... -- -- (22) (22)
Transfers from AT&T, net....................... 1,034 -- -- 1,034
------- ---- ---- -------
December 31, 1995................................ $ 310 $ 85 $ (37) $ 358
======= ==== ==== =======
</TABLE>
The notes on pages F-7 through F-29 are an integral part of the consolidated
financial statements
F-6
<PAGE> 99
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS)
1. COMPANY OPERATIONS AND BASIS OF PRESENTATION
Company Operations
NCR Corporation ("NCR" or the "Company") designs, develops, markets, and
services information technology products, services, systems, and solutions
worldwide. The Company's goal is to be a world-class provider of commercial,
open computing systems for High Availability Transaction Processing and Scalable
Data Warehousing solutions to customers in all industries. NCR also seeks to
take advantage of its expertise and market presence in the retail, financial,
and communications industries to provide specific information technology
solutions to customers in these targeted industries. NCR's systems and solutions
are supported by its Customer Support Services and Professional Services
offerings, and its Systemedia business, which develops, produces and markets a
complete line of consumable and media products.
NCR's offerings cover a broad range of its customers information technology
needs: from consumers' interaction and data collection, with products including
point of sale workstations, barcode scanning equipment, and self-service devices
such as automated teller machines ("ATMs"); through data processing, with NCR's
High Availability Transaction Processing solutions; to data storage,
manipulation, and usage, with NCR's Teradata relational database management
system and Scalable Data Warehousing offerings. The Company's computing
platforms and associated products span midrange servers, massively parallel
processing computer systems, computer network servers and software systems,
imaging and payment systems, workstations and peripherals, business forms, ink
ribbons, customized paper rolls, and other consumable supplies and processing
media.
NCR also provides Worldwide Customer Support Services and Professional
Services that include hardware maintenance, software maintenance, data
warehousing service offerings, end-to-end networking service and design, and the
implementation, integration, and support of complex solutions.
NCR is a wholly owned subsidiary of AT&T Corp. ("AT&T"). The Company was
merged with a wholly owned subsidiary of AT&T effective September 19, 1991. On
September 20, 1995, AT&T announced its intention to separate into three
independent public companies: NCR, the continuing AT&T and Lucent Technologies
Inc. ("Lucent"). AT&T also announced its intention to distribute all of its
interest in NCR (the "Distribution") to its shareholders by December 31, 1996,
subject to certain conditions.
Basis of Presentation
The consolidated financial statements reflect the results of operations,
financial position, changes in shareholder's equity and cash flows of NCR, as if
NCR were a separate entity for all periods presented. The consolidated financial
statements have been prepared using the historical basis in the assets and
liabilities and historical results of operations related to NCR.
Changes in shareholder's net investment represent capital contributions and
interest bearing cash advances made by AT&T to NCR, net income (loss) of NCR and
cost allocations from AT&T. NCR's financial requirements are primarily provided
through capital contributions and interest bearing cash advances from AT&T. The
Company's historical consolidated statements of operations include interest
expense relating to such interest bearing cash advances, which were contributed
to the Company by AT&T and included in shareholder's net investment. NCR will
begin accumulating its retained earnings effective immediately following the
date of the Distribution.
General corporate overhead related to AT&T's corporate headquarters and
common support functions has been allocated to NCR, to the extent such amounts
are applicable to NCR, based on the ratio of NCR's external costs and expenses
to AT&T's external costs and expenses. Management believes these allocations are
reasonable. However, the costs of these services charged to NCR are not
necessarily indicative of the costs that would have been incurred if NCR had
performed these functions as a stand-alone entity. As a result of the
Distribution, NCR will be required to perform these functions using its own
resources or purchased
F-7
<PAGE> 100
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN MILLIONS)
services and will be responsible for the costs and expenses associated with the
management of a public corporation.
The financial information included herein may not necessarily reflect the
consolidated results of operations, financial position, changes in shareholder's
equity and cash flows of NCR in the future or amounts that would have been
reported had it been a separate, stand-alone entity during the periods
presented.
Interim Information (Unaudited)
The consolidated interim financial statements as of and for the six months
ended June 30, 1996 and 1995 included herein are unaudited. Such information
reflects all adjustments, consisting solely of normal recurring adjustments,
which are in the opinion of management necessary for a fair presentation of the
consolidated balance sheet as of June 30, 1996 and the consolidated results of
operations and cash flows for the six months ended June 30, 1996 and 1995. The
reported results are not necessarily indicative of those expected for the entire
year. Certain information and disclosures normally included in annual financial
statements in accordance with generally accepted accounting principles have been
excluded or omitted in presentation of the consolidated interim financial
statements.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation
The consolidated financial statements include the accounts of NCR and its
branches and majority-owned subsidiaries. Long-term investments in affiliated
companies representing ownership interests of 20% to 50% are accounted for under
the equity method. All significant intercompany transactions and accounts have
been eliminated. Investments in which NCR has less than a 20% ownership interest
are accounted for under the cost method of accounting. NCR changed the fiscal
year for locations outside the U.S. to December from November in 1994 to align
the reporting of all operations. This change added $223 in revenues to 1994; the
effect on the reported loss from operations was not significant.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and revenue and expenses during the period reported. Actual results
could differ from those estimates. Estimates are used when accounting for
allowance for uncollectible accounts receivable, inventory obsolescence, product
warranty, depreciation and amortization, employee benefit plans, taxes,
restructuring charges, and environmental and other contingencies, among others.
Foreign Currency Translation
For most international operations, assets and liabilities are translated
into U.S. dollars at year-end exchange rates and revenues and expenses are
translated at average exchange rates prevailing during the year. Translation
adjustments, resulting from fluctuations in exchange rates, are recorded as a
separate component of shareholder's equity.
Derivative Financial Instruments
In the normal course of business, NCR has entered into various financial
instruments, including derivative financial instruments, for purposes other than
trading. Derivative financial instruments are not entered into for speculative
purposes. Derivatives, used as part of NCR's risk management strategy, must be
designated at inception as a hedge, and measured for effectiveness both at
inception and on an ongoing basis.
F-8
<PAGE> 101
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN MILLIONS)
For qualifying foreign currency hedges, the gains and losses are deferred and
recognized as adjustments of carrying amounts when the underlying hedged
transaction is recorded. Gains and losses that do not qualify as hedges are
recognized in other income or expense.
Revenue Recognition
Revenue from product sales is generally recognized upon performance of
contractual obligations, such as shipment, installation or customer acceptance.
Services and rental revenue is recognized proportionately over the contract
period or as services are performed.
Research and Development Expenses
Research and development expenses are charged to operations as incurred.
Costs incurred for the development of computer software that will be sold,
leased or otherwise marketed are capitalized when technological feasibility has
been established. These costs are recorded as capitalized software and amortized
over no more than three years. Capitalized software is subject to an ongoing
assessment of recoverability based upon anticipated future revenues and changes
in hardware and software technologies. Costs capitalized include direct labor
and related overhead. Amortization of software development costs was $57, $34,
and $35 in 1995, 1994, and 1993, respectively.
Income Taxes
NCR's operations have been included in the income tax returns filed by AT&T
since the merger with a subsidiary of AT&T on September 19, 1991. Income tax
expense (benefit) in NCR's consolidated financial statements has been calculated
as if NCR had filed separate tax returns for all periods presented.
Cash and Cash Equivalents
All short-term, highly liquid investments purchased with an original
maturity of three months or less are considered to be cash equivalents.
Inventories
Inventories are stated at the lower of average cost or market.
Property, Plant and Equipment and Service Parts
Property, plant and equipment and rental equipment and service parts are
stated at cost less accumulated depreciation. Reworkable service parts and
rental equipment are comprised of service parts that can be reconditioned and
equipment rented to customers under operating leases. Depreciation is computed
over estimated useful lives primarily on the straight line basis. Buildings are
depreciated over 25 to 45 years, machinery and equipment over three to ten years
and reworkable service parts and rental equipment over three to five years.
3. CHANGES IN ACCOUNTING PRINCIPLES
Postretirement Benefits Other Than Pensions
NCR adopted Statement of Financial Accounting Standards (SFAS) No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions,"
effective January 1, 1993. This standard requires accrual of estimated future
retiree benefits other than pensions during the years employees are working and
accumulating these benefits. Previously, health care benefits were expensed as
claims were incurred and life insurance benefits were expensed as plans were
funded. NCR recorded a one-time pre-tax charge for the estimated
F-9
<PAGE> 102
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN MILLIONS)
liability of $351 ($220 after taxes) at the beginning of 1993. This change in
accounting did not affect cash flows.
Postemployment Benefits
NCR adopted SFAS No. 112, "Employers' Accounting for Postemployment
Benefits," effective January 1, 1993. This standard requires the accrual of
estimated future postemployment benefits, including separation and related
payments, during the years employees are working and accumulating these
benefits, and for disability payments when the disabilities occur. Before this
change in accounting, costs for separations were recognized when approved and
disability benefits were recognized when paid. NCR recorded a one-time pre-tax
charge for the unprovided portion of this liability of $477 ($306 after taxes)
at the beginning of 1993. This change in accounting did not affect cash flows.
Income Taxes
NCR adopted SFAS No. 109, "Accounting for Income Taxes," effective January
1, 1993. Among other provisions, this standard requires the computation of
deferred tax amounts arising from temporary differences using the enacted
jurisdictional corporate income tax rates for the years in which the taxes are
expected to be paid or refunds received. Before this change in accounting,
deferred tax accounts reflected rates in effect when the deferrals were made.
The change in calculating deferred tax amounts required by this standard
resulted in a one-time charge of $343 at the beginning of 1993. This change in
accounting did not affect cash flows.
Impairment of Long-Lived Assets
Effective October 1, 1995, NCR adopted SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of."
This standard requires that long-lived assets and certain identifiable
intangibles held and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. The adoption of the standard did not materially impact
NCR's consolidated results of operations, financial condition or cash flows
because this was essentially the method NCR used in the past to measure and
record asset impairments.
Stock-Based Compensation
In its consolidated financial statements for the year ending December 31,
1996, NCR is required to adopt SFAS No. 123, "Accounting for Stock-Based
Compensation." This standard establishes a fair value method of accounting for
or disclosing stock-based compensation plans. NCR intends to adopt the
disclosure provisions of this standard which requires disclosing the pro forma
consolidated net income and earnings per share amounts assuming the fair value
method was effective on January 1, 1995. The adoption of the disclosure
provisions will not affect consolidated results of operations, financial
position, or cash flows.
F-10
<PAGE> 103
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN MILLIONS)
4. SUPPLEMENTARY BALANCE SHEET INFORMATION
<TABLE>
<CAPTION>
AT DECEMBER 31
-------------------
1995 1994
------- -------
<S> <C> <C>
ACCOUNTS RECEIVABLE
Trade............................................................ $ 1,592 $ 1,605
Other............................................................ 384 296
------- -------
1,976 1,901
Allowance for doubtful accounts.................................. (68) (41)
------- -------
Accounts receivable............................................ $ 1,908 $ 1,860
======= =======
INVENTORIES
Finished goods................................................... $ 401 $ 580
Work in process and raw materials................................ 220 372
------- -------
Inventories.................................................... $ 621 $ 952
======= =======
RENTAL EQUIPMENT AND SERVICE PARTS
Rental equipment and service parts............................... $ 737 $ 762
Less: accumulated depreciation................................... (479) (534)
------- -------
Rental equipment and service parts............................. $ 258 $ 228
======= =======
PROPERTY, PLANT AND EQUIPMENT
Land and improvements............................................ $ 80 $ 85
Buildings and improvements....................................... 822 801
Machinery and other equipment.................................... 1,573 1,892
------- -------
2,475 2,778
Less: accumulated depreciation................................... (1,518) (1,544)
------- -------
Property, plant and equipment.................................. $ 957 $ 1,234
======= =======
OTHER ASSETS
Prepaid pension expense.......................................... $ 367 $ 379
Other............................................................ 356 303
------- -------
Other assets................................................... $ 723 $ 682
======= =======
OTHER CURRENT LIABILITIES
Business restructuring........................................... $ 820 $ 71
Other............................................................ 712 569
------- -------
Other current liabilities...................................... $ 1,532 $ 640
======= =======
</TABLE>
5. BUSINESS RESTRUCTURINGS
In 1995 a pre-tax charge of $1,649 was recorded to provide for
restructuring and other charges. NCR's restructuring plans included
discontinuing the manufacture of personal computers, consolidating facilities
globally, and reducing industry markets served, as well as separating
approximately 8,500 employees and contractors, including 3,500 in foreign
locations. As of December 31, 1995 approximately 5,600 employees and contractors
had separated and the remaining separations were expected to be effected during
1996. The restructuring charges also included costs associated with early
termination of building leases and asset write-downs.
F-11
<PAGE> 104
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN MILLIONS)
The pre-tax total of $1,649 for 1995 was recorded as $636 cost of sales,
$294 cost of services, $616 selling, general and administrative expenses, and
$103 research and development expenses. The charges include $676 for employee
separations and related charges; $549 for asset write-downs; $147 for closing,
selling and consolidating facilities; $227 for contract settlements and related
charges; and $50 for other items.
In 1993 a pre-tax charge of $219 was recorded to provide for restructuring
costs. NCR's restructuring plans for 1993 included offering an early retirement
program and a separation program to its U.S. based employees in order to better
align its cost structure with business strategies. This charge was recorded as
$15 cost of sales, $90 cost of services, $95 selling, general and administrative
expenses, and $19 research and development cost. The charges include $155 for
employee separations and other related costs; $43 for closing, selling and
consolidating facilities; and $21 for other items.
The following table displays a rollforward of the liabilities incurred for
business restructurings from December 31, 1993 to December 31, 1995:
<TABLE>
<CAPTION>
DECEMBER 31, 1994 DECEMBER 31,
1993 -------------------------------- 1994
TYPE OF COST BALANCE ADDITIONS OTHER PAYMENTS BALANCE
------------------------------ ------------ --------- ----- -------- ------------
<S> <C> <C> <C> <C> <C>
Employee separations.......... $119 $ -- $ 3 $ (81) $ 41
Facility closings............. 47 -- 2 (25) 24
Other......................... 30 -- (19) (5) 6
---- ---- ---- ----- ----
Total......................... $196 $ -- $ (14) $ (111) $ 71
==== ==== ==== ===== ====
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31,
1994 -------------------------------- 1995
TYPE OF COST BALANCE ADDITIONS OTHER PAYMENTS BALANCE
------------------------------ ------------ --------- ----- -------- ------------
<S> <C> <C> <C> <C> <C>
Employee separations.......... $ 41 $ 589 $ (6) $ (112) $512
Facility closings............. 24 147 2 (17) 156
Other......................... 6 227 (1) (42) 190
---- ---- ---- ----- ----
Total......................... $ 71 $ 963 $ (5) $ (171) $858
==== ==== ==== ===== ====
</TABLE>
- ---------------
The "Other" column primarily represents releases of prior year reserves.
Management believes that the liabilities for business restructuring of $858
at December 31, 1995 are adequate to complete its plans.
In 1995, in addition to restructuring liabilities of $963, asset
impairments of $549 (which reduced related asset balances), $87 of benefit plan
losses, and $50 of other charges were included in the total restructuring and
other charges of $1,649. Benefit plan losses relate to pension and other
employee benefit plans and primarily represent losses in the current year for
actuarial changes that otherwise would have been amortized over future periods.
Of the total charges of $1,649 in 1995, $818 is expected to result in cash
payments subsequent to December 31, 1995.
F-12
<PAGE> 105
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN MILLIONS)
6. INCOME TAXES
The following table presents the principal reasons for the difference
between the effective tax rate and the United States federal statutory income
tax rate for the years ended December 31:
<TABLE>
<CAPTION>
1995 1994 1993
----- ---- ----
<S> <C> <C> <C>
Federal income tax expense (benefit) at the statutory
tax rate of 35%........................................ $(846) $ (6) $(98)
Taxes on foreign income.................................. 62 10 21
Net domestic tax losses and credits...................... 664 181 228
Other differences, net................................... (16) 2 (13)
----- ---- ----
Income tax expense (benefit)............................. $(136) $187 $138
===== ==== ====
</TABLE>
The Company's tax provisions result primarily from a provision for income
taxes in those foreign tax jurisdictions where the Company's subsidiaries are
profitable, and an inability on a stand-alone basis to reflect the tax benefits
of the Company's net domestic tax losses and credits. The Company received
payments of $438, $417 and $151 under its tax allocation agreement with AT&T for
the net domestic tax losses and credits it generated during the years ended
December 31, 1995, 1994 and 1993, respectively. These payments were recorded in
shareholder's net investment.
NCR paid income taxes of $73, $92, and $58 for the years ended 1995, 1994,
and 1993, respectively.
The following table presents the U.S. and foreign components of income
before income taxes and cumulative effects of accounting changes and income tax
expense (benefit) for the years ended December 31:
<TABLE>
<CAPTION>
1995 1994 1993
------- ----- -----
<S> <C> <C> <C>
INCOME (LOSS) BEFORE INCOME TAXES AND CUMULATIVE
EFFECTS OF ACCOUNTING CHANGES
United States........................................ $(1,727) $(353) $(470)
Foreign.............................................. (689) 337 190
------- ----- -----
$(2,416) $ (16) $(280)
======= ===== =====
INCOME TAX EXPENSE (BENEFIT)
CURRENT
Federal.............................................. $ -- $ -- $ --
State and local...................................... 18 (4) 9
Foreign.............................................. 82 118 98
DEFERRED
Federal.............................................. 13 (11) 72
State and local...................................... -- (2) 4
Foreign.............................................. (249) 86 (45)
------- ----- -----
Income tax expense (benefit)......................... $ (136) $ 187 $ 138
======= ===== =====
</TABLE>
Deferred income tax liabilities are taxes NCR expects to pay in future
periods. Conversely, deferred income tax assets are taxes recognized for
expected reductions in future taxes payable. Deferred income taxes
F-13
<PAGE> 106
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN MILLIONS)
arise because of differences in the book and tax bases of certain assets and
liabilities. Deferred income tax assets and liabilities included in the balance
sheet at December 31 were as follows:
<TABLE>
<CAPTION>
1995 1994
------ -----
<S> <C> <C>
DEFERRED INCOME TAX ASSETS:
Employee pensions and other benefits........................... $ 326 $ 285
Business restructuring......................................... 372 --
Balance sheet reserves and allowances.......................... 470 330
Net operating losses/credit carryforwards...................... 199 63
Other.......................................................... 109 75
------ -----
Total deferred income tax assets................................. 1,476 753
Valuation allowance............................................ (472) (405)
------ -----
Net deferred income tax assets................................... 1,004 348
------ -----
DEFERRED INCOME TAX LIABILITIES:
Property, plant and equipment.................................. 53 62
Employee pensions and other benefits........................... 124 119
Taxes on undistributed earnings of foreign subsidiaries........ 244 30
Other.......................................................... 282 59
------ -----
Total deferred income tax liabilities............................ 703 270
------ -----
Total net deferred income tax assets............................. $ 301 $ 78
====== =====
</TABLE>
A valuation allowance was recorded as a reduction to the Company's estimate
of the amount of deferred income tax assets due to the uncertainty of the
ultimate realization of future benefits from such assets.
The Company has foreign net operating loss carryforwards of approximately
$430. The net operating loss carryforwards subject to expiration, expire in the
years 1997 through 2002.
The Company has not provided for federal income taxes or foreign
withholding taxes on approximately $540 of undistributed earnings of a foreign
subsidiary as of December 31, 1995 and December 31, 1994, because such earnings
are intended to be reinvested indefinitely. It is not practicable to determine
the amount of applicable taxes.
7. DEBT OBLIGATIONS
Debt with scheduled maturities within one year consisted of the following
at December 31:
<TABLE>
<CAPTION>
1995 1994
------ ------
<S> <C> <C>
Bank debt, foreign................................................. $ 37 $ 73
Current portion of long-term debt.................................. 8 --
----- -----
Total debt maturing within one year................................ $ 45 $ 73
===== =====
Weighted average interest rate for short-term bank debt............ 12.11% 12.55%
</TABLE>
F-14
<PAGE> 107
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN MILLIONS)
Long-term debt consisted of the following at December 31:
<TABLE>
<CAPTION>
SCHEDULED
MATURITY
DATE 1995 1994
---------- ---- ----
<S> <C> <C> <C>
Long-term bank debt 4.86-8.50%........................... 1999-2000 $246 $546
Medium-term notes 8.95-9.49%............................. 1999-2020 80 80
Industrial Revenue Bonds 7.40%........................... 2001 3 3
Lease obligations........................................ 9 13
---- ----
338 642
Less current portion of long-term debt................... (8) --
---- ----
Long-term debt........................................... $330 $642
==== ====
</TABLE>
The amount of long-term debt with scheduled maturities during the next five
years is $246 in 1999, $25 in 2000, and the remainder thereafter.
Interest paid was approximately $94, $75, and $32 in 1995, 1994 and 1993,
respectively.
8. EMPLOYEE BENEFIT PLANS
NCR sponsors both defined benefit and defined contribution plans for almost
all United States employees and the majority of international employees. For
salaried employees, the defined benefit plans are based primarily upon
compensation and years of service. For certain hourly employees in the U.S., the
benefits are based on a fixed dollar amount per year of service. The assets of
the defined benefit plans are included with those of AT&T and Lucent and held as
part of a Master Trust managed by AT&T. Assets of the Master Trust are primarily
invested in publicly traded common stocks (of which, less than 1% of the Plan
Assets are AT&T Stock), corporate and government debt securities, real estate
investments, and cash or cash equivalents. NCR's funding policy is generally to
contribute annually not less than the minimum required by applicable laws and
regulations. The funded status for the defined benefit plans at December 31 was
as follows:
<TABLE>
<CAPTION>
PLANS WITH ASSETS IN EXCESS OF THE
ACCUMULATED BENEFIT OBLIGATION
--------------------------------------
INTERNATIONAL
U.S. PLANS PLANS
------------------ ----------------
1995 1994 1995 1994
------- ------- ------ ------
<S> <C> <C> <C> <C>
Actuarial present value of plan obligations:
Vested benefit obligation...................... $(1,637) $(1,362) $ (555) $ (700)
======= ======= ====== ======
Accumulated benefit obligation................. $(1,668) $(1,375) $ (597) $ (738)
======= ======= ====== ======
Projected benefit obligation................... $(1,760) $(1,398) $ (655) $ (935)
Plan assets at fair value........................ 1,993 1,716 1,059 1,240
------- ------- ------ ------
Plan assets greater than projected benefit
obligation....................................... 233 318 404 305
Unrecognized net gain............................ (128) (222) (89) (30)
Unrecognized net prior service cost.............. 78 115 37 42
Unrecognized net asset at transition............. (78) (93) (57) (60)
------- ------- ------ ------
Prepaid pension cost............................. $ 105 $ 118 $ 295 $ 257
======= ======= ====== ======
</TABLE>
F-15
<PAGE> 108
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
PLANS WITH ASSETS LESS THAN THE
ACCUMULATED BENEFIT OBLIGATION
---------------------------------------
INTERNATIONAL
U.S. PLANS PLANS
------------- -----------------
1995 1994 1995 1994
---- ---- ----- -----
<S> <C> <C> <C> <C>
Actuarial present value of plan obligations:
Vested benefit obligation................... $(80) $(59) $(358) $(144)
===== ===== ====== ======
Accumulated benefit obligation.............. $(81) $(65) $(384) $(159)
===== ===== ====== ======
Projected benefit obligation................ $(85) $(72) $(498) $(174)
Plan assets at fair value..................... -- -- 160 2
----- ----- ------ ------
Plan assets less than projected benefit
obligation.................................. (85) (72) (338) (172)
Unrecognized net (gain) loss.................. 17 20 101 (20)
Unrecognized net prior service cost........... -- 7 10 3
Unrecognized net liability at transition...... -- 3 9 7
Additional minimum liability.................. (13) (23) (35) (5)
----- ----- ------ ------
Accrued pension liability..................... $(81) $(65) $(253) $(187)
===== ===== ====== ======
</TABLE>
The pension cost for the defined benefit plans for the years ended December
31 included the following components:
<TABLE>
<CAPTION>
1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
Service costs -- benefits earned during the period......... $ 67 $ 86 $ 73
Interest cost on the projected benefit obligation.......... 209 194 169
Net amortizations and deferrals............................ 165 (120) 83
Actual return on assets.................................... (430) (137) (349)
Charges for special programs............................... 80 -- 68
------ ------ ------
Net pension cost (credit).................................. $ 91 $ 23 $ 44
====== ====== ======
</TABLE>
The weighted average rates and assumptions utilized in the calculation of
pension cost for these plans were as follows:
<TABLE>
<CAPTION>
U.S. PLANS INTERNATIONAL PLANS
---------------------- ----------------------
1995 1994 1993 1995 1994 1993
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Discount rate........................... 7.0 % 8.7 % 7.5% 7.3 % 7.5 % 7.7 %
Rate of increase in future compensation
levels................................ 4.5 % 4.5 % 4.5% 4.0 % 4.2 % 4.4 %
Long-term rate of return on plan
assets................................ 9.0 % 9.0 % 10.0% 9.5 % 9.5 % 9.3 %
</TABLE>
SAVINGS PLANS
All U.S. employees and many international employees participate in defined
contribution savings plans. These plans generally provide either a specified
percent of pay or a matching contribution on participating employees' voluntary
elections. The company matching contributions typically are subject to a maximum
percentage or level of compensation. Employee contributions can be either
pre-tax, post-tax or a combination thereof. The expense under these plans for
1995, 1994 and 1993 was $36, $33, and $35, respectively.
9. POSTRETIREMENT BENEFITS
Substantially all U.S. employees that reach retirement age while working
for the company are eligible to participate in a postretirement benefit plan.
The plan provides medical care and life insurance to retirees and their eligible
dependents. Non-U.S. employees are typically covered under government sponsored
programs,
F-16
<PAGE> 109
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN MILLIONS)
and NCR does not provide postretirement benefits other than pensions to non-U.S.
retirees. The company generally funds these benefits on a pay-as-you-go basis
out of operations. The funded status of the postretirement benefit plans and the
accrued liability at December 31 was as follows;
<TABLE>
<CAPTION>
1995 1994
----- -----
<S> <C> <C>
Accumulated postretirement benefit obligation
Retirees.......................................................... $(358) $(295)
Fully eligible active participants................................ (18) (20)
Other active participants......................................... (62) (56)
------ ------
Unfunded accumulated postretirement benefit obligation.............. (438) (371)
Unrecognized prior service costs.................................... 35 45
Unrecognized net (gain) loss........................................ (36) (94)
------ ------
Accrued postretirement benefit obligation........................... $(439) $(420)
====== ======
</TABLE>
The postretirement benefit cost included the following components;
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Service costs -- benefits earned during the period.............. $ 4 $ 6 $11
Interest cost on the projected benefit obligation............... 32 31 28
Net amortizations and deferrals................................. -- 3 --
Charges for special programs.................................... 7 -- 29
--- --- ---
Net postretirement benefit cost................................. $43 $40 $68
=== === ===
</TABLE>
The discount rate utilized in determining the expense and liabilities of
the postretirement plans was 7.0%, 8.7%, and 7.5% for the years ended December
31, 1995, 1994, and 1993, respectively. NCR also assumed that the growth in the
per capita cost of covered health care benefits (the health care cost trend
rate) would gradually decline from 9.6% in 1996 to 5.5% by the year 2005 and
then remain level. Increasing the assumed trend rate by 1% in each year would
raise NCR's accumulated postretirement benefit obligation at December 31, 1995
by approximately $35 and NCR's 1995 postretirement benefit costs by
approximately $3.
F-17
<PAGE> 110
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN MILLIONS)
10. SEGMENT INFORMATION
Industry Segment
NCR operates in one industry segment, the information technology industry,
which includes designing, developing, marketing, and servicing information
technology products, services, systems and solutions worldwide.
Concentrations
No single customer accounts for more than 10% of revenue. As of December
31, 1995, NCR is not aware of any significant concentration of business
transacted with a particular customer that could, if suddenly eliminated, have a
material adverse impact on NCR's operations. NCR also does not have a
concentration of available sources of labor, services, licenses, or other rights
that could, if suddenly eliminated, have a material adverse impact on NCR's
operations.
A number of NCR's products, systems, and solutions, rely primarily on
specific suppliers for microprocessors, operating systems, commercial databases
and other central components. There can be no assurances that any sudden impact
to the availability or cost of these technologies would not have a material
adverse impact on NCR's operations.
Geographic Segments
Transfers between geographic areas are principally made at market-based
prices. The methods followed in developing the geographic area data require the
use of estimation techniques and do not take into account the extent to which
NCR's product development, manufacturing, and marketing depend upon each other.
Thus, the information may not be indicative of results if the geographic areas
were independent organizations.
There are various differences between income before income taxes for the
United States and foreign operations as shown in Note 6 and operating income
shown on the following page. In the following geographic information, interest
income, interest expense and non-allocable general, corporate expenses are not
included in operating income, while certain corporate operating expenses
incurred for the benefit of the geographic areas are included on an allocated
basis.
F-18
<PAGE> 111
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
REVENUE FOR THE YEAR ENDED DECEMBER 31
United States
Customer......................................... $ 3,577 $ 4,214 $ 3,645
Intercompany..................................... 697 821 710
------- ------- -------
4,274 5,035 4,355
Europe/Middle East/Africa
Customer......................................... 2,551 2,375 2,055
Intercompany..................................... 239 222 192
------- ------- -------
2,790 2,597 2,247
Japan
Customer......................................... 1,008 905 737
Intercompany..................................... 66 75 64
------- ------- -------
1,074 980 801
Asia/Pacific (excluding Japan)
Customer......................................... 533 478 361
Intercompany..................................... 109 82 60
------- ------- -------
642 560 421
Americas (excluding United States)
Customer......................................... 493 489 467
Intercompany..................................... 6 6 6
------- ------- -------
499 495 473
Intercompany eliminations........................ (1,117) (1,206) (1,032)
------- ------- -------
Consolidated revenue.................................. $ 8,162 $ 8,461 $ 7,265
======= ======= =======
OPERATING INCOME (LOSS) FOR THE YEAR ENDED DECEMBER 31
United States....................................... $(1,502) $ (232) $ (511)
Europe/Middle East/Africa........................... (397) 208 207
Japan............................................... (189) 63 48
Asia/Pacific (excluding Japan)...................... 12 24 50
Americas (excluding United States).................. (64) (10) 36
------- ------- -------
Operating income (loss) before non allocable
expenses......................................... (2,140) 53 (170)
General corporate expenses, interest, and other
income......................................... (276) (69) (110)
------- ------- -------
Consolidated loss before income taxes and cumulative
effect of accounting change......................... $(2,416) $ (16) $ (280)
======= ======= =======
IDENTIFIABLE ASSETS AS OF DECEMBER 31
United States....................................... $ 1,596 $ 2,447 $ 1,737
Europe/Middle East/Africa........................... 2,246 1,698 1,311
Japan............................................... 849 1,100 1,258
Asia/Pacific (excluding Japan)...................... 344 319 178
Americas (excluding United States).................. 221 272 180
------- ------- -------
Consolidated total assets............................. $ 5,256 $ 5,836 $ 4,664
======= ======= =======
</TABLE>
F-19
<PAGE> 112
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN MILLIONS)
Excluding restructuring and other charges, operating income (loss) before
non-allocable expenses for the year ended December 31, 1995 was $(747), $161,
$43, $53 and $(1) for the United States, Europe/Middle East/Africa, Japan,
Asia/Pacific (excluding Japan) and Americas (excluding United States),
respectively. The 1993 restructuring charge of $219 impacted the United States
only.
11. FINANCIAL INSTRUMENTS
In the normal course of business, NCR has entered into various financial
instruments, including derivative financial instruments, for purposes other than
trading. Derivative financial instruments are not entered into for speculative
purposes. These instruments primarily include letters of credit, guarantees of
debt, and foreign currency exchange contracts.
Concentration of Credit Risk
Financial instruments which potentially subject NCR to concentrations of
credit risk consist primarily of cash, investments, trade receivables, and
certain other off-balance sheet instruments. By their nature, all such financial
instruments involve risk, including the credit risk of nonperformance by
counterparties, and the maximum potential loss may exceed the amount recognized
in the balance sheet. At December 31, 1995 and 1994, in management's opinion,
there was no significant risk of loss in the event of nonperformance of the
counterparties to these financial instruments. Exposure to credit risk is
controlled through credit approvals, credit limits and monitoring procedures and
management believes that the reserves for losses are adequate. NCR had no
significant exposure to any individual customer or counterparty at December 31,
1995 and December 31, 1994, nor does NCR have any major concentration of credit
risk related to any financial instruments.
Letters of Credit
Letters of credit are purchased guarantees that ensure NCR's performance or
payment to third parties in accordance with specified terms and conditions.
Letters of credit may expire without being drawn upon. Therefore, the total
notional or contract amounts do not necessarily represent future cash flows.
Foreign Currency Exchange Contracts
Foreign exchange contracts are used to manage exposure to changes in
currency exchange rates. The use of foreign exchange contracts allows NCR to
reduce its exposure to the risk that the eventual dollar net cash inflows and
outflows resulting from the sale of products to foreign customers and purchases
from foreign suppliers will be adversely affected by changes in exchange rates.
The foreign exchange contracts are designated for firmly committed or forecasted
purchases and sales. These transactions are generally expected to occur in less
than one year. For firmly committed sales and purchases, gains and losses are
deferred in other current assets and liabilities. These deferred gains and
losses are recognized as adjustments to the underlying hedged transactions when
the future sales or purchases are recognized, or immediately if the commitment
is canceled. Gains or losses on foreign exchange contracts that are designated
for forecasted transactions are recognized in other income as the exchange rates
change. At December 31, 1995 and 1994, deferred unrealized gains were $3 and $4
and deferred unrealized losses were $2 and $8, respectively.
Fair Value of Financial Instruments Including Derivative Financial Instruments
The tables below present the valuation methods and the carrying or notional
amounts and estimated fair values of material financial instruments. The
notional amounts represent agreed upon amounts on which calculations of dollars
to be exchanged are based and are an indication of the extent of NCR's
involvement in
F-20
<PAGE> 113
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN MILLIONS)
such instruments. They do not represent amounts exchanged by the parties and,
therefore, are not a measure of the instruments.
<TABLE>
<CAPTION>
FINANCIAL INSTRUMENT VALUATION METHOD
<S> <C>
Cash and cash equivalents............ The carrying amount is a reasonable estimate
of fair value
Investments.......................... Market quotes of similar investments
Short-term debt...................... The carrying amount is a reasonable estimate
of fair value
Long-term debt....................... Market quotes of similar debt with similar
remaining maturities
Letters of credit.................... Fees paid to obtain the obligations
Foreign currency exchange Market quotes
contracts..........................
</TABLE>
<TABLE>
<CAPTION>
1995 1994
------------------ ------------------
CARRYING FAIR CARRYING FAIR
ON BALANCE SHEET AMOUNT VALUE AMOUNT VALUE
-------- ----- -------- -----
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents....................... $314 $ 314 $463 $ 463
Short-term investments.......................... 24 24 198 198
Long-term investments........................... 42 42 26 26
Liabilities:
Debt............................................ 375 389 715 719
</TABLE>
<TABLE>
<CAPTION>
DERIVATIVE AND OFF BALANCE CONTRACT/ CARRYING AMOUNT FAIR VALUE
NOTIONAL ------------------- -------------------
SHEET INSTRUMENTS AMOUNT ASSET LIABILITY ASSET LIABILITY
--------- ----- --------- ----- ---------
<S> <C> <C> <C> <C> <C>
1995
Foreign exchange forward contracts.... $ 890 $ 8 $ 5 $ 7 $ 6
Foreign exchange swap contracts....... 491 1 8 -- 58
Letters of credit..................... 82 -- -- -- --
1994
Foreign exchange forward contracts.... $ 1,317 $12 $15 $11 $14
Letters of credit..................... 78 -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
1995 1994
CONTRACT/ CONTRACT/
NOTIONAL NOTIONAL
ADDITIONAL FORWARD CONTRACT INFORMATION AMOUNT AMOUNT
--------- ---------
<S> <C> <C>
Forward contracts
British Pounds.............................................. $ 285 $ 558
German Marks................................................ 118 150
Canadian Dollars............................................ 109 325
Swiss Francs................................................ 92 38
Spanish Pesetas............................................. 75 37
French Francs............................................... 47 40
Dutch Guilders.............................................. 36 50
Other....................................................... 128 119
---- ------
$ 890 $ 1,317
==== ======
</TABLE>
F-21
<PAGE> 114
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN MILLIONS)
12. TRANSACTIONS WITH AT&T AND AFFILIATES (INCLUDING LUCENT AND AT&T CAPITAL)
For the years ended 1995, 1994 and 1993, NCR had the following revenues
from AT&T and affiliates:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
--------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Sales..................................................... $415 $404 $226
Services and rentals...................................... 215 118 159
---- ---- ----
Total................................................... $630 $522 $385
==== ==== ====
</TABLE>
At December 31, 1995 and 1994, the related receivables amounted to $30 and
$119, respectively.
AT&T allocated general corporate overhead expenses amounting to $96, $66,
and $46 in 1995, 1994 and 1993, respectively. Interest expense charged by AT&T
on certain cash advances was $29, $20 and $16 for the years ended, 1995, 1994,
1993, respectively. The historical financial statements reflect these
interest-bearing cash advances in shareholder's net investment.
Additionally, NCR purchased products and services from AT&T and affiliates
primarily for long distance, Bell Labs services, PBX systems, and miscellaneous
inventory of $157, $166, and $140 for the years ended December 31, 1995, 1994
and 1993, respectively. Amounts payable to AT&T were $11 and $25 at December 31,
1995 and 1994.
AT&T's finance subsidiary, AT&T Capital Corporation provides NCR's
customers with financing and ancillary services arising from the sale of NCR
products. Sales to AT&T Capital Corporation were $182, $290 and $212 for 1995,
1994, and 1993, respectively.
13. CONTINGENCIES
In the normal course of business, NCR is subject to regulations,
proceedings, lawsuits, claims, and other matters, including actions under laws
and regulations related to the environment, health and safety, among others.
Such matters are subject to the resolution of many uncertainties, and
accordingly, outcomes are not predictable with assurance. Although NCR believes
that amounts provided in its financial statements are currently adequate in
light of the probable and estimable liabilities, there can be no assurances that
the amounts required to discharge alleged liabilities from lawsuits, claims, and
other legal proceedings and environmental matters, and to comply with applicable
environmental laws, will not exceed the amounts reflected in NCR's financial
statements or will not have a material adverse effect on the Company's
consolidated financial conditions, results of operations and cash flows. Any
amounts of costs that may be incurred in excess of those amounts provided as of
December 31, 1995 and June 30, 1996 cannot be determined.
Legal Proceedings
Among the lawsuits and claims pending against NCR as of December 31, 1995
and June 30, 1996, there were approximately 100 individual product liability
claims alleging that the Company's products, including personal computers,
supermarket barcode scanners, cash registers and check encoders, caused
so-called "repetitive strain injuries" or "cumulative trauma disorders," such as
carpal tunnel syndrome. In such lawsuits, the plaintiff typically alleges that
he or she suffers from injuries caused by the design of the product at issue or
a failure to warn of alleged hazards. These plaintiffs seek compensatory damages
and, in many cases, punitive damages. Most other manufacturers of these products
have also been sued by plaintiffs on similar theories. Ultimate resolution of
the litigation against the Company may substantially depend on the outcome of
similar matters of this type pending in various state and federal courts. The
Company has denied the merits and basis for the pending claims against it and
intends to continue to contest these cases vigorously.
F-22
<PAGE> 115
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN MILLIONS)
Environmental Matters
NCR's facilities and operations are subject to a wide range of
environmental protection laws in the United States and other countries related
to solid and hazardous waste disposal, the control of air emissions and water
discharges, and the mitigation of impacts to the environment from past
operations and practices. NCR has investigatory and remedial activities,
including characterization and cleanup actions, underway at a number of
currently and formerly owned or operated facilities to comply, or to determine
compliance, with applicable environmental protection laws. NCR has been
identified, either by a governmental agency or by a private party seeking
contribution to site cleanup costs, as a potentially responsible party ("PRP")
at a number of sites pursuant to a variety of statutory schemes, both state and
federal, including the Federal Water Pollution Control Act ("FWPCA") and
comparable state statutes, and the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended ("CERCLA"), and comparable
state statutes.
In February 1996, NCR received notice from the United States Department of
the Interior, Fish & Wildlife Service ("USF&WS") that USF&WS considers NCR a PRP
under the FWPCA and CERCLA with respect to alleged natural resource restoration
and damages to the Fox River and related Green Bay environment ("Fox River
System") due to, among other things, sediment contamination in the Fox River
System allegedly resulting from liability arising out of NCR's former carbonless
paper manufacturing operations at Appleton and Combined Locks, Wisconsin. USF&WS
has also notified a number of other manufacturing companies of their status as
PRPs under the FWPCA and CERCLA for natural resource restoration and damages in
the Fox River System resulting from their ongoing or former paper manufacturing
operations in the Fox River Valley. USF&WS and two Indian Tribes have stated
their intention to conduct a Natural Resource Damage Assessment to determine and
quantify the nature and extent of alleged injury to natural resources. In
addition, NCR has been identified, along with a number of other companies, by
the Wisconsin Department of Natural Resources ("WDNR") with respect to alleged
liability arising out of alleged past discharges that have contaminated
sediments in the Fox River System. NCR is also actively pursuing discussions
with the WDNR regarding the Company's alleged liability. NCR's share, if any, of
such cleanup costs or natural resource restoration and damages liability cannot
be predicted with certainty at this time due to (i) the unknown magnitude,
scope, and source of any alleged contamination, (ii) the absence of identified
remedial objectives and methods, and (iii) the uncertainty of the amount and
scope of any alleged natural resource restoration and damages. At this point,
NCR believes that there are additional PRPs who may be liable for such natural
resource damages and remediation costs. Further, in 1978, NCR sold the business
to which the claims apply and believes the claims described above are the
responsibility of the buyer and its former parent company pursuant to the terms
of the sales agreement. In this connection, the Company has commenced litigation
against the buyer to enforce its position.
It is difficult to estimate the future financial impact of environmental
laws, including potential liabilities. NCR accrues environmental provisions when
it is probable that a liability has been incurred and the amount of the
liability is reasonably estimable. Management expects that the amounts provided
as of December 31, 1995 and June 30, 1996 will be paid out over the period of
investigation, negotiation, remediation, and restoration for the applicable
sites, which may be 30 years or more. Provisions for estimated losses from
environmental remediation are, depending on the site, based primarily on
internal and third-party environmental studies, estimates as to the number, and
participation level of any other PRPs, the extent of the contamination, and the
nature of required remedial and restoration actions. Accruals are adjusted as
further information develops or circumstances change. The amounts provided for
environmental matters in NCR's consolidated financial statements are the
estimated gross undiscounted amount of such liabilities, without deductions for
insurance or third-party indemnity claims. In those cases where insurance
carriers or third-party indemnitors have agreed to pay any amounts and
management believes that collectibility of such amounts is probable, the amounts
are reflected as receivables in the consolidated financial statements.
F-23
<PAGE> 116
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN MILLIONS)
14. LEASES
NCR conducts certain of its sales and manufacturing operations using leased
facilities, the initial lease terms of which vary in length. Many of the leases
contain renewal options and escalation clauses. Future minimum lease payments
under noncancelable leases as of December 31, 1995, follow:
<TABLE>
<CAPTION>
LATER
1996 1997 1998 1999 2000 YEARS TOTAL
---- ---- ---- ---- ---- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Leases.................. $54 $43 $37 $33 $22 $76 $ 265
</TABLE>
Total rental expense for all operating leases amounted to $96 in 1995, $81
in 1994, and $109 in 1993.
15. SUBSEQUENT EVENTS (UNAUDITED)
For the purposes of governing certain of the relationships among AT&T,
Lucent and NCR following the Distribution, AT&T, NCR and, in certain cases,
Lucent have entered, or expect to enter, into a series of agreements. These
agreements include (a) the Separation and Distribution Agreement, dated as of
February 1, 1996, as amended and restated as of March 29, 1996, by and among
AT&T, Lucent and NCR (the "Separation and Distribution Agreement") and certain
ancillary agreements related thereto executed prior to the initial public
offering of Lucent Common Stock and (b) the Distribution Agreement, by and
between AT&T and NCR (the "NCR Distribution Agreement") and certain ancillary
agreements related thereto. This summary is qualified in all respects by the
terms of the Separation and Distribution Agreement, the NCR Distribution
Agreement and the other agreements referred to below, copies of which are filed
as exhibits to the Registration Statement on Form 10.
Separation and Distribution Agreement
The Separation and Distribution Agreement, among other things, provides
that NCR will indemnify AT&T and Lucent for all contingent liabilities relating
to NCR's present and former business and operations or otherwise assigned to
NCR. In addition, the Separation and Distribution Agreement provides for the
sharing of contingent liabilities not allocated to one of the parties, in the
following proportions: AT&T: 75%, Lucent: 22%, and NCR: 3%. The Separation and
Distribution Agreement also provides that each party will share specified
portions of contingent liabilities related to the business of any of the other
parties that exceed specified levels.
NCR Distribution Agreement
The NCR Distribution Agreement is expected to provide that, subject to the
terms and conditions thereof, AT&T will effect the Distribution. The NCR
Distribution Agreement, among other things, contains certain mutual release and
indemnification provisions and specifies the procedures necessary to effect the
Distribution. It is expected that, pursuant to the NCR Distribution Agreement,
AT&T will (i) make additional contributions of capital to NCR prior to the
Distribution Date and (ii) contribute intercompany advances outstanding from
AT&T to NCR as of June 30, 1996. The consolidated financial statements included
elsewhere herein reflect these advances in shareholder's equity as having been
contributed. The additional capital contributions are expected to consist of
$419 million in cash and the contribution of additional cash in an amount
sufficient to retire or defease a total of $68 million of NCR debt (including
payment of related expenses). A portion of the $419 million in cash may be
provided by means of additional intercompany advances from AT&T to NCR after
June 30, 1996 that will be contributed at the Distribution Date. See
"Capitalization."
Federal, State and Local Tax Allocation Agreements
NCR has entered into agreements with AT&T, Lucent and AT&T's other domestic
subsidiaries that apply to income taxes attributable to the period before the
Distribution Date. The agreements set forth
F-24
<PAGE> 117
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN MILLIONS)
principles to be applied in allocating tax liabilities among those entities
filing income tax returns on a consolidated or combined basis.
Tax Sharing Agreement
NCR has entered into an agreement with AT&T and Lucent that governs
contingent tax liabilities and benefits, tax contests and other tax matters with
respect to tax periods ending or deemed to end on the date of the distribution
of the common stock of NCR. Under such agreement, adjustments to taxes that are
clearly attributable to the business of one party will be borne solely by that
party. Adjustments to all other tax liabilities generally will be borne 75% by
AT&T, 22% by Lucent and 3% by NCR. The Tax Sharing Agreement applies to Lucent
in respect of the period prior to the date of the Lucent spin-off.
Purchase Agreements
NCR and AT&T expect to enter into a Volume Purchase Agreement (the "AT&T
Volume Purchase Agreement") and certain related agreements, including a General
Procedures Agreement (the "AT&T Procedures Agreement"), pursuant to which NCR
will provide products and services to AT&T and certain affiliates of AT&T (other
than Lucent). The AT&T Volume Purchase Agreement provides that payments through
made to NCR for purchases of products and services by AT&T and
certain of its affiliates will total at least $ million cumulatively. The AT&T
Procedures Agreement sets forth certain terms, conditions and procedures with
respect to transactions between NCR and AT&T, including provisions governing (i)
ordering and delivery, (ii) payment terms, (iii) certain intellectual property
matters, (iv) warranties and indemnities, (v) product support and documentation,
(vi) site preparation, installation, maintenance and other services, and (vii)
dispute resolution. NCR and AT&T also expect to enter into an agreement setting
forth the specific terms and conditions applicable to the provision by NCR to
AT&T of certain product support and maintenance services.
NCR and Lucent have entered into a Volume Purchase Agreement under which
Lucent committed to purchase at least $150 million of products and services from
NCR during the three-year period ending December 31, 1998.
Interim Services and Systems Replication Agreement; Real Estate Sharing
NCR, AT&T and Lucent have entered into an agreement governing the provision
by each to one or more of the others on an interim basis of certain data
processing and telecommunications services and certain corporate support
services on specified terms. Specified charges are generally intended to allow
the providing company to recover the fully allocated direct costs of providing
the services, plus all out-of-pocket costs and expenses, but without any profit.
This agreement also provides for the provision of certain additional services
identified from time to time that a party reasonably believes were inadvertently
or unintentionally omitted from the specified services or that are essential to
effectuate an orderly transition of the separation of AT&T, Lucent and NCR. This
agreement also provides for the replication and transfer of certain computer
systems on specified terms. With limited exceptions, these interim services are
not expected to extend beyond January 1, 1998 and many are expected to terminate
at or prior to year-end 1997.
AT&T, NCR and Lucent also have entered into various leases and sublease
arrangements for the sharing of certain facilities for a transitional period on
commercial terms. In the case of owned real estate to be leased, the lease terms
will be either two or three years, except that a limited number of leases may be
terminated on 90 days' notice by the tenant. In the case of subleases or
sub-subleases of property, the lease term will generally coincide with the
remaining term of the primary lease or sublease, respectively.
F-25
<PAGE> 118
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN MILLIONS)
Technology Access and Development Project Agreement
Pursuant to the Technology Access and Development Project Agreement dated
as of February 1, 1996 between Lucent and NCR, NCR will have access to the
results of certain Bell Labs research and development activities, and Bell Labs
will perform specific research and development projects on a contract basis for
NCR. NCR will pay a periodic retainer fee for such access and an additional fee
for each research and development project. Such agreement will terminate on
December 31, 1999, but is subject to renewal by mutual consent.
Patent Licenses and Related Agreements
NCR, Lucent and AT&T have executed and delivered assignments and other
agreements, including a patent license agreement, related to patents owned or
controlled by AT&T and its subsidiaries. The patent assignments divide ownership
of patents, patent applications and foreign counterparts among NCR, Lucent and
AT&T, with the substantial portion of those previously owned or controlled by
AT&T and its subsidiaries (other than NCR) being assigned to Lucent and the
substantial portion of those previously owned or controlled by NCR and its
subsidiaries being retained by NCR. Certain patents and patent applications
previously owned or controlled by AT&T and its subsidiaries were assigned to
NCR. A small number of the patents assigned to Lucent are jointly owned with
NCR. The patents that Lucent jointly owns with NCR are subject to a defensive
protection agreement under which Lucent holds most ownership rights in the
patents exclusively. Under this defensive protection agreement, NCR has the
ability, subject to specified restrictions, to assert infringement claims under
the patents against companies that assert patent infringement claims against
NCR, and has consent rights in the event Lucent wishes to license the patents to
certain third parties. The defensive protection agreement also provided for a
one-time payment from NCR to Lucent, which has been paid.
The patent license agreement entered into by Lucent, AT&T and NCR provides
for cross-licenses to each company, under each of the other company's patents
that are covered by the licenses, to use, lease, sell and import any and all
products and services of the businesses in which the licensed company (including
specified related companies) is now or hereafter engaged. Except for the payment
of specified up-front amounts, such cross-licenses are royalty-free. The
cross-licenses also permit each company, subject to specified limitations, to
have third parties make items under the other companies' patents, as well as to
pass through to customers certain rights under the other companies' patents with
respect to products and services furnished to customers by the licensed company.
In addition, the rights granted to Lucent and AT&T include the right to license
third parties under each of the other company's patents to the extent necessary
to meet existing patent licensing obligations.
The cross-licenses between AT&T and NCR cover all of each company's
patents, including patents issued on patent applications filed on or before
December 31, 1999, except for certain patents and patents on filed applications
owned or controlled by AT&T Wireless. The cross-licenses between Lucent and NCR
cover all of each company's patents, including patents issued on patent
applications filed on or before December 31, 1999. In the event of a change in
control of NCR or certain acquisitions by NCR, the licenses granted to NCR under
the patent license agreement will extend only to a specific annual volume of
products and services of a kind offered by NCR prior to the change in control or
specified acquisition.
Technology Licenses and Related Agreements
NCR, Lucent and AT&T have executed and delivered assignments and other
agreements, including the Technology License Agreement, related to technology
previously owned or controlled by AT&T and its subsidiaries, including
copyrights, mask works and other intellectual property other than trademarks,
trade names, trade dress, service marks and patent rights. The technology
assignments divide ownership of technology among NCR, Lucent and AT&T, with NCR
owning technology that was developed by or for, or
F-26
<PAGE> 119
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN MILLIONS)
purchased by, NCR. The Technology License Agreement provides for royalty-free
cross-licenses to each company to use certain of the other companies'
technology.
AT&T Capital Corporation Agreement
In 1993, in connection with the initial public offering of a minority
interest in AT&T Capital, AT&T and AT&T Capital entered into an operating
agreement (the "Operating Agreement") pursuant to which AT&T provides AT&T
Capital with the right to be the preferred provider of leasing and financing
services for AT&T's products. The Operating Agreement expires in August 2000.
NCR, as a subsidiary of AT&T, has operated under the Operating Agreement and,
pursuant to the terms thereof, has entered into a comparable operating agreement
with AT&T Capital having the same term. In connection therewith, NCR has also
agreed that AT&T Capital and certain subsidiaries will be entitled to use
certain of NCR's marks for use in connection with the provision of financing
services under the Operating Agreement in accordance with the existing license
agreement between AT&T and AT&T Capital. NCR has further agreed that it will
continue to be bound by the provisions of an intercompany agreement between AT&T
and AT&T Capital to the extent NCR is currently bound thereby, under which NCR
will continue to give AT&T Capital the right to bid for the provision of leasing
and financing services in connection with NCR's internal equipment purchasing
and leasing in the United States, Canada, United Kingdom, France, and Germany.
Stock Based Plans
Prior to the Distribution, eligible employees of NCR and its subsidiaries
participated in the AT&T equity-based plans, under which they received stock
options and other equity-based awards. On the Distribution Date, with certain
exceptions, such awards are expected to be converted into comparable awards
based on NCR Common Stock (the "Substitute Awards") under NCR equity-based plans
as summarized below. In addition, as of the Distribution, NCR intends to adopt
the NCR Management Stock Plan (the "NCR Stock Plan").
The NCR Stock Plan will provide for the grant of incentive stock options,
nonstatutory stock options, stock appreciation rights, restricted stock awards,
performance awards, other stock unit awards and other rights, interests or
options relating to shares of NCR Common Stock or other securities of NCR. The
total number of shares of NCR Common Stock available for grant under the NCR
Stock Plan is expected to be % of the outstanding shares of NCR Common
Stock in the 1997 calendar year and % of the outstanding shares of NCR Common
Stock in each calendar year thereafter, with certain exceptions and subject to
certain adjustments. Shares issuable pursuant to Substitute Awards are not
included in the foregoing limits.
NCR also intends to adopt the NCR WorldShares Plan ("WorldShares Plan")
effective as of the Distribution Date. The WorldShares Plan provides for the
grant of nonstatutory stock options to substantially all NCR's employees in the
United States and abroad. The number of shares of NCR Common Stock available for
grant under the WorldShares Plan is expected to be approximately % of the
outstanding shares of NCR Common Stock. NCR intends to grant each participant an
option to purchase a number of shares of NCR Common Stock with a value as of the
Distribution Date of three thousand dollars or of four thousand five hundred
dollars if certain performance goals for NCR are met in 1996. Such options will
have an exercise price of the market value of the NCR Common Stock on the
Distribution Date and will have a five year expiration period. Participants will
be fully vested and able to exercise their options one year after the date of
grant.
Employee Benefits Agreement
AT&T and NCR expect to enter into an Employee Benefits Agreement (the
"Employee Benefits Agreement") pursuant to which NCR will assume or retain, with
certain exceptions, all liabilities to or relating to past, current and future
NCR employees and benefit plans. The Employee Benefits Agreement also provides
that NCR will use its reasonable best efforts to take all actions necessary or
appropriate so that, with
F-27
<PAGE> 120
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN MILLIONS)
certain exceptions, each outstanding Award granted under any AT&T Long Term
Incentive Plan held by any NCR employee will be replaced with an Award based on
NCR Common Stock otherwise containing the same terms. Pursuant to the Employee
Benefits Agreement, each Award consisting of an AT&T Option that is outstanding
and held by an NCR employee as the close of the Distribution Date will be
replaced, effective immediately after the Distribution Date, with an NCR option.
Such NCR option will provide for the purchase of a number of shares of NCR
Common Stock equal to the number of shares of AT&T Common Stock subject to such
AT&T Option as of the close of the Distribution Date, multiplied by the Ratio
(as defined below), and then rounded down to the nearest whole share. The
per-share exercise price of such NCR option will equal the per-share exercise
price of such AT&T Option as of the close of the Distribution Date divided by
the Ratio.
Each Award consisting of AT&T performance shares or AT&T stock units that
is outstanding and held by an NCR employee as of the close of the Distribution
Date will be replaced, effective immediately after the Distribution Date, with a
new performance share award or a new stock unit award, as the case may be,
consisting of a number of NCR performance shares or NCR stock units, as the case
may be, equal to the number of AT&T performance shares or AT&T stock units, as
the case may be, constituting such Award as of the close of the Distribution
Date, multiplied by the Ratio, and then rounded down to the nearest whole share.
Each Award that consists of non-vested restricted shares of AT&T Common
Stock or restricted stock units relating to shares of AT&T Common Stock that is
outstanding and held by an NCR employee, as of the close of the Distribution
Date will be replaced, with certain exceptions, effective immediately after the
Distribution Date, with either a replacement Award or such other form of
compensation not based on NCR Common Stock as NCR may determine. Any such
replacement Award will be a new Award consisting of a number of non-vested
restricted shares of NCR Common Stock and/or restricted stock units relating to
shares of NCR Common Stock equal to the number of non-vested restricted shares
or restricted stock units of AT&T Common Stock constituting such Award as of the
close of the Distribution Date multiplied by the Ratio, and then rounded down to
the nearest whole share.
If, at any time after the close of the Distribution Date, AT&T is required
to deliver shares of AT&T Common Stock, or shares of AT&T Common Stock vest,
pursuant to an Award that NCR fails to replace as summarized above, with certain
exceptions, NCR will be required to pay AT&T specified amounts determined
pursuant to the Employee Benefits Agreement. For purposes of the replacements
described above, the "Ratio" means the amount obtained by dividing (a) the
average of the daily high and low per-share prices of the AT&T Common Stock
during each of the five trading days immediately preceding the Distribution Date
by (b) the average of the daily high and low per-share prices of the NCR Common
Stock on a when-issued basis during each of the five trading days immediately
preceding the Distribution Date.
F-28
<PAGE> 121
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN MILLIONS)
16. QUARTERLY INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH TOTAL
------ ------ ------- ------ -------
<S> <C> <C> <C> <C> <C>
1995
Total revenues...................... $1,818 $2,042 $ 2,033 $2,269 $ 8,162
Gross margin........................ 420 416 (508) 518 846
Net income (loss)................... (146) (243) (1,585) (306) (2,280)
1994
Total revenues...................... $1,527 $2,011 $ 1,979 $2,944 $ 8,461
Gross margin........................ 479 610 580 898 2,567
Net income (loss)................... (94) (77) (41) 9 (203)
</TABLE>
- ---------------
(1) First quarter of 1995 includes a pre-tax gain on the sale of the
Microelectronics components business of $51
(2) Third quarter of 1995 includes a pre-tax charge of $1,597 to cover
restructuring and other costs (See Note 5 of Notes to Consolidated Financial
Statements)
(3) Fourth quarter of 1995 includes a pre-tax charge of $52 to cover
restructuring and other costs (See Note 5 of Notes to Consolidated Financial
Statements)
(4) Fourth quarter of 1994 includes revenue of $223 for an additional month of
international sales, resulting from the change to conform international and
domestic reporting periods
(5) Fourth quarter of 1994 includes a pre-tax gain of $110 for gain on sale of
assets
F-29
<PAGE> 122
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------ -------------------------------------------------------------------------------------
<C> <S>
2 Form of Distribution Agreement, dated as of , 1996, by and between AT&T
Corp. and NCR Corporation
3.1 Form of Amended and Restated Charter of NCR Corporation
3.2 Form of Bylaws of NCR Corporation
4.1 Form of Common Stock Certificate of NCR Corporation*
4.2 Form of Preferred Share Purchase Rights Plan of NCR Corporation
10.1 Separation and Distribution Agreement, dated as of February 1, 1996 and amended and
restated as of March 29, 1996 (incorporated by reference to Exhibit 10.1 to the
Lucent Technologies Inc. Registration Statement on Form S-1 (No. 333-00703) dated
April 3, 1996 (the "Lucent Registration Statement"))
10.2 Employee Benefits Agreement, dated as of , 1996, by and between AT&T
Corp. and NCR Corporation*
10.3 Volume Purchase Agreement, dated as of , 1996, by and between AT&T
Corp. and NCR Corporation*
10.4 Patent License Agreement, effective as of March 29, 1996, by and among AT&T Corp.,
NCR Corporation and Lucent Technologies Inc. (incorporated by reference to Exhibit
10.7 to the Lucent Registration Statement)
10.5 Amended and Restated Technology License Agreement, effective as of March 29, 1996, by
and among AT&T Corp., NCR Corporation and Lucent Technologies Inc. (incorporated by
reference to Exhibit 10.8 to the Lucent Registration Statement)
10.6 Tax Sharing Agreement, dated as of February 1, and amended and restated as of March
29, 1996, by and among AT&T Corp., NCR Corporation and Lucent Technologies Inc.
(incorporated by reference to Exhibit 10.6 to the Lucent Registration Statement)
10.7 Interim Service and Systems Application Agreement by and among AT&T Corp., Lucent
Technologies Inc. and NCR Corporation, dated as of February 1, 1996 (incorporated by
reference to Exhibit 10.4 to the Lucent Registration Statement)
10.8 Form of NCR Management Stock Plan*
10.9 Form of NCR WorldShares Plan*
10.10 NCR Senior Executive Retirement, Death & Disability Plan*
10.11 The Retirement Plan for Officers of NCR*
10.12 Employment Agreements*
21 Subsidiaries of NCR Corporation
27 Financial Data Schedule
</TABLE>
- ---------------
* To be filed by amendment.
<PAGE> 123
SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant has duly caused this registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized.
NCR CORPORATION
By /s/ LARS NYBERG
-----------------------------------
Name: Lars Nyberg
Title: Chairman of the Board,
Chief Executive Officer
and President
September 26, 1996
<PAGE> 124
NCR CORPORATION
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ----------------------------------- ---------- ------------------------- ---------- ----------
ADDITIONS
-------------------------
BALANCE AT CHARGED TO CHARGED TO COLUMN D BALANCE AT
BEGINNING COSTS & OTHER ---------- END
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
- ------------------------------------ ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1995
Allowance for doubtful accounts... $ 65 $ 61 $ -- $ 58 $ 68
Deferred tax asset valuation
allowance...................... 405 67 -- -- 472
Inventory valuation reserves...... 64 514(a) 248 330
Reserves related to business
restructuring.................. 71 963 -- 176 858
Year Ended December 31, 1994
Allowance for doubtful accounts... $ 43 $ 38 $ -- $ 16 $ 65
Deferred tax asset valuation
allowance...................... 449 -- -- 44 405
Inventory valuation reserves...... 54 59 -- 49 64
Reserves related to business
restructuring.................. 196 -- -- 125 71
Year Ended December 31, 1993
Allowance for doubtful accounts... $ 39 $ 27 $ -- $ 23 $ 43
Deferred tax asset valuation
allowance...................... 304 145 -- -- 449
Inventory valuation reserves...... 37 54 -- 37 54
Reserves related to business
restructuring.................. 99 219 -- 122 196
</TABLE>
- ---------------
(a) Includes $417 restructuring reserve in the third quarter of 1995.
S-1
<PAGE> 125
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------ -------------------------------------------------------------------------------------
<C> <S>
2 Form of Distribution Agreement, dated as of , 1996, by and between AT&T
Corp. and NCR Corporation
3.1 Form of Amended and Restated Charter of NCR Corporation
3.2 Form of Bylaws of NCR Corporation
4.1 Form of Common Stock Certificate of NCR Corporation*
4.2 Form of Preferred Share Purchase Rights Plan of NCR Corporation
10.1 Separation and Distribution Agreement, dated as of February 1, 1996 and amended and
restated as of March 29, 1996 (incorporated by reference to Exhibit 10.1 to the
Lucent Technologies Inc. Registration Statement on Form S-1 (No. 333-00703) dated
April 3, 1996 (the "Lucent Registration Statement"))
10.2 Employee Benefits Agreement, dated as of , 1996, by and between AT&T
Corp. and NCR Corporation*
10.3 Volume Purchase Agreement, dated as of , 1996, by and between AT&T
Corp. and NCR Corporation*
10.4 Patent License Agreement, effective as of March 29, 1996, by and among AT&T Corp.,
NCR Corporation and Lucent Technologies Inc. (incorporated by reference to Exhibit
10.7 to the Lucent Registration Statement)
10.5 Amended and Restated Technology License Agreement, effective as of March 29, 1996, by
and among AT&T Corp., NCR Corporation and Lucent Technologies Inc. (incorporated by
reference to Exhibit 10.8 to the Lucent Registration Statement)
10.6 Tax Sharing Agreement, dated as of February 1, and amended and restated as of March
29, 1996, by and among AT&T Corp., NCR Corporation and Lucent Technologies Inc.
(incorporated by reference to Exhibit 10.6 to the Lucent Registration Statement)
10.7 Interim Service and Systems Application Agreement by and among AT&T Corp., Lucent
Technologies Inc. and NCR Corporation, dated as of February 1, 1996 (incorporated by
reference to Exhibit 10.4 to the Lucent Registration Statement)
10.8 Form of NCR Management Stock Plan*
10.9 Form of NCR WorldShares Plan*
10.10 NCR Senior Executive Retirement, Death & Disability Plan*
10.11 The Retirement Plan for Officers of NCR*
10.12 Employment Agreements*
21 Subsidiaries of NCR Corporation
27 Financial Data Schedule
</TABLE>
- ---------------
* To be filed by amendment.
<PAGE> 1
Exhibit 2
FORM OF
DISTRIBUTION AGREEMENT
BY AND BETWEEN
AT&T CORP.
AND
NCR CORPORATION
DATED AS OF ________, 1996
<PAGE> 2
DISTRIBUTION AGREEMENT
THIS DISTRIBUTION AGREEMENT, dated as of ___________, 1996, is
by and between AT&T and NCR. Capitalized terms used herein and not otherwise
defined shall have the respective meanings assigned to them in Article I hereof.
WHEREAS, the Board of Directors of AT&T has determined that it
is in the best interests of AT&T and its shareholders to separate AT&T's
existing businesses into three independent businesses;
WHEREAS, in furtherance of the foregoing, AT&T, NCR and Lucent
have executed and delivered the Separation and Distribution Agreement providing
for, among other things, the initial public offering of shares of Lucent Common
Stock (which was consummated on April 10, 1996) and for the pro rata
distribution by AT&T of all of its shares of Lucent Common Stock to the
shareholders of AT&T;
WHEREAS, AT&T, NCR and Lucent have also executed and delivered
the Ancillary Agreements (as such term is defined in the Separation and
Distribution Agreement) governing certain additional matters relating to the
Lucent Distribution;
WHEREAS, the Board of Directors of AT&T has also determined
that AT&T will distribute to its shareholders all of the capital stock of NCR
held directly or indirectly by AT&T, subject to the terms and conditions set
forth herein;
WHEREAS, the NCR Distribution is intended to qualify as a
tax-free spin-off under Section 355 of the Code;
WHEREAS, it is appropriate and desirable to set forth certain
agreements that will govern certain matters relating to the NCR Distribution and
the relationship of AT&T and NCR and their respective Subsidiaries following the
NCR Distribution.
NOW, THEREFORE, the parties, intending to be legally bound,
agree as follows:
ARTICLE I
DEFINITIONS
For the purpose of this Agreement the following terms shall
have the following meanings:
1.1. ACTION has the meaning set forth in the Separation and
Distribution Agreement.
1.2. ADJUSTMENT has the meaning set forth in the Tax Sharing
Agreement.
1.3. AFFILIATE has the meaning set forth in the Separation and
Distribution Agreement.
<PAGE> 3
1.4. AGENT means the distribution agent to be appointed by
AT&T to distribute, or make book entry credits for, the shares of NCR Common
Stock held by AT&T pursuant to the NCR Distribution.
1.5. AGREEMENT means this Distribution Agreement, including
all of the Schedules hereto.
1.6. ANCILLARY AGREEMENTS has the meaning set forth in the
Separation and Distribution Agreement.
1.7. APPLICABLE DEADLINE has the meaning set forth in the
Separation and Distribution Agreement.
1.8. ARBITRATION ACT has the meaning set forth in the
Separation and Distribution Agreement.
1.9. ARBITRATION DEMAND NOTICE has the meaning set forth in
the Separation and Distribution Agreement.
1.10. ASSETS has the meaning set forth in the Separation and
Distribution Agreement.
1.11. AT&T means AT&T Corp., a New York corporation.
1.12. AT&T COMMON STOCK means the Common Stock, $1.00 par
value per share, of AT&T.
1.13. AT&T GROUP has the meaning set forth in the Separation
and Distribution Agreement.
1.14. AT&T INDEMNITEES has the meaning set forth in Section
4.2 hereof.
1.15. AT&T SERVICES BUSINESS has the meaning set forth in the
Separation and Distribution Agreement.
1.16. AT&T SERVICES GROUP means each member of the AT&T Group
other than any member of the NCR Group.
1.17. AT&T VOLUME PURCHASE AGREEMENT means the Volume Purchase
Agreement, dated as of the date hereof, as amended, by and between AT&T and NCR.
1.18. CLOSING DATE has the meaning set forth in the Separation
and Distribution Agreement.
1.19. CODE means the Internal Revenue Code of 1986, as
amended.
-3-
<PAGE> 4
1.20. COMMISSION means the Securities and Exchange Commission.
1.21. CONSENTS means any consents, waivers or approvals from,
or notification requirements to, any third parties.
1.22. DETERMINATION REQUEST has the meaning set forth in the
Separation and Distribution Agreement.
1.23. EXCHANGE ACT means the Securities Exchange Act of 1934,
as amended, together with the rules and regulations promulgated thereunder.
1.24. GOVERNMENTAL APPROVALS has the meaning set forth in the
Separation and Distribution Agreement.
1.25. GOVERNMENTAL AUTHORITY has the meaning set forth in the
Separation and Distribution Agreement.
1.26. GROUP means any of the AT&T Services Group, the Lucent
Group or the NCR Group, as the context requires.
1.27. INDEMNIFYING PARTY has the meaning set forth in Section
4.4(a) hereof.
1.28. INDEMNITEE has the meaning set forth in Section 4.4(a)
hereof.
1.29. INDEMNITY PAYMENT has the meaning set forth in Section
4.4(a) hereof.
1.30. INSURANCE PROCEEDS has the meaning set forth in the
Separation and Distribution Agreement.
1.31. IPO has the meaning set forth in the Separation and
Distribution Agreement.
1.32. LIABILITIES has the meaning set forth in the Separation
and Distribution Agreement.
1.33. LUCENT means Lucent Technologies Inc., a Delaware
corporation.
1.34. LUCENT COMMON STOCK means the Common Stock, $.01 par
value per share, of Lucent.
1.35. LUCENT DISTRIBUTION means the distribution by AT&T on a
pro rata basis to holders of AT&T Common Stock of all of the outstanding shares
of Lucent Common Stock owned by AT&T as set forth in Article IV of the
Separation and Distribution Agreement.
-4-
<PAGE> 5
1.36. LUCENT GROUP has the meaning set forth in the Separation
and Distribution Agreement.
1.37. LUCENT INDEMNITEES has the meaning set forth in the
Separation and Distribution Agreement.
1.38. NCR means NCR Corporation, a Maryland corporation.
1.39. NCR ANCILLARY AGREEMENTS means the AT&T Volume Purchase
Agreement, the NCR Employee Benefits Agreement, the Procedures Agreement and the
agreements related or supplemental to this Agreement or to any of the foregoing.
1.40. NCR BUSINESS means (a) the computer products, computer
systems, data processing and information solutions business and operations as
conducted by NCR and its Subsidiaries; (b) except as otherwise expressly
provided herein or in the Separation and Distribution Agreement, any terminated,
divested or discontinued businesses or operations (i) that at the time of
termination, divestiture or discontinuation primarily related to the NCR
Business as then conducted, or (ii) that were conducted by NCR, by any Person
that at any time was an Affiliate of NCR prior to the acquisition of NCR by
AT&T, or by any Person that at any time was controlled by NCR; (c) the
terminated, divested or discontinued businesses and operations listed or
described on Schedule 1.75 to the Separation and Distribution Agreement; and (d)
any business or operation conducted by NCR or any Affiliate of NCR at any time
on or after the NCR Distribution Date.
1.41. NCR COMMON STOCK means the Common Stock, par value $.01
per share, of NCR.
1.42. NCR COVERED LIABILITIES has the meaning set forth in the
Separation and Distribution Agreement.
1.43. NCR DISTRIBUTION means the distribution by AT&T on a pro
rata basis to holders of AT&T Common Stock of all of the outstanding shares of
NCR Common Stock owned by AT&T on the NCR Distribution Date as set forth in
Article II of this Agreement.
1.44. NCR DISTRIBUTION DATE means the date determined pursuant
to Section 2.3 of this Agreement on which the NCR Distribution occurs.
1.45. NCR EMPLOYEE BENEFITS AGREEMENT means the Employee
Benefits Agreement, dated as of the date hereof, as amended, by and between AT&T
and NCR.
1.46. NCR FORM 10 means the Registration Statement on Form 10
to be filed by NCR with the Commission in connection with the NCR Distribution.
1.47. NCR GROUP has the meaning set forth in the Separation
and Distribution Agreement.
-5-
<PAGE> 6
1.48. NCR INDEMNITEES has the meaning set forth in Section
4.3(a) hereof.
1.49. NCR INFORMATION STATEMENT means the Information
Statement constituting a part of the NCR Form 10, which will be mailed to AT&T
shareholders in connection with the NCR Distribution.
1.50. NCR INSURANCE POLICIES means the insurance policies
written by insurance carriers unaffiliated with AT&T pursuant to which NCR or
one or more of its Subsidiaries (or their respective officers or directors) will
be insured parties after the NCR Distribution Date.
1.51. NCR RECORD DATE means the time at which the transfer
agent for the AT&T Common Stock closes its transfer records for AT&T Common
Stock on the date to be determined by the AT&T Board of Directors as the record
date for determining shareholders of AT&T entitled to receive the special
dividend of shares of NCR Common Stock in the NCR Distribution.
1.52. NYSE means The New York Stock Exchange, Inc.
1.53. PERSON has the meaning set forth in the Separation and
Distribution Agreement.
1.54. PREFERRED SHARE PURCHASE RIGHTS mean the Rights to be
issued pursuant to a Rights Agreement substantially in the form of the Rights
Agreement attached as an Exhibit to the NCR Form 10.
1.55. PROCEDURES AGREEMENT means the Procedures Agreement,
dated as of the date hereof, as amended, by and between AT&T and NCR.
1.56. RESTRUCTURING ADJUSTMENT has the meaning set forth in
the Tax Sharing Agreement.
1.57. SECURITIES ACT means the Securities Act of 1933, as
amended, together with the rules and regulations promulgated thereunder.
1.58. SECURITY INTEREST has the meaning set forth in the
Separation and Distribution Agreement.
1.59. SEPARATION has the meaning set forth in the Separation
and Distribution Agreement.
1.60. SEPARATION AND DISTRIBUTION AGREEMENT means the
Separation and Distribution Agreement, dated as of February 1, 1996, as amended
and restated as of March 29, 1996, by and among AT&T, Lucent and NCR, including
the Schedules thereto.
-6-
<PAGE> 7
1.61. SHARED CONTINGENT LIABILITY has the meaning set forth in
the Separation and Distribution Agreement.
1.62. SUBSIDIARY has the meaning set forth in the Separation
and Distribution Agreement.
1.63. TAX SHARING AGREEMENT has the meaning set forth in the
Separation and Distribution Agreement.
1.64. TAXES has the meaning set forth in the Tax Sharing
Agreement.
1.65. THIRD PARTY CLAIM has the meaning set forth in Section
4.5(a) hereof.
1.66. TRANSACTION AGREEMENTS means, collectively, this
Agreement, the NCR Ancillary Agreements, the Separation and Distribution
Agreement and the Ancillary Agreements.
ARTICLE II
THE DISTRIBUTION
2.1. THE DISTRIBUTION. (a) Subject to Section 2.3 hereof, on
or prior to the NCR Distribution Date, AT&T will deliver to the Agent for the
benefit of holders of record of AT&T Common Stock on the NCR Record Date, a
single stock certificate representing all of the outstanding shares of NCR
Common Stock then beneficially owned by AT&T or any of its wholly owned
Subsidiaries, and shall cause the transfer agent for the shares of AT&T Common
Stock to instruct the Agent on the NCR Distribution Date either to distribute,
or make book-entry credits for, the appropriate number of such shares of NCR
Common Stock to each such holder of AT&T Common Stock or designated transferee
or transferees of such holder.
(b) Subject to Section 2.4, each holder of AT&T Common Stock
on the NCR Record Date (or such holder's designated transferee or transferees)
will be entitled to receive in the NCR Distribution a number of shares of NCR
Common Stock equal to the number of shares of AT&T Common Stock held by such
holder on the NCR Record Date multiplied by a fraction, the numerator of which
is the number of shares of NCR Common Stock beneficially owned by AT&T or any of
its wholly owned Subsidiaries on the NCR Record Date and the denominator of
which is the number of shares of AT&T Common Stock outstanding on the NCR Record
Date.
(c) Each of NCR and AT&T, as the case may be, will provide to
the Agent all share certificates and any information required in order to
complete the NCR Distribution on the terms contemplated hereby.
2.2. ACTIONS PRIOR TO THE NCR DISTRIBUTION. (a) AT&T and NCR
shall prepare and mail, prior to the NCR Distribution Date, to the holders of
AT&T Common
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Stock, the NCR Information Statement, which shall set forth appropriate
disclosure concerning NCR, the NCR Distribution and such other matters as AT&T
and NCR may determine. AT&T and NCR shall prepare, and NCR shall file with the
Commission, the NCR Form 10, which shall include or incorporate by reference the
NCR Information Statement. NCR shall use its reasonable best efforts to cause
the NCR Form 10 to be declared effective under the Exchange Act as soon as
practicable following the filing thereof.
(b) AT&T and NCR shall take all such action as may be
necessary or appropriate under the securities or blue sky laws of the United
States (and any comparable laws under any foreign jurisdiction) in connection
with the NCR Distribution.
(c) NCR shall prepare and file, and shall use its reasonable
best efforts to have approved, an application for the listing of the NCR Common
Stock (and related Preferred Share Purchase Rights) to be distributed in the NCR
Distribution on the NYSE or another mutually agreeable stock exchange or
quotations system.
2.3. CONDITIONS TO THE NCR DISTRIBUTION. The AT&T Board shall
have the sole discretion to determine the NCR Record Date and the NCR
Distribution Date, and all appropriate procedures in connection with the NCR
Distribution, provided that the NCR Distribution shall not occur prior to such
time as each of the following conditions shall have been satisfied or shall have
been waived by the AT&T Board in its sole discretion:
(a) a private letter ruling from the Internal Revenue Service
shall have been obtained, and shall continue in effect, to the effect
that, among other things, the NCR Distribution will qualify as a
tax-free distribution for federal income tax purposes under Section 355
of the Code, and such ruling shall be in form and substance
satisfactory to AT&T in its sole discretion;
(b) any material Governmental Approvals and Consents necessary
to consummate the NCR Distribution shall have been obtained and be in
full force and effect;
(c) no order, injunction or decree issued by any court or
agency of competent jurisdiction or other legal restraint or
prohibition preventing the consummation of the NCR Distribution shall
be in effect and no other event shall have occurred or failed to occur
that prevents the consummation of the NCR Distribution;
(d) the NCR Form 10 shall have been declared effective by the
Commission;
(e) AT&T shall have received a favorable response from the
Staff of the Commission to a request for a no-action letter concerning,
among other matters, whether the NCR Distribution and related
transactions may be effected without registration of the NCR Common
Stock (and related Preferred Share Purchase Rights) under the
Securities Act;
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(f) the NCR Common Stock (and related Preferred Share Purchase
Rights) shall have been accepted for listing by the NYSE or another
mutually agreeable stock exchange or quotations system; and
(g) the AT&T Board shall have formally approved the
Distribution;
provided that the satisfaction of such conditions shall not create any
obligation on the part of AT&T, NCR or any other Person to effect or to seek to
effect the NCR Distribution or in any way limit AT&T's right to terminate this
Agreement as set forth in Section 7.1 or alter the consequences of any such
termination from those specified in Section 7.2.
2.4. FRACTIONAL SHARES. No certificates representing
fractional shares of NCR Common Stock will be distributed to holders of AT&T
Common Stock in the NCR Distribution. Holders that receive certificates in the
NCR Distribution and holders that receive less than one whole share of NCR
Common Stock in the NCR Distribution will receive cash in lieu of such
fractional shares as contemplated hereby. As soon as practicable after the NCR
Distribution Date, AT&T shall direct the Agent to determine the number of
fractional shares of NCR Common Stock allocable to each holder of record or
beneficial owner of AT&T Common Stock as of the Record Date that will receive
cash in lieu of such fractional shares, to aggregate all such fractional shares
and sell the whole shares obtained by aggregating such fractional shares either
in open market transactions or otherwise, in each case at then prevailing
trading prices, and to cause to be distributed to each such holder or for the
benefit of each such beneficial owner, in lieu of any fractional share, such
holder's or owner's ratable share of the proceeds of such sale, after making
appropriate deductions of the amount required to be withheld for federal income
tax purposes and after deducting an amount equal to all brokerage charges,
commissions and transfer taxes attributed to such sale. AT&T and the Agent shall
use their reasonable best efforts to aggregate the shares of AT&T Common Stock
that may be held by any beneficial owner thereof through more than one account
in determining the fractional share allocable to such beneficial owner.
ARTICLE III
CERTAIN AGREEMENTS RELATING TO THE NCR DISTRIBUTION
3.1. NCR ANCILLARY AGREEMENTS. Effective as of the date
hereof, each of AT&T and NCR are executing and delivering each of the NCR
Ancillary Agreements.
3.2. THE NCR BOARD. NCR and AT&T shall take all actions which
may be required to elect or otherwise appoint as directors of NCR, on or prior
to the NCR Distribution Date, the persons named in the NCR Form 10 to constitute
the Board of Directors of NCR on the NCR Distribution Date.
3.3. NCR CHARTER, BYLAWS AND RIGHTS. Prior to the NCR
Distribution Date, (a) AT&T shall cause Articles of Amendment and Restatement of
NCR, substantially in the form filed with the NCR Form 10, to be filed for
record with the Maryland State Department of Assessments and Taxation and to be
in effect on the NCR Distribution Date,
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and (b) the Board of Directors of NCR shall amend the Bylaws of NCR so that the
NCR Bylaws are substantially in the form filed with the NCR Form 10. Prior to
the NCR Record Date, the Board of Directors of NCR shall declare a dividend of
the Preferred Share Purchase Rights so that each share of NCR Common Stock
issued and outstanding on the NCR Distribution Date shall initially have one
Preferred Share Purchase Right attached thereto.
3.4. TERMINATION OF INTERCOMPANY AGREEMENTS. (a) Except as set
forth in Section 3.4(b) or Section 2.4(b) of the Separation and Distribution
Agreement or Schedule 2.4(b)(ii) thereto, in furtherance of the releases and
other provisions of Section 4.1 hereof, NCR and each member of the NCR Group, on
the one hand, and AT&T and the respective members of the AT&T Services Group, on
the other hand, hereby terminate any and all agreements, arrangements,
commitments or understandings, whether or not in writing, between or among NCR
and/or any member of the NCR Group, on the one hand, and AT&T and/or any member
of the AT&T Services Group, on the other hand, effective as of the NCR
Distribution Date. No such terminated agreement, arrangement, commitment or
understanding (including any provision thereof which purports to survive
termination) shall be of any further force or effect after the NCR Distribution
Date. Each party shall, at the reasonable request of any other party, take, or
cause to be taken, such other actions as may be necessary to effect the
foregoing.
(b) The provisions of Section 3.4(a) shall not apply to any of
the following agreements, arrangements, commitments or understandings (or to any
of the provisions thereof): (i) the Transaction Agreements (and each other
agreement or instrument expressly contemplated by any Transaction Agreement to
be entered into by any of the parties hereto or any of the members of their
respective Groups); (ii) any agreements, arrangements, commitments or
understandings listed or described on Schedule 3.4(b)(ii); (iii) any agreements,
arrangements, commitments or understandings to which any Person other than the
parties hereto and their respective Affiliates is a party; (iv) except as set
forth in Schedule 3.4(b)(iv), any intercompany accounts payable or accounts
receivable accrued as of the NCR Distribution Date that are reflected in the
books and records of the parties or otherwise documented in writing in
accordance with past practices; (v) any agreements, arrangements, commitments
or understandings to which AT&T Capital Corporation, any member of the Lucent
Group, or any other non-wholly owned Subsidiary of AT&T or NCR, as the case may
be, is a party (it being understood that directors' qualifying shares or similar
interests will be disregarded for purposes of determining whether a Subsidiary
is wholly owned); (vi) any written Tax sharing or Tax allocation agreements to
which any member of any Group is a party; and (vii) any other agreements,
arrangements, commitments or understandings that any of the Transaction
Agreements expressly contemplates will survive the NCR Distribution Date.
3.5. DISCLAIMER OF REPRESENTATIONS AND WARRANTIES. Each of
AT&T (on behalf of itself and each member of the AT&T Services Group) and NCR
(on behalf of itself and each member of the NCR Group) understands and agrees
that, except as expressly set forth in any Transaction Agreement, no party to
any Transaction Agreement or any other agreement or document contemplated by any
Transaction Agreement either has or is
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representing or warranting in any way as to the Assets, businesses or
Liabilities retained, transferred or assumed as contemplated hereby or thereby,
as to any consents or approvals required in connection therewith, as to the
value or freedom from any Security Interests of, or any other matter concerning,
any Assets of such party, or as to the absence of any defenses or right of
setoff or freedom from counterclaim with respect to any claim or other Asset,
including any accounts receivable, of any party, or as to the legal sufficiency
of any assignment, document or instrument delivered hereunder to convey title to
any Asset or thing of value upon the execution, delivery and filing hereof or
thereof. Except as may expressly be set forth in any Transaction Agreement, all
such Assets were, or are being, transferred, or are being retained, on an "as
is," "where is" basis (and, in the case of any real property, by means of a
quitclaim or similar form deed or conveyance) and the respective transferees
shall bear the economic and legal risks that any conveyance shall prove to be
insufficient to vest in the transferee good and marketable title, free and clear
of any Security Interest.
3.6. NON-U.S. PLAN. On or prior to the NCR Distribution Date,
NCR and AT&T shall use their reasonable best efforts to consummate, or to cause
to be consummated, the transactions set forth on Schedule 3.6 hereto.
3.7. LETTERS OF CREDIT AND RELATED MATTERS. In the event that
at any time, whether prior to or after the NCR Distribution Date, AT&T
identifies any letters of credit, interest rate or foreign exchange contracts or
other financial or other contracts that relate primarily to the NCR Business but
for which any member of the AT&T Services Group has contingent, secondary,
joint, several or other Liability of any nature whatsoever, NCR will at its
expense take such actions and enter into such agreements and arrangements as
AT&T may request to effect the release or substitution of the member of the AT&T
Services Group.
ARTICLE IV
MUTUAL RELEASES; INDEMNIFICATION
4.1. RELEASE OF PRE-CLOSING CLAIMS. (a) Except as provided in
Section 4.1(c), effective as of the NCR Distribution Date, NCR does hereby, for
itself and each other member of the NCR Group, their respective Affiliates
(other than any member of the AT&T Services Group or the Lucent Group),
successors and assigns, and all Persons who at any time prior to the NCR
Distribution Date have been shareholders, directors, officers, agents or
employees of any member of the NCR Group (in each case, in their respective
capacities as such), remise, release and forever discharge AT&T, the members of
the AT&T Services Group, their respective Affiliates (other than any member of
the NCR Group or the Lucent Group), successors and assigns, and all Persons who
at any time prior to the NCR Distribution Date have been shareholders,
directors, officers, agents or employees of any member of the AT&T Services
Group (in each case, in their respective capacities as such), and their
respective heirs, executors, administrators, successors and assigns, from any
and all Liabilities whatsoever, whether at law or in equity (including any right
of contribution), whether arising under any contract or agreement, by operation
of law or otherwise, existing
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or arising from any acts or events occurring or failing to occur or alleged to
have occurred or to have failed to occur or any conditions existing or alleged
to have existed on or before the NCR Distribution Date, including in connection
with the actions or decisions taken or omitted to be taken in connection with,
and the other activities relating to, the structuring or implementation of any
of the Separation, the IPO, the Lucent Distribution or the NCR Distribution.
(b) Except as provided in Section 4.1(c), effective as of the
NCR Distribution Date, AT&T does hereby, for itself and each other member of the
AT&T Services Group, their respective Affiliates (other than AT&T Capital
Corporation or any of its Subsidiaries, any member of the NCR Group or the
Lucent Group), successors and assigns, and all Persons who at any time prior to
the NCR Distribution Date have been shareholders, directors, officers, agents or
employees of any member of the AT&T Services Group other than AT&T Capital
Corporation or any of its Subsidiaries (in each case, in their respective
capacities as such), remise, release and forever discharge NCR, the respective
members of the NCR Group, their respective Affiliates (other than any member of
the AT&T Services Group or the Lucent Group), successors and assigns, and all
Persons who at any time prior to the NCR Distribution Date have been
shareholders, directors, officers, agents or employees of any member of the NCR
Group (in each case, in their respective capacities as such), and their
respective heirs, executors, administrators, successors and assigns, from any
and all Liabilities whatsoever, whether at law or in equity (including any right
of contribution), whether arising under any contract or agreement, by operation
of law or otherwise, existing or arising from any acts or events occurring or
failing to occur or alleged to have occurred or to have failed to occur or any
conditions existing or alleged to have existed on or before the NCR Distribution
Date, including in connection with the transactions and all other activities to
implement any of the Separation, the IPO, the Lucent Distribution or the NCR
Distribution.
(c) Nothing contained in Section 4.1(a) or (b) shall impair
any right of any Person to enforce the Transaction Agreements, or any
agreements, arrangements, commitments or understandings that are specified in
the Separation and Distribution Agreement, in Section 3.4(b) or the Schedules
hereto or thereto not to terminate as of the Closing Date or the NCR
Distribution Date, as the case may be, in each case in accordance with its
terms. Nothing contained in Section 4.1(a) or (b) shall release any Person from:
(i) any Liability provided in or resulting from any agreement
among any members of the AT&T Services Group or the NCR Group that is
specified in the Separation and Distribution Agreement, in Section
3.4(b) or the applicable Schedules hereto or thereto as not to
terminate as of the Closing Date or as of the NCR Distribution Date, as
the case may be, or any other Liability so specified as not to
terminate as of the Closing Date or NCR Distribution Date;
(ii) any Liability, contingent or otherwise, assumed,
transferred, assigned or allocated to the Group of which such Person is
a member in accordance with, or any other Liability of any member of
any Group under, any Transaction Agreement;
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(iii) any Liability that the parties may have with respect to
indemnification or contribution pursuant to this Agreement for claims
brought against the parties by third Persons, which Liability shall be
governed by the provisions of this Article IV and by the Separation and
Distribution Agreement, and, if applicable, by the appropriate
provisions of the Ancillary Agreements or NCR Ancillary Agreements; or
(iv) any Liability the release of which would result in the
release of any Person other than a Person released pursuant to this
Section 4.1; provided that the parties agree not to bring suit or
permit any of their Subsidiaries to bring suit against any such Person
with respect to any Liability to the extent that such Person would be
released with respect to such Liability by this Section 4.1 but for the
provisions of this clause (iv).
(d) NCR shall not make, and shall not permit any member of the
NCR Group to make, any claim or demand, or commence any Action asserting any
claim or demand, including any claim of contribution or any indemnification,
against AT&T, any member of the AT&T Services Group, or any other Person
released pursuant to Section 4.1(a), with respect to any Liabilities released
pursuant to Section 4.1(a). AT&T shall not, and shall not permit any member of
the AT&T Services Group, to make any claim or demand, or commence any Action
asserting any claim or demand, including any claim of contribution or any
indemnification, against NCR or any member of the NCR Group, or any other Person
released pursuant to Section 4.1(b), with respect to any Liabilities released
pursuant to Section 4.1(b).
(e) It is the intent of each of AT&T and NCR by virtue of the
provisions of this Section 4.1 to provide for a full and complete release and
discharge of all Liabilities existing or arising from all acts and events
occurring or failing to occur or alleged to have occurred or to have failed to
occur and all conditions existing or alleged to have existed on or before the
NCR Distribution Date, between or among NCR or any member of the NCR Group, on
the one hand, and AT&T or any member of the AT&T Services Group, on the other
hand (including any contractual agreements or arrangements existing or alleged
to exist between or among any such members on or before the NCR Distribution
Date), except as expressly set forth in Section 4.1(c). At any time, at the
request of any other party, each party shall cause each member of its respective
Group to execute and deliver releases reflecting the provisions hereof.
4.2. INDEMNIFICATION BY NCR. NCR shall indemnify, defend and
hold harmless AT&T, each member of the AT&T Services Group and each of their
respective directors, officers and employees, and each of the heirs, executors,
successors and assigns of any of the foregoing (collectively, the "AT&T
Indemnitees"), from and against any and all Liabilities of the AT&T Indemnitees
relating to, arising out of or resulting from any of the following items
(without duplication), in each case whether arising before, on or after the NCR
Distribution Date:
(a) the failure of NCR or any other member of the NCR Group or
any other Person to pay, perform or otherwise promptly discharge any
Liabilities of any mem-
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ber of the NCR Group in accordance with their respective terms, whether
prior to or after the NCR Distribution Date or the date hereof;
(b) the NCR Business (including any claim by any creditor of
AT&T UK Holdings Ltd. to the extent relating to the NCR Business
conducted by such entity), any Liability of any member of the NCR Group
or any NCR Covered Liability;
(c) any Asset (including contracts, agreements, real property
and leasehold interests) of any member of the NCR Group at any time
(other than Assets transferred to any member of the AT&T Services Group
prior to the NCR Distribution Date), and any contract, agreement,
letter of credit or other commitment or obligation listed on Schedule
4.2 hereof;
(d) the operation of the NCR Business, as conducted at any
time prior to, on or after the NCR Distribution Date (including any
Liability relating to, arising out of or resulting from any act or
failure to act by any director, officer, employee, agent or
representative (whether or not such act or failure to act is or was
within such Person's authority));
(e) any guarantee, indemnity, representation, warranty or
other Liability of or made by any member of the AT&T Services Group in
respect of any Liability or alleged Liability of any member of the NCR
Group;
(f) any breach by NCR or any member of the NCR Group of this
Agreement, the Separation and Distribution Agreement, any Ancillary
Agreement or any of the NCR Ancillary Agreements;
(g) any Liabilities relating to, arising out of or resulting
from the NCR Business (including any NCR Covered Liabilities) for which
AT&T has agreed to indemnify and hold harmless the Lucent Indemnitees
pursuant to Section 5.3(a) of the Separation and Distribution
Agreement;
(h) actions taken by any member of the AT&T Group on behalf of
any member of the NCR Group pursuant to the Separation and
Distribution Agreement or any Ancillary Agreement;
(i) any untrue statement or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading, with respect to all information contained in
the NCR Information Statement or NCR Form 10; and
(j) any Liability relating to, arising out of or resulting
from any actual or threatened Action or other claim alleging that any
Liability was improperly allocated to the NCR Group or that any Asset
was improperly withheld from the NCR Group, in each case pursuant to
any of the Transaction Agreements.
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Nothing in this Agreement shall be deemed to amend or modify Section 5.3(c) of
the Separation and Distribution Agreement and the provisions of the Separation
and Distribution Agreement shall govern matters covered thereby.
4.3. INDEMNIFICATION BY AT&T. (a) AT&T shall indemnify, defend
and hold harmless NCR, each member of the NCR Group and each of their respective
directors, officers and employees, and each of the heirs, executors, successors
and assigns of any of the foregoing (collectively, the "NCR Indemnitees"), from
and against any and all Liabilities of the NCR Indemnitees relating to, arising
out of or resulting from any of the following items (without duplication), in
each case whether arising before, on or after the NCR Distribution Date:
(i) the failure of AT&T or any other member of the AT&T Group
or any other Person to pay, perform or otherwise promptly discharge any
Liabilities of the AT&T Services Group whether prior to or after the
NCR Distribution Date or the date hereof;
(ii) the AT&T Services Business (including any claim by any
creditor of AT&T UK Holdings Ltd. to the extent relating to the AT&T
Services Business conducted by such entity) or any Liability of the
AT&T Services Group; and
(iii) any breach by AT&T or any member of the AT&T Services
Group of this Agreement, the Separation and Distribution Agreement, any
Ancillary Agreement or any of the NCR Ancillary Agreements;
provided however that this Section 4.3 shall not apply to any Liability relating
to the NCR Business.
4.4. INDEMNIFICATION OBLIGATIONS NET OF INSURANCE PROCEEDS AND
OTHER AMOUNTS. (a) The parties intend that any Liability subject to
indemnification or reimbursement pursuant to this Article IV will be net of
Insurance Proceeds that actually reduce the amount of the Liability.
Accordingly, the amount which any party (an "Indemnifying Party") is required to
pay to any Person entitled to indemnification hereunder (an "Indemnitee") will
be reduced by any Insurance Proceeds theretofore actually recovered by or on
behalf of the Indemnitee in reduction of the related Liability. If an Indemnitee
receives a payment (an "Indemnity Payment") required by this Agreement from an
Indemnifying Party in respect of any Liability and subsequently receives
Insurance Proceeds, then the Indemnitee will pay to the Indemnifying Party an
amount equal to the excess of the Indemnity Payment received over the amount of
the Indemnity Payment that would have been due if the Insurance Proceeds
recovery had been received, realized or recovered before the Indemnity Payment
was made.
(b) An insurer who would otherwise be obligated to pay any
claim shall not be relieved of the responsibility with respect thereto or,
solely by virtue of the indemnification provisions hereof, have any subrogation
rights with respect thereto, it being expressly understood and agreed that no
insurer or any other third party shall be entitled to a "windfall"
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(i.e., a benefit they would not be entitled to receive in the absence of the
indemnification provisions) by virtue of the indemnification provisions hereof.
4.5. PROCEDURES FOR INDEMNIFICATION OF THIRD PARTY CLAIMS. (a)
If an Indemnitee shall receive notice or otherwise learn of the assertion by a
Person (including any Governmental Authority) who is not a member of the AT&T
Services Group or the NCR Group of any claim or of the commencement by any such
Person of any Action (collectively, a "Third Party Claim") with respect to which
an Indemnifying Party may be obligated to provide indemnification to such
Indemnitee pursuant to Section 4.2 or 4.3, or any other Section of this
Agreement or any NCR Ancillary Agreement, such Indemnitee shall give such
Indemnifying Party written notice thereof within 20 days after becoming aware of
such Third Party Claim. Any such notice shall describe the Third Party Claim in
reasonable detail. Notwithstanding the foregoing, the failure of any Indemnitee
to give notice as provided in this Section 4.5(a) shall not relieve the related
Indemnifying Party of its obligations under this Article IV, except to the
extent that such Indemnifying Party is actually prejudiced by such failure to
give notice.
(b) If the Indemnitee or any other party to this Agreement
believes that the Third Party Claim is or may be a Shared Contingent Liability,
such Indemnitee or other party may make a Determination Request in accordance
with the Separation and Distribution Agreement at any time following any notice
given by the Indemnitee to an Indemnifying Party pursuant to Section 4.5(a).
AT&T may make such a Determination Request at any time. Unless each of AT&T, NCR
and Lucent has acknowledged that the applicable Third Party Claim (including any
Third Party Claim set forth on Schedule 6.6 to the Separation and Distribution
Agreement) is not a Shared Contingent Liability or unless a determination to
such effect has been made in accordance with the Separation and Distribution
Agreement, AT&T shall be entitled (but not obligated) to assume the defense of
such Third Party Claim as if it were the Indemnifying Party hereunder. In any
such event, AT&T shall be entitled to reimbursement of all the costs and
expenses (including allocated costs of in-house counsel and other personnel) of
such defense once a final determination or acknowledgment is made as to the
status of the Third Party Claim from the applicable party or parties that would
have been required to pay such amounts if the status of the Third Party Claim
had been determined immediately; provided that, if such Third Party Claim is
determined to be a Shared Contingent Liability, such costs and expenses shall be
shared as provided in Section 5.5(c) of the Separation and Distribution
Agreement.
(c) AT&T shall assume the defense of, and may seek to settle
or compromise, any Third Party Claim that is a Shared Contingent Liability, and
the costs and expenses (including allocated costs of in-house counsel and other
personnel) thereof shall be included in the calculation of the amount of the
applicable Shared Contingent Liability in determining the reimbursement
obligations of the other parties with respect thereto pursuant to Section 6.4 of
the Separation and Distribution Agreement. Any Indemnitee in respect of a Shared
Contingent Liability shall have the right to employ separate counsel and to
participate in (but not control) the defense, compromise, or settlement thereof,
but all fees and expenses of such counsel shall be the expense of such
Indemnitee.
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(d) Other than in the case of a Shared Contingent Liability,
an Indemnifying Party may elect to defend (and, unless the Indemnifying Party
has specified any reservations or exceptions, to seek to settle or compromise),
at such Indemnifying Party's own expense and by such Indemnifying Party's own
counsel, any Third Party Claim. Within 30 days after the receipt of notice from
an Indemnitee in accordance with Section 4.5(a) (or sooner, if the nature of
such Third Party Claim so requires), the Indemnifying Party shall notify the
Indemnitee of its election whether the Indemnifying Party will assume
responsibility for defending such Third Party Claim, which election shall
specify any reservations or exceptions. After notice from an Indemnifying Party
to an Indemnitee of its election to assume the defense of a Third Party Claim,
such Indemnitee shall have the right to employ separate counsel and to
participate in (but not control) the defense, compromise, or settlement thereof,
but the fees and expenses of such counsel shall be the expense of such
Indemnitee except as set forth in the next sentence. In the event that (i) the
Third Party Claim is not a Shared Contingent Liability and (ii) the Indemnifying
Party has elected to assume the defense of the Third Party Claim but has
specified, and continues to assert, any reservations or exceptions in such
notice, then, in any such case, the reasonable fees and expenses of one separate
counsel for all Indemnitees shall be borne by the Indemnifying Party.
(e) Other than in the case of a Shared Contingent Liability,
if an Indemnifying Party elects not to assume responsibility for defending a
Third Party Claim, or fails to notify an Indemnitee of its election as provided
in Section 4.5(d), such Indemnitee may defend such Third Party Claim at the cost
and expense (including allocated costs of in-house counsel and other personnel)
of the Indemnifying Party.
(f) Unless the Indemnifying Party has failed to assume the
defense of the Third Party Claim in accordance with the terms of this Agreement,
no Indemnitee may settle or compromise any Third Party Claim that is not a
Shared Contingent Liability without the consent of the Indemnifying Party. No
Indemnitee may settle or compromise any Third Party Claim that is a Shared
Contingent Liability without the consent of AT&T.
(g) In the case of a Third Party Claim that is not a Shared
Contingent Liability, no Indemnifying Party shall consent to entry of any
judgment or enter into any settlement of the Third Party Claim without the
consent of the Indemnitee if the effect thereof is to permit any injunction,
declaratory judgment, other order or other nonmonetary relief to be entered,
directly or indirectly, against any Indemnitee. In the case of a Third Party
Claim that is a Shared Contingent Liability, AT&T shall not consent to entry of
any judgment or enter into any settlement of the Third Party Claim without the
consent of the Indemnitee if the effect thereof is to permit any injunction,
declaratory judgment, other order or other nonmonetary relief to be entered,
directly or indirectly, against any Indemnitee.
(h) The provisions of Section 4.5 and Section 4.6 shall not
apply to Taxes (which are covered by the Tax Sharing Agreement).
4.6. ADDITIONAL MATTERS. (a) Any claim on account of a
Liability which does not result from a Third Party Claim shall be asserted by
written notice given by the Indemnitee to the related Indemnifying Party. Such
Indemnifying Party shall have a period
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of 30 days after the receipt of such notice within which to respond thereto. If
such Indemnifying Party does not respond within such 30-day period, such
Indemnifying Party shall be deemed to have refused to accept responsibility to
make payment. If such Indemnifying Party does not respond within such 30-day
period or rejects such claim in whole or in part, such Indemnitee shall be free
to pursue such remedies as may be available to such party as contemplated by any
Transaction Agreement.
(b) In the event of payment by or on behalf of any
Indemnifying Party to any Indemnitee in connection with any Third Party Claim,
such Indemnifying Party shall be subrogated to and shall stand in the place of
such Indemnitee as to any events or circumstances in respect of which such
Indemnitee may have any right, defense or claim relating to such Third Party
Claim against any claimant or plaintiff asserting such Third Party Claim or
against any other person. Such Indemnitee shall cooperate with such Indemnifying
Party in a reasonable manner, and at the cost and expense (including allocated
costs of in-house counsel and other personnel) of such Indemnifying Party, in
prosecuting any subrogated right, defense or claim; provided, however, that AT&T
shall be entitled to control the prosecution of any such right, defense or claim
in respect of any Shared Contingent Liability.
(c) In the event of an Action in which the Indemnifying Party
is not a named defendant, if either the Indemnified Party or Indemnifying Party
shall so request, the parties shall endeavor to substitute the Indemnifying
Party for the named defendant or, in the case of a Shared Contingent Liability,
add the Indemnifying Party as a named defendant, if at all practicable. If such
substitution or addition cannot be achieved for any reason or is not requested,
the named defendant shall allow the Indemnifying Party to manage the Action as
set forth in this Section and, subject to Section 6.4 of the Separation and
Distribution Agreement with respect to Shared Contingent Liabilities, the
Indemnifying Party shall fully indemnify the named defendant against all costs
of defending the Action (including court costs, sanctions imposed by a court,
attorneys' fees, experts' fees and all other external expenses, and the
allocated costs of in-house counsel and other personnel), the costs of any
judgment or settlement, and the cost of any interest or penalties relating to
any judgment or settlement.
4.7. REMEDIES CUMULATIVE. The remedies provided in this
Article IV shall be cumulative and, subject to the provisions of Article IX of
the Separation and Distribution Agreement, shall not preclude assertion by any
Indemnitee of any other rights or the seeking of any and all other remedies
against any Indemnifying Party.
4.8. SURVIVAL OF INDEMNITIES. The rights and obligations of
each of AT&T and NCR and their respective Indemnitees under this Article IV
shall survive the sale or other transfer by any party of any Assets or
businesses or the assignment by it of any Liabilities.
4.9. RELATIONSHIP TO SEPARATION AND DISTRIBUTION AGREEMENT
DISPUTE RESOLUTION PROCEDURES. (a) Each of NCR and AT&T agrees that the
procedures for discussion, negotiation and arbitration set forth in Article IX
of the Separation and Distribution Agreement (which are hereby incorporated
herein by reference) shall apply to all dis-
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<PAGE> 19
putes, controversies or claims (whether sounding in contract, tort or otherwise)
that may arise out of or relate to, or arise under or in connection with this
Agreement or, except as otherwise expressly provided therein, any NCR Ancillary
Agreement (as if each of this Agreement and each of the NCR Ancillary Agreements
were an Ancillary Agreement), or the transactions contemplated hereby or thereby
(including all actions taken in furtherance of the transactions contemplated
hereby or thereby on or prior to the date hereof), or the commercial or economic
relationship of the parties relating hereto or thereto, between or among any
member of the AT&T Services Group and the NCR Group.
(b) Each party agrees on behalf of itself and each member of
its respective Group that the procedures set forth in such Article IX shall be
the sole and exclusive remedy in connection with any dispute, controversy or
claim relating to any of the foregoing matters and irrevocably waives any right
to commence any Action in or before any Governmental Authority, except as
expressly provided in Sections 9.7(b) and 9.8 of the Separation and Distribution
Agreement and except to the extent provided under the Arbitration Act in the
case of judicial review of arbitration results or awards. Each party on behalf
of itself and each member of its respective Group irrevocably waives any right
to any trial by jury with respect to any claim, controversy or dispute set forth
in the first sentence of Section 9.1 of the Separation and Distribution
Agreement.
(c) Without limiting the foregoing, each of the parties agrees
on behalf of itself and each member of its Group that if an Arbitration Demand
Notice with respect to a dispute, controversy or claim is not given prior to the
expiration of the Applicable Deadline, as between or among the parties and the
members of their Groups, such dispute, controversy or claim will be barred.
(d) Subject to Sections 9.7(d) and 9.8 of the Separation and
Distribution Agreement, upon delivery of an Arbitration Demand Notice pursuant
to Section 9.3(a) of the Separation and Distribution Agreement prior to the
Applicable Deadline, the dispute, controversy or claim shall be decided by a
sole arbitrator in accordance with the rules set forth in Article IX of the
Separation and Distribution Agreement.
(e) The interpretation of the provisions of this Section 4.9
and Article IX of the Separation and Distribution Agreement (to the extent
incorporated herein by reference), only insofar as they relate to the agreement
to arbitrate and any procedures pursuant thereto, shall be governed by the
Arbitration Act and other applicable federal law. In all other respects, the
interpretation of this Agreement shall be governed as set forth in Section 8.2.
ARTICLE V
INTERIM OPERATIONS AND CERTAIN OTHER MATTERS
5.1. CERTAIN TAX MATTERS. Notwithstanding any other provision
of this Agreement, the Tax Sharing Agreement or any other Transaction Agreement,
in the case of any Adjustment comprising a Restructuring Adjustment that relates
to the NCR Distribution
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<PAGE> 20
and arises as a result of the acquisition of all or a portion of the NCR capital
stock of any class or series and/or of its assets by any means whatsoever by any
Person other than an Affiliate of NCR following such NCR Distribution, NCR shall
indemnify, defend and hold harmless AT&T from and against any and all
Liabilities of AT&T relating to, arising out of or resulting from such
Adjustment.
5.2. AGREEMENT FOR EXCHANGE OF INFORMATION; ARCHIVES. Each of
AT&T and NCR agrees that the provisions of Article VIII of the Separation and
Distribution Agreement shall continue to apply after the NCR Distribution Date;
provided however, that as between the members of NCR Group, on the one hand, and
the AT&T Services Group, on the other hand, the reference to "the third
anniversary of the date hereof" in Section 8.2 of the Separation and
Distribution Agreement shall be deemed to be the third anniversary of the date
of this Agreement. Without limiting the foregoing, (a) NCR shall maintain in
effect at its own cost and expense adequate systems and controls to the extent
necessary to enable the members of the AT&T Group to satisfy their respective
reporting, accounting, audit and other obligations, and (b) NCR shall provide,
or cause to be provided, to AT&T in such form as AT&T shall request, at no
charge to AT&T, all financial and other data and information as AT&T determines
necessary or advisable in order to prepare AT&T financial statements and reports
or filings with any Governmental Authority.
ARTICLE VI
FURTHER ASSURANCES AND ADDITIONAL COVENANTS
6.1. FURTHER ASSURANCES. (a) In addition to the actions
specifically provided for elsewhere in this Agreement, each of the parties
hereto shall use its reasonable best efforts, prior to, on and after the NCR
Distribution Date, to take, or cause to be taken, all actions, and to do, or
cause to be done, all things, reasonably necessary, proper or advisable under
applicable laws, regulations and agreements to consummate and make effective the
transactions contemplated by this Agreement and the NCR Ancillary Agreements.
(b) Without limiting the foregoing, prior to, on and after the
NCR Distribution Date, each party hereto shall cooperate with the other parties,
and without any further consideration, but at the expense of the requesting
party, to execute and deliver, or use its reasonable best efforts to cause to be
executed and delivered, all instruments, including instruments of conveyance,
assignment and transfer, and to make all filings with, and to obtain all
consents, approvals or authorizations of, any Governmental Authority or any
other Person under any permit, license, agreement, indenture or other instrument
(including any Consents or Governmental Approvals), and to take all such other
actions as such party may reasonably be requested to take by any other party
hereto from time to time, consistent with the terms of this Agreement and the
NCR Ancillary Agreements, in order to effectuate the provisions and purposes of
this Agreement and the NCR Ancillary Agreements and the other transactions
contemplated hereby and thereby. Without limiting the foregoing, each party
will, at the reasonable request, cost and expense of any other party, take such
other actions as may be
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<PAGE> 21
reasonably necessary to vest in such other party good and marketable title, free
and clear of any Security Interest, if and to the extent it is practicable to do
so.
(c) Each of AT&T and NCR, at the request of the other, shall
use its reasonable best efforts to obtain, or to cause to be obtained, any
consent, substitution, approval or amendment required to novate (including with
respect to any federal government contract) or assign all obligations under
agreements, leases, licenses and other obligations or Liabilities of any nature
whatsoever that constitute Liabilities of the NCR Group or Liabilities that
relate to the NCR Group, or to obtain in writing the unconditional release of
all parties to such arrangements other than any member of the NCR Group, so
that, in any such case, NCR and its Subsidiaries will be solely responsible for
such Liabilities; provided, however, that neither AT&T nor NCR shall be
obligated to pay any consideration therefor to any third party from whom such
consents, approvals, substitutions, amendments and releases are requested.
(d) If AT&T or NCR is unable to obtain, or to cause to be
obtained, any such required consent, approval, release, substitution or
amendment, the applicable member of the AT&T Services Group shall continue to be
bound by such agreements, leases, licenses and other obligations and, unless not
permitted by law or the terms thereof, NCR shall, as agent or subcontractor for
AT&T or such other Person, as the case may be, pay, perform and discharge fully
all the obligations or other Liabilities of AT&T or such other Person, as the
case may be, thereunder from and after the date hereof. NCR shall indemnify each
AT&T Indemnitee, and hold each of them harmless against any Liabilities arising
in connection therewith.
(e) On or prior to the Closing Date, AT&T and NCR shall take
all actions as may be necessary to approve the stock-based employee benefit
plans of NCR in order to satisfy the requirements of Rule 16b-3 under the
Exchange Act and Section 162(m) of the Code.
(f) The parties hereto agree to take any reasonable actions
necessary in order for the NCR Distribution to qualify as a tax-free
distribution pursuant to Section 355 of the Code.
6.2. QUALIFICATION AS TAX-FREE DISTRIBUTION. (a) After the NCR
Distribution Date, none of AT&T or NCR shall take, or permit any member of its
respective Group to take, any action which could reasonably be expected to
prevent the NCR Distribution from qualifying as a tax-free distribution within
the meaning of Section 355 of the Code or any other transaction contemplated by
this Agreement or any other Transaction Agreement which is intended by the
parties to be tax-free from failing so to qualify.
(b) After the NCR Distribution Date, NCR shall not, nor cause
or permit, any member of the NCR Group to take any action or enter into any
transaction which could reasonably be expected to materially adversely impact
the reasonably expected tax consequences to AT&T which are known to NCR of any
transaction contemplated by this Agreement or any Transaction Agreement;
provided, however, nothing in this section shall prohibit NCR from taking any
action, or entering into any transaction (or permitting or causing any member
of the NCR Group so to act or enter) in the ordinary course of business or in
the ordinary course of business dealing, or in connection with the settlement
of any audit issue or in connection with the filing of any tax return. After
the NCR Distribution Date, AT&T shall not, nor cause or permit, any member of
the AT&T Group to take any action or enter into any transaction which could
reasonably be expected to materially adversely impact the expected tax
consequences to NCR which are known to AT&T of any transaction contemplated by
this Agreement or any Transaction Agreement; provided, however, nothing in this
section shall prohibit AT&T from taking any action, or entering into any
transaction (or permitting or causing any member of the AT&T Group so to act or
enter), in the ordinary course of business or in the ordinary course of
business dealing, or in connection with the settlement of any audit issue or in
connection with the filing of any tax return.
ARTICLE VII
TERMINATION
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<PAGE> 22
7.1. TERMINATION. This Agreement may be terminated at any time
prior to the NCR Distribution Date by AT&T.
7.2. EFFECT OF TERMINATION. In the event of any termination of
this Agreement, no party to this Agreement (or any of its directors or officers)
shall have any Liability or further obligation to any other party.
ARTICLE VIII
MISCELLANEOUS
8.1. COUNTERPARTS; ENTIRE AGREEMENT; CORPORATE POWER. (a) This
Agreement and each NCR Ancillary Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party.
(b) This Agreement, the Separation and Distribution Agreement,
the Ancillary Agreements and the NCR Ancillary Agreements and the Exhibits,
Schedules and Appendices hereto and thereto contain the entire agreement between
the parties with respect to the subject matter hereof, supersede all previous
agreements, negotiations, discussions, writings, understandings, commitments and
conversations with respect to such subject matter and there are no agreements or
understandings between the parties other than those set forth or referred to
herein or therein.
(c) AT&T represents on behalf of itself and each other member
of the AT&T Services Group, and NCR represents on behalf of itself and each
other member of the NCR Group as follows:
(i) each such Person has the requisite corporate or other
power and authority and has taken all corporate or other action
necessary in order to execute, deliver and perform each of this
Agreement and each other NCR Ancillary Agreements to which it is a
party and to consummate the transactions contemplated hereby and
thereby; and
(ii) this Agreement and each NCR Ancillary Agreement to which
it is a party has been duly executed and delivered by it and
constitutes a valid and binding agreement of it enforceable in
accordance with the terms thereof.
(d) Notwithstanding any provision of this Agreement or any NCR
Ancillary Agreement, AT&T shall not be required to take or omit to take any act
that would violate its fiduciary duties to any minority stockholders of Lucent,
AT&T Capital Corporation or any other non-wholly owned Subsidiary of AT&T (it
being understood that directors' qualifying shares or similar interests will be
disregarded for purposes of determining whether a Subsidiary is wholly owned).
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<PAGE> 23
8.2. GOVERNING LAW. This Agreement and, unless expressly
provided therein, each NCR Ancillary Agreement, shall be governed by and
construed and interpreted in accordance with the laws of the State of New York
(other than as to its laws of arbitration which shall be governed under the
Arbitration Act or other applicable federal law pursuant to Section 4.9 hereof
and Section 9.10 of the Separation and Distribution Agreement), irrespective of
the choice of laws principles of the State of New York, as to all matters,
including matters of validity, construction, effect, enforceability, performance
and remedies.
8.3. ASSIGNABILITY. (a) Except as set forth in any NCR
Ancillary Agreement, this Agreement and each NCR Ancillary Agreement shall be
binding upon and inure to the benefit of the parties hereto and thereto,
respectively, and their respective successors and assigns; provided, however,
that no party hereto or thereto may assign its respective rights or delegate its
respective obligations under this Agreement or any NCR Ancillary Agreement
without the express prior written consent of the other parties hereto or
thereto.
8.4. THIRD PARTY BENEFICIARIES. Except for the indemnification
rights under this Agreement of any AT&T Indemnitee or NCR Indemnitee in their
respective capacities as such, (a) the provisions of this Agreement and each NCR
Ancillary Agreement are solely for the benefit of the parties and are not
intended to confer upon any Person except the parties any rights or remedies
hereunder, and (b) there are no third party beneficiaries of this Agreement or
any NCR Ancillary Agreement and neither this Agreement nor any NCR Ancillary
Agreement shall provide any third person with any remedy, claim, liability,
reimbursement, claim of action or other right in excess of those existing
without reference to this Agreement or any NCR Ancillary Agreement.
8.5. NOTICES. All notices or other communications under this
Agreement or any NCR Ancillary Agreement shall be in writing and shall be deemed
to be duly given when (a) delivered in person or (b) deposited in the United
States mail or private express mail, postage prepaid, addressed as follows:
If to AT&T, to: AT&T Corp.
131 Morristown Road
Basking Ridge, NJ 07920
Attn.: Vice President-Law and
Corporate Secretary
If to NCR, to: NCR Corporation
1700 S. Patterson Blvd.
Dayton, Ohio 45479
Attn.: Chief Financial Officer
with a copy to: NCR Corporation
1700 S. Patterson Blvd.
Dayton, Ohio 45479
Attn.: General Counsel
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<PAGE> 24
Any party may, by notice to the other party, change the address to which such
notices are to be given.
8.6. SEVERABILITY. If any provision of this Agreement or any
NCR Ancillary Agreement or the application thereof to any Person or circumstance
is determined by a court of competent jurisdiction to be invalid, void or
unenforceable, the remaining provisions hereof or thereof, or the application of
such provision to Persons or circumstances or in jurisdictions other than those
as to which it has been held invalid or unenforceable, shall remain in full
force and effect and shall in no way be affected, impaired or invalidated
thereby, so long as the economic or legal substance of the transactions
contemplated hereby or thereby, as the case may be, is not affected in any
manner adverse to any party. Upon such determination, the parties shall
negotiate in good faith in an effort to agree upon such a suitable and equitable
provision to effect the original intent of the parties.
8.7. FORCE MAJEURE. No party shall be deemed in default of
this Agreement or any NCR Ancillary Agreement to the extent that any delay or
failure in the performance of its obligations under this Agreement or any NCR
Ancillary Agreement results from any cause beyond its reasonable control and
without its fault or negligence, such as acts of God, acts of civil or military
authority, embargoes, epidemics, war, riots, insurrections, fires, explosions,
earthquakes, floods, unusually severe weather conditions, labor problems or
unavailability of parts, or, in the case of computer systems, any failure in
electrical or air conditioning equipment. In the event of any such excused
delay, the time for performance shall be extended for a period equal to the time
lost by reason of the delay.
8.8. PUBLICITY. Prior to the NCR Distribution Date, each of
NCR and AT&T shall consult with each other prior to issuing any press releases
or otherwise making public statements with respect to the IPO, the Lucent
Distribution, the NCR Distribution or any of the other transactions contemplated
hereby and prior to making any filings with any Governmental Authority with
respect thereto.
8.9. EXPENSES. Except as expressly set forth in this Agreement
or in any NCR Ancillary Agreement, whether or not the NCR Distribution is
consummated, all third party fees, costs and expenses paid or incurred prior to
the NCR Distribution Date in connection with the NCR Distribution will be paid
by AT&T; provided however that NCR shall consult with AT&T prior to incurring
any such third party obligations.
8.10. HEADINGS. The article, section and paragraph headings
contained in this Agreement and in the NCR Ancillary Agreements are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement or any NCR Ancillary Agreement.
8.11. SURVIVAL OF COVENANTS. Except as expressly set forth in
any NCR Ancillary Agreement, the covenants, representations and warranties
contained in this Agreement and each NCR Ancillary Agreement, and liability for
the breach of any obligations
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<PAGE> 25
contained herein, shall survive the NCR Distribution and shall remain in full
force and effect following the consummation of the NCR Distribution.
8.12. WAIVERS OF DEFAULT. Waiver by any party of any default
by the other party of any provision of this Agreement or any NCR Ancillary
Agreement shall not be deemed a waiver by the waiving party of any subsequent or
other default, nor shall it prejudice the rights of the other party.
8.13. AMENDMENTS. No provisions of this Agreement or any NCR
Ancillary Agreement shall be deemed waived, amended, supplemented or modified by
any party, unless such waiver, amendment, supplement or modification is in
writing and signed by the authorized representative of the party against whom it
is sought to enforce such waiver, amendment, supplement or modification.
8.14. INTERPRETATION. Words in the singular shall be held to
include the plural and vice versa and words of one gender shall be held to
include the other genders as the context requires. The terms "hereof," "herein,"
and "herewith" and words of similar import shall, unless otherwise stated, be
construed to refer to this Agreement (or the applicable NCR Ancillary Agreement)
as a whole (including all of the Schedules, Exhibits and Appendices hereto and
thereto) and not to any particular provision of this Agreement (or such NCR
Ancillary Agreement). Article, Section, Exhibit, Schedule and Appendix
references are to the Articles, Sections, Exhibits, Schedules and Appendices to
this Agreement (or the applicable NCR Ancillary Agreement) unless otherwise
specified. The word "including" and words of similar import when used in this
Agreement (or the applicable NCR Ancillary Agreement) shall mean "including,
without limitation," unless the context otherwise requires or unless otherwise
specified. The word "or" shall not be exclusive. For all purposes of this
Agreement, "allocated costs of in-house counsel and other personnel" shall be
determined in accordance with the principles set forth in Schedule 12.15 to the
Separation and Distribution Agreement.
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<PAGE> 26
IN WITNESS WHEREOF, the parties have caused this Distribution
Agreement to be executed by their duly authorized representatives.
AT&T CORP.
By:
Name:
Title:
NCR CORPORATION
By:
Name:
Title:
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<PAGE> 1
EXHIBIT 3.1
FORM OF
ARTICLES OF AMENDMENT AND RESTATEMENT
OF
NCR CORPORATION
NCR Corporation, a Maryland corporation having its principal business
office in Dayton, Ohio, and its principal office in the City of Baltimore, State
of Maryland, hereby certifies to the State Department of Assessment and Taxation
of Maryland that:
FIRST: The Charter of the Corporation is hereby amended by:
Changing and reclassifying each of the shares of Common Stock
(par value $5.00 per share) of the Corporation which is issued and outstanding
as of the close of business on the effective date of this amendment into one
share of Common Stock (par value $.01 per share) and by transferring from the
account designated "Common Stock" to the account designated "Capital Surplus"
$4.99 for each share of Common Stock outstanding immediately after the change
and reclassification.
SECOND: The Charter of the Corporation is hereby further amended and
restated in full as follows:
ARTICLE I
NAME
SECTION 1.1. The name of the Corporation (the "Corporation") is: NCR
Corporation.
ARTICLE II
PRINCIPAL OFFICE, REGISTERED OFFICE, AND AGENT
SECTION 2.1. The address of the Corporation's principal office in the
State of Maryland is _____________________. The resident agent of the
Corporation in the State of Maryland is _________________. The address of the
resident agent is _____________. Such resident agent is a Maryland corporation.
<PAGE> 2
ARTICLE III
PURPOSES
SECTION 3.1. The purpose of the Corporation is to engage in any lawful
act, activity or business for which corporations may be organized under the
General Laws of the State of Maryland as now or hereafter in force. The
Corporation shall have all the general powers granted by law to Maryland
corporations and all other powers not inconsistent with law which are
appropriate to promote and attain its purpose.
ARTICLE IV
CAPITAL STOCK
SECTION 4.1. The Corporation shall be authorized to issue _______
shares of capital stock, of which ______ shares shall be classified as "Common
Stock", $.01 par value per share ("Common Stock") (having an aggregate par value
of $_______), and _______ shares shall be classified as "Preferred Stock", $.01
par value per share ("Preferred Stock") (having an aggregate par value of
$_______). The aggregate par value of all authorized shares is $_________. The
Board of Directors may classify and reclassify any unissued shares of capital
stock by setting or changing in any one or more respects the preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends, qualifications or terms or conditions of redemption of such shares of
stock.
SECTION 4.2. The Common Stock shall be subject to the express terms of
the Preferred Stock and any series thereof. The holders of shares of Common
Stock shall be entitled to one vote for each such share upon all proposals
presented to the stockholders on which the holders of Common Stock are entitled
to vote, except for proposals on which only the holders of another specified
class or series of capital stock are entitled to vote. Subject to the provisions
of law and any preference rights with respect to the payment of dividends
attaching to the Preferred Stock or any series thereof, the holders of Common
Stock shall be entitled to receive, as and when declared by the Board of
Directors, dividends and other distributions authorized by the Board of
Directors in accordance with Maryland General Corporation Law, as in effect from
time to time (the "MGCL") and to all other rights of a stockholder pursuant
thereto. Except as otherwise provided by law or in the Charter of the
Corporation (including in any Articles Supplementary (as defined below)) (the
"Charter"), the Common Stock shall have the exclusive right to vote for the
election of directors and for all other purposes, and holders of Preferred Stock
shall not be entitled to receive notice of any meeting of stockholders at which
they are not entitled to vote. In the event of a liquidation, dissolution or
winding up of the Corporation or other distribution of the Corporation's assets
among stockholders for the purpose of winding up the Corporation's affairs,
whether voluntary or involuntary, after payment or provision for payment of the
debts and other liabilities of the Corporation and subject to the rights,
privileges, conditions and restrictions attaching to the Preferred Stock or any
series thereof, the Common Stock shall entitle the holders thereof, together
with the holders of any other class of stock hereafter classified or
reclassified not having a preference on distributions in
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<PAGE> 3
the liquidation, dissolution or winding up of the Corporation or other
distribution of the Corporation's assets among stockholders for the purpose of
winding up the Corporation's affairs, whether voluntary or involuntary, to share
ratably in the remaining net assets of the Corporation.
SECTION 4.3. The Preferred Stock may be issued from time to time in one
or more series as authorized by the Board of Directors. The Board of Directors
shall have the power from time to time to the maximum extent permitted by the
MGCL to classify or reclassify, in one or more series, any unissued shares of
Preferred Stock, and to reclassify any unissued shares of any series of
Preferred Stock, in any such case, by setting or changing the number of shares
constituting such series and the designation, preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends,
qualifications, or terms or conditions of redemption of the stock. In any such
event, the Corporation shall file for record with the State Department of
Assessments and Taxation of Maryland (or other appropriate entity) articles
supplementary in form and substance prescribed by the MGCL (each, an "Articles
Supplementary"). Subject to the express terms of any series of Preferred Stock
outstanding at the time, the Board of Directors may increase or decrease the
number or alter the designation or classify or reclassify any unissued shares of
a particular series of Preferred Stock by fixing or altering in one or more
respects, from time to time before issuing the shares, any terms, rights,
restrictions and qualifications of the shares, including any preference,
conversion or other rights, voting powers, restrictions, limitations as to
dividends, qualifications or terms or conditions of redemption of the shares of
the series.
SECTION 4.4 Subject to the foregoing, the power of the Board of
Directors to classify and reclassify any of the shares of capital stock shall
include, without limitation, subject to the provisions of the Charter, authority
to classify or reclassify any unissued shares of such stock into a class or
classes of preferred stock, preference stock, special stock or other stock, and
to divide and classify shares of any class into one or more series of such
class, by determining, fixing or altering one or more of the following:
(a) the designation of such class or series, which may be by dis-
tinguishing number, letter or title;
(b) the number of shares of such class or series, which number the
Board of Directors may thereafter (except where otherwise provided in
the Articles Supplementary) increase or decrease (but not below the
number of shares thereof then outstanding) and any shares of any class
or series which have been redeemed, purchased, otherwise acquired or
converted into shares of Common Stock or any other class or series
shall become part of the authorized capital stock and be subject to
classification and reclassification as provided in this Section;
(c) whether dividends, if any, shall be cumulative or noncumulative,
and, in the case of shares of any class or series having cumulative
dividend rights, the date or dates or method of determining the date or
dates from which dividends on the shares of such class or series shall
be cumulative;
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<PAGE> 4
(d) the rate of any dividends (or method of determining such dividends) payable
to the holders of the shares of such class or series, any conditions upon which
such dividends shall be paid and the date or dates or the method for determining
the date or dates upon which such dividends shall be payable, and whether any
such dividends shall rank senior or junior to or on a parity with the dividends
payable on any other class or series of stock;
(e) the price or prices (or method of determining such price or prices) at
which, the form of payment of such price or prices (which may be cash, property
or rights, including securities of the same or another corporation or other
entity) for which, the period or periods within which and the terms and
conditions upon which the shares of such class or series may be redeemed, in
whole or in part, at the option of the Corporation or at the option of the
holder or holders thereof or upon the happening of a specified event or events,
if any;
(f) the obligation, if any, of the Corporation to purchase or redeem shares of
such class or series pursuant to a sinking fund or otherwise and the price or
prices at which, the form of payment of such price or prices (which may be cash,
property or rights, including securities of the same or another corporation or
other entity) for which, the period or periods within which and the terms and
conditions upon which the shares of such class or series shall be redeemed or
purchased, in whole or in part, pursuant to such obligation;
(g) the rights of the holders of shares of such class or series upon the
liquidation, dissolution or winding up of the affairs of, or upon any
distribution of the assets of, the Corporation, which rights may vary depending
upon whether such liquidation, dissolution or winding up is voluntary or
involuntary and, if voluntary, may vary at different dates, and whether such
rights shall rank senior or junior to or on a parity with such rights of any
other class or series of stock;
(h) provisions, if any, for the conversion or exchange of the shares of such
class or series, at any time or times at the option of the holder or holders
thereof or at the option of the Corporation or upon the happening of a specified
event or events, into shares of any other class or classes or any other series
of the same or any other class or classes of stock, or any other security, of
the Corporation, or any other corporation or other entity, and the price or
prices or rate or rates of conversion or exchange and any adjustments applicable
thereto, and all other terms and conditions upon which such conversion or
exchange may be made;
(i) restrictions on the issuance of shares of the same series or of any other
class or series, if any;
(j) the voting rights, if any, of the holders of shares of such class or series
in addition to any voting rights required by law;
(k) whether or not there shall be any limitations applicable, while shares of
such class or series are outstanding, upon the payment of dividends or making of
distributions on, or the acquisition of, or the use of moneys for purchase or
redemption of, any stock of the Corporation, or upon any other action of the
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Corporation, including action under this Section, and, if so, the
terms and conditions thereof; and
(l) any other preferences, rights, restrictions, including restrictions
on transferability, and qualifications of shares of such class or
series, not inconsistent with law and the Charter.
SECTION 4.5 For the purposes hereof and of any Articles
Supplementary to the Charter providing for the classification or
reclassification of any shares of capital stock or of any other charter document
of the Corporation (unless otherwise provided in any such article or document),
any class or series of stock of the Corporation shall be deemed to rank:
(a) prior to another class or series either as to dividends or
upon liquidation, if the holders of such class or series shall be
entitled to the receipt of dividends or of amounts distributable on
liquidation, dissolution or winding up, as the case may be, in
preference or priority to holders of such other class or series;
(b) on a parity with another class or series either as to
dividends or upon liquidation, whether or not the dividend rates,
dividend payment dates or redemption or liquidation price per share
thereof be different from those of such others, if the holders of such
class or series of stock shall be entitled to receipt of dividends or
amounts distributable upon liquidation, dissolution or winding up, as
the case may be, in proportion to their respective dividend rates or
redemption or liquidation prices, without preference or priority over
the holders of such other class or series; and
(c) junior to another class or series either as to dividends
or upon liquidation, if the rights of the holders of such class or
series shall be subject or subordinate to the rights of the holders of
such other class or series in respect of the receipt of dividends or
the amounts distributable upon liquidation, dissolution or winding up,
as the case may be.
SECTION 4.6. (a) In determining whether a distribution (other
than upon voluntary or involuntary liquidation), by dividend, redemption or
other acquisition of shares or otherwise, is permitted under the MGCL, no effect
shall be given to amounts that would be needed, if the Corporation were to be
dissolved at the time of the distribution, to satisfy the preferential rights
upon dissolution of stockholders whose preferential rights upon dissolution are
junior to those receiving the distribution.
(b) The Corporation shall be entitled to treat the person in
whose name any share of its stock is registered as the owner thereof for all
purposes and shall not be bound to recognize any equitable or other claim to, or
interest in, such share on the part of any other person, whether or not the
Corporation shall have notice thereof, except as expressly provided by
applicable law.
(c) Except as may be set forth in any Articles Supplementary,
the Board of Directors is hereby expressly authorized pursuant to Section
2-309(b)(5) of the MGCL (or
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any successor similar or comparable provision) to declare or pay a dividend
payable in shares of one class of the Corporation's stock to the holders of
shares of such class of the Corporation's stock or to the holders of shares of
any other class of stock of the Corporation.
ARTICLE V
STOCKHOLDER ACTION
SECTION 5.1. Except as may be provided in any Articles
Supplementary, any corporate action upon which a vote of stockholders is
required or permitted may be taken without a meeting or vote of stockholders
only with the unanimous written consent of stockholders entitled to vote
thereon.
SECTION 5.2. Except as otherwise required by the MGCL or as
provided elsewhere in the Charter or in the Bylaws, special meetings of
stockholders of the Corporation for any purpose or purposes may be called only
by the Board of Directors or by the President of the Corporation. No business
other than that stated in the notice of the special meeting shall be transacted
at such special meeting. Each of the Board of Directors, the President and
Secretary of the Corporation shall have the maximum power and authority
permitted by the MGCL with respect to the establishment of the date of any
special meeting of stockholders, the establishment of the record date for
stockholders entitled to vote thereat, the imposition of conditions on the
conduct of any special meeting of stockholders and all other matters relating to
the call, conduct, adjournment or postponement of any special meeting,
regardless of whether the meeting was convened by the Board of Directors, the
President, the stockholders of the Corporation or otherwise.
ARTICLE VI
PROVISIONS DEFINING, LIMITING
AND REGULATING POWERS
SECTION 6.1. The following provisions are hereby adopted for
the purposes of defining, limiting and regulating the powers of the Corporation
and the directors and stockholders, subject, however, to any provisions,
conditions and restrictions hereafter authorized pursuant to Article IV hereof:
(a) The Board of Directors of the Corporation is empowered to
authorize the issuance from time to time of shares of its stock of any
class, whether now or hereafter authorized, and securities convertible
into shares of its stock of any class, whether now or hereafter
authorized, for such consideration as the Board of Directors may deem
advisable, and without any action by the stockholders.
(b) No holder of any stock or any other securities of the
Corporation, whether now or hereafter authorized, shall have any
preemptive right to subscribe for or purchase any stock or any other
securities of the Corporation other than such,
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if any, as the Board of Directors, in its sole discretion, may
determine and at such price or prices and upon such other terms as the
Board of Directors, in its sole discretion, may fix; and any stock or
other securities which the Board of Directors may determine to offer
for subscription may, as the Board of Directors in its sole discretion
shall determine, be offered to the holders of any class, series or type
of stock or other securities at the time outstanding to the exclusion
of the holders of any or all other classes, series or types of stock or
other securities at the time outstanding.
(c) The Board of Directors of the Corporation shall,
consistent with applicable law, have power in its sole discretion to
determine from time to time in accordance with sound accounting
practice or other reasonable valuation methods what constitutes annual
or other net profits, earnings, surplus, or net assets in excess of
capital; to fix and vary from time to time the amount to be reserved as
working capital, or determine that retained earnings or surplus shall
remain in the hands of the Corporation; to set apart out of any funds
of the Corporation such reserve or reserves in such amount or amounts
and for such proper purpose or purposes as it shall determine and to
abolish any such reserve or any part thereof; to distribute and pay
distributions or dividends in stock, cash or other securities or
property, out of surplus or any other funds or amounts legally
available therefor, at such times and to the stockholders of record on
such dates as it may, from time to time, determine.
SECTION 6.2. Unless provided to the contrary in the MGCL or other
applicable law, the Charter or the Bylaws, the affirmative vote of a majority of
the voting power of the shares present in person or represented by proxy at the
meeting and entitled to vote on the matter shall be the act of the stockholders.
SECTION 6.3. No directors shall be disqualified from voting or acting
on behalf of the Corporation in contracting with any other corporation in which
he may be a director, officer or stockholder, nor shall any director of the
Corporation be disqualified from voting or acting in its behalf by reason of any
personal interest.
SECTION 6.4. The Board of Directors shall have power to determine from
time to time whether and to what extent and at what times and places and under
what conditions and regulations the books, records, accounts and documents of
the Corporation, or any of them, shall be open to inspection by stockholders,
except as otherwise provided by law or by the Bylaws; and except as so provided
no stockholder shall have any right to inspect any book, record, account or
document of the Corporation unless authorized to do so by resolution of the
Board of Directors.
SECTION 6.5. The enumeration and definition of particular powers of the
Board of Directors included in the foregoing shall in no way be limited or
restricted by reference to or inference from the terms of any other clause of
this or any other Article of the Charter of the Corporation, or construed as or
deemed by inference or otherwise in any manner to exclude or limit any powers
conferred upon the Board of Directors under the General Laws of the State of
Maryland now or hereafter in force.
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ARTICLE VII
BOARD OF DIRECTORS
SECTION 7.1. (a) The Corporation shall have ___ directors, which number
may be increased or decreased from time to time in such lawful manner as the
Bylaws of the Corporation shall provide, but shall never be less than the
minimum number permitted by the General Laws of the State of Maryland, as now or
hereafter in force.
(b) The directors, other than those who may be elected in accordance
with the terms of any Articles Supplementary, shall be divided into three
classes. Each such class shall consist, as nearly as may be possible, of
one-third of the total number of directors, and any remaining directors shall be
included with such group or groups as the Board of Directors shall designate. At
the annual meeting of the stockholders of the Corporation for 1996, a class of
directors shall be elected for a one-year term, a class of directors shall be
elected for a two-year term, and a class of directors shall be elected for a
three-year term. At each succeeding annual meeting of stockholders, beginning
with 1997, successors to the class of directors whose term expires at that
annual meeting shall be elected for a three-year term. If the number of
directors is changed, any increase or decrease shall be apportioned among the
classes so as to maintain the number of directors in each class as nearly equal
as possible, but in no case shall a decrease in the number of directors shorten
the term of any incumbent director.
(c) Except as provided by law with respect to directors elected by
stockholders of a class or series, any director or the entire Board of Directors
may be removed for cause, by the affirmative vote of the holders of not less
than 80% of the voting power of all Voting Stock (as defined below) then
outstanding, voting together as a single class. Subject to such removal, or the
death, resignation or retirement of a director, a director shall hold office
until the annual meeting of the stockholders for the year in which such
director's term expires and until a successor shall be elected and qualified,
except as provided in Section 7.1(d) hereof.
(d) Except as provided by law with respect to directors elected by
stockholders of a class or series, a vacancy on the Board of Directors which
results from the removal of a director may be filled by the affirmative vote of
the holders of not less than 80% of the voting power of the then outstanding
Voting Stock, voting together as a single class, and a vacancy which results
from any such removal or from any other cause may be filled by a majority of the
remaining directors, whether or not sufficient to constitute a quorum. Any
director so elected by the Board of Directors shall hold office until the next
annual meeting of stockholders and until his successor is elected and qualifies
and any director so elected by the stockholders shall hold office for the
remainder of the term of the removed director. No decrease in the number of
directors constituting the Board of Directors shall shorten the term of any
incumbent director.
(e) Except to the extent prohibited by law or limited by the Charter or
the Bylaws, the Board of Directors shall have the power (which, to the extent
exercised, shall be exclusive) to fix the number of directors and to establish
the rules and procedures that govern the internal affairs of the Board of
Directors and nominations for director, including without limitation the vote
required for any action by the Board of Directors, and that from time to time
shall affect the directors' power to manage the business and affairs of the
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Corporation and no Bylaw shall be adopted by the stockholders which shall modify
the foregoing.
SECTION 7.2. Advance notice of stockholder nominations for the election
of directors and of the proposal of business by stockholders shall be given in
the manner provided in the Bylaws of the Corporation, as amended and in effect
from time to time. Unless and except to the extent that the Bylaws of the
Corporation shall so require, the election of directors of the Corporation need
not be by written ballot.
ARTICLE VIII
BYLAWS
SECTION 8.1. The Bylaws may contain any provision for the
regulation and management of the affairs of the Corporation not inconsistent
with law or the provisions of the Charter. Without limiting the foregoing, to
the maximum extent permitted by the MGCL from time to time, the Corporation may
in its Bylaws confer upon the Board of Directors powers and authorities in
addition to those set forth in the Charter and in addition to those expressly
conferred upon the Board of Directors by statute as long as such powers and
authorities are not inconsistent with the provisions of the Charter.
SECTION 8.2. Except as provided in the Charter, the Bylaws may be
altered or repealed and new Bylaws may be adopted (a) subject to Section 7.1(e),
at any annual or special meeting of stockholders, by the affirmative vote of the
holders of a majority of the voting power of all shares of the Corporation
entitled to vote generally in the election of directors (the "Voting Stock")
then outstanding, voting together as a single class; provided, however, that any
proposed alteration or repeal of, or the adoption of any Bylaw inconsistent
with, Sections 2, 8 or 11 of Article I of the Bylaws, with Section 1, 2 or 3 of
Article II of the Bylaws, or Article X of the Bylaws or this sentence, by the
stockholders shall require the affirmative vote of the holders of at least 80%
of the voting power of all Voting Stock then outstanding, voting together as a
single class; and provided, further, however, that in the case of any such
stockholder action at a special meeting of stockholders, notice of the proposed
alteration, repeal or adoption of the new Bylaw or Bylaws must be contained in
the notice of such special meeting, or (b) by the affirmative vote of a majority
of the total number of directors which the Corporation would have if there were
no vacancies on the Board.
ARTICLE IX
AMENDMENT OF CHARTER
SECTION 9.1. The Corporation reserves the right to adopt, repeal,
rescind, alter or otherwise amend in any respect any provision contained in this
Charter, including but not limited to, any amendments changing the terms or
contract rights of any class of its stock by classification, reclassification or
otherwise, and all rights now or hereafter conferred on stockholders are granted
subject to this reservation. Any amendment of the Charter shall be valid and
effective if such amendment shall have been authorized by the affirmative vote
at a meeting of the stockholders duly called for such purpose of a majority
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<PAGE> 10
of the total number of shares outstanding and entitled to vote thereon, except
that the affirmative vote of the holders of at least 80% of the Voting Stock
then outstanding, voting together as a single class, at a meeting of the
stockholders duly called for such purpose shall be required to alter, amend,
adopt any provision inconsistent with or repeal Article V, Article VII, Section
8.2 of Article VIII, or this Article IX of the Charter.
ARTICLE X
LIMITED LIABILITY; INDEMNIFICATION
SECTION 10.1. To the fullest extent permitted by Maryland statutory or
decisional law, as amended or interpreted, no director or officer of the
Corporation shall be personally liable to the Corporation or its stockholders
for money damages. No amendment of the Charter of the Corporation or repeal of
any of its provisions shall limit or eliminate the benefits provided to
directors and officers under this provision with respect to any act or omission
which occurred prior to such amendment or repeal or with respect to any cause of
action, suit or claim that, but for this Section 10.1 of this Article X, would
accrue or arise, prior to such amendment or repeal.
SECTION 10.2. The Corporation shall indemnify (a) its directors and
officers, whether serving the Corporation or, at its request, any other entity,
to the fullest extent required or permitted by the General Laws of the State of
Maryland now or hereafter in force, including the advance of expenses under the
procedures and to the fullest extent permitted by law and (b) other employees
and agents to such extent as shall be authorized by the Board of Directors or
the Corporation's Bylaws and be permitted by law. The foregoing rights of
indemnification shall not be exclusive of any other rights to which those
seeking indemnification may be entitled. The Board of Directors may take such
action as is necessary to carry out these indemnification provisions and is
expressly empowered to adopt, approve and amend from time to time such bylaws,
resolutions or contracts implementing such provisions or such further
indemnification arrangements as may be permitted by law. No amendment of the
Charter, or of any such bylaw, resolution or contract, or repeal of any of their
provisions shall limit or eliminate the right to indemnification provided
hereunder or thereunder with respect to acts or omissions occurring prior to
such amendment or repeal.
ARTICLE XI
DURATION
SECTION 11.1. The duration of the Corporation shall be perpetual.
SECOND: The provisions hereinabove set forth are all the provisions of
the Charter of the Corporation currently in effect.
THIRD: (i) As of immediately before the amendment the total number of
shares of stock of all classes which the Corporation has authority to issue is
__________ (_________ )
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shares, all of which shares are Common Stock, with a par value of $5.00 per
share, for an aggregate par value of $__________.
(ii) As amended the total number of shares of stock of all
classes which the Corporation has authority to issue is ____________ ( ________)
shares, of which ____________ ( ________ ) shares are Preferred Stock, with a
par value of $.01 per share, and ____________ ( ________ ) shares are Common
Stock, with a par value of $.01 share, for an aggregate par value of $ ________.
(iii) The shares of stock of the Corporation are divided into
classes, and the description, as amended, of each class, including the
preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends, qualifications, and terms and conditions of
redemption are contained in Article IV of these Articles of Amendment and
Restatement.
FOURTH: In accordance with the provisions of Section 2-607 of the
Maryland General Corporation Law, the foregoing amendment was advised by the
Board of Directors and approved by the stockholders of the Corporation as
follows:
(i) The Board of Directors of the Corporation by unanimous
written consent in lieu of a meeting under Section 2-408 of the MGCL, dated
________________, 1996, adopted a resolution which set forth the foregoing
amendment and restatement of the Charter, declaring that said amendment and
restatement of the Charter was advisable and directing that it be submitted for
action thereon by the sole stockholder of the Corporation by a unanimous written
consent in lieu of a meeting pursuant to Section 2-505 of the MGCL.
(ii) The amendment and restatement of the Charter of the
Corporation as hereinabove set forth was approved by the unanimous written
consent of the sole stockholder on _____________, 1996.
FOURTH: The current address of the principal office of the
Corporation in Maryland and the name and address of the Corporation's current
resident agent are as set forth in the amended and restated Charter of the
Corporation. There are ____ directors currently in office, whose names are as
follows:
_________________
_________________
_________________
_________________
_________________
_________________
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IN WITNESS WHEREOF, the Corporation has caused these presents
to be signed in its name and on its behalf by its President and witnessed by its
Secretary on this _____ day of __________, 1996.
NCR CORPORATION
By:
____________________________
Name:
Title: President
ATTEST:
______________________________
Name:
Title: Secretary
THE UNDERSIGNED, the President of NCR Corporation who executed on
behalf of the Corporation the foregoing Articles of Amendment and Restatement of
which this certificate is made a part, hereby acknowledges in the name and on
behalf of the Corporation the foregoing Articles of Amendment and Restatement to
be the corporate act of the Corporation and hereby certifies to the best of his
knowledge, information and belief the matters and facts set forth therein with
respect to the authorization and approval thereof are true in all material
respects under the penalties of perjury.
____________________________
Name:
Title:
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<PAGE> 1
EXHIBIT 3.2
FORM OF
NCR CORPORATION
BYLAWS
AS AMENDED AND RESTATED ON ________, 1996
ARTICLE I.
STOCKHOLDERS
Section 1. The Corporation shall hold annually a regular meeting of its
stockholders for the election of the Board of Directors and for the transaction
of general business at such place within the United States as the Board of
Directors shall determine and shall cause to be stated in the notice of such
meeting, on any business day during the 31-day period beginning on the third
Thursday of April of each year. Such annual meetings shall be general meetings,
that is to say, open for the transaction of any business within the powers of
the Corporation without special notice unless otherwise required by statute, by
the Charter (which term, as used in these Bylaws, shall include all amendments
to the Charter and all Articles Supplementary) or by these Bylaws. Failure to
hold an annual meeting at the designated time shall not, however, invalidate the
corporate existence or affect otherwise valid corporate acts.
Section 2. At any time in the interval between annual meetings, special
meetings of the stockholders may be called as provided in any Articles
Supplementary, by the President, by the Board of Directors or by the holders of
a majority of the then outstanding shares of common stock of the Corporation.
All such meetings shall be held within the United States.
Section 3. Written or printed notice of every annual or special meeting
of the stockholders shall be given to each stockholder entitled to vote at such
meeting, by leaving the same with him or at his residence or usual place of
business, or by mailing it, postage prepaid, and addressed to him at his
address, as it appears upon the books of the corporation, at least ten days and
not more than ninety days before such meeting. Notice of every special meeting
shall state the place, day and hour of such meeting and the business proposed to
be transacted thereat; and no business shall be transacted at such meeting
except that specifically named in the notice. Failure to give notice of any
annual meeting, or any irregularity in such notice, shall not affect the
validity of any annual meeting if held at time and place fixed by Section 1 of
this Article I, or the validity of any proceedings at any such meeting (other
than proceedings of which special notice is required by statute, by the Charter
or by the Bylaws). No notice of an adjourned meeting of stockholders need be
given.
Section 4. The Chairman of any special or annual meeting of
stockholders may adjourn or postpone the meeting from time to time, whether or
not a quorum is present. No notice of the time and place of adjourned meetings
need be given except as required by law. The stockholders present at a duly
called meeting at which a quorum is present may continue to transact business
until adjournment or postponement, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum. At any such adjourned or postponed
meeting at which a quorum shall be present, any business may be transacted which
might have been transacted at the meeting as originally notified.
<PAGE> 2
Section 5. Any stockholder entitled to vote at any meeting of
stockholders may vote either in person or by proxy, but no proxy which is dated
more than eleven months before the meeting at which it is offered shall be
accepted, unless such proxy shall, on its face, name a longer or shorter period
for which it is to remain in force. Every proxy shall be in writing, subscribed
by the stockholder or his duly authorized attorney, and dated, but need not be
sealed, witnessed or acknowledged.
Section 6. At any meeting of the stockholders, the polls shall be
opened and closed, the proxies and ballots shall be received, and all questions
touching the qualification of voters and the validity of proxies and the
acceptance or rejection of votes, shall be decided by the Chairman of the
Meeting.
Section 7. At each meeting of the stockholders, a full, true and
complete list in alphabetical order, or in alphabetical order by classes or
series of stock, of all stockholders entitled to vote at such meeting,
indicating the number and classes or series of shares held by each, shall be
furnished by the Secretary.
Section 8. (a) Annual Meetings of Stockholders. (1) Nominations of
persons for election to the Board of Directors of the Corporation and the
proposal of business to be considered by the stockholders may be made at an
annual meeting of stockholders (a) pursuant to the Corporation's notice of
meeting pursuant to these Bylaws, (b) by or at the direction of the Board of
Directors, or (c) by any stockholder of the Corporation who was a stockholder of
record at the time of giving of notice provided for in this Bylaw, who is
entitled to vote at the meeting and who complies with the notice procedures set
forth in this Bylaw.
(2) For nominations or other business to be properly brought before an annual
meeting by a stockholder pursuant to clause (c) of paragraph (a)(1) of this
Bylaw, the stockholder must have given timely notice thereof in writing to the
Secretary of the Corporation and such other business must otherwise be a proper
matter for stockholder action. To be timely, a stockholder's notice shall be
delivered to the Secretary at the principal executive offices of the Corporation
not later than the close of business on the 90th calendar day nor earlier than
the close of business on the 120th calendar day prior to the first anniversary
of the preceding year's annual meeting; provided, however, that in the event
that the date of the annual meeting is more than 30 calendar days before or more
than 60 calendar days after such anniversary date, notice by the stockholder to
be timely must be so delivered not earlier than the close of business on the
120th calendar day prior to such annual meeting and not later than the close of
business on the later of the 90th calendar day prior to such annual meeting or
the 10th calendar day following the calendar day on which public announcement of
the date of such meeting is first made by the Corporation. For purposes of
determining whether a stockholder's notice shall have been delivered in a timely
manner for the annual meeting of stockholders in 1997, the first anniversary of
the previous year's meeting shall be deemed to be _________ __, 1997. In no
event shall the public announcement of an adjournment of an annual meeting
commence a new time period for the giving of a stockholder's notice as described
above. Such stockholder's notice shall set forth (a) as to each person whom the
stockholder proposes to nominate for election or reelection as a director all
information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors in an election contest, or is
otherwise required, in each case pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and Rule 14a-11 thereunder
(including such person's written consent to being named in the proxy statement
as a nominee and to serving as a director if elected); (b) as to any other
business that the stockholder proposes to bring before the meeting, a brief
description of the business desired to be brought before the meeting, the
reasons for conducting such business at the meeting and any material interest in
such business of
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such stockholder and the beneficial owner, if any, on whose behalf the proposal
is made; and (c) as to the stockholder giving the notice and the beneficial
owner, if any, on whose behalf the nomination or proposal is made (i) the name
and address of such stockholder, as they appear on the Corporation's books, and
of such beneficial owner and (ii) the class and number of shares of the
Corporation which are owned beneficially and of record by such stockholder and
such beneficial owner.
(3) Notwithstanding anything in the second sentence of paragraph (a)(2) of this
Bylaw to the contrary, in the event that the number of directors to be elected
to the Board of Directors of the Corporation is increased and there is no public
announcement by the Corporation naming all of the nominees for director or
specifying the size of the increased Board of Directors at least 100 calendar
days prior to the first anniversary of the preceding year's annual meeting, a
stockholder's notice required by this Bylaw shall also be considered timely, but
only with respect to nominees for any new positions created by such increase, if
it shall be delivered to the Secretary at the principal executive offices of the
Corporation not later than the close of business on the 10th calendar day
following the day on which such public announcement is first made by the
Corporation.
(b) Special Meetings of Stockholders. Only such business shall be conducted at a
special meeting of stockholders as shall have been brought before the meeting
pursuant to Section 2 of Article I of these Bylaws. Nominations of persons for
election to the Board of Directors may be made at a special meeting of
stockholders at which directors are to be elected pursuant to the Corporation's
notice of meeting (a) by or at the direction of the Board of Directors, (b)
provided that the Board of Directors has determined that directors shall be
elected at such meeting, by any stockholder of the Corporation who is a
stockholder of record at the time of giving of notice provided for in this
Bylaw, who shall be entitled to vote at the meeting and who complies with the
notice procedures set forth in this Bylaw. In the event the Corporation calls a
special meeting of stockholders for the purpose of electing one or more
directors to the Board of Directors, any stockholder may nominate a person or
persons (as the case may be), for election to such position(s) as specified in
the Corporation's notice of meeting pursuant to such clause (b), if the
stockholder's notice required by paragraph (a)(2) of this Bylaw shall be
delivered to the Secretary at the principal executive offices of the Corporation
not earlier than the close of business on the 120th calendar day prior to such
special meeting and not later than the close of business on the later of the
90th calendar day prior to such special meeting or the 10th calendar day
following the day on which public announcement is first made of the date of the
special meeting and of the nominees proposed by the Board of Directors to be
elected at such meeting. In no event shall the public announcement of an
adjournment of a special meeting commence a new time period for the giving of a
stockholder's notice as described above.
(c) General.
(1) Only such persons who are nominated in accordance with the procedures set
forth in this Bylaw shall be eligible to serve as directors and only such
business shall be conducted at a meeting of stockholders as shall have been
brought before the meeting in accordance with the procedures set forth in this
Bylaw. Except as otherwise provided by law, the Charter or these Bylaws, the
Chairman of the meeting shall have the power and duty to determine whether a
nomination or any business proposed to be brought before the meeting was made or
proposed, as the case may be, in accordance with the procedures set forth in
this Bylaw and, if any proposed nomination or business is not in compliance with
this Bylaw, to declare that such defective proposal or nomination shall be
disregarded.
(2) For purposes of this Bylaw, "public announcement" shall mean disclosure in a
press release reported by the Dow Jones News Service, Associated Press or
comparable national
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<PAGE> 4
news service or in a document publicly filed by the Corporation with the
Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the
Exchange Act.
(3) Notwithstanding the foregoing provisions of this Bylaw, a stockholder shall
also comply with all applicable requirements of the Exchange Act and the rules
and regulations thereunder with respect to the matters set forth in this Bylaw.
Nothing in this Bylaw shall be deemed to affect any rights (i) of stockholders
to request inclusion of proposals in the Corporation's proxy statement pursuant
to Rule 14a-8 under the Exchange Act or (ii) of the holders of any series of
Preferred Stock to elect directors under an applicable Articles Supplementary
(as defined in the Corporation's Charter).
Section 9. No matter shall be considered at any meeting of the
stockholders except upon a motion duly made and seconded. Any motion or second
of a motion shall be made only by a natural person present at the meeting who
either is a stockholder of the Company or is acting on behalf of a stockholder
of the Company, provided, that if the person is acting on behalf of a
stockholder, he or she must present a written statement executed by the
stockholder or the duly authorized attorney of the stockholder on whose behalf
he or she purports to act.
Section 10. At each meeting of the stockholders, the order of business
and the procedures to be followed in conducting such business shall be
determined by the presiding officer at the meeting in accordance with the law,
the Charter and these Bylaws. The presiding officer at each meeting shall be
appointed by the Board of Directors prior to the meeting.
Section 11. The acquisition of shares of common stock of the Company by
any existing or future shareholders or their affiliates or associates shall be
exempt from all of the provisions of Subtitle 7 (entitled "Voting Rights of
Certain Control Shares") of title 3 of the Maryland General Corporation Law, as
amended.
ARTICLE II.
BOARD OF DIRECTORS
Section 1. Subject to the restrictions contained in the Charter and
these Bylaws, the general management and control of the business and property of
the Corporation shall be vested in its Board of Directors, which may exercise
all the powers of the Corporation except such as by statute, by the Charter, or
by these Bylaws, are conferred upon or reserved to the stockholders. The Board
of Directors shall have the power to fix the compensation of its members and
shall provide for the payment of the expenses of Directors in attending meetings
of the Board of Directors and of any committee of the Board of Directors.
Section 2. Subject to removal, death, resignation or retirement of a
director, a director shall hold office until the annual meeting of the
stockholders for the year in which such director's term expires and until a
successor shall be elected and qualified, except as provided in Section 7.1(d)
of the Charter.
Section 3. (a) From time to time, the number of Directors may be
increased to not more than 20, or decreased to not less than 3, upon resolution
approved by a
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<PAGE> 5
majority of the total number of directors which the Corporation would have if
there were no vacancies (the "Whole Board"). The directors, other than those who
may be elected in accordance with the terms of any Articles Supplementary, shall
be divided into three classes. Each such class shall consist, as nearly as may
be possible, of one-third of the total number of directors, and any remaining
directors shall be included with such group or groups as the Board of Directors
shall designate. At the annual meeting of the stockholders of the Corporation
for 1996, a class of directors shall be elected for a one-year term, a class of
directors shall be elected for a two-year term, and a class of directors shall
be elected for a three-year term. At each succeeding annual meeting of
stockholders, beginning with 1997, successors to the class of directors whose
term expires at that annual meeting shall be elected for a three-year term. If
the number of directors is changed, any increase or decrease shall be
apportioned among the classes so as to maintain the number of directors in each
class as nearly equal as possible, but in no case shall a decrease in the number
of directors shorten the term of any incumbent director.
(b) Except as provided by law with respect to directors elected by
stockholders of a class or series, any director or the entire Board of Directors
may be removed for cause by the affirmative vote of the holders of not less than
80% of the voting power of all Voting Stock (as defined in the Charter) then
outstanding, voting together as a single class. Subject to such removal, or the
death, resignation or retirement of a director, a director shall hold office
until the annual meeting of the stockholders for the year in which such
director's term expires and until a successor shall be elected and qualified,
except as provided in Section 7.1(d) of the Charter.
(c) Except as provided by law with respect to directors elected by
stockholders of a class or series, a vacancy on the Board of Directors which
results from the removal of a director may be filled by the affirmative vote of
the holders of not less than 80% of the voting power of the then outstanding
Voting Stock, voting together as a single class, and a vacancy which results
from any such removal or from any other cause may be filled by a majority of the
remaining directors, whether or not sufficient to constitute a quorum. Any
director so elected by the Board of Directors shall hold office until the next
annual meeting of stockholders and until his successor is elected and qualified
and any director so elected by the stockholders shall hold office for the
remainder of the term of the removed director. No decrease in the number of
directors constituting the Board of Directors shall shorten the term of any
incumbent director.
Section 4. The Board of Directors shall meet for the election of
officers and for the transaction of any other business as soon as practicable
after the annual meeting of stockholders. Other regular meetings of the Board of
Directors shall be held at such times and from time to time as may be fixed by
the Board of Directors, and on not less than 48 hours' notice, given in such
manner as the Board of Directors any determine. Special meetings of the Board of
Directors shall be held at such times and from time to time pursuant to call of
the Chairman of the Board or of the President, if the President is also a
Director, with notice thereof given in writing or by telephonic or other means
of communication in such manner as the Chairman of the Board or the President,
as the case may be, may determine.
Section 5. Regular and special meetings of the Board of Directors may
be held at such place or places within or without the State of Maryland as the
Board of Directors may from time to time determine.
Section 6. A majority of the Board of Directors shall constitute a
quorum for the transaction of business, but if, at any meeting of the Board of
Directors, there shall be less than a quorum present, the Directors present at
the meeting, without further notice,
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<PAGE> 6
may adjourn the same from time to time, not exceeding ten days at any one time,
until a quorum shall attend. Except as required by statute, or as provided in
the Charter or these Bylaws, a majority of the Directors present at any meeting
at which a quorum is present shall decide any questions that may come before the
meeting.
ARTICLE III.
COMMITTEES OF THE BOARD OF DIRECTORS
EXECUTIVE COMMITTEE
Section 1. The Board of Directors may elect an Executive Committee
consisting of three or more Directors. If such a Committee is established, the
Board of Directors shall appoint one of the members of the Executive Committee
to the office of Chairman of the Executive Committee. The Chairman and other
members of the Executive Committee shall hold office until the election of the
Board of Directors next succeeding their respective elections or until removed
by the Board of Directors or until they shall cease to be Directors. Vacancies
in the Executive Committee or in the office of Chairman of the Executive
Committee shall be filled by the Board of Directors.
Section 2. If such a Committee is established, all the powers of the
Board of Directors in the management of the business and affairs of the
Corporation, except as otherwise provided by the Maryland General Corporation
Law, the Charter and the Bylaws, shall vest in the Executive Committee, when the
Board of Directors is not in session.
AUDIT AND FINANCE COMMITTEE
Section 3. The Board of Directors may elect an Audit and Finance
committee consisting of three or more Directors. The Board of Directors shall
appoint one of the members of the Audit and Finance Committee to the office of
Chairman of the Audit and Finance Committee. The Chairman and other members of
the Audit and Finance Committee shall hold office until the election of the
Board of Directors next succeeding their respective elections or until removed
by the Board of Directors or until they shall cease to be Directors. Vacancies
in the Audit Committee or in the office of Chairman of the Audit and Finance
Committee shall be filled by the Board of Directors.
COMPENSATION COMMITTEE
Section 4. The Board of Directors may elect a Compensation Committee
consisting of three or more Directors. The Board of Directors shall appoint one
of the members of the Compensation Committee to the office of Chairman of the
Compensation Committee. The Chairman and other members of the Compensation
Committee shall hold office until the election of the Board of Directors next
succeeding their respective elections or until removed by the Board of Directors
or until they shall cease to be Directors. Vacancies in the Compensation
Committee or in the office of Chairman of the Compensation Committee shall be
filled by the Board of Directors.
COMMITTEE ON DIRECTORS
Section 5. The Board of Directors may elect a Committee on Directors
consisting of three or more Directors. The Board of Directors shall appoint one
of the members of the Committee on Directors to the office of Chairman of the
Committee on
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Directors. The Chairman and other members of the Committee on Directors shall
hold office until the election of the Board of Directors next succeeding their
respective elections or until removed by the Board of Directors or until they
shall cease to be Directors. Vacancies in the Committee on Directors or in the
office of Chairman of the Committee on Directors shall be filled by the Board of
Directors.
OTHER COMMITTEES
Section 6. The Board of Directors may, by resolution adopted by a
majority of the entire Board, designate one or more additional committees, each
of which shall consist of three or more Directors of the Corporation, and if it
elects such a committee, shall appoint one of the members of the committee to be
Chairman thereof.
MEETINGS OF COMMITTEES
Section 7. The Executive Committee and each other committee shall meet
from time to time on call of its Chairman or on call of any one or more of its
members or the Chairman of the Board for the transaction of any business.
Section 8. At any meeting, however called, of the Executive Committee
and each other committee, a majority of its members shall constitute a quorum
for the transaction of business. A majority of such quorum shall decide any
matter that may come before the meeting.
Section 9. The Executive Committee and each other committee shall keep
minutes of its proceedings.
ARTICLE IV.
OFFICERS
Section 1. The Board of Directors shall appoint one of their number as
Chairman of the Board and may appoint one of their number as Honorary Chairman
of the Board. In addition, the Board of Directors may appoint one of their
number as Acting Chairman of the Board. All of the duties and powers of the
Chairman of the Board shall be vested in the Acting Chairman of the Board in the
event of the absence of the Chairman or in the event that the Chairman ceases,
for any reason, to be a member of the Board and the Board has not yet elected a
successor. The Board of Directors shall appoint a President who may also be a
Director, and a Treasurer and a Secretary, neither of whom need to be a
Director. The Board of Directors may also appoint one or more Senior Vice
Presidents, Vice Presidents, Assistant Secretaries and Assistant Treasurers, who
need not be Directors, and such other officers and agents with such powers and
duties as the Board of Directors may prescribe. All said officers shall hold
office until the first meeting of the Board of Directors following the annual
meeting of the stockholders, and until their successors are appointed and
qualify. Any two of said offices, except those of President and Senior Vice
President or Vice President, may at the discretion of the Board of Directors, be
held by the same person. The Chairman or the President may appoint, fix the
compensation of and remove one or more Assistant Vice Presidents and Assistant
Controllers with such powers and duties as may be prescribed from time to time.
Section 2. Subject to any supervisory duties that may be given to the
Chairman of the Board by the Board of Directors, the President shall have direct
supervision and authority over the affairs of the Corporation. If the President
is also a
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<PAGE> 8
Director, and in the absence of the Chairman of the Board, the President shall
preside at all meetings of the Board of Directors at which he shall be present.
He shall make a report of the operation of the Corporation for the preceding
fiscal year to the stockholders at their annual meeting and shall perform such
other duties as are incident to his office, or as from time to time may be
assigned to him by the Board of Directors or the Executive Committee, or by the
Bylaws.
Section 3. The Chairman of the Board shall preside at all meetings of
the Board of Directors at which he shall be present and shall have such other
powers and duties as from time to time may be assigned to him by the Board of
Directors or the Executive Committee or by the Bylaws.
Section 4. The Chairman of the Executive Committee shall preside at all
meetings of the Executive Committee at which he shall be present and, in the
absence of the Chairman of the Board and the President, if the President is also
a Director, shall preside at all meetings of the Board of Directors at which he
shall be present.
Section 5. Except as otherwise provided in the Bylaws, the Senior Vice
Presidents shall perform the duties and exercise all the functions of the
President in his absence or during his inability to act. The Senior Vice
Presidents and Vice Presidents shall have such other powers, and perform such
other duties, as may be assigned to him or them by the Board of Directors, the
Executive Committee, the Chairman of the Executive Committee, the President, or
the Bylaws.
Section 6. The Secretary shall issue notices for all meetings, shall
keep the minutes of all meetings, shall have charge of the records of the
Corporation, and shall make such reports and perform such other duties as are
incident to his officer or are properly required of him by the Board of
Directors, the Chairman of the Board, the Executive Committee, the Chairman of
the Executive Committee or the President, or the Bylaws.
Section 7. The Treasurer shall have charge of all monies and securities
of the Corporation and shall cause regular books of account to be kept. The
Treasurer shall perform all duties incident to his office or that are required
by him by the Board of Directors, the Chairman of the Board, the Executive
Committee, the Chairman of the Executive Committee, the President or the Bylaws,
and may be required to give bond for the faithful performance of his duties in
such sum and with such surety as may be required by the Board of Directors or
the Executive Committee.
ARTICLE V.
ANNUAL STATEMENT OF AFFAIRS AND FISCAL YEAR
Section 1. There shall be prepared annually a full and correct
statement of the affairs of the Corporation, to include a balance sheet and a
financial statement of the operations for the preceding fiscal year. The
statement of affairs shall be submitted at the annual meeting of the
stockholders and not more than twenty (20) days after the meeting, placed on
file at the Corporation's principal office. Such statement shall be prepared or
caused to be prepared by such executive officer of the Corporation as may be
designated by the Board of Directors. If no other executive officer is so
designated, it shall be the duty of the President to prepare or cause to be
prepared such statement.
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<PAGE> 9
Section 2. The fiscal year of the Corporation shall end on the
thirty-first day of December in each year, or on such other day as may be fixed
from time to time by the Board of Directors.
ARTICLE VI.
SEAL
The Board of Directors shall provide (with one or more duplicates) a
suitable seal, containing the name of the Corporation, which shall be in the
charge of the Secretary or Assistant Secretaries.
ARTICLE VII.
STOCK
Section 1. Certificates of stock shall be issued in such form as may be
approved by the Board of Directors and shall be signed by the President, the
Chairman of the Board, a Senior Vice President or a Vice President, and also by
one of the following: the Treasurer, an Assistant Treasurer, the Secretary or an
Assistant Secretary; and shall be sealed with the seal of the Corporation.
Section 2. The Board of Directors shall have power and authority to
make all such rules and regulations as it may deem expedient concerning the
issue and registration of certificates of stock, provided, however, that it
shall conform to all requirements of any stock exchange upon which any class of
its stock is listed.
Section 3. The Board of Directors at any time by resolution may direct
that the stock transfer books be closed for a period not exceeding twenty days
immediately preceding any annual or special meeting of the stockholders, or the
payment of any dividend or any allotment of rights. In lieu of providing for the
closing of the books against transfers of stock as aforesaid the Board of
Directors may fix a date, not less than ten days nor more than ninety days
preceding the date of any meeting of stockholders, and not more than ninety days
preceding any dividend payment date or the date of any allotment of rights, as a
record date for the determination of the stockholders entitled to notice of and
to vote at such meeting, or entitled to receive such dividends or rights, as the
case may be.
Section 4. In case any certificate of stock is lost, stolen, mutilated
or destroyed, the Board of Directors shall authorize the issue of a new
certificate in place thereof upon such terms and conditions as it may deem
advisable.
ARTICLE VIII.
EXECUTION OF INSTRUMENTS
All checks, drafts, bills of exchange, acceptances, debentures, bonds,
coupons, notes or other obligations or evidences of indebtedness of the
corporation and also all deeds, mortgages, indentures, bills of sale,
assignments, conveyances or other instruments of transfer, contracts agreements,
licenses, endorsements, stock powers,
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<PAGE> 10
dividend orders, powers of attorney proxies, waivers, contents returns, reports,
applications, appearances, complaints, declarations, petitions, stipulations,
answers, denials, certificates, demands, notices or documents, instruments or
writings of any nature shall be signed, executed, verified, acknowledged and
delivered by such officers, agents or employees of the Corporation, or any one
of them, and in such manner, as from time may be determined by the Board of
Directors or by the Executive Committee, except as provided by statute, by the
Charter or by the Bylaws.
ARTICLE IX.
WAIVER OF NOTICE OF MEETINGS
Section 1. Notice of the time, place and/or purposes of any meeting of
stockholders shall not be required to be given to any stockholder who shall
attend such meeting in person or by proxy; if any stockholder shall, in writing
filed with the records of the meeting either before or after the holding
thereof, waive notice of any stockholders meeting, notice thereof need not be
given to him.
Section 2. Notice of any meeting of the Board of Directors need not be
given to any Director if he shall, in writing filed with the records of the
meeting either before or after the holding thereof, waive such notice; and any
meeting of the Board of Directors shall be a legal meeting without notice
thereof having been given, if all the Directors shall be present thereat.
ARTICLE X.
AMENDMENT TO BYLAWS
Section 1. The Bylaws may be altered or repealed and new Bylaws may be
adopted (1) at any annual or special meeting of stockholders by the affirmative
vote of the holders of a majority of the voting power of the stock issued and
outstanding and entitled to vote thereat, provided, however, that to the extent
set forth in the Charter any proposed alteration or repeal of, or the adoption
of, any Bylaw shall require the affirmative vote of the holders of at least 80%
of the voting power of all Voting Stock then outstanding, voting together as a
single class, and provided, further, however, that, in the case of any such
stockholder action at a special meeting of stockholders, notice of the proposed
alteration, repeal or adoption of the new Bylaw or Bylaws must be contained in
the notice of such special meeting, or (2) by the affirmative vote of a majority
of the Whole Board.
ARTICLE XI.
INDEMNIFICATION
Section 1. The provisions of Section 2-418 of the Maryland General
Corporation Law, as in effect from time to time, and any successor thereto, are
hereby incorporated by reference in these Bylaws.
Section 2. Subject to the provisions of Section 4 of this Article XI,
the Corporation (a) shall indemnify its directors and officers, whether serving
the Corporation or at its request any other entity, to the full extent required
or permitted by the General
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<PAGE> 11
Laws of the State of Maryland now or hereafter in force, including the advance
of expenses under the procedures set forth in Section 3 hereof and to the full
extent permitted by law and (b) may indemnify other employees and agents to such
extent, if any, as shall be authorized by the Board of Directors and be
permitted by law, and may advance expenses to employees and agents under the
procedures set forth in Section 5 hereof. For purposes of this Article XI, the
"advance of expenses" shall include the providing by the Corporation to a
director, officer, employee or agent who has been named a party to a proceeding,
of legal representation by, or at the expense of, the Corporation.
Section 3. Any indemnification of an officer or director or advance of
expenses to an officer or director in advance of the final disposition of any
proceeding, shall be made promptly, and in any event within sixty (60) days,
upon the written request of the director or officer entitled to request
indemnification. A request for advance of expenses shall contain the affirmation
and undertaking described in Section 5 hereof and be delivered to the General
Counsel of the Corporation or to the Chairman of the Board. The right of an
officer or director to indemnification and advance of expenses hereunder shall
be enforceable by the officer or director entitled to request indemnification in
any court of competent jurisdiction, if (i) the Corporation denies such request,
in whole or in part or (ii) no disposition thereof is made within sixty (60)
days. The costs and expenses incurred by the officer or director entitled to
request indemnification in connection with successfully establishing his or her
right to indemnification, in whole or in part, in any such action shall, subject
to Section 4 hereof, also be indemnified by the Corporation. All rights of an
officer or director to indemnification and advance of expenses hereunder shall
be deemed to be a contract between the corporation and each director or officer
of the Corporation who serves or served in such capacity at any time while this
Article XI is in effect.
Section 4. Anything in this Article XI to the contrary notwithstanding
except in circumstances where indemnification is required under the General Laws
of the State of Maryland now or hereafter in force, no indemnification of a
director or officer may be made hereunder unless a determination has been made
in accordance with the procedures set forth in section 2-418(a) of the Maryland
General Corporation Law, as in effect from time to time and any successor
thereto, that the officer or director requesting indemnification has met the
requisite standard of conduct. An officer or director requesting indemnification
shall have met the requisite standard of conduct unless it is established that:
(a) The act or omission of the director or officer was material to the matter
giving rise to the proceeding; and (i) was committed in bad faith; or (ii) was
the result of active and deliberate dishonesty; or (b) The director or officer
actually received an improper benefit in money, property or services; or (c) In
the case of a criminal proceeding, the director or officer had reasonable cause
to believe the act or omission was unlawful.
Section 5. The Corporation may advance expenses, prior to the final
disposition of any proceeding, to or on behalf of an employee or agent of the
Corporation who is a party to a proceeding as to action while employed by or on
behalf of the Corporation and who is neither an officer nor director of the
Corporation upon (i) the submission by the employee or agent to the General
Counsel of the Corporation of a written affirmation that it is such employee's
or agent's good faith belief that such employee or agent has met the standard of
conduct as set forth in Section 4 hereof and an undertaking by such employee or
agent to reimburse the Corporation for the advance of expenses by the
Corporation to or on behalf of such employee or agent if it shall ultimately be
determined that the standard of conduct has not been met and (ii) the
determination by the General Counsel, in his discretion, that advance of
expenses to the employee or agent is appropriate in light of all of the
circumstances, subject to such additional conditions and restrictions not
inconsistent with this Article XI as the General Counsel shall impose.
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<PAGE> 12
Section 6. The indemnification and advance of expenses provided by this
Article XI (i) shall not be deemed exclusive of any other rights to which a
person requesting indemnification or advance of expenses may be entitled under
any law (common or statutory), or any agreement, vote of stockholders or
disinterested directors or other provision that is not contrary to law, both as
to action in his or her official capacity and as to action in another capacity
while holding office or while employed by or acting as agent for the
Corporation, (ii) shall continue in respect of all events occurring while a
person was a director, officer, employee or agent of the Corporation, and (iii)
shall inure to the benefit of the estate, heirs, executors and administrators of
such person.
Section 7. This Article XI shall be effective from and after the date
of its adoption and shall apply to all proceedings arising prior to or after
such date, regardless of whether relating to facts or circumstances occurring
prior to or after such date. Subject to Article X of these Bylaws nothing herein
shall prevent the amendment of this Article XI, provided that no such amendment
shall diminish the rights of any person hereunder with respect to events
occurring or claims made before the adoption of such amendment or as to claims
made after such adoption in respect of events occurring before such adoption.
Section 8. The Board of Directors may take such action as is necessary
to carry out the indemnification provisions of this Article XI and is expressly
empowered to adopt, approve and amend from time to time such resolutions or
contracts implementing such provisions or such further indemnification
arrangements as may be permitted by law.
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<PAGE> 1
Exhibit 4.2
NCR CORPORATION
and
_________________
Rights Agent
Form of Rights Agreement
Dated as of ____________, 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 1. Certain Definitions ....................................... 1
Section 2. Appointment of Rights Agent ............................... 7
Section 3. Issue of Right Certificates ............................... 7
Section 4. Form of Right Certificates ................................ 11
Section 5. Countersignature and Registration ......................... 11
Section 6. Transfer, Split Up, Combination and
Exchange of Right Certificates;
Mutilated, Destroyed, Lost or
Stolen Right Certificates ................................... 13
Section 7. Exercise of Rights; Purchase Price;
Expiration Date of Rights ................................... 14
Section 8. Cancellation and Destruction of
Right Certificates .......................................... 17
Section 9. Availability of Common Shares ............................. 17
Section 10. Preferred Shares Record Date .............................. 18
Section 11. Adjustment of Purchase Price, Number of
Shares or Number of Rights .................................. 19
Section 12. Certificate of Adjusted Purchase Price
or Number of Shares ......................................... 34
Section 13. Consolidation, Merger or Sale or Transfer
of Assets or Earning Power .................................. 35
Section 14. Fractional Rights and Fractional Shares ................... 37
Section 15. Rights of Action .......................................... 39
Section 16. Agreement of Right Holders ................................ 40
Section 17. Right Certificate Holder Not Deemed a
Stockholder ................................................. 41
</TABLE>
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<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 18. Concerning the Rights Agent ............................... 42
Section 19. Merger or Consolidation or Change of
Name of Rights Agent ........................................ 43
Section 20. Duties of Rights Agent .................................... 44
Section 21. Change of Rights Agent .................................... 48
Section 22. Issuance of New Right Certificates ........................ 50
Section 23. Redemption ................................................ 51
Section 24. Exchange .................................................. 52
Section 25. Notice of Certain Events .................................. 55
Section 26. Notices ................................................... 57
Section 27. Supplements and Amendments ................................ 58
Section 28. Successors ................................................ 59
Section 29. Benefits of this Agreement ................................ 59
Section 30. Severability .............................................. 59
Section 31. Governing Law ............................................. 60
Section 32. Counterparts .............................................. 60
Section 33. Descriptive Headings ...................................... 60
Signatures ............................................................ 61
Exhibit A - Form of Articles Supplementary
Exhibit B - Form of Right Certificate
Exhibit C - Summary of Rights to Purchase Preferred
Shares
</TABLE>
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<PAGE> 4
Agreement, dated as of _____________, 1996 between NCR
Corporation, a Maryland corporation (the "Company"), and _____________ (the
"Rights Agent").
The Board of Directors of the Company has authorized and
declared a dividend of one preferred share purchase right (a "Right") for each
Common Share (as hereinafter defined) of the Company outstanding on _____, 1996
(the "Record Date"), each Right representing the right to purchase one
one-hundredth of a Preferred Share (as hereinafter defined), upon the terms and
subject to the conditions herein set forth, and has further authorized and
directed the issuance of one Right with respect to each Common Share that shall
become outstanding between the Record Date and the earliest of the Distribution
Date, the Redemption Date and the Final Expiration Date (as such terms are
hereinafter defined).
Accordingly, in consideration of the premises and the mutual
agreements herein set forth, the parties hereby agree as follows:
Section 1. Certain Definitions. For purposes of this
Agreement, the following terms have the meanings indicated:
(a) "Acquiring Person" shall mean any Person (as such term is
hereinafter defined) who or which, together with all Affiliates and Associates
(as such terms are hereinafter defined) of such Person, shall be the Beneficial
Owner (as such term is hereinafter defined) of 15% or more of the Common Shares
of the Company then outstanding, but shall not include the Company, any
Subsidiary (as such term is hereinafter defined) of the Company, any employee
benefit plan of the Company or any Subsidiary of the Company, or any entity
holding Common Shares for or pursuant to the terms of any such plan.
Notwithstanding the foregoing, no Person shall become an "Acquiring Person" as
the result of an acquisition of Common Shares by the Company
<PAGE> 5
which, by reducing the number of shares outstanding, increases the proportionate
number of shares beneficially owned by such Person to 15% or more of the Common
Shares of the Company then outstanding; provided, however, that if a Person
shall become the Beneficial Owner of 15% or more of the Common Shares of the
Company then outstanding by reason of share purchases by the Company and shall,
after such share purchases by the Company, become the Beneficial Owner of any
additional Common Shares of the Company, then such Person shall be deemed to be
an "Acquiring Person". Notwithstanding the foregoing, if the Board of Directors
of the Company determines in good faith that a Person who would otherwise be an
"Acquiring Person", as defined pursuant to the foregoing provisions of this
paragraph (a), has become such inadvertently, and such Person divests as
promptly as practicable a sufficient number of Common Shares so that such Person
would no longer be an "Acquiring Person," as defined pursuant to the foregoing
provisions of this paragraph (a), then such Person shall not be deemed to be an
"Acquiring Person" for any purposes of this Agreement unless such Person shall
thereafter become the beneficial owner of any additional Common Shares.
(b) "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), as in effect on the date of this Agreement.
(c) A Person shall be deemed the "Beneficial Owner" of and
shall be deemed to "beneficially own" any securities:
(i) which such Person or any of such Person's Affiliates or
Associates beneficially owns, directly or indirectly;
(ii) which such Person or any of such Person's Affiliates or
Associates has (A) the right to acquire (whether such right is
exercisable immediately or
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only after the passage of time) pursuant to any agreement, arrangement
or understanding (other than customary agreements with and between
underwriters and selling group members with respect to a bona fide
public offering of securities), or upon the exercise of conversion
rights, exchange rights, rights (other than these Rights), warrants or
options, or otherwise; provided, however, that a Person shall not be
deemed the Beneficial Owner of, or to beneficially own, securities
tendered pursuant to a tender or exchange offer made by or on behalf of
such Person or any of such Person's Affiliates or Associates until such
tendered securities are accepted for purchase or exchange; or (B) the
right to vote pursuant to any agreement, arrangement or understanding;
provided, however, that a Person shall not be deemed the Beneficial
Owner of, or to beneficially own, any security if the agreement,
arrangement or understanding to vote such security (1) arises solely
from a revocable proxy or consent given to such Person in response to a
public proxy or consent solicitation made pursuant to, and in
accordance with, the applicable rules and regulations promulgated under
the Exchange Act and (2) is not also then reportable on Schedule 13D
under the Exchange Act (or any comparable or successor report); or
(iii) which are beneficially owned, directly or indirectly, by
any other Person with which such Person or any of such Person's
Affiliates or Associates has any agreement, arrangement or
understanding (other than customary agreements with and between
underwriters and selling group members with respect to a bona fide
public offering of securities) for the purpose of acquiring, holding,
voting (except to the extent contemplated by the proviso to Section
1(c)(ii)(B)) or disposing of any securities of the Company.
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<PAGE> 7
Notwithstanding anything in this definition of Beneficial
Ownership to the contrary, the phrase "then outstanding," when used with
reference to a Person's Beneficial Ownership of securities of the Company, shall
mean the number of such securities then issued and outstanding together with the
number of such securities not then actually issued and outstanding which such
Person would be deemed to own beneficially hereunder.
(d) "Business Day" shall mean any day other than a Saturday, a
Sunday, or a day on which banking institutions in New York are authorized or
obligated by law or executive order to close.
(e) "Close of business" on any given date shall mean 5:00
P.M., New York City time, on such date; provided, however, that if such date is
not a Business Day it shall mean 5:00 P.M., New York City time, on the next
succeeding Business Day.
(f) "Common Shares" when used with reference to the Company
shall mean the shares of common stock, par value $.01 per share, of the Company.
"Common Shares" when used with reference to any Person other than the Company
shall mean the capital stock (or equity interest) with the greatest voting power
of such other Person or, if such other Person is a Subsidiary of another Person,
the Person or Persons which ultimately control such first-mentioned Person.
(g) "Distribution Date" shall have the meaning set forth in
Section 3 hereof.
(h) "Final Expiration Date" shall have the meaning set forth
in Section 7 hereof.
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<PAGE> 8
(i) "Person" shall mean any individual, firm, corporation or
other entity, and shall include any successor (by merger or otherwise) of such
entity.
(j) "Preferred Shares" shall mean shares of Series A Junior
Participating Preferred Stock, par value $.01 per share, of the Company having
the rights and preferences set forth in the Form of Articles Supplementary
attached to this Agreement as Exhibit A.
(k) "Redemption Date" shall have the meaning set forth in
Section 7 hereof.
(l) "Shares Acquisition Date" shall mean the first date of
public announcement by the Company or an Acquiring Person that an Acquiring
Person has become such.
(m) "Subsidiary" of any Person shall mean any corporation or
other entity of which a majority of the voting power of the voting equity
securities or equity interest is owned, directly or indirectly, by such Person.
Section 2. Appointment of Rights Agent. The Company hereby
appoints the Rights Agent to act as agent for the Company and the holders of the
Rights (who, in accordance with Section 3 hereof, shall prior to the
Distribution Date also be the holders of the Common Shares) in accordance with
the terms and conditions hereof, and the Rights Agent hereby accepts such
appointment. The Company may from time to time appoint such co-Rights Agents as
it may deem necessary or desirable.
Section 3. Issue of Right Certificates. (a) Until the earlier
of (i) the tenth day after the Shares Acquisition Date or (ii) the tenth
business day (or such later date as may be determined by action of the Board of
Directors prior to such time as any
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<PAGE> 9
Person becomes an Acquiring Person) after the date of the commencement by any
Person (other than the Company, any Subsidiary of the Company, any employee
benefit plan of the Company or of any Subsidiary of the Company or any entity
holding Common Shares for or pursuant to the terms of any such plan) of, or of
the first public announcement of the intention of any Person (other than the
Company, any Subsidiary of the Company, any employee benefit plan of the Company
or of any Subsidiary of the Company or any entity holding Common Shares for or
pursuant to the terms of any such plan) to commence, a tender or exchange offer
the consummation of which would result in any Person becoming the Beneficial
Owner of Common Shares aggregating 15% or more of the then outstanding Common
Shares (including any such date which is after the date of this Agreement and
prior to the issuance of the Rights; the earlier of such dates being herein
referred to as the "Distribution Date"), (x) the Rights will be evidenced
(subject to the provisions of Section 3(b) hereof) by the certificates for
Common Shares registered in the names of the holders thereof (which certificates
shall also be deemed to be Right Certificates) and not by separate Right
Certificates, and (y) the right to receive Right Certificates will be
transferable only in connection with the transfer of Common Shares. As soon as
practicable after the Distribution Date, the Company will prepare and execute,
the Rights Agent will countersign, and the Company will send or cause to be sent
(and the Rights Agent will, if requested, send) by mail, to each record holder
of Common Shares as of the close of business on the Distribution Date, at the
address of such holder shown on the records of the Company, a Right Certificate,
in substantially the form of Exhibit B hereto (a "Right Certificate"),
evidencing one Right for each Common Share so held. As of the Distribution Date,
the Rights will be evidenced solely by such Right Certificates.
(b) On the Record Date, or as soon as practicable thereafter,
the Company will send a copy of a Summary of Rights to Purchase Preferred
Shares, in
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<PAGE> 10
substantially the form of Exhibit C hereto (the "Summary of Rights") to each
record holder of Common Shares as of the close of business on the Record Date,
at the address of such holder shown on the records of the Company. With respect
to certificates for Common Shares outstanding as of the Record Date, until the
Distribution Date, the Rights will be evidenced by such certificates registered
in the names of the holders thereof together with a copy of the Summary of
Rights attached thereto. Until the Distribution Date (or the earlier of the
Redemption Date or the Final Expiration Date), the surrender for transfer of any
certificate for Common Shares outstanding on the Record Date, with or without a
copy of the Summary of Rights attached thereto, shall also constitute the
transfer of the Rights associated with the Common Shares represented thereby.
(c) Certificates for Common Shares which become outstanding
(including, without limitation, reacquired Common Shares referred to in the last
sentence of this paragraph (c)) after the Record Date but prior to the earliest
of the Distribution Date, the Redemption Date or the Final Expiration Date shall
have impressed on, printed on, written on or otherwise affixed to them the
following legend:
This certificate also evidences and entitles the holder hereof to
certain rights as set forth in a Rights Agreement between NCR
Corporation and _______, dated as of _____, 1996 (the "Rights
Agreement"), the terms of which are hereby incorporated herein by
reference and a copy of which is on file at the principal executive
offices of NCR Corporation. Under certain circumstances, as set forth
in the Rights Agreement, such Rights will be evidenced by separate
certificates and will no longer be evidenced by this certificate. NCR
Corporation will mail to the holder of this certificate a copy of the
Rights Agreement without charge after receipt of a written request
therefor. Under certain circumstances, as set forth in the Rights
Agreement, Rights issued to any Person who becomes an Acquiring Person
(as defined in the Rights Agreement) may become null and void.
With respect to such certificates containing the foregoing legend, until the
Distribution Date, the Rights associated with the Common Shares represented by
such certificates
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<PAGE> 11
shall be evidenced by such certificates alone, and the surrender for transfer of
any such certificate shall also constitute the transfer of the Rights associated
with the Common Shares represented thereby. In the event that the Company
purchases or acquires any Common Shares after the Record Date but prior to the
Distribution Date, any Rights associated with such Common Shares shall be deemed
cancelled and retired so that the Company shall not be entitled to exercise any
Rights associated with the Common Shares which are no longer outstanding.
Section 4. Form of Right Certificates. The Right Certificates
(and the forms of election to purchase Preferred Shares and of assignment to be
printed on the reverse thereof) shall be substantially the same as Exhibit B
hereto and may have such marks of identification or designation and such
legends, summaries or endorsements printed thereon as the Company may deem
appropriate and as are not inconsistent with the provisions of this Agreement,
or as may be required to comply with any applicable law or with any rule or
regulation made pursuant thereto or with any rule or regulation of any stock
exchange on which the Rights may from time to time be listed, or to conform to
usage. Subject to the provisions of Section 22 hereof, the Right Certificates
shall entitle the holders thereof to purchase such number of one one-hundredths
of a Preferred Share as shall be set forth therein at the price per one
one-hundredth of a Preferred Share set forth therein (the "Purchase Price"), but
the number of such one one-hundredths of a Preferred Share and the Purchase
Price shall be subject to adjustment as provided herein.
Section 5. Countersignature and Registration. The Right
Certificates shall be executed on behalf of the Company by its Chairman of the
Board, its Chief Executive Officer, its President, any of its Vice Presidents,
or its Treasurer, either manually or by facsimile signature, shall have affixed
thereto the Company's seal or a
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<PAGE> 12
facsimile thereof, and shall be attested by the Secretary or an Assistant
Secretary of the Company, either manually or by facsimile signature. The Right
Certificates shall be manually countersigned by the Rights Agent and shall not
be valid for any purpose unless countersigned. In case any officer of the
Company who shall have signed any of the Right Certificates shall cease to be
such officer of the Company before countersignature by the Rights Agent and
issuance and delivery by the Company, such Right Certificates, nevertheless, may
be countersigned by the Rights Agent and issued and delivered by the Company
with the same force and effect as though the person who signed such Right
Certificates had not ceased to be such officer of the Company; and any Right
Certificate may be signed on behalf of the Company by any person who, at the
actual date of the execution of such Right Certificate, shall be a proper
officer of the Company to sign such Right Certificate, although at the date of
the execution of this Rights Agreement any such person was not such an officer.
Following the Distribution Date, the Rights Agent will keep or
cause to be kept, at its principal office, books for registration and transfer
of the Right Certificates issued hereunder. Such books shall show the names and
addresses of the respective holders of the Right Certificates, the number of
Rights evidenced on its face by each of the Right Certificates and the date of
each of the Right Certificates.
Section 6. Transfer, Split Up, Combination and Exchange of
Right Certificates; Mutilated, Destroyed, Lost or Stolen Right Certificates.
Subject to the provisions of Section 14 hereof, at any time after the close of
business on the Distribution Date, and at or prior to the close of business on
the earlier of the Redemption Date or the Final Expiration Date, any Right
Certificate or Right Certificates (other than Right Certificates representing
Rights that have become void pursuant to Section 11(a)(ii) hereof or that have
been exchanged pursuant to Section 24
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<PAGE> 13
hereof) may be transferred, split up, combined or exchanged for another Right
Certificate or Right Certificates, entitling the registered holder to purchase a
like number of one one-hundredths of a Preferred Share as the Right Certificate
or Right Certificates surrendered then entitled such holder to purchase. Any
registered holder desiring to transfer, split up, combine or exchange any Right
Certificate or Right Certificates shall make such request in writing delivered
to the Rights Agent, and shall surrender the Right Certificate or Right
Certificates to be transferred, split up, combined or exchanged at the principal
office of the Rights Agent. Thereupon the Rights Agent shall countersign and
deliver to the person entitled thereto a Right Certificate or Right
Certificates, as the case may be, as so requested. The Company may require
payment of a sum sufficient to cover any tax or governmental charge that may be
imposed in connection with any transfer, split up, combination or exchange of
Right Certificates.
Upon receipt by the Company and the Rights Agent of evidence
reasonably satisfactory to them of the loss, theft, destruction or mutilation of
a Right Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to them, and, at the Company's request,
reimbursement to the Company and the Rights Agent of all reasonable expenses
incidental thereto, and upon surrender to the Rights Agent and cancellation of
the Right Certificate if mutilated, the Company will make and deliver a new
Right Certificate of like tenor to the Rights Agent for delivery to the
registered holder in lieu of the Right Certificate so lost, stolen, destroyed or
mutilated.
Section 7. Exercise of Rights; Purchase Price; Expiration Date
of Rights. (a) The registered holder of any Right Certificate may exercise the
Rights evidenced thereby (except as otherwise provided herein) in whole or in
part at any time after the Distribution Date upon surrender of the Right
Certificate, with the form of election to
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<PAGE> 14
purchase on the reverse side thereof duly executed, to the Rights Agent at the
principal office of the Rights Agent, together with payment of the Purchase
Price for each one one-hundredth of a Preferred Share as to which the Rights are
exercised, at or prior to the earliest of (i) the close of business on December
31, 2006 (the "Final Expiration Date"), (ii) the time at which the Rights are
redeemed as provided in Section 23 hereof (the "Redemption Date"), or (iii) the
time at which such Rights are exchanged as provided in Section 24 hereof.
(b) The Purchase Price for each one one-hundredth of a
Preferred Share purchasable pursuant to the exercise of a Right shall initially
be $___, and shall be subject to adjustment from time to time as provided in
Section 11 or 13 hereof and shall be payable in lawful money of the United
States of America in accordance with paragraph (c) below.
(c) Upon receipt of a Right Certificate representing
exercisable Rights, with the form of election to purchase duly executed,
accompanied by payment of the Purchase Price for the shares to be purchased and
an amount equal to any applicable transfer tax required to be paid by the holder
of such Right Certificate in accordance with Section 9 hereof by certified
check, cashier's check or money order payable to the order of the Company, the
Rights Agent shall thereupon promptly (i) (A) requisition from any transfer
agent of the Preferred Shares certificates for the number of Preferred Shares to
be purchased and the Company hereby irrevocably authorizes its transfer agent to
comply with all such requests, or (B) requisition from the depositary agent
depositary receipts representing such number of one one-hundredths of a
Preferred Share as are to be purchased (in which case certificates for the
Preferred Shares represented by such receipts shall be deposited by the transfer
agent with the depositary agent) and the Company hereby directs the depositary
agent to comply with such request, (ii) when
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<PAGE> 15
appropriate, requisition from the Company the amount of cash to be paid in lieu
of issuance of fractional shares in accordance with Section 14 hereof, (iii)
after receipt of such certificates or depositary receipts, cause the same to be
delivered to or upon the order of the registered holder of such Right
Certificate, registered in such name or names as may be designated by such
holder and (iv) when appropriate, after receipt, deliver such cash to or upon
the order of the registered holder of such Right Certificate.
(d) In case the registered holder of any Right Certificate
shall exercise less than all the Rights evidenced thereby, a new Right
Certificate evidencing Rights equivalent to the Rights remaining unexercised
shall be issued by the Rights Agent to the registered holder of such Right
Certificate or to his duly authorized assigns, subject to the provisions of
Section 14 hereof.
Section 8. Cancellation and Destruction of Right Certificates.
All Right Certificates surrendered for the purpose of exercise, transfer, split
up, combination or exchange shall, if surrendered to the Company or to any of
its agents, be delivered to the Rights Agent for cancellation or in cancelled
form, or, if surrendered to the Rights Agent, shall be cancelled by it, and no
Right Certificates shall be issued in lieu thereof except as expressly permitted
by any of the provisions of this Rights Agreement. The Company shall deliver to
the Rights Agent for cancellation and retirement, and the Rights Agent shall so
cancel and retire, any other Right Certificate purchased or acquired by the
Company otherwise than upon the exercise thereof. The Rights Agent shall deliver
all cancelled Right Certificates to the Company, or shall, at the written
request of the Company, destroy such cancelled Right Certificates, and in such
case shall deliver a certificate of destruction thereof to the Company.
Section 9. Availability of Preferred Shares. The Company
covenants and agrees that it will cause to be reserved and kept available out of
its authorized and
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<PAGE> 16
unissued Preferred Shares or any Preferred Shares held in its treasury, the
number of Preferred Shares that will be sufficient to permit the exercise in
full of all outstanding Rights in accordance with Section 7. The Company
covenants and agrees that it will take all such action as may be necessary to
ensure that all Preferred Shares delivered upon exercise of Rights shall, at the
time of delivery of the certificates for such Preferred Shares (subject to
payment of the Purchase Price), be duly and validly authorized and issued and
fully paid and nonassessable shares.
The Company further covenants and agrees that it will pay when
due and payable any and all federal and state transfer taxes and charges which
may be payable in respect of the issuance or delivery of the Right Certificates
or of any Preferred Shares upon the exercise of Rights. The Company shall not,
however, be required to pay any transfer tax which may be payable in respect of
any transfer or delivery of Right Certificates to a person other than, or the
issuance or delivery of certificates or depositary receipts for the Preferred
Shares in a name other than that of, the registered holder of the Right
Certificate evidencing Rights surrendered for exercise or to issue or to deliver
any certificates or depositary receipts for Preferred Shares upon the exercise
of any Rights until any such tax shall have been paid (any such tax being
payable by the holder of such Right Certificate at the time of surrender) or
until it has been established to the Company's reasonable satisfaction that no
such tax is due.
Section 10. Preferred Shares Record Date. Each person in whose
name any certificate for Preferred Shares is issued upon the exercise of Rights
shall for all purposes be deemed to have become the holder of record of the
Preferred Shares represented thereby on, and such certificate shall be dated,
the date upon which the Right Certificate evidencing such Rights was duly
surrendered and payment of the Purchase Price (and any applicable transfer
taxes) was made; provided, however, that if the date
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<PAGE> 17
of such surrender and payment is a date upon which the Preferred Shares transfer
books of the Company are closed, such person shall be deemed to have become the
record holder of such shares on, and such certificate shall be dated, the next
succeeding Business Day on which the Preferred Shares transfer books of the
Company are open. Prior to the exercise of the Rights evidenced thereby, the
holder of a Right Certificate shall not be entitled to any rights of a holder of
Preferred Shares for which the Rights shall be exercisable, including, without
limitation, the right to vote, to receive dividends or other distributions or to
exercise any preemptive rights, and shall not be entitled to receive any notice
of any proceedings of the Company, except as provided herein.
Section 11. Adjustment of Purchase Price, Number of Shares or
Number of Rights. The Purchase Price, the number of Preferred Shares covered by
each Right and the number of Rights outstanding are subject to adjustment from
time to time as provided in this Section 11.
(a) (i) In the event the Company shall at any time after the
date of this Agreement (A) declare a dividend on the Preferred Shares payable in
Preferred Shares, (B) subdivide the outstanding Preferred Shares, (C) combine
the outstanding Preferred Shares into a smaller number of Preferred Shares or
(D) issue any shares of its capital stock in a reclassification of the Preferred
Shares (including any such reclassification in connection with a consolidation
or merger in which the Company is the continuing or surviving corporation),
except as otherwise provided in this Section 11(a), the Purchase Price in effect
at the time of the record date for such dividend or of the effective date of
such subdivision, combination or reclassification, and the number and kind of
shares of capital stock issuable on such date, shall be proportionately adjusted
so that the holder of any Right exercised after such time shall be entitled to
receive the aggregate number and kind of shares of capital stock which, if such
Right had been exercised immediately prior
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<PAGE> 18
to such date and at a time when the Preferred Shares transfer books of the
Company were open, he would have owned upon such exercise and been entitled to
receive by virtue of such dividend, subdivision, combination or
reclassification; provided, however, that in no event shall the consideration to
be paid upon the exercise of one Right be less than the aggregate par value of
the shares of capital stock of the Company issuable upon exercise of one Right.
(ii) Subject to Section 24 of this Agreement, in the event any
Person becomes an Acquiring Person, each holder of a Right shall thereafter have
a right to receive, upon exercise thereof at a price equal to the then current
Purchase Price multiplied by the number of one one-hundredths of a Preferred
Share for which a Right is then exercisable, in accordance with the terms of
this Agreement and in lieu of Preferred Shares, such number of Common Shares of
the Company as shall equal the result obtained by (x) multiplying the then
current Purchase Price by the number of one one-hundredths of a Preferred Share
for which a Right is then exercisable and dividing that product by (y) 50% of
the then current per share market price of the Company's Common Shares
(determined pursuant to Section 11(d) hereof) on the date of the occurrence of
such event. In the event that any Person shall become an Acquiring Person and
the Rights shall then be outstanding, the Company shall not take any action
which would eliminate or diminish the benefits intended to be afforded by the
Rights.
From and after the occurrence of such event, any Rights that
are or were acquired or beneficially owned by any Acquiring Person (or any
Associate or Affiliate of such Acquiring Person) shall be void and any holder of
such Rights shall thereafter have no right to exercise such Rights under any
provision of this Agreement. No Right Certificate shall be issued pursuant to
Section 3 that represents Rights beneficially owned by an Acquiring Person whose
Rights would be void pursuant to the preceding sentence
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<PAGE> 19
or any Associate or Affiliate thereof; no Right Certificate shall be issued at
any time upon the transfer of any Rights to an Acquiring Person whose Rights
would be void pursuant to the preceding sentence or any Associate or Affiliate
thereof or to any nominee of such Acquiring Person, Associate or Affiliate; and
any Right Certificate delivered to the Rights Agent for transfer to an Acquiring
Person whose Rights would be void pursuant to the preceding sentence shall be
cancelled.
(iii) In the event that there shall not be sufficient Common
Shares issued but not outstanding or authorized but unissued to permit the
exercise in full of the Rights in accordance with the foregoing subparagraph
(ii), the Company shall take all such action as may be necessary to authorize
additional Common Shares for issuance upon exercise of the Rights. In the event
the Company shall, after good faith effort, be unable to take all such action as
may be necessary to authorize such additional Common Shares, the Company shall
substitute, for each Common Share that would otherwise be issuable upon exercise
of a Right, a number of Preferred Shares or fraction thereof such that the
current per share market price of one Preferred Share multiplied by such number
or fraction is equal to the current per share market price of one Common Share
as of the date of issuance of such Preferred Shares or fraction thereof.
(b) In case the Company shall fix a record date for the
issuance of rights, options or warrants to all holders of Preferred Shares
entitling them (for a period expiring within 45 calendar days after such record
date) to subscribe for or purchase Preferred Shares (or shares having the same
rights, privileges and preferences as the Preferred Shares ("equivalent
preferred shares")) or securities convertible into Preferred Shares or
equivalent preferred shares at a price per Preferred Share or equivalent
preferred share (or having a conversion price per share, if a security
convertible into Preferred Shares or equivalent preferred shares) less than the
then current per share
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<PAGE> 20
market price of the Preferred Shares (as defined in Section 11(d)) on such
record date, the Purchase Price to be in effect after such record date shall be
determined by multiplying the Purchase Price in effect immediately prior to such
record date by a fraction, the numerator of which shall be the number of
Preferred Shares outstanding on such record date plus the number of Preferred
Shares which the aggregate offering price of the total number of Preferred
Shares and/or equivalent preferred shares so to be offered (and/or the aggregate
initial conversion price of the convertible securities so to be offered) would
purchase at such current market price and the denominator of which shall be the
number of Preferred Shares outstanding on such record date plus the number of
additional Preferred Shares and/or equivalent preferred shares to be offered for
subscription or purchase (or into which the convertible securities so to be
offered are initially convertible); provided, however, that in no event shall
the consideration to be paid upon the exercise of one Right be less than the
aggregate par value of the shares of capital stock of the Company issuable upon
exercise of one Right. In case such subscription price may be paid in a
consideration part or all of which shall be in a form other than cash, the value
of such consideration shall be as determined in good faith by the Board of
Directors of the Company, whose determination shall be described in a statement
filed with the Rights Agent. Preferred Shares owned by or held for the account
of the Company shall not be deemed outstanding for the purpose of any such
computation. Such adjustment shall be made successively whenever such a record
date is fixed; and in the event that such rights, options or warrants are not so
issued, the Purchase Price shall be adjusted to be the Purchase Price which
would then be in effect if such record date had not been fixed.
(c) In case the Company shall fix a record date for the making
of a distribution to all holders of the Preferred Shares (including any such
distribution made in connection with a consolidation or merger in which the
Company is the continuing or
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surviving corporation) of evidences of indebtedness or assets (other than a
regular quarterly cash dividend or a dividend payable in Preferred Shares) or
subscription rights or warrants (excluding those referred to in Section 11(b)
hereof), the Purchase Price to be in effect after such record date shall be
determined by multiplying the Purchase Price in effect immediately prior to such
record date by a fraction, the numerator of which shall be the then current per
share market price of the Preferred Shares on such record date, less the fair
market value (as determined in good faith by the Board of Directors of the
Company, whose determination shall be described in a statement filed with the
Rights Agent) of the portion of the assets or evidences of indebtedness so to be
distributed or of such subscription rights or warrants applicable to one
Preferred Share and the denominator of which shall be such current per share
market price of the Preferred Shares; provided, however, that in no event shall
the consideration to be paid upon the exercise of one Right be less than the
aggregate par value of the shares of capital stock of the Company to be issued
upon exercise of one Right. Such adjustments shall be made successively whenever
such a record date is fixed; and in the event that such distribution is not so
made, the Purchase Price shall again be adjusted to be the Purchase Price which
would then be in effect if such record date had not been fixed.
(d) (i) For the purpose of any computation hereunder, the
"current per share market price" of any security (a "Security" for the purpose
of this Section 11(d)(i)) on any date shall be deemed to be the average of the
daily closing prices per share of such Security for the 30 consecutive Trading
Days (as such term is hereinafter defined) immediately prior to such date;
provided, however, that in the event that the current per share market price of
the Security is determined during a period following the announcement by the
issuer of such Security of (A) a dividend or distribution on such Security
payable in shares of such Security or securities convertible into such shares,
or (B) any subdivision, combination or reclassification of such Security and
prior to the
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expiration of 30 Trading Days after the ex-dividend date for such dividend or
distribution, or the record date for such subdivision, combination or
reclassification, then, and in each such case, the current per share market
price shall be appropriately adjusted to reflect the current market price per
share equivalent of such Security. The closing price for each day shall be the
last sale price, regular way, or, in case no such sale takes place on such day,
the average of the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system with respect
to securities listed or admitted to trading on the New York Stock Exchange or,
if the Security is not listed or admitted to trading on the New York Stock
Exchange, as reported in the principal consolidated transaction reporting system
with respect to securities listed on the principal national securities exchange
on which the Security is listed or admitted to trading or, if the Security is
not listed or admitted to trading on any national securities exchange, the last
quoted price or, if not so quoted, the average of the high bid and low asked
prices in the over-the-counter market, as reported by the National Association
of Securities Dealers, Inc. Automated Quotations System ("NASDAQ") or such other
system then in use, or, if on any such date the Security is not quoted by any
such organization, the average of the closing bid and asked prices as furnished
by a professional market maker making a market in the Security selected by the
Board of Directors of the Company. The term "Trading Day" shall mean a day on
which the principal national securities exchange on which the Security is listed
or admitted to trading is open for the transaction of business or, if the
Security is not listed or admitted to trading on any national securities
exchange, a Business Day.
(ii) For the purpose of any computation hereunder, the
"current per share market price" of the Preferred Shares shall be determined in
accordance with the method set forth in Section 11(d)(i). If the Preferred
Shares are not publicly traded, the "current per share market price" of the
Preferred Shares shall be conclusively deemed to
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<PAGE> 23
be the current per share market price of the Common Shares as determined
pursuant to Section 11(d)(i) (appropriately adjusted to reflect any stock split,
stock dividend or similar transaction occurring after the date hereof),
multiplied by one hundred. If neither the Common Shares nor the Preferred Shares
are publicly held or so listed or traded, "current per share market price" shall
mean the fair value per share as determined in good faith by the Board of
Directors of the Company, whose determination shall be described in a statement
filed with the Rights Agent.
(e) No adjustment in the Purchase Price shall be required
unless such adjustment would require an increase or decrease of at least 1% in
the Purchase Price; provided, however, that any adjustments which by reason of
this Section 11(e) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment. All calculations under this
Section 11 shall be made to the nearest cent or to the nearest one one-millionth
of a Preferred Share or one ten-thousandth of any other share or security as the
case may be. Notwithstanding the first sentence of this Section 11(e), any
adjustment required by this Section 11 shall be made no later than the earlier
of (i) three years from the date of the transaction which requires such
adjustment or (ii) the date of the expiration of the right to exercise any
Rights.
(f) If as a result of an adjustment made pursuant to Section
11(a) hereof, the holder of any Right thereafter exercised shall become entitled
to receive any shares of capital stock of the Company other than Preferred
Shares, thereafter the number of such other shares so receivable upon exercise
of any Right shall be subject to adjustment from time to time in a manner and on
terms as nearly equivalent as practicable to the provisions with respect to the
Preferred Shares contained in Section 11(a) through (c), inclusive, and the
provisions of Sections 7, 9, 10 and 13 with respect to the Preferred Shares
shall apply on like terms to any such other shares.
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(g) All Rights originally issued by the Company subsequent to
any adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of one one-hundredths of a
Preferred Share purchasable from time to time hereunder upon exercise of the
Rights, all subject to further adjustment as provided herein.
(h) Unless the Company shall have exercised its election as
provided in Section 11(i), upon each adjustment of the Purchase Price as a
result of the calculations made in Sections 11(b) and (c), each Right
outstanding immediately prior to the making of such adjustment shall thereafter
evidence the right to purchase, at the adjusted Purchase Price, that number of
one one-hundredths of a Preferred Share (calculated to the nearest one
one-millionth of a Preferred Share) obtained by (i) multiplying (x) the number
of one one-hundredths of a share covered by a Right immediately prior to this
adjustment by (y) the Purchase Price in effect immediately prior to such
adjustment of the Purchase Price and (ii) dividing the product so obtained by
the Purchase Price in effect immediately after such adjustment of the Purchase
Price.
(i) The Company may elect on or after the date of any
adjustment of the Purchase Price to adjust the number of Rights, in substitution
for any adjustment in the number of one one-hundredths of a Preferred Share
purchasable upon the exercise of a Right. Each of the Rights outstanding after
such adjustment of the number of Rights shall be exercisable for the number of
one one-hundredths of a Preferred Share for which a Right was exercisable
immediately prior to such adjustment. Each Right held of record prior to such
adjustment of the number of Rights shall become that number of Rights
(calculated to the nearest one ten-thousandth) obtained by dividing the Purchase
Price in effect immediately prior to adjustment of the Purchase Price by the
Purchase Price in effect immediately after adjustment of the Purchase Price. The
Company shall make a
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public announcement of its election to adjust the number of Rights, indicating
the record date for the adjustment, and, if known at the time, the amount of the
adjustment to be made. This record date may be the date on which the Purchase
Price is adjusted or any day thereafter, but, if the Right Certificates have
been issued, shall be at least 10 days later than the date of the public
announcement. If Right Certificates have been issued, upon each adjustment of
the number of Rights pursuant to this Section 11(i), the Company shall, as
promptly as practicable, cause to be distributed to holders of record of Right
Certificates on such record date Right Certificates evidencing, subject to
Section 14 hereof, the additional Rights to which such holders shall be entitled
as a result of such adjustment, or, at the option of the Company, shall cause to
be distributed to such holders of record in substitution and replacement for the
Right Certificates held by such holders prior to the date of adjustment, and
upon surrender thereof, if required by the Company, new Right Certificates
evidencing all the Rights to which such holders shall be entitled after such
adjustment. Right Certificates so to be distributed shall be issued, executed
and countersigned in the manner provided for herein and shall be registered in
the names of the holders of record of Right Certificates on the record date
specified in the public announcement.
(j) Irrespective of any adjustment or change in the Purchase
Price or the number of one one-hundredths of a Preferred Share issuable upon the
exercise of the Rights, the Right Certificates theretofore and thereafter issued
may continue to express the Purchase Price and the number of one one-hundredths
of a Preferred Share which were expressed in the initial Right Certificates
issued hereunder.
(k) Before taking any action that would cause an adjustment
reducing the Purchase Price below one one-hundredth of the then par value, if
any, of the Preferred Shares issuable upon exercise of the Rights, the Company
shall take any corporate action
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which may, in the opinion of its counsel, be necessary in order that the Company
may validly and legally issue fully paid and nonassessable Preferred Shares at
such adjusted Purchase Price.
(l) In any case in which this Section 11 shall require that an
adjustment in the Purchase Price be made effective as of a record date for a
specified event, the Company may elect to defer until the occurrence of such
event the issuing to the holder of any Right exercised after such record date of
the Preferred Shares and other capital stock or securities of the Company, if
any, issuable upon such exercise over and above the Preferred Shares and other
capital stock or securities of the Company, if any, issuable upon such exercise
on the basis of the Purchase Price in effect prior to such adjustment; provided,
however, that the Company shall deliver to such holder a due bill or other
appropriate instrument evidencing such holder's right to receive such additional
shares upon the occurrence of the event requiring such adjustment.
(m) Anything in this Section 11 to the contrary
notwithstanding, the Company shall be entitled to make such reductions in the
Purchase Price, in addition to those adjustments expressly required by this
Section 11, as and to the extent that it in its sole discretion shall determine
to be advisable in order that any consolidation or subdivision of the Preferred
Shares, issuance wholly for cash of any Preferred Shares at less than the
current market price, issuance wholly for cash of Preferred Shares or securities
which by their terms are convertible into or exchangeable for Preferred Shares,
dividends on Preferred Shares payable in Preferred Shares or issuance of rights,
options or warrants referred to hereinabove in Section 11(b), hereafter made by
the Company to holders of its Preferred Shares shall not be taxable to such
stockholders.
(n) In the event that at any time after the date of this
Agreement and prior to the Distribution Date, the Company shall (i) declare or
pay any dividend on the
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<PAGE> 27
Common Shares payable in Common Shares or (ii) effect a subdivision, combination
or consolidation of the Common Shares (by reclassification or otherwise than by
payment of dividends in Common Shares) into a greater or lesser number of Common
Shares, then in any such case (A) the number of one one-hundredths of a
Preferred Share purchasable after such event upon proper exercise of each Right
shall be determined by multiplying the number of one one-hundredths of a
Preferred Share so purchasable immediately prior to such event by a fraction,
the numerator of which is the number of Common Shares outstanding immediately
before such event and the denominator of which is the number of Common Shares
outstanding immediately after such event, and (B) each Common Share outstanding
immediately after such event shall have issued with respect to it that number of
Rights which each Common Share outstanding immediately prior to such event had
issued with respect to it. The adjustments provided for in this Section 11(n)
shall be made successively whenever such a dividend is declared or paid or such
a subdivision, combination or consolidation is effected.
Section 12. Certificate of Adjusted Purchase Price or Number
of Shares. Whenever an adjustment is made as provided in Section 11 or 13
hereof, the Company shall promptly (a) prepare a certificate setting forth such
adjustment, and a brief statement of the facts accounting for such adjustment,
(b) file with the Rights Agent and with each transfer agent for the Common
Shares or the Preferred Shares a copy of such certificate and (c) mail a brief
summary thereof to each holder of a Right Certificate in accordance with Section
25 hereof.
Section 13. Consolidation, Merger or Sale or Transfer of
Assets or Earning Power. In the event, directly or indirectly, at any time after
a Person has become an Acquiring Person, (a) the Company shall consolidate with,
or merge with and into, any other Person, (b) any Person shall consolidate with
the Company, or merge
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<PAGE> 28
with and into the Company and the Company shall be the continuing or surviving
corporation of such merger and, in connection with such merger, all or part of
the Common Shares shall be changed into or exchanged for stock or other
securities of any other Person (or the Company) or cash or any other property,
or (c) the Company shall sell or otherwise transfer (or one or more of its
Subsidiaries shall sell or otherwise transfer), in one or more transactions,
assets or earning power aggregating 50% or more of the assets or earning power
of the Company and its Subsidiaries (taken as a whole) to any other Person other
than the Company or one or more of its wholly-owned Subsidiaries, then, and in
each such case, proper provision shall be made so that (i) each holder of a
Right (except as otherwise provided herein) shall thereafter have the right to
receive, upon the exercise thereof at a price equal to the then current Purchase
Price multiplied by the number of one one-hundredths of a Preferred Share for
which a Right is then exercisable, in accordance with the terms of this
Agreement and in lieu of Preferred Shares, such number of Common Shares of such
other Person (including the Company as successor thereto or as the surviving
corporation) as shall equal the result obtained by (A) multiplying the then
current Purchase Price by the number of one one-hundredths of a Preferred Share
for which a Right is then exercisable and dividing that product by (B) 50% of
the then current per share market price of the Common Shares of such other
Person (determined pursuant to Section 11(d) hereof) on the date of consummation
of such consolidation, merger, sale or transfer; (ii) the issuer of such Common
Shares shall thereafter be liable for, and shall assume, by virtue of such
consolidation, merger, sale or transfer, all the obligations and duties of the
Company pursuant to this Agreement; (iii) the term "Company" shall thereafter be
deemed to refer to such issuer; and (iv) such issuer shall take such steps
(including, but not limited to, the reservation of a sufficient number of its
Common Shares in accordance with Section 9 hereof) in connection with such
consummation as may be necessary to assure that the provisions hereof shall
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thereafter be applicable, as nearly as reasonably may be, in relation to the
Common Shares thereafter deliverable upon the exercise of the Rights. The
Company shall not consummate any such consolidation, merger, sale or transfer
unless prior thereto the Company and such issuer shall have executed and
delivered to the Rights Agent a supplemental agreement so providing. The Company
shall not enter into any transaction of the kind referred to in this Section 13
if at the time of such transaction there are any rights, warrants, instruments
or securities outstanding or any agreements or arrangements which, as a result
of the consummation of such transaction, would eliminate or substantially
diminish the benefits intended to be afforded by the Rights. The provisions of
this Section 13 shall similarly apply to successive mergers or consolidations or
sales or other transfers.
Section 14. Fractional Rights and Fractional Shares. (a) The
Company shall not be required to issue fractions of Rights or to distribute
Right Certificates which evidence fractional Rights. In lieu of such fractional
Rights, there shall be paid to the registered holders of the Right Certificates
with regard to which such fractional Rights would otherwise be issuable, an
amount in cash equal to the same fraction of the current market value of a whole
Right. For the purposes of this Section 14(a), the current market value of a
whole Right shall be the closing price of the Rights for the Trading Day
immediately prior to the date on which such fractional Rights would have been
otherwise issuable. The closing price for any day shall be the last sale price,
regular way, or, in case no such sale takes place on such day, the average of
the closing bid and asked prices, regular way, in either case as reported in the
principal consolidated transaction reporting system with respect to securities
listed or admitted to trading on the New York Stock Exchange or, if the Rights
are not listed or admitted to trading on the New York Stock Exchange, as
reported in the principal consolidated transaction reporting system with respect
to securities listed on the principal national securities
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<PAGE> 30
exchange on which the Rights are listed or admitted to trading or, if the Rights
are not listed or admitted to trading on any national securities exchange, the
last quoted price or, if not so quoted, the average of the high bid and low
asked prices in the over-the-counter market, as reported by NASDAQ or such other
system then in use or, if on any such date the Rights are not quoted by any such
organization, the average of the closing bid and asked prices as furnished by a
professional market maker making a market in the Rights selected by the Board of
Directors of the Company. If on any such date no such market maker is making a
market in the Rights, the fair value of the Rights on such date as determined in
good faith by the Board of Directors of the Company shall be used.
(b) The Company shall not be required to issue fractions of
Preferred Shares (other than fractions which are integral multiples of one
one-hundredth of a Preferred Share) upon exercise of the Rights or to distribute
certificates which evidence fractional Preferred Shares (other than fractions
which are integral multiples of one one-hundredth of a Preferred Share).
Fractions of Preferred Shares in integral multiples of one one-hundredth of a
Preferred Share may, at the election of the Company, be evidenced by depositary
receipts, pursuant to an appropriate agreement between the Company and a
depositary selected by it; provided, that such agreement shall provide that the
holders of such depositary receipts shall have all the rights, privileges and
preferences to which they are entitled as beneficial owners of the Preferred
Shares represented by such depositary receipts. In lieu of fractional Preferred
Shares that are not integral multiples of one one-hundredth of a Preferred
Share, the Company shall pay to the registered holders of Right Certificates at
the time such Rights are exercised as herein provided an amount in cash equal to
the same fraction of the current market value of one Preferred Share. For the
purposes of this Section 14(b), the current market value of a Preferred Share
shall be the closing price of a Preferred Share (as determined
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pursuant to the second sentence of Section 11(d)(i) hereof) for the Trading Day
immediately prior to the date of such exercise.
(c) The holder of a Right by the acceptance of the Right
expressly waives his right to receive any fractional Rights or any fractional
shares upon exercise of a Right (except as provided above).
Section 15. Rights of Action. All rights of action in respect
of this Agreement, excepting the rights of action given to the Rights Agent
under Section 18 hereof, are vested in the respective registered holders of the
Right Certificates (and, prior to the Distribution Date, the registered holders
of the Common Shares); and any registered holder of any Right Certificate (or,
prior to the Distribution Date, of the Common Shares), without the consent of
the Rights Agent or of the holder of any other Right Certificate (or, prior to
the Distribution Date, of the Common Shares), may, in his own behalf and for his
own benefit, enforce, and may institute and maintain any suit, action or
proceeding against the Company to enforce, or otherwise act in respect of, his
right to exercise the Rights evidenced by such Right Certificate in the manner
provided in such Right Certificate and in this Agreement. Without limiting the
foregoing or any remedies available to the holders of Rights, it is specifically
acknowledged that the holders of Rights would not have an adequate remedy at law
for any breach of this Agreement and will be entitled to specific performance of
the obligations under, and injunctive relief against actual or threatened
violations of the obligations of any Person subject to, this Agreement.
Section 16. Agreement of Right Holders. Every holder of a
Right, by accepting the same, consents and agrees with the Company and the
Rights Agent and with every other holder of a Right that:
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(a) prior to the Distribution Date, the Rights will be
transferable only in connection with the transfer of the Common Shares;
(b) after the Distribution Date, the Right Certificates are
transferable only on the registry books of the Rights Agent if surrendered at
the principal office of the Rights Agent, duly endorsed or accompanied by a
proper instrument of transfer; and
(c) the Company and the Rights Agent may deem and treat the
person in whose name the Right Certificate (or, prior to the Distribution Date,
the associated Common Shares certificate) is registered as the absolute owner
thereof and of the Rights evidenced thereby (notwithstanding any notations of
ownership or writing on the Right Certificates or the associated Common Shares
certificate made by anyone other than the Company or the Rights Agent) for all
purposes whatsoever, and neither the Company nor the Rights Agent shall be
affected by any notice to the contrary.
Section 17. Right Certificate Holder Not Deemed a Stockholder.
No holder, as such, of any Right Certificate shall be entitled to vote, receive
dividends or be deemed for any purpose the holder of the Preferred Shares or any
other securities of the Company which may at any time be issuable on the
exercise of the Rights represented thereby, nor shall anything contained herein
or in any Right Certificate be construed to confer upon the holder of any Right
Certificate, as such, any of the rights of a stockholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting
stockholders (except as provided in Section 25 hereof), or to receive dividends
or subscription rights, or otherwise, until the Right or Rights evidenced by
such Right Certificate shall have been exercised in accordance with the
provisions hereof.
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Section 18. Concerning the Rights Agent. The Company agrees to
pay to the Rights Agent reasonable compensation for all services rendered by it
hereunder and, from time to time, on demand of the Rights Agent, its reasonable
expenses and counsel fees and other disbursements incurred in the administration
and execution of this Agreement and the exercise and performance of its duties
hereunder. The Company also agrees to indemnify the Rights Agent for, and to
hold it harmless against, any loss, liability, or expense, incurred without
negligence, bad faith or willful misconduct on the part of the Rights Agent, for
anything done or omitted by the Rights Agent in connection with the acceptance
and administration of this Agreement, including the costs and expenses of
defending against any claim of liability in the premises.
The Rights Agent shall be protected and shall incur no
liability for, or in respect of any action taken, suffered or omitted by it in
connection with, its administration of this Agreement in reliance upon any Right
Certificate or certificate for the Preferred Shares or Common Shares or for
other securities of the Company, instrument of assignment or transfer, power of
attorney, endorsement, affidavit, letter, notice, direction, consent,
certificate, statement, or other paper or document believed by it to be genuine
and to be signed, executed and, where necessary, verified or acknowledged, by
the proper person or persons, or otherwise upon the advice of counsel as set
forth in Section 20 hereof.
Section 19. Merger or Consolidation or Change of Name of
Rights Agent. Any corporation into which the Rights Agent or any successor
Rights Agent may be merged or with which it may be consolidated, or any
corporation resulting from any merger or consolidation to which the Rights Agent
or any successor Rights Agent shall be a party, or any corporation succeeding to
the stock transfer or corporate trust powers of the Rights Agent or any
successor Rights Agent, shall be the successor to the Rights
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<PAGE> 34
Agent under this Agreement without the execution or filing of any paper or any
further act on the part of any of the parties hereto; provided, that such
corporation would be eligible for appointment as a successor Rights Agent under
the provisions of Section 21 hereof. In case at the time such successor Rights
Agent shall succeed to the agency created by this Agreement, any of the Right
Certificates shall have been countersigned but not delivered, any such successor
Rights Agent may adopt the countersignature of the predecessor Rights Agent and
deliver such Right Certificates so countersigned; and in case at that time any
of the Right Certificates shall not have been countersigned, any successor
Rights Agent may countersign such Right Certificates either in the name of the
predecessor Rights Agent or in the name of the successor Rights Agent; and in
all such cases such Right Certificates shall have the full force provided in the
Right Certificates and in this Agreement.
In case at any time the name of the Rights Agent shall be
changed and at such time any of the Right Certificates shall have been
countersigned but not delivered, the Rights Agent may adopt the countersignature
under its prior name and deliver Right Certificates so countersigned; and in
case at that time any of the Right Certificates shall not have been
countersigned, the Rights Agent may countersign such Right Certificates either
in its prior name or in its changed name; and in all such cases such Right
Certificates shall have the full force provided in the Right Certificates and in
this Agreement.
Section 20. Duties of Rights Agent. The Rights Agent
undertakes the duties and obligations imposed by this Agreement upon the
following terms and conditions, by all of which the Company and the holders of
Right Certificates, by their acceptance thereof, shall be bound:
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(a) The Rights Agent may consult with legal counsel (who may
be legal counsel for the Company), and the opinion of such counsel shall be full
and complete authorization and protection to the Rights Agent as to any action
taken or omitted by it in good faith and in accordance with such opinion.
(b) Whenever in the performance of its duties under this
Agreement the Rights Agent shall deem it necessary or desirable that any fact or
matter be proved or established by the Company prior to taking or suffering any
action hereunder, such fact or matter (unless other evidence in respect thereof
be herein specifically prescribed) may be deemed to be conclusively proved and
established by a certificate signed by any one of the Chairman of the Board, the
Chief Executive Officer, the President, any Vice President, the Treasurer or the
Secretary of the Company and delivered to the Rights Agent; and such certificate
shall be full authorization to the Rights Agent for any action taken or suffered
in good faith by it under the provisions of this Agreement in reliance upon such
certificate.
(c) The Rights Agent shall be liable hereunder to the Company
and any other Person only for its own negligence, bad faith or willful
misconduct.
(d) The Rights Agent shall not be liable for or by reason of
any of the statements of fact or recitals contained in this Agreement or in the
Right Certificates (except its countersignature thereof) or be required to
verify the same, but all such statements and recitals are and shall be deemed to
have been made by the Company only.
(e) The Rights Agent shall not be under any responsibility in
respect of the validity of this Agreement or the execution and delivery hereof
(except the due execution hereof by the Rights Agent) or in respect of the
validity or execution of any Right Certificate (except its countersignature
thereof); nor shall it be responsible for any
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<PAGE> 36
breach by the Company of any covenant or condition contained in this Agreement
or in any Right Certificate; nor shall it be responsible for any change in the
exercisability of the Rights (including the Rights becoming void pursuant to
Section 11(a)(ii) hereof) or any adjustment in the terms of the Rights
(including the manner, method or amount thereof) provided for in Section 3, 11,
13, 23 or 24, or the ascertaining of the existence of facts that would require
any such change or adjustment (except with respect to the exercise of Rights
evidenced by Right Certificates after actual notice that such change or
adjustment is required); nor shall it by any act hereunder be deemed to make any
representation or warranty as to the authorization or reservation of any
Preferred Shares to be issued pursuant to this Agreement or any Right
Certificate or as to whether any Preferred Shares will, when issued, be validly
authorized and issued, fully paid and nonassessable.
(f) The Company agrees that it will perform, execute,
acknowledge and deliver or cause to be performed, executed, acknowledged and
delivered all such further and other acts, instruments and assurances as may
reasonably be required by the Rights Agent for the carrying out or performing by
the Rights Agent of the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to
accept instructions with respect to the performance of its duties hereunder from
any one of the Chairman of the Board, the Chief Executive Officer, the
President, any Vice President, the Secretary or the Treasurer of the Company,
and to apply to such officers for advice or instructions in connection with its
duties, and it shall not be liable for any action taken or suffered by it in
good faith in accordance with instructions of any such officer or for any delay
in acting while waiting for those instructions.
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(h) The Rights Agent and any stockholder, director, officer or
employee of the Rights Agent may buy, sell or deal in any of the Rights or other
securities of the Company or become pecuniarily interested in any transaction in
which the Company may be interested, or contract with or lend money to the
Company or otherwise act as fully and freely as though it were not Rights Agent
under this Agreement. Nothing herein shall preclude the Rights Agent from acting
in any other capacity for the Company or for any other legal entity.
(i) The Rights Agent may execute and exercise any of the
rights or powers hereby vested in it or perform any duty hereunder either itself
or by or through its attorneys or agents, and the Rights Agent shall not be
answerable or accountable for any act, default, neglect or misconduct of any
such attorneys or agents or for any loss to the Company resulting from any such
act, default, neglect or misconduct, provided reasonable care was exercised in
the selection and continued employment thereof.
Section 21. Change of Rights Agent. The Rights Agent or any
successor Rights Agent may resign and be discharged from its duties under this
Agreement upon 30 days' notice in writing mailed to the Company and to each
transfer agent of the Common Shares or Preferred Shares by registered or
certified mail. The Company may remove the Rights Agent or any successor Rights
Agent upon 30 days' notice in writing, mailed to the Rights Agent or successor
Rights Agent, as the case may be, and to each transfer agent of the Common
Shares or Preferred Shares by registered or certified mail. If the Rights Agent
shall resign or be removed or shall otherwise become incapable of acting, the
Company shall appoint a successor to the Rights Agent. If the Company shall fail
to make such appointment within a period of 30 days after giving notice of such
removal or after it has been notified in writing of such resignation or
incapacity by the resigning or incapacitated Rights Agent or by the holder of a
Right Certificate (who
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shall, with such notice, submit his Right Certificate for inspection by the
Company), then the registered holder of any Right Certificate may apply to any
court of competent jurisdiction for the appointment of a new Rights Agent. Any
successor Rights Agent, whether appointed by the Company or by such a court,
shall be a corporation organized and doing business under the laws of the United
States or of the State of New York (or of any other state of the United States
so long as such corporation is authorized to do business as a banking
institution in the State of New York), in good standing, having an office in the
State of New York, which is authorized under such laws to exercise corporate
trust or stock transfer powers and is subject to supervision or examination by
federal or state authority and which has at the time of its appointment as
Rights Agent a combined capital and surplus of at least $50 million. After
appointment, the successor Rights Agent shall be vested with the same powers,
rights, duties and responsibilities as if it had been originally named as Rights
Agent without further act or deed; but the predecessor Rights Agent shall
deliver and transfer to the successor Rights Agent any property at the time held
by it hereunder, and execute and deliver any further assurance, conveyance, act
or deed necessary for the purpose. Not later than the effective date of any such
appointment the Company shall file notice thereof in writing with the
predecessor Rights Agent and each transfer agent of the Common Shares or
Preferred Shares. Failure to give any notice provided for in this Section 21,
however, or any defect therein, shall not affect the legality or validity of the
resignation or removal of the Rights Agent or the appointment of the successor
Rights Agent, as the case may be.
Section 22. Issuance of New Right Certificates.
Notwithstanding any of the provisions of this Agreement or of the Rights to the
contrary, the Company may, at its option, issue new Right Certificates
evidencing Rights in such form as may be approved by its Board of Directors to
reflect any adjustment or change in the Purchase
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Price and the number or kind or class of shares or other securities or property
purchasable under the Right Certificates made in accordance with the provisions
of this Agreement.
Section 23. Redemption. (a) The Board of Directors of the
Company may, at its option, at any time prior to such time as any Person becomes
an Acquiring Person, redeem all but not less than all the then outstanding
Rights at a redemption price of $.01 per Right, appropriately adjusted to
reflect any stock split, stock dividend or similar transaction occurring after
the date hereof (such redemption price being hereinafter referred to as the
"Redemption Price"). The redemption of the Rights by the Board of Directors may
be made effective at such time, on such basis and with such conditions as the
Board of Directors in its sole discretion may establish.
(b) Immediately upon the action of the Board of Directors of
the Company ordering the redemption of the Rights pursuant to paragraph (a) of
this Section 23, and without any further action and without any notice, the
right to exercise the Rights will terminate and the only right thereafter of the
holders of Rights shall be to receive the Redemption Price. The Company shall
promptly give public notice of any such redemption; provided, however, that the
failure to give, or any defect in, any such notice shall not affect the validity
of such redemption. Within 10 days after such action of the Board of Directors
ordering the redemption of the Rights, the Company shall mail a notice of
redemption to all the holders of the then outstanding Rights at their last
addresses as they appear upon the registry books of the Rights Agent or, prior
to the Distribution Date, on the registry books of the transfer agent for the
Common Shares. Any notice which is mailed in the manner herein provided shall be
deemed given, whether or not the holder receives the notice. Each such notice of
redemption will state the method by which the payment of the Redemption Price
will be made. Neither the
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<PAGE> 40
Company nor any of its Affiliates or Associates may redeem, acquire or purchase
for value any Rights at any time in any manner other than that specifically set
forth in this Section 23 or in Section 24 hereof, and other than in connection
with the purchase of Common Shares prior to the Distribution Date.
Section 24. Exchange. (a) The Board of Directors of the
Company may, at its option, at any time after any Person becomes an Acquiring
Person, exchange all or part of the then outstanding and exercisable Rights
(which shall not include Rights that have become void pursuant to the provisions
of Section 11(a)(ii) hereof) for Common Shares at an exchange ratio of one
Common Share per Right, appropriately adjusted to reflect any stock split, stock
dividend or similar transaction occurring after the date hereof (such exchange
ratio being hereinafter referred to as the "Exchange Ratio"). Notwithstanding
the foregoing, the Board of Directors shall not be empowered to effect such
exchange at any time after any Person (other than the Company, any Subsidiary of
the Company, any employee benefit plan of the Company or any such Subsidiary, or
any entity holding Common Shares for or pursuant to the terms of any such plan),
together with all Affiliates and Associates of such Person, becomes the
Beneficial Owner of 50% or more of the Common Shares then outstanding.
(b) Immediately upon the action of the Board of Directors of
the Company ordering the exchange of any Rights pursuant to paragraph (a) of
this Section 24 and without any further action and without any notice, the right
to exercise such Rights shall terminate and the only right thereafter of a
holder of such Rights shall be to receive that number of Common Shares equal to
the number of such Rights held by such holder multiplied by the Exchange Ratio.
The Company shall promptly give public notice of any such exchange; provided,
however, that the failure to give, or any defect in, such notice shall not
affect the validity of such exchange. The Company promptly
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<PAGE> 41
shall mail a notice of any such exchange to all of the holders of such Rights at
their last addresses as they appear upon the registry books of the Rights Agent.
Any notice which is mailed in the manner herein provided shall be deemed given,
whether or not the holder receives the notice. Each such notice of exchange will
state the method by which the exchange of the Common Shares for Rights will be
effected and, in the event of any partial exchange, the number of Rights which
will be exchanged. Any partial exchange shall be effected pro rata based on the
number of Rights (other than Rights which have become void pursuant to the
provisions of Section 11(a)(ii) hereof) held by each holder of Rights.
(c) In the event that there shall not be sufficient Common
Shares issued but not outstanding or authorized but unissued to permit any
exchange of Rights as contemplated in accordance with this Section 24, the
Company shall take all such action as may be necessary to authorize additional
Common Shares for issuance upon exchange of the Rights. In the event the Company
shall, after good faith effort, be unable to take all such action as may be
necessary to authorize such additional Common Shares, the Company shall
substitute, for each Common Share that would otherwise be issuable upon exchange
of a Right, a number of Preferred Shares or fraction thereof such that the
current per share market price of one Preferred Share multiplied by such number
or fraction is equal to the current per share market price of one Common Share
as of the date of issuance of such Preferred Shares or fraction thereof.
(d) The Company shall not be required to issue fractions of
Common Shares or to distribute certificates which evidence fractional Common
Shares. In lieu of such fractional Common Shares, the Company shall pay to the
registered holders of the Right Certificates with regard to which such
fractional Common Shares would otherwise be issuable an amount in cash equal to
the same fraction of the current market value of a
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<PAGE> 42
whole Common Share. For the purposes of this paragraph (d), the current market
value of a whole Common Share shall be the closing price of a Common Share (as
determined pursuant to the second sentence of Section 11(d)(i) hereof) for the
Trading Day immediately prior to the date of exchange pursuant to this Section
24.
Section 25. Notice of Certain Events. (a) In case the Company
shall propose (i) to pay any dividend payable in stock of any class to the
holders of its Preferred Shares or to make any other distribution to the holders
of its Preferred Shares (other than a regular quarterly cash dividend), (ii) to
offer to the holders of its Preferred Shares rights or warrants to subscribe for
or to purchase any additional Preferred Shares or shares of stock of any class
or any other securities, rights or options, (iii) to effect any reclassification
of its Preferred Shares (other than a reclassification involving only the
subdivision of outstanding Preferred Shares), (iv) to effect any consolidation
or merger into or with, or to effect any sale or other transfer (or to permit
one or more of its Subsidiaries to effect any sale or other transfer), in one or
more transactions, of 50% or more of the assets or earning power of the Company
and its Subsidiaries (taken as a whole) to, any other Person, (v) to effect the
liquidation, dissolution or winding up of the Company, or (vi) to declare or pay
any dividend on the Common Shares payable in Common Shares or to effect a
subdivision, combination or consolidation of the Common Shares (by
reclassification or otherwise than by payment of dividends in Common Shares),
then, in each such case, the Company shall give to each holder of a Right
Certificate, in accordance with Section 26 hereof, a notice of such proposed
action, which shall specify the record date for the purposes of such stock
dividend, or distribution of rights or warrants, or the date on which such
reclassification, consolidation, merger, sale, transfer, liquidation,
dissolution, or winding up is to take place and the date of participation
therein by the holders of the Common Shares and/or Preferred Shares, if any such
date is to be fixed, and such notice shall be so given in the
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<PAGE> 43
case of any action covered by clause (i) or (ii) above at least 10 days prior to
the record date for determining holders of the Preferred Shares for purposes of
such action, and in the case of any such other action, at least 10 days prior to
the date of the taking of such proposed action or the date of participation
therein by the holders of the Common Shares and/or Preferred Shares, whichever
shall be the earlier.
(b) In case the event set forth in Section 11(a)(ii) hereof
shall occur, then the Company shall as soon as practicable thereafter give to
each holder of a Right Certificate, in accordance with Section 26 hereof, a
notice of the occurrence of such event, which notice shall describe such event
and the consequences of such event to holders of Rights under Section 11(a)(ii)
hereof.
Section 26. Notices. Notices or demands authorized by this
Agreement to be given or made by the Rights Agent or by the holder of any Right
Certificate to or on the Company shall be sufficiently given or made if sent by
first-class mail, postage prepaid, addressed (until another address is filed in
writing with the Rights Agent) as follows:
NCR Corporation
1700 South Patterson Blvd.
Dayton, Ohio 45479
Attention: Corporate Secretary
Subject to the provisions of Section 21 hereof, any notice or demand authorized
by this Agreement to be given or made by the Company or by the holder of any
Right Certificate to or on the Rights Agent shall be sufficiently given or made
if sent by first-class mail, postage prepaid, addressed (until another address
is filed in writing with the Company) as follows:
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<PAGE> 44
_______________
_______________
_______________
Attention: Corporate Secretary
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Right Certificate shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed to such holder at the address of such holder as shown on the registry
books of the Company.
Section 27. Supplements and Amendments. The Company may from
time to time supplement or amend this Agreement without the approval of any
holders of Right Certificates in order to cure any ambiguity, to correct or
supplement any provision contained herein which may be defective or inconsistent
with any other provisions herein, or to make any other provisions with respect
to the Rights which the Company may deem necessary or desirable, any such
supplement or amendment to be evidenced by a writing signed by the Company and
the Rights Agent; provided, however, that from and after such time as any Person
becomes an Acquiring Person, this Agreement shall not be amended in any manner
which would adversely affect the interests of the holders of Rights. Without
limiting the foregoing, the Company may at any time prior to such time as any
Person becomes an Acquiring Person amend this Agreement to lower the thresholds
set forth in Sections 1(a) and 3(a) to not less than the greater of (i) the sum
of .001% and the largest percentage of the outstanding Common Shares then known
by the Company to be beneficially owned by any Person (other than the Company,
any Subsidiary of the Company, any employee benefit plan of the Company or any
Subsidiary of the Company, or any entity holding Common Shares for or pursuant
to the terms of any such plan) and (ii) 10%.
-41-
<PAGE> 45
Section 28. Successors. All the covenants and provisions of
this Agreement by or for the benefit of the Company or the Rights Agent shall
bind and inure to the benefit of their respective successors and assigns
hereunder.
Section 29. Benefits of this Agreement. Nothing in this
Agreement shall be construed to give to any person or corporation other than the
Company, the Rights Agent and the registered holders of the Right Certificates
(and, prior to the Distribution Date, the Common Shares) any legal or equitable
right, remedy or claim under this Agreement; but this Agreement shall be for the
sole and exclusive benefit of the Company, the Rights Agent and the registered
holders of the Right Certificates (and, prior to the Distribution Date, the
Common Shares).
Section 30. Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated.
Section 31. Governing Law. This Agreement and each Right
Certificate issued hereunder shall be deemed to be a contract made under the
laws of the State of Maryland and for all purposes shall be governed by and
construed in accordance with the laws of such State applicable to contracts to
be made and performed entirely within such State.
Section 32. Counterparts. This Agreement may be executed in
any number of counterparts and each of such counterparts shall for all purposes
be deemed to be an original, and all such counterparts shall together constitute
but one and the same instrument.
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<PAGE> 46
Section 33. Descriptive Headings. Descriptive headings of the
several Sections of this Agreement are inserted for convenience only and shall
not control or affect the meaning or construction of any of the provisions
hereof.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and attested, all as of the day and year first
above written.
NCR CORPORATION
Attest:
By __________________ By __________________
Title: Title:
Attest: [Rights Agent]
By __________________ By __________________
Title: Title:
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<PAGE> 47
Exhibit A
FORM
of
ARTICLES SUPPLEMENTARY
of
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
of
NCR CORPORATION
(Pursuant to Section 2-208 of the
Maryland General Corporation Law)
NCR Corporation, a Maryland corporation having its principal
business office in Dayton, Ohio, and its principal office in the City of
Baltimore, State of Maryland (hereinafter called the "Corporation"), hereby
certifies to the State Department of Assessments and Taxation of Maryland that
the following resolution was adopted by the Board of Directors of the
Corporation at a meeting duly called and held on ______________, 1996:
RESOLVED, that pursuant to the authority granted to and vested
in the Board of Directors of this Corporation (hereinafter called the "Board of
Directors" or the "Board") in accordance with the provisions of the Articles of
Amendment and Restatement of the Charter of the Corporation, the Board of
Directors hereby creates a series of Preferred Stock, par value $.01 per share
(the "Preferred Stock"), of the Corporation and hereby states the designation
and number of shares, and fixes the relative rights, preferences, and
limitations thereof as follows:
Series A Junior Participating Preferred Stock:
Section 1. Designation and Amount. The shares of such series
shall be designated as "Series A Junior Participating Preferred Stock" (the
"Series A Preferred Stock") and the number of shares constituting the Series A
Preferred Stock shall be _______________. Such number of shares may be increased
or decreased by resolution of the Board of Directors; provided, that no decrease
shall reduce the number of shares of Series A Preferred Stock to a number less
than the number of shares then outstanding plus the number of shares reserved
for issuance upon the exercise of outstanding options, rights or warrants or
upon the conversion of any outstanding securities issued by the Corporation
convertible into Series A Preferred Stock.
A-1
<PAGE> 48
Section 2. Dividends and Distributions.
(A) Subject to the rights of the holders of any shares of any
series of Preferred Stock (or any similar stock) ranking prior and superior to
the Series A Preferred Stock with respect to dividends, the holders of shares of
Series A Preferred Stock, in preference to the holders of Common Stock, par
value $.01 per share (the "Common Stock"), of the Corporation, and of any other
junior stock, shall be entitled to receive, when, as and if declared by the
Board of Directors out of funds legally available for the purpose, quarterly
dividends payable in cash on the first day of March, June, September and
December in each year (each such date being referred to herein as a "Quarterly
Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date
after the first issuance of a share or fraction of a share of Series A Preferred
Stock, in an amount per share (rounded to the nearest cent) equal to the greater
of (a) $1 or (b) subject to the provision for adjustment hereinafter set forth,
100 times the aggregate per share amount of all cash dividends, and 100 times
the aggregate per share amount (payable in kind) of all non-cash dividends or
other distributions, other than a dividend payable in shares of Common Stock or
a subdivision of the outstanding shares of Common Stock (by reclassification or
otherwise), declared on the Common Stock since the immediately preceding
Quarterly Dividend Payment Date or, with respect to the first Quarterly Dividend
Payment Date, since the first issuance of any share or fraction of a share of
Series A Preferred Stock. In the event the Corporation shall at any time declare
or pay any dividend on the Common Stock payable in shares of Common Stock, or
effect a subdivision or combination or consolidation of the outstanding shares
of Common Stock (by reclassification or otherwise than by payment of a dividend
in shares of Common Stock) into a greater or lesser number of shares of Common
Stock, then in each such case the amount to which holders of shares of Series A
Preferred Stock were entitled immediately prior to such event under clause (b)
of the preceding sentence shall be adjusted by multiplying such amount by a
fraction, the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to such
event.
(B) The Corporation shall declare a dividend or distribution
on the Series A Preferred Stock as provided in paragraph (A) of this Section
immediately after it declares a dividend or distribution on the Common Stock
(other than a dividend payable in shares of Common Stock); provided that, in the
event no dividend or distribution shall have been declared on the Common Stock
during the period between any Quarterly Dividend Payment Date and the next
subsequent Quarterly Dividend Payment Date, a dividend of $1 per share on the
Series A Preferred Stock shall nevertheless be payable on such subsequent
Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on
outstanding shares of Series A Preferred Stock from the Quarterly Dividend
Payment Date next preceding the date of issue of such shares, unless the date of
issue of such shares is prior to the record date for the first Quarterly
Dividend Payment Date, in which case dividends on such shares shall begin to
accrue from the date of issue of such shares, or unless the date of issue is a
Quarterly Dividend Payment Date or is a date after the record date for the
determination of holders of shares of Series A Preferred Stock entitled to
receive a quarterly dividend and before
A-2
<PAGE> 49
such Quarterly Dividend Payment Date, in either of which events such
dividends shall begin to accrue and be cumulative from such Quarterly
Dividend Payment Date. Accrued but unpaid dividends shall not bear
interest. Dividends paid on the shares of Series A Preferred Stock in
an amount less than the total amount of such dividends at the time
accrued and payable on such shares shall be allocated pro rata on a
share-by-share basis among all such shares at the time outstanding. The
Board of Directors may fix a record date for the determination of
holders of shares of Series A Preferred Stock entitled to receive
payment of a dividend or distribution declared thereon, which record
date shall be not more than 60 days prior to the date fixed for the
payment thereof.
Section 3. Voting Rights. The holders of shares of Series A
Preferred Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set
forth, each share of Series A Preferred Stock shall entitle the holder
thereof to 100 votes on all matters submitted to a vote of the
stockholders of the Corporation. In the event the Corporation shall at
any time declare or pay any dividend on the Common Stock payable in
shares of Common Stock, or effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares
of Common Stock) into a greater or lesser number of shares of Common
Stock, then in each such case the number of votes per share to which
holders of shares of Series A Preferred Stock were entitled immediately
prior to such event shall be adjusted by multiplying such number by a
fraction, the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that were outstanding
immediately prior to such event.
(B) Except as otherwise provided herein, in any other Articles
Supplementary creating a series of Preferred Stock or any similar
stock, or by law, the holders of shares of Series A Preferred Stock and
the holders of shares of Common Stock and any other capital stock of
the Corporation having general voting rights shall vote together as one
class on all matters submitted to a vote of stockholders of the
Corporation.
(C) Except as set forth herein, or as otherwise provided by
law, holders of Series A Preferred Stock shall have no special voting
rights and their consent shall not be required (except to the extent
they are entitled to vote with holders of Common Stock as set forth
herein) for taking any corporate action.
Section 4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or
distributions payable on the Series A Preferred Stock as provided in
Section 2 are in arrears, thereafter and until all accrued and unpaid
dividends and distributions, whether or not declared, on shares of
Series A Preferred Stock outstanding shall have been paid in full, the
Corporation shall not:
(i) declare or pay dividends, or make any other
distributions, on any shares of stock ranking junior (either
as to dividends or upon liquidation, dissolution or winding
up) to the Series A Preferred Stock;
A-3
<PAGE> 50
(ii) declare or pay dividends, or make any other
distributions, on any shares of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or
winding up) with the Series A Preferred Stock, except
dividends paid ratably on the Series A Preferred Stock and all
such parity stock on which dividends are payable or in arrears
in proportion to the total amounts to which the holders of all
such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to
the Series A Preferred Stock, provided that the Corporation
may at any time redeem, purchase or otherwise acquire shares
of any such junior stock in exchange for shares of any stock
of the Corporation ranking junior (either as to dividends or
upon dissolution, liquidation or winding up) to the Series A
Preferred Stock; or
(iv) redeem or purchase or otherwise acquire for
consideration any shares of Series A Preferred Stock, or any
shares of stock ranking on a parity with the Series A
Preferred Stock, except in accordance with a purchase offer
made in writing or by publication (as determined by the Board
of Directors) to all holders of such shares upon such terms as
the Board of Directors, after consideration of the respective
annual dividend rates and other relative rights and
preferences of the respective series and classes, shall
determine in good faith will result in fair and equitable
treatment among the respective series or classes.
(B) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any
shares of stock of the Corporation unless the Corporation could, under
paragraph (A) of this Section 4, purchase or otherwise acquire such
shares at such time and in such manner.
Section 5. Reacquired Shares. Any shares of Series A Preferred Stock
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and cancelled promptly after the acquisition thereof. All such
shares shall upon their cancellation become authorized but unissued shares of
Preferred Stock and may be reissued as part of a new series of Preferred Stock
subject to the conditions and restrictions on issuance set forth herein, in the
Charter of the Corporation, or in any other Articles Supplementary creating a
series of Preferred Stock or any similar stock or as otherwise required by law.
Section 6. Liquidation, Dissolution or Winding Up. Upon any
liquidation, dissolution or winding up of the Corporation, no distribution shall
be made (1) to the holders of shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Series A
Preferred Stock unless, prior thereto, the holders of shares of Series A
Preferred Stock shall have received $100 per share, plus an amount equal to
accrued and unpaid dividends and distributions thereon, whether or not declared,
to the date of such payment, provided that the holders of shares of Series A
Preferred Stock shall be entitled to receive an aggregate amount per share,
subject to the provision for adjustment hereinafter set forth, equal to 100
times the aggregate amount to be distributed per share to holders of shares of
Common Stock, or (2) to the holders of shares of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or winding up) with the
Series A Preferred Stock, except
A-4
<PAGE> 51
distributions made ratably on the Series A Preferred Stock and all such parity
stock in proportion to the total amounts to which the holders of all such shares
are entitled upon such liquidation, dissolution or winding up. In the event the
Corporation shall at any time declare or pay any dividend on the Common Stock
payable in shares of Common Stock, or effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by reclassification or
otherwise than by payment of a dividend in shares of Common Stock) into a
greater or lesser number of shares of Common Stock, then in each such case the
aggregate amount to which holders of shares of Series A Preferred Stock were
entitled immediately prior to such event under the proviso in clause (1) of the
preceding sentence shall be adjusted by multiplying such amount by a fraction
the numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
Section 7. Consolidation, Merger, etc. In case the Corporation shall
enter into any consolidation, merger, combination or other transaction in which
the shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case each share of
Series A Preferred Stock shall at the same time be similarly exchanged or
changed into an amount per share, subject to the provision for adjustment
hereinafter set forth, equal to 100 times the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case may
be, into which or for which each share of Common Stock is changed or exchanged.
In the event the Corporation shall at any time declare or pay any dividend on
the Common Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock, then in each
such case the amount set forth in the preceding sentence with respect to the
exchange or change of shares of Series A Preferred Stock shall be adjusted by
multiplying such amount by a fraction, the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
Section 8. No Redemption. The shares of Series A Preferred Stock shall
not be redeemable.
Section 9. Rank. The Series A Preferred Stock shall rank, with respect
to the payment of dividends and the distribution of assets, junior to all series
of any other class of the Corporation's Preferred Stock.
Section 10. Amendment. The Charter of the Corporation shall not be
amended in any manner which would materially alter or change the powers,
preferences or special rights of the Series A Preferred Stock so as to affect
them adversely without the affirmative vote of the holders of at least
two-thirds of the outstanding shares of Series A Preferred Stock, voting
together as a single class.
A-5
<PAGE> 52
IN WITNESS WHEREOF, these Articles Supplementary are executed on behalf
of the Corporation by its Chairman of the Board and attested by its Secretary
this _____ day of ______________, 1996.
__________________________________
Chairman of the Board
Attest:
___________________
Secretary
A-6
<PAGE> 53
Exhibit B
Form of Right Certificate
Certificate No. R- ____ Rights
NOT EXERCISABLE AFTER DECEMBER 31, 2006 OR EARLIER IF
REDEMPTION OR EXCHANGE OCCURS. THE RIGHTS ARE SUBJECT TO
REDEMPTION AT $.01 PER RIGHT AND TO EXCHANGE ON THE TERMS SET
FORTH IN THE RIGHTS AGREEMENT.
Right Certificate
NCR CORPORATION
This certifies that _____________ , or registered assigns, is
the registered owner of the number of Rights set forth above, each of which
entitles the owner thereof, subject to the terms, provisions and conditions of
the Rights Agreement, dated as of _____________, 1996 (the "Rights Agreement"),
between NCR Corporation, a Maryland corporation (the "Company"), and
_____________(the "Rights Agent"), to purchase from the Company at any time
after the Distribution Date (as such term is defined in the Rights Agreement)
and prior to 5:00 P.M., New York City time, on December 31, 2006 at the
principal office of the Rights Agent, or at the office of its successor as
Rights Agent, one one-hundredth of a fully paid non-assessable share of Series A
Junior Participating Preferred Stock, par value $.01 per share (the "Preferred
Shares"), of the Company, at a purchase price of $____ per one one-hundredth of
a Preferred Share (the "Purchase Price"), upon presentation and surrender of
this Right Certificate with the Form of Election to Purchase duly executed. The
number of Rights evidenced by this Right Certificate (and the number of one
one-hundredths of a Preferred Share which may be purchased upon exercise hereof)
set forth above, and the Purchase Price set forth above, are the number and
Purchase Price as of _________________, 1996, based on the Preferred Shares as
constituted at such date. As provided in the Rights Agreement, the Purchase
Price and the number of one one-hundredths of a Preferred Share which may be
purchased upon the exercise of the Rights evidenced by this Right Certificate
are subject to modification and adjustment upon the happening of certain events.
This Right Certificate is subject to all of the terms,
provisions and conditions of the Rights Agreement, which terms, provisions and
conditions are hereby incorporated herein by reference and made a part hereof
and to which Rights Agreement reference is hereby made for a full description of
the rights, limitations of rights, obligations, duties and immunities hereunder
of the Rights Agent, the Company and the holders of the Right Certificates.
Copies of the Rights Agreement are on file at the principal executive offices of
the Company and the above-mentioned offices of the Rights Agent.
B-1
<PAGE> 54
This Right Certificate, with or without other Right
Certificates, upon surrender at the principal office of the Rights Agent, may be
exchanged for another Right Certificate or Right Certificates of like tenor and
date evidencing Rights entitling the holder to purchase a like aggregate number
of Preferred Shares as the Rights evidenced by the Right Certificate or Right
Certificates surrendered shall have entitled such holder to purchase. If this
Right Certificate shall be exercised in part, the holder shall be entitled to
receive upon surrender hereof another Right Certificate or Right Certificates
for the number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, the Rights
evidenced by this Certificate (i) may be redeemed by the Company at a redemption
price of $.01 per Right or (ii) may be exchanged in whole or in part for
Preferred Shares or shares of the Company's Common Stock, par value $.01 per
share.
No fractional Preferred Shares will be issued upon the
exercise of any Right or Rights evidenced hereby (other than fractions which are
integral multiples of one one-hundredth of a Preferred Share, which may, at the
election of the Company, be evidenced by depositary receipts), but in lieu
thereof a cash payment will be made, as provided in the Rights Agreement.
No holder of this Right Certificate shall be entitled to vote
or receive dividends or be deemed for any purpose the holder of the Preferred
Shares or of any other securities of the Company which may at any time be
issuable on the exercise hereof, nor shall anything contained in the Rights
Agreement or herein be construed to confer upon the holder hereof, as such, any
of the rights of a stockholder of the Company or any right to vote for the
election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action, or to
receive notice of meetings or other actions affecting stockholders (except as
provided in the Rights Agreement), or to receive dividends or subscription
rights, or otherwise, until the Right or Rights evidenced by this Right
Certificate shall have been exercised as provided in the Rights Agreement.
This Right Certificate shall not be valid or obligatory for
any purpose until it shall have been countersigned by the Rights Agent.
B-2
<PAGE> 55
WITNESS the facsimile signature of the proper officers of
the Company and its corporate seal. Dated as of___________, 1996.
ATTEST: NCR CORPORATION
_______________________________ By ______________________
Countersigned:
[Rights Agent]
By ____________________________
Authorized Signature
B-3
<PAGE> 56
Form of Reverse Side of Right Certificate
FORM OF ASSIGNMENT
(To be executed by the registered holder if such
holder desires to transfer the Right Certificate.)
FOR VALUE RECEIVED ______________________ hereby
sells, assigns and transfers unto _____________________________________________
(Please print name and address of transferee)
this Right Certificate, together with all right, title and interest therein, and
does hereby irrevocably constitute and appoint _______________ Attorney, to
transfer the within Right Certificate on the books of the within-named Company,
with full power of substitution.
Dated:______________________, 1996
_______________________
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a registered
national securities exchange, a member of the National Association of Securities
Dealers, Inc., or a commercial bank or trust company having an office or
correspondent in the United States.
- ------------------------------------------------------------
The undersigned hereby certifies that the Rights evidenced by
this Right Certificate are not beneficially owned by an Acquiring Person or an
Affiliate or Associate thereof (as defined in the Rights Agreement).
_______________________
Signature
- -------------------------------------------------------------
B-4
<PAGE> 57
Form of Reverse Side of Right Certificate -- continued
FORM OF ELECTION TO PURCHASE
(To be executed if holder desires to exercise
Rights represented by the Right Certificate.)
To: NCR CORPORATION
The undersigned hereby irrevocably elects to exercise
______________ Rights represented by this Right Certificate to purchase the
Preferred Shares issuable upon the exercise of such Rights and requests that
certificates for such Preferred Shares be issued in the name of:
Please insert social security
or other identifying number
________________________________
(Please print name and address)
________________________________
If such number of Rights shall not be all the Rights evidenced by this Right
Certificate, a new Right Certificate for the balance remaining of such Rights
shall be registered in the name of and delivered to:
Please insert social security
or other identifying number
________________________________
(Please print name and address)
________________________________
Dated: ___________________, 1996
________________________________
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a registered
national securities exchange, a member of the National Association of Securities
Dealers, Inc., or a commercial bank or trust company having an office or
correspondent in the United States.
B-5
<PAGE> 58
Form of Reverse Side of Right Certificate -- continued
- -------------------------------------------------------------
The undersigned hereby certifies that the Rights evidenced by
this Right Certificate are not beneficially owned by an Acquiring Person or an
Affiliate or Associate thereof (as defined in the Rights Agreement).
________________________________
Signature
- -------------------------------------------------------------
NOTICE
The signature in the Form of Assignment or Form of Election to
Purchase, as the case may be, must conform to the name as written upon the face
of this Right Certificate in every particular, without alteration or enlargement
or any change whatsoever.
In the event the certification set forth above in the Form of
Assignment or the Form of Election to Purchase, as the case may be, is not
completed, the Company and the Rights Agent will deem the beneficial owner of
the Rights evidenced by this Right Certificate to be an Acquiring Person or an
Affiliate or Associate thereof (as defined in the Rights Agreement) and such
Assignment or Election to Purchase will not be honored.
B-6
<PAGE> 59
Exhibit C
SUMMARY OF RIGHTS TO PURCHASE
PREFERRED SHARES
On ______ , 1996, the Board of Directors of NCR Corporation
(the "Company") declared a dividend of one preferred share purchase right (a
"Right") for each outstanding share of common stock, par value $.01 per share
(the "Common Shares"), of the Company. The dividend is payable on ______ , 1996
(the "Record Date") to the stockholders of record on that date. Each Right
entitles the registered holder to purchase from the Company one one-hundredth of
a share of Series A Junior Participating Preferred Stock, par value $.01 per
share (the "Preferred Shares"), of the Company at a price of $ ______ per one
one-hundredth of a Preferred Share (the "Purchase Price"), subject to
adjustment. The description and terms of the Rights are set forth in a Rights
Agreement (the "Rights Agreement") between the Company and ______ , as Rights
Agent (the "Rights Agent").
Until the earlier to occur of (i) 10 days following a public
announcement that a person or group of affiliated or associated persons (an
"Acquiring Person") have acquired beneficial ownership of 15% or more of the
outstanding Common Shares or (ii) 10 business days (or such later date as may be
determined by action of the Board of Directors prior to such time as any person
or group of affiliated persons becomes an Acquiring Person) following the
commencement of, or announcement of an intention to make, a tender offer or
exchange offer the consummation of which would result in the beneficial
ownership by a person or group of 15% or more of the outstanding Common Shares
(the earlier of such dates being called the "Distribution Date"), the Rights
will be evidenced, with respect to any of the Common Share certificates
outstanding as of the Record Date, by such Common Share certificate with a copy
of this Summary of Rights attached thereto.
The Rights Agreement provides that, until the Distribution
Date (or earlier redemption or expiration of the Rights), the Rights will be
transferred with and only with the Common Shares. Until the Distribution Date
(or earlier redemption or expiration of the Rights), new Common Share
certificates issued after the Record Date upon transfer or new issuance of
Common Shares will contain a notation incorporating the Rights Agreement by
reference. Until the Distribution Date (or earlier redemption or expiration of
the Rights), the surrender for transfer of any certificates for Common Shares
outstanding as of the Record Date, even without such notation or a copy of this
Summary of Rights being attached thereto, will also constitute the transfer of
the Rights associated with the Common Shares represented by such certificate. As
soon as practicable following the Distribution Date, separate certificates
evidencing the Rights ("Right Certificates") will be mailed to holders of record
of the Common Shares as of the close of business on the Distribution Date and
such separate Right Certificates alone will evidence the Rights.
The Rights are not exercisable until the Distribution Date.
The Rights will expire on December 31, 2006 (the "Final Expiration Date"),
unless the Final
<PAGE> 60
Expiration Date is extended or unless the Rights are earlier redeemed or
exchanged by the Company, in each case, as described below.
The Purchase Price payable, and the number of Preferred Shares
or other securities or property issuable, upon exercise of the Rights are
subject to adjustment from time to time to prevent dilution (i) in the event of
a stock dividend on, or a subdivision, combination or reclassification of, the
Preferred Shares, (ii) upon the grant to holders of the Preferred Shares of
certain rights or warrants to subscribe for or purchase Preferred Shares at a
price, or securities convertible into Preferred Shares with a conversion price,
less than the then-current market price of the Preferred Shares or (iii) upon
the distribution to holders of the Preferred Shares of evidences of indebtedness
or assets (excluding regular periodic cash dividends paid out of earnings or
retained earnings or dividends payable in Preferred Shares) or of subscription
rights or warrants (other than those referred to above).
The number of outstanding Rights and the number of one
one-hundredths of a Preferred Share issuable upon exercise of each Right are
also subject to adjustment in the event of a stock split of the Common Shares or
a stock dividend on the Common Shares payable in Common Shares or subdivisions,
consolidations or combinations of the Common Shares occurring, in any such case,
prior to the Distribution Date.
Preferred Shares purchasable upon exercise of the Rights will
not be redeemable. Each Preferred Share will be entitled to a minimum
preferential quarterly dividend payment of $1 per share but will be entitled to
an aggregate dividend of 100 times the dividend declared per Common Share. In
the event of liquidation, the holders of the Preferred Shares will be entitled
to a minimum preferential liquidation payment of $100 per share but will be
entitled to an aggregate payment of 100 times the payment made per Common Share.
Each Preferred Share will have 100 votes, voting together with the Common
Shares. Finally, in the event of any merger, consolidation or other transaction
in which Common Shares are exchanged, each Preferred Share will be entitled to
receive 100 times the amount received per Common Share. These rights are
protected by customary antidilution provisions.
Because of the nature of the Preferred Shares' dividend,
liquidation and voting rights, the value of the one one-hundredth interest in a
Preferred Share purchasable upon exercise of each Right should approximate the
value of one Common Share.
In the event that the Company is acquired in a merger or other
business combination transaction or 50% or more of its consolidated assets or
earning power are sold after a person or group has become an Acquiring Person,
proper provision will be made so that each holder of a Right will thereafter
have the right to receive, upon the exercise thereof at the then current
exercise price of the Right, that number of shares of common stock of the
acquiring company which at the time of such transaction will have a market value
of two times the exercise price of the Right. In the event that any person or
group of affiliated or associated persons becomes an Acquiring Person, proper
provision shall be made so that each holder of a Right, other than Rights
beneficially owned by the Acquiring Person (which will thereafter be void), will
thereafter have the right to receive upon exercise that number of Common Shares
having a market value of two times the exercise price of the Right.
C-2
<PAGE> 61
At any time after any person or group becomes an Acquiring
Person and prior to the acquisition by such person or group of 50% or more of
the outstanding Common Shares, the Board of Directors of the Company may
exchange the Rights (other than Rights owned by such person or group which will
have become void), in whole or in part, at an exchange ratio of one Common
Share, or one one-hundredth of a Preferred Share (or of a share of a class or
series of the Company's preferred stock having equivalent rights, preferences
and privileges), per Right (subject to adjustment).
With certain exceptions, no adjustment in the Purchase Price
will be required until cumulative adjustments require an adjustment of at least
1% in such Purchase Price. No fractional Preferred Shares will be issued (other
than fractions which are integral multiples of one one-hundredth of a Preferred
Share, which may, at the election of the Company, be evidenced by depositary
receipts) and in lieu thereof, an adjustment in cash will be made based on the
market price of the Preferred Shares on the last trading day prior to the date
of exercise.
At any time prior to the acquisition by a person or group of
affiliated or associated persons of beneficial ownership of 15% or more of the
outstanding Common Shares, the Board of Directors of the Company may redeem the
Rights in whole, but not in part, at a price of $.01 per Right (the "Redemption
Price"). The redemption of the Rights may be made effective at such time on such
basis with such conditions as the Board of Directors in its sole discretion may
establish. Immediately upon any redemption of the Rights, the right to exercise
the Rights will terminate and the only right of the holders of Rights will be to
receive the Redemption Price.
The terms of the Rights may be amended by the Board of
Directors of the Company without the consent of the holders of the Rights,
including an amendment to lower certain thresholds described above to not less
than the greater of (i) the sum of .001% and the largest percentage of the
outstanding Common Shares then known to the Company to be beneficially owned by
any person or group of affiliated or associated persons and (ii) 10%, except
that from and after such time as any person or group of affiliated or associated
persons becomes an Acquiring Person no such amendment may adversely affect the
interests of the holders of the Rights.
Until a Right is exercised, the holder thereof, as such, will
have no rights as a stockholder of the Company, including, without limitation,
the right to vote or to receive dividends.
A copy of the Rights Agreement has been filed with the
Securities and Exchange Commission as an Exhibit to a Registration Statement on
Form 10 dated ________________, 1996. A copy of the Rights Agreement is
available free of charge from the Company. This summary description of the
Rights does not purport to be complete and is qualified in its entirety by
reference to the Rights Agreement, which is hereby incorporated herein by
reference.
C-3
<PAGE> 1
Exhibit 21
SUBSIDIARIES OF NCR CORPORATION
NCR Argentina S.A.I.C.
NCR Australia Pty. Limited
Century Data Processing Centre Pty. Limited
NCR Superannuation Nominees Pty. Ltd.
NCR Productivity Superannuation Plan Pty. Ltd.
NCR Oesterreich Ges.m.b.H.
NCR (Bahrain) W.L.L.
NCR Belgium & Co.
Global Assurance Limited
NCR Brasil Ltda
AT&T Monydata, S. A.
Monydata da Amazona Industria e Comercio Ltda
NCR Bulgaria Ltd.
AT&T Global Information Solutions Cameroon, S.A.
NCR Canada Ltd
NCR de Chile, S.A.
NCR Colombia S.A.
AT&T Global Information Solutions (Cyprus) Limited
AT&T Global Information Solutions (Middle East) Limited
AT&T Global Information Solutions (North Africa) Limited
AT&T Global Information Solutions (IRI) Ltd.
NCR Danmark A/S
AT&T Danmark A/S
NCR Norden A/S
NCR Dominicana C. por A.
NCR Finland Oy
AT&T Finland Oy
NCR France S.A.
AT&T Global Information Solutions Antilles S.A.R.L.
AT&T Global Information Solutions Gabon S.A.R.L.
NCR Holding GmbH
NCR GmbH
Drescher - NCR GmbH
NCR OEM Europe GmbH
NCR Central and Eastern Europe GmbH
NCR Ceska Republika spol s.r.o.
NCR Ghana Limited
NCR (Hellas) S.A.
NCR Foreign Sales Corporation
AT&T Global Information Solutions de Guatemala, S. A.
<PAGE> 2
NCR (Hong Kong) Limited
NCR (China) Limited
NCR (Asia) Limited
NCR Parts Depot (Hong Kong) Limited
NCR Magyarorszag Kft.
NCR Corporation India Private Limited
NCR Italia S.p.A.
NCR Japan, Ltd.
NCR Japan Sales Co., Ltd.
NCR (Kenya) Limited
Data Processing Printing and Supplies Limited
NCR Korea Co., Ltd.
AT&T Global Information Solutions Macau Limitada
NCR (Malaysia) Sdn. Bhd.
Compu Search Sdn Bhd
NCR de Mexico, S.A. de C.V.
AT&T Global Information Solutions (Maroc) Company
NCR Nederland N.V.
AT&T European Logistics Center BV
NCR (NZ) Limited
AT&T Global Information Solutions Nigeria PLC
NCR Norge AS
AT&T Global Information Solutions de Centro-America, S.A.
AT&T Global Information Solutions de Panama, S.A.
NCR del Peru S.A.
AT&T Global Information Solutions Corporation (Philippines)
AT&T Global Information Solutions Software Corporation (Philippines)
NCR Polska Sp.zo.o.
NCR Portugal-Informatica, Lda
NCR Corporation of Puerto Rico
AT&T Global Information Solutions Senegal S.A.R.L.
AT&T Global Information Solutions Singapore Pte Ltd
NCR Slovakia spol. s.r.o.
Global Information Solutions d.o.o. (Slovenia)
NCR Espana, S.A.
Sinat Iberia, S.A.
AT&T Global Information Solutions (Lanka) Ltd.
NCR (Switzerland)
National Registrierkassen AG
AT&T Software AG
AT&T Global Information Solutions Taiwan Limited
NCR Taiwan Software Ltd
NCR (Thailand) Limited
AT&T Global Information Solutions Tunisia, Societe Anonyme
<PAGE> 3
NCR Bilisim Sistemleri, A.S.
NCR del Uruguay S.A.
NCR (Zambia) Ltd.
NCR Zimbabwe (Private) Limited
N Timms & Co. (Private) Limited
NCR Europe, Ltd.
NCR Limited
NCR (Holdings) Ltd.
NCR Properties Limited
Express Boyd Limited
NCR Capita Limited
NCR (Scotland) Limited
NCR Treasury Services Limited
Regis Court Management Limited
NCR Capita (May) Limited
Melcombe Court Management (Marylebone) Limited
Data Pathing Incorporated
International Investments Inc.
The National Cash Register Company
NCR Autotec Inc.
NCR European Logistics, Inc.
NCR International, Inc.
NCR Ivory Coast, Inc.
NCR Overseas Trade Corporation
NCR Personnel Services Inc.
NCR Scholarship Foundation
North American Research Corporation
Old River Software Inc.
Quantor Corporation
Sparks, Inc.
Teradata Corporation
Teradata International Corporation
The Microcard Corporation
AT&T WINS
NCR (Bermuda) Limited
NCR Services Ltd.
Teradata Intl. Corporation
Teradata Australia Pty. Limited
Teradata Deutschland GmbH
Teradata France SARL
Teradata Singapore Ltd
Teradata Europe Ltd
Sharebase Europe Ltd
Teradata UK Ltd
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS OF NCR CORPORATION AT JUNE 30, 1996 AND DECEMBER 31,
1995 AND THE CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE
30, 1996 AND FOR THE YEAR ENDED DECEMBER 31, 1995 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<CURRENCY> U.S. DOLLARS
<S> <C> <C>
<PERIOD-TYPE> 6-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1996 JAN-01-1995
<PERIOD-END> JUN-30-1996 DEC-31-1995
<EXCHANGE-RATE> 1 1
<CASH> 784 314
<SECURITIES> 41 24
<RECEIVABLES> 1,175 1,908
<ALLOWANCES> 0 0
<INVENTORY> 561 621
<CURRENT-ASSETS> 2,920 3,318
<PP&E> 2,447 2,475
<DEPRECIATION> 1,497 1,518
<TOTAL-ASSETS> 4,934 5,256
<CURRENT-LIABILITIES> 2,257 2,921
<BONDS> 99 330
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 859 358
<TOTAL-LIABILITY-AND-EQUITY> 4,934 5,256
<SALES> 1,812 5,138
<TOTAL-REVENUES> 3,265 8,162
<CGS> 1,300 4,699
<TOTAL-COSTS> 2,396 7,316
<OTHER-EXPENSES> 895 3,217
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 26 90
<INCOME-PRETAX> (49) (2,416)
<INCOME-TAX> 34 (136)
<INCOME-CONTINUING> (83) (2,280)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (83) (2,280)
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
