-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VIAS8TUgYndkWCfm1tn7IC4liKnVP1bTyZjvrxQ2xsJ2DXsCZouQyPyBNJI3uUsz 9KoZ9BAWb/nUEjsROtv+aQ== 0000005907-97-000020.txt : 19970401 0000005907-97-000020.hdr.sgml : 19970401 ACCESSION NUMBER: 0000005907-97-000020 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 23 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970331 SROS: BSE SROS: CSX SROS: NYSE SROS: PHLX SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AT&T CORP CENTRAL INDEX KEY: 0000005907 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE COMMUNICATIONS (NO RADIO TELEPHONE) [4813] IRS NUMBER: 134924710 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-01105 FILM NUMBER: 97571837 BUSINESS ADDRESS: STREET 1: 32 AVENUE OF THE AMERICAS CITY: NEW YORK STATE: NY ZIP: 10013 BUSINESS PHONE: 2123875400 FORMER COMPANY: FORMER CONFORMED NAME: AMERICAN TELEPHONE & TELEGRAPH CO DATE OF NAME CHANGE: 19920703 10-K 1 FORM 10-K FORM 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 (X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For The Fiscal Year Ended December 31, 1996 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For The Transition Period From _________ to _________ Commission File Number 1-1105 AT&T CORP. A NEW YORK I.R.S. EMPLOYER CORPORATION NO. 13-4924710 32 Avenue of the Americas, New York, New York 10013-2412 Telephone Number 212-387-5400 Securities registered pursuant to Section 12(b) of the Act: See attached SCHEDULE A. Securities registered pursuant to Section 12(g) of the Act: None. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes....x.... No........ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ( ) At February 28, 1997, the aggregate market value of the voting stock held by non-affiliates was $64,782,019,250. At February 28, 1997, 1,624,837,277 common shares were outstanding. DOCUMENTS INCORPORATED BY REFERENCE (1) Portions of the registrant's annual report to security holders for the year ended December 31, 1996 (Part II) (2) Portions of the registrant's definitive proxy statement dated April 1, 1997, issued in connection with the annual meeting of shareholders (Part III) SCHEDULE A Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on which Title of each class registered Common Shares # New York, Boston, Chicago, (Par Value $1 Per Share) ## Philadelphia and Pacific Stock # Exchanges Thirty-Seven Year 4-3/4% Debentures, # due June 1, 1998 # # Thirty-Six Year 4-3/8% Debentures, # due May 1, 1999 # # Thirty-Three Year 6% Debentures, # due August 1, 2000 # # Thirty-Five Year 5-1/8% Debentures, # ##New York Stock Exchange due April 1, 2001 # # Ten Year 7-1/8% Notes, # due January 15, 2002 # # Ten Year 6-3/4% Notes, # due April 1, 2004 # # Ten Year 7% Notes, # due May 15, 2005 # # Twelve Year 7-1/2% Notes, # due June 1, 2006 # # Twelve Year 7-3/4% Notes, # due March 1, 2007 # # Thirty Year 8-1/8% Debentures, # due January 15, 2022 # # Medium Term Note 8.2%, # due February 15, 2005 # # Thirty Year 8.35% Debentures, # due January 15, 2025 # # Thirty-Two Year 8-1/8% Debentures, # due July 15, 2024 # # Forty Year 8-5/8% Debentures, # due December 1, 2031 # TABLE OF CONTENTS PART I Item Description Page 1. Business............................................................... 1 2. Properties............................................................. 10 3. Legal Proceedings...................................................... 10 4. Submission of Matters to a Vote of Security-Holders.................... 11 PART II Description 5. Market for Registrant's Common Equity and Related Stockholder Matters.............................................................. 13 6. Selected Financial Data................................................ 13 7. Management's Discussion and Analysis of Financial Condition and Results of Operations................................................ 13 8. Financial Statements and Supplementary Data............................ 13 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure............................................. 13 PART III Description 10. Directors and Executive Officers of the Registrant..................... 13 11. Executive Compensation................................................. 13 12. Security Ownership of Certain Beneficial Owners and Management ........ 13 13. Certain Relationships and Related Transactions......................... 13 PART IV Description 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K....... 14 See page 12 for "Executive Officers of the Registrant." PART I ITEM 1. BUSINESS. GENERAL AT&T Corp. ("AT&T" or the "Company") was incorporated in 1885 under the laws of the State of New York and has its principal executive offices at 32 Avenue of the Americas, New York, New York 10013-2412 (telephone number 212-387-5400). Internet users can access information about AT&T and its services at http://www.att.com/. AT&T is currently a major participant in two industries: telecommunications and financial services. AT&T is among the world's communications leaders, providing voice, data and video telecommunications services to large and small businesses, consumers and government entities. AT&T and its subsidiaries furnish regional, domestic, international and local communication transmission services. AT&T's wholly owned subsidiaries, including AT&T Wireless Services, Inc., provide cellular telephone and other wireless services. AT&T also provides billing, directory, and calling card services to support its communications business as well as offering a general purpose credit card through its wholly owned subsidiary, AT&T Universal Card Services Corp. ("AT&T Universal Card Services"). On September 20, 1995, AT&T announced a plan to separate (the "Separation") into three publicly held stand-alone global companies focused on serving certain core businesses: communication and information services and general purpose credit card (to be carried on by the new AT&T, which includes AT&T Universal Card Services), communications systems and technology (to be carried on by Lucent Technologies Inc. ("Lucent")), and transaction-intensive computing (to be carried on by NCR Corporation ("NCR", formerly AT&T Global Information Solutions Company)). AT&T completed the Separation in 1996. AT&T distributed to its shareowners all of the shares AT&T owned of Lucent on September 30, 1996 and all of the shares of NCR on December 31, 1996. These distributions were tax free to shareowners, except to the extent cash was received for fractional shares. The Lucent distribution had been preceded by the initial public offering of 17.6% of Lucent shares. In addition, on October 1, 1996, AT&T completed the sale of its majority interest in AT&T Capital Corporation, in which AT&T received $1.8 billion in cash, recognizing a $162 million after-tax gain. COMMUNICATION AND INFORMATION SERVICES AT&T's communication and information services business addresses the needs of consumers, large and small businesses, the Federal government and state and local governments for voice, data and video telecommunications services. Business units within this group provide regular and custom long distance communications services, data transmission services, 500 services, toll-free or 800 and 888 services, 900 services, private line services, software defined network services ("SDN"), integrated services digital network ("ISDN") technology based services, and electronic mail, electronic data interchanges and enhanced facsimile services. AT&T also provides special long distance services, including AT&T Calling Card services, special calling plans and the Company's domestic and international operator services. AT&T provides communications services internationally, including transaction services, global networks, network management and value added network services (i.e., services offered over communications transmission facilities that employ computer processing applications). AT&T provides interstate and intrastate long distance telecommunications services throughout the continental United States and provides, or joins in providing with other carriers, telecommunications services to and from Alaska, Hawaii, Puerto Rico and the Virgin Islands and international telecommunications services to and from virtually all nations and territories around the world. In the continental United States, AT&T provides long distance telecommunications services over its own network. Virtually all switched services are computer controlled and digitally switched and interconnected by a packet switched signaling network. Transmission facilities consist of approximately 2 billion circuit-miles using lightwave, satellite, wire and coaxial cable and microwave radio technology. International telecommunications services are provided via multiple international transoceanic submarine cable (primarily lightwave) systems and via international satellite and radio facilities. AT&T has also begun providing a variety of new services, including online services, internet access and local telecommunications services. Online and internet access services include AT&T WorldNet* Service, a service providing dedicated and dial-up access to the internet, AT&T Easy World Wide Web* Service, an internet web site creation and hosting service, custom web site hosting services, and AT&T SecureBuy* Service, an Internet transaction service that simplifies buying and selling on the Internet. Following passage of the Telecommunications Act of 1996 (the "Telecommunications Act"), AT&T has applied for permission to provide local service in all 50 states. At December 31, 1996, AT&T had received authority to provide service in 42 states and anticipates that it will receive the remaining approvals as the other states take the actions contemplated by the Telecommunications Act. In the fourth quarter of 1996, AT&T began providing local telephone service to residential customers on a controlled basis in Sacramento, California. In addition, in February 1997 AT&T began offering local telephone service to business customers throughout California as well as offering in 45 states AT&T Digital Link, which enables business customers to place local calls over high capacity lines connected directly to AT&T's existing switches. AT&T Solutions, Inc., established in 1995, assists corporations in global network and computer management. AT&T Solutions designs, builds and operates corporate clients' computer networks, designs software and manages data centers for its clients. AT&T is one of the world's largest wireless service providers. In the United States, AT&T holds licenses to operate systems providing broadband wireless services covering markets with a population of over 200 million nationwide and messaging and air-to-ground services throughout the country. The - ------------ * Service Mark services provided by AT&T currently include cellular, messaging and air-to-ground communications. In addition, AT&T has purchased (primarily in auctions conducted by the Federal Communications Commission ("FCC")) wireless broadband PCS (or "personal communication services") licenses covering markets with a population of over 70 million. AT&T is required by the FCC to provide adequate broadband PCS service to at least one-third of the population in its licensed areas within five years of being licensed and two-thirds of the population in its licensed areas within ten years of being licensed. The licenses are granted for ten year terms from the original date of issuance and may be renewed by AT&T by meeting the FCC's renewal criteria and upon compliance with the FCC's renewal procedures. AT&T has created service clusters in major metropolitan areas and linked its and other service providers systems into a network which permits its wireless cellular subscribers to both place and receive calls anywhere they travel in areas served by the network, even if the local wireless telephone service is not provided by AT&T. AT&T is now integrating other communications technologies, such as PCS, into the network. AT&T will continue to explore the use of emerging technologies to expand the reach of the network and to provide additional services (especially data and internet services). AT&T also offers one-way messaging systems such as paging services. As of December 31, 1996, the Company had over 1.1 million messaging service subscribers. The majority of these subscribers are in locations where AT&T holds cellular or PCS licenses. AT&T's wireless services are conducted primarily through subsidiaries of AT&T Wireless Services, Inc. (formerly McCaw Cellular Communications, Inc. ("McCaw")), which was merged with a special-purpose subsidiary of AT&T in September 1994. At that time, McCaw owned 52% of LIN Broadcasting Corporation (which held cellular and broadcast television properties), which in turn owned 100% of LIN Television Corporation. In December 1994, LIN Broadcasting Corporation distributed to its shareholders all of the stock of LIN Television Corporation, so that upon the distribution AT&T became the direct owner (through its wholly owned subsidiaries) of 52% of LIN Television Corporation. In September 1995, AT&T acquired the remaining 48% publicly-held interest in LIN Broadcasting Corporation at an aggregate price of approximately $3.3 billion. AT&T has established a number of international alliances to increase the reach and scope of AT&T's network over time and has invested in certain countries in order to increase the range of services AT&T offers in those countries. For example, AT&T founded the WorldPartners alliance in 1993 to provide multinational customers with seamless telecommunications and related services. As of the end of 1996, WorldPartners included 30 members who provide services to multinational customers in North America, Europe and Asia. In addition, in 1996 AT&T began offering business and consumer services in the United Kingdom and in early 1997 AT&T's joint venture in Mexico, Alestra, began offering long distance service. AT&T also has an interest in several wireless communications companies outside of the United States, including cellular operators licensed to serve Hong Kong, Columbia and parts of India. AT&T UNIVERSAL CARD SERVICES AT&T Universal Card Services began operations in early 1990. The AT&T Universal Card is a combined general-purpose consumer credit card and AT&T Calling Card that at year-end had managed receivables in excess of $13.5 billion in 1996, $14.1 billion in 1995, $12.3 billion in 1994, $9.1 billion in 1993, and $6.6 billion in 1992. The AT&T Universal Card is offered directly through AT&T Universal Financial Corp., a Utah industrial loan company, and Universal Bank, N.A., in Columbus, Georgia, which are both wholly owned by AT&T, and under an affinity relationship with Columbus Bank and Trust Company in Columbus, Georgia, a subsidiary of Synovus Financial Corp. AT&T Universal Card Services provides marketing and customer support for the AT&T Universal Card program and it purchases cardholder receivables generated by the AT&T Universal Card program. Some seasonality exists in the consumer credit card industry, with a higher number of purchases occurring during the year-end holiday season. Based on the number of cardholder accounts, the AT&T Universal Card program is one of the largest bankcard/credit card programs in the United States. LEGISLATIVE AND REGULATORY DEVELOPMENTS Telecommunications Act of 1996 In February 1996, the Telecommunications Act became law. The Telecommunications Act, among other things, was designed to foster local exchange competition by establishing a regulatory framework to govern new competitive entry in local and long distance telecommunications services and requiring incumbent local exchange carriers ("LECs"), including the Regional Bell Operating Companies ("RBOCs"), to implement a checklist of conditions that would support local exchange competition. These conditions include requiring incumbent LECs to provide to competing service providers (i) local exchange services for resale at wholesale rates, (ii) interconnection and access to unbundled network elements at any technically feasible point and at cost-based rates, (iii) telephone number portability for customers changing carriers, (iv) dialing parity for customers and (v) access to rights of way. The Telecommunications Act also permits an RBOC to petition the FCC at any time for permission to provide interexchange services originating in any state in its region. The FCC must review such request within 90 days, but cannot approve such a request unless (i) approval is consistent with the public interest, convenience and necessity; (ii) the FCC has consulted with the Department of Justice ("DOJ") and given the DOJ's views substantial weight; (iii) the RBOC has implemented the Telecommunications Act checklist of conditions throughout such state; and (iv) either (A) the RBOC has entered into a binding interconnection agreement, approved by the relevant state, with one or more unaffiliated competing providers of telephone service to residential and business subscribers which are offered either exclusively or predominantly over such competitors' own facilities, or (B) the RBOC has received no such requests for interconnection within the statutory prescribed time period. In August 1996, the FCC adopted rules and regulations (the "Implementing Rules") to implement the local competition provisions of the Telecommunications Act, including with respect to the terms and conditions of interconnection with LEC networks and the standards governing the purchase of unbundled network elements and wholesale services from LECs. The Implementing Rules rely on each state to develop the specific rates and procedures in such state within the framework prescribed by the FCC for developing such rates and procedures. For example, the Implementing Rules identify a minimum set of technically feasible points of interconnection that an incumbent LEC must provide; identify a minimum set of network elements that must be made available by an incumbent LEC on an unbundled basis, without restriction; and require incumbent LECs to provide nondiscriminatory access to operations support systems for ordering, provisioning, maintenance and repair. In addition, the Implementing Rules establish a methodology that states must use for determining the wholesale rates that LECs must provide to resellers of their services and which is based on retail rates less marketing, billing, collection and other avoided or avoidable costs. In addition, the Implementing Rules establish a default discount in the range of 17-25% that states may use pending implementation of this methodology. Finally, the Implementing Rules require states to set prices for interconnection and unbundled network elements pursuant to a forward looking economic cost pricing methodology which is based on the Total Element Long-Run Incremental Cost ("TELRIC") of providing a particular network element plus a reasonable share of forward-looking joint and common costs. If states are unable to conduct a cost study to determine such rates within the statutory time frame for arbitrating interconnection disputes, the Implementing Rules establish default ranges or ceilings for unbundled network elements. Although the FCC deferred interstate access charge reform to another proceeding, the Implementing Rules only permit incumbent LECs to recover from interexchange carriers using unbundled network elements for local service certain portions of the current interstate access charges. Such interexchange carriers will not be required to pay these charges as of the earliest of July 1, 1997 or the occurrence of certain other events, such as RBOC receipt of authority to provide in-region long distance service. In October 1996, the United States Court of Appeals for the 8th Circuit ordered a stay of the effectiveness of those provisions of the Implementing Rules addressed to the pricing of unbundled network elements and wholesale services ("Pricing Rules"), among others, until such court resolves the challenges to the Implementing Rules by local telephone companies and telephone regulators in several states. The court heard argument on the challenges in January 1997. AT&T believes that the stay of the Pricing Rules may inhibit the establishment of appropriate permanent rates for the provision of network elements and wholesale services. Absent full effectiveness of the Implementing Rules, each state will determine the applicable rates and procedures independent of the framework of the Pricing Rules. Since the stay was issued, many states have used the Pricing Rules as guidelines in establishing interim rates that will apply pending the determination of permanent rates in subsequent state proceedings. Nevertheless, in the absence of the Pricing Rules, there can be no assurance that the prices and other conditions established in each state will provide for effective local service entry and competition or provide AT&T with new market opportunities. AT&T has applied for permission to provide local service in all 50 states. At December 31, 1996, AT&T had received authority to provide service in 42 states and anticipates that it will receive the remaining approvals as the other states take the actions contemplated by the Telecommunications Act. While the Telecommunications Act makes clear that no state can prohibit AT&T or any other entity from providing local services, AT&T cannot be certain as to when it will receive certification in each state and the conditions that might attach to each such certification. Most of the RBOCs have indicated their intention to petition the FCC during 1997 for permission to provide interexchange services in one or more states within their home market. As a result of the legislative and regulatory developments discussed above, there can be no assurance that all of the necessary preconditions for the development of effective local competition will be achieved in a timely or even manner and that long distance carriers will be in a position to compete effectively against RBOCs in local service at the time RBOCs receive permission to enter the long distance market. Because it is widely anticipated that substantial numbers of long distance customers will seek to purchase local, interexchange and other services from a single carrier as part of a combined or full service package, any competitive disadvantage, inability to profitably provide local service at competitive rates or delays or limitations in providing local service or combined service packages could adversely affect AT&T's future revenues and earnings. Modification of Final Judgment of 1982 Prior to 1996, AT&T and the RBOCs were subject to the provisions of the Modification of Final Judgment of 1982 (the "MFJ") since its implementation. The Telecommunications Act effectively superseded future operation of the MFJ. Consequently, on April 11, 1996, Judge Harold Greene issued an order terminating the MFJ. Regulation of Rates AT&T is subject to the jurisdiction of the FCC with respect to interstate and international rates, lines and services, and other matters. From July 1989 to October 1995, the FCC regulated AT&T under a system known as "price caps" whereby AT&T's prices, rather than its earnings, were limited. On October 12, 1995, recognizing a decade of enormous change in the long distance market and finding that AT&T lacked market power in the interstate long distance market, the FCC reclassified AT&T as a "non-dominant" carrier for its domestic interstate services. As a result, AT&T became subject to the same regulations as its long distance competitors for such services. Thus, AT&T was no longer subject to price cap regulation for these services, was able to file tariffs that are presumed lawful on one day's notice, and was free of other regulations and reporting requirements that apply only to dominant carriers. In addition, in further recognition of competitive developments, on October 31, 1996, the FCC issued an order, to be effective in late 1997, prohibiting AT&T and other non-dominant carriers from filing tariffs for their domestic interstate services. Accordingly, carriers will be required to use contracts and other commercial arrangements to establish the terms of service with customers. In February 1997, the United States Court of Appeals for the District of Columbia ordered a stay of the effectiveness of the FCC'c order. Argument is expected to be heard later this year. AT&T remains subject to the statutory requirements of Title II of the Communications Act. AT&T must offer service under rates, terms and conditions that are just, reasonable and not unreasonably discriminatory, it is subject to the FCC's complaint process, and it must give notice to the FCC and affected customers prior to discontinuance, reduction, or impairment of service. AT&T has also made certain commitments that address concerns that had been raised with regard to the potential impact of declaring AT&T to be non-dominant, including a three-year rate assurance for low income and low usage residential users and a three-year limit on, and 5 days advance notice for, rate increases on 800 directory assistance and analog private line services. AT&T's international private line services have been classified as non-dominant for several years. AT&T's switched international services have become subject to increased competition, similar to its domestic services and on May 9, 1996, the FCC adopted an order reclassifying AT&T as a non-dominant carrier for such services. AT&T has made certain voluntary commitments that address issues raised in that proceeding, including commitments: (i) to maintain its annual average revenue per minute for international residential calls at or below the 1995 level through May 9, 1999, and in the event of a significant change that substantially raises AT&T's costs, to provide the FCC five business days notice prior to implementing rate increases that would raise the annual average revenue per minute for such calls above the 1995 level; and (ii) to maintain certain discount calling plans providing at least a 15% discount off basic pricing schedules until May 9, 1999. AT&T also made voluntary commitments relating to its operation of international cable facilities, its negotiation of settlement agreements with foreign carriers and its relationship with foreign partners. In addition to the matters described above with respect to the Telecommunications Act, state public service commissions or similar authorities having regulatory power over intrastate rates, lines and services and other matters regulate AT&T's local and intrastate communications services. The system of regulation used in many states is rate-of-return regulation. In recent years, many states have adopted different systems of regulation, such as: complete removal of rate-of-return regulation, pricing flexibility rules, price caps, and incentive regulation. COMPETITION AT&T currently faces significant competition in the communication and information services industry and expects that the level of competition will continue to increase. As competitive, regulatory and technological changes occur, including those occasioned by the enactment of the Telecommunications Act, AT&T anticipates that new and different competitors will enter and expand their position in the communications services markets. These may include entrants from other segments of the communication and information services industry or global competitors seeking to expand their market opportunities. Many such new competitors are likely to enter with a strong market presence, well recognized names and pre-existing direct customer relationships. The Telecommunications Act has already begun to intensify the competitive environment. Anticipating changes in the industry, non-RBOC LECs, which are not required to implement the Telecommunications Act's competitive checklist prior to offering long distance in their home markets, have begun integrating their local service offerings with long distance offerings in advance of AT&T being able to offer combined local and long distance service in these areas. If such non-RBOC LECs continue to offer combined services without offering reasonable terms of interconnection and service elements at competitive rates, AT&T's revenues and earnings in these service regions will be adversely affected. Similarly, to the extent that the RBOCs obtain in-region interLATA authority before the Telecommunications Act's checklist of conditions have been fully or satisfactorily implemented and adequate facilities-based local exchange competition exists, there is a substantial risk that AT&T and other interexchange service providers would be at a disadvantage to the RBOCs in providing both local service and combined service packages. Furthermore, the previously announced merger of British Telecommunications PLC and MCI Communications Corp. will create a large, well-capitalized competitor for AT&T's offerings, domestically as well as internationally, with substantial financial, technical, marketing and other resources and a large worldwide installed base of customers. Furthermore, in February 1997, a General Agreement on Trade in Services (the "GATS") was reached under the World Trade Organization. The GATS, which will become effective January 1, 1998, is designed to open each country's domestic telecommunications markets to foreign competitors. The GATS, and future trade agreements, may accelerate the entrance into the U.S. market of foreign telecommunications providers, certain of whom are likely to possess dominant home market positions in which there is not effective competition. The GATS may also permit AT&T's entrance into other markets as only a small number of countries refused to eliminate their foreign ownership restrictions. In addition to the matters referred to above, various other factors, including market acceptance, start-up and ongoing costs associated with the provision of new services and local conditions and obstacles, could adversely affect the timing and success of AT&T's entrance into the local exchange services market and AT&T's ability to offer combined service packages that include local service. In addition, the simultaneous entrance of numerous new competitors for interexchange and combined service packages is likely to adversely affect AT&T's long distance revenues and could adversely affect earnings. AT&T's other industry segment, the financial services industry, is also highly competitive. Participants in the industry compete through price (including the ability to control costs), risk management, innovation and customer service. Principal cost factors include the cost of funds, the cost of selling to or acquiring new end-user customers and vendors, and the cost of managing portfolios (including, for example, billing, collection, credit risk management and residual management). FORWARD LOOKING STATEMENTS Except for the historical statements and discussions contained herein, statements contained in this Report on Form 10-K constitute "forward looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Any Form 10-K, Annual Report to Shareowners, Form 10-Q or Form 8-K of AT&T may include forward looking statements. In addition, other written or oral statements which constitute forward looking statements have been made and may in the future be made by or on behalf of AT&T, including statements concerning future operating performance, AT&T's share of new and existing markets, AT&T's short- and long-term revenue and earnings growth rates, and general industry growth rates and AT&T's performance relative thereto. These forward looking statements rely on a number of assumptions concerning future events, including the adoption and implementation of balanced and effective rules and regulations by the FCC and the state public regulatory agencies, and AT&T's ability to achieve a significant market penetration in new markets. These forward looking statements are subject to a number of uncertainties and other factors, many of which are outside AT&T's control, that could cause actual results to differ materially from such statements. These factors include, but are not limited to: - - the efficacy of the Implementing Rules and other rules and regulations to be adopted by the FCC to implement the provisions of the Telecommunications Act; - - the outcome of negotiations with LECs and state regulatory arbitrations and approvals with respect to interconnection agreements; the timing of receipt of and the conditions that attach to, certification to provide local service in each state; and the ability to purchase unbundled network elements or wholesale services from LECs at a price sufficient to permit the profitable offering of local exchange service at competitive rates; - - success and market acceptance for new offerings, including local service; start-up costs associated with entering new markets, including advertising and promotional efforts; successful deployment of new systems and applications to support new offerings; and local conditions and obstacles; - - competitive pressures, including pricing pressures, technological developments and the ability to offer combined service packages that include local service; the extent and pace at which different competitive environments develop for each segment of the telecommunications industry; the extent at and duration for which competitors from each segment of the telecommunications industry are able to offer combined or full service packages prior to AT&T being able to; and the degree to which AT&T experiences material competitive impacts to its traditional service offerings prior to achieving adequate local service entry; - - the availability, terms and deployment of capital; and the ability to achieve cost savings; and - - general economic conditions, government and regulatory policies, and business conditions in the communications industry. Readers are cautioned not to put undue reliance on such forward looking statements. For a more detailed description of these and additional uncertainties and other factors that could cause actual results to differ materially from such forward looking statements, see "Results of Operations", "Financial Condition", "Regulatory and Legislative Developments", and "Competition" included in or incorporated by reference into this Form 10-K. As described elsewhere in this Form 10-K, these uncertainties and factors could adversely affect the timing and success of AT&T's entrance into the local exchange services market and AT&T's ability to offer combined service packages that include local service, thereby adversely affecting AT&T's future revenues and earnings. AT&T disclaims any intention or obligation to update or revise any forward looking statements, whether as a result of new information, future events or otherwise. SEGMENT, OPERATING REVENUE AND RESEARCH AND DEVELOPMENT EXPENSE INFORMATION For information about the Company's industry segments, see Note 12 to the Consolidated Financial Statements. For information about the Company's research and development expense, see Note 4 to the Consolidated Financial Statements. For information about the consolidated operating revenues contributed by the Company's major classes of products and services, see the revenue tables and descriptions on pages 21 through 23 and Consolidated Statements of Income on page 30 of the Company's annual report to security holders for the year ended December 31, 1996. All such information is incorporated herein by reference pursuant to General Instruction G(2). EMPLOYEE RELATIONS At December 31, 1996 AT&T employed approximately 130,000 persons in its operations, approximately 124,000 of whom are located domestically. About 41% of the domestically located employees of AT&T are represented by unions. Of those so represented, about 96% are represented by the Communications Workers of America ("CWA"), which is affiliated with the AFL-CIO; about 4% by the International Brotherhood of Electrical Workers ("IBEW"), which is also affiliated with the AFL-CIO. In addition, there is a very small remainder of domestic employees represented by other unions. Labor agreements with most of these unions extend through May 1998. ITEM 2. PROPERTIES. The properties of AT&T consist primarily of plant and equipment used to provide long distance telecommunications services and administrative office buildings. Telecommunications plant and equipment consists of: central office equipment, including switching and transmission equipment; connecting lines (cables, wires, poles, conduits, etc.); land and buildings; and miscellaneous properties (work equipment, furniture, plant under construction, etc.). The majority of the connecting lines are on or under public roads, highways and streets and international and territorial waters. The remainder are on or under private property. AT&T also operates a number of sales offices, customer care centers, and other facilities, such as research and development laboratories. AT&T continues to manage the deployment and utilization of its assets in order to meet its global growth objectives while at the same time ensuring that these assets are generating economic value added for the shareholder. AT&T will continue to manage its asset base consistent with globalization initiatives, marketplace forces, productivity growth and technology change. A substantial number of the administrative offices of AT&T are in leased buildings. Substantially all of the important communications facilities are in buildings owned by AT&T or leased from the regional holding companies created at divestiture. Many of the smaller facilities are in rented quarters. Most of the important buildings are on land held in fee, but a few are on land held under long-term leases. ITEM 3. LEGAL PROCEEDINGS. In the normal course of business, AT&T is subject to proceedings, lawsuits and other claims, including proceedings under government laws and regulations related to environmental and other matters. Such matters are subject to many uncertainties and outcomes are not predictable with assurance. Consequently, AT&T is unable to ascertain the ultimate aggregate amount of monetary liability or financial impact with respect to these matters at December 31, 1996. While these matters could affect operating results of any one quarter when resolved in future periods, it is management's opinion that after final disposition, any monetary liability or financial impact to AT&T beyond that provided for at year-end would not be material to AT&T's annual consolidated financial position or results of operations. On February 14, 1996, Bell Atlantic Corporation and DSC Communications Corporation filed a complaint against AT&T and Lucent in the United States District Court for the Eastern District of Texas. The complaint asserted, among other things, monopolization or attempted monopolization claims concerning communications transmission equipment, related software and caller identification services. AT&T filed counterclaims against Bell Atlantic and Lucent filed counterclaims against DSC Communications. In the first quarter of 1997, Bell Atlantic, DSC Communications, AT&T and Lucent independently reached separate settlements with plaintiffs pursuant to confidential agreements, which resolved the claims among the parties. The settlements will have no material impact on AT&T's financial position or results of operations. AT&T is also a named party in a number of environmental actions, none of which are material to the consolidated financial statements or business of the Company. In addition, pursuant to the Separation and Distribution Agreement by and among AT&T, Lucent, and NCR, dated as of February 1, 1996 and amended and restated as of March 29, 1996, Lucent has assumed liability, subject to the liability sharing provisions of that agreement, for a number of actions in which AT&T remains a named party. AT&T is working to be released as a party to these actions, although there can be no assurance that it will be successful in this regard. There are three environmental proceedings which are required to be reported pursuant to Instruction 5.C. of Item 103 of Regulation S-K, all of which are proceedings for which Lucent has assumed liability, as described above. On July 31, 1991, the United States Environmental Protection Agency Region III issued a complaint pursuant to Section 3008a of the Resource Conservation and Recovery Act alleging violations of various waste management regulations at the Company's Richmond Works, Richmond, Virginia. The complaint seeks a total of $4.2 million in penalties. In addition, on July 31, 1991, the United States Environmental Protection Agency filed a civil complaint in the U.S. District Court for the Southern District of Illinois against the Company and nine other parties seeking enforcement of its Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") Section 106 cleanup order, issued in November 1990 for the NL Granite City Superfund site, Granite, Illinois, past costs, civil penalties of $25,000 per day and treble damages related to certain United States' costs. Finally, during 1994, AT&T Nassau Metals Corporation ("Nassau"), a wholly owned subsidiary of AT&T, and the New York State Department of Environmental Conservation ("NYSDEC") were engaged in negotiations over a study and cleanup of the Nassau plant located on Richmond Valley Road in Staten Island, New York. During these negotiations, in June 1994, NYSDEC presented Nassau with a draft consent order which included not only provisions relating to site investigation and remediation but also a provision for payment of a $3.5 million penalty for alleged violations of hazardous waste management regulations. No formal proceeding has been commenced by NYSDEC. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS. No matter was submitted to a vote of security holders in the fourth quarter of the fiscal year covered by this report. Executive Officers of the Registrant (as of March 28, 1997) Became AT&T Executive Name Age Officer On - ---------------- --- --------------------- Robert E. Allen* . . .62 Chairman of the Board and Chief Executive Officer . . . . . . . 9-86 Harry S. Bennett . . .52 Vice President & General Manager, AT&T Local Services Division . 3-97 Harold W. Burlingame .56 Executive Vice President, Human . Resources . . . . . . . . . . . 9-86 Steven W. Hooper . . .44 President & Chief Executive Officer - AT&T Wireless Services . . . . . . . . . . . 3-97 Frank Ianna . . . . .47 Vice President & General Manager, Network & Computing Services & AT&T Chief Quality Officer . . 3-97 Marilyn Laurie . . . .57 Executive Vice President, Brand Strategy & Marketing 2-87 Communications . . . . . . . . Gail J. McGovern . . .44 Executive Vice President, Consumer Markets Division . . . 1-96 Victor E. Millar . . .61 President & Chief Executive Officer, AT&T Solutions . . . . 3-97 Richard W. Miller . .56 Senior Executive Vice President and Chief Financial Officer . . 8-93 David C. Nagel . . . .52 President, AT&T Labs . . . . . . 3-97 John Petrillo . . . .47 Executive Vice President, Strategy & New Service Innovation and International . 1-96 Ron J. Ponder . . . .53 Executive Vice President, Operations & Service Management . . . . . . . . . . 1-96 Richard J. Srednicki .49 President & Chief Executive Officer, AT&T Universal Card Services . . . . . . . . . . . 3-97 John R. Walter** . . .50 President and Chief Operating Officer . . . . . . . . . . . . 11-96 Jeffrey Weitzen . . .40 Executive Vice President, Business Markets Division . . . 1-97 Paul J. Wondrasch . .53 Senior Vice President, International . . . . . . . . . 3-97 John D. Zeglis . . . .49 General Counsel and Senior Executive Vice President, Policy Development & Operations Support . . . . . . . . . . . . 9-86 - ----------- *Chairman of the Board of Directors and Chairman of the Executive and Proxy Committees. **Member of the Board of Directors. All of the above executive officers have held high level managerial positions with AT&T or its affiliates for more than the past five years, except Messrs. Hooper, Millar, Miller, Nagel, Ponder, Srednicki and Walter. Prior to joining AT&T in September 1994, at the time of the merger of McCaw Cellular Communications, Inc. with AT&T, Mr. Hooper was Chief Financial Officer of McCaw (AT&T Wireless Services, Inc.), from 1993, and held various other positions with McCaw prior to that time. Prior to joining AT&T in February 1995, Mr. Millar was with Unisys Corporation, an information services company, serving as President from 1992. Prior to joining AT&T in August 1993, Mr. Miller was with Wang Laboratories, Inc., a computer company, from 1989 through 1993, serving as President and Chief Operating Officer and later as Chairman, President and Chief Executive Officer. On February 3, 1997, AT&T announced that Mr. Miller was resigning his position with AT&T. Prior to joining AT&T in April 1996, Mr. Nagel was with Apple Computer, a computer company, serving as Senior Vice President from 1995 and General Manager from 1988 through 1995. Prior to joining AT&T in June 1993, Mr. Ponder was Executive Vice President and Chief Information Officer for Sprint Corporation, a telecommunications company, from 1991 to 1993. Prior to joining AT&T in January 1997, Mr. Srednicki was Business Manager of Citibank- Germany and Country Corporate Officer, Citibank Bankcards from 1990. Prior to joining AT&T in November 1996, Mr. Walter was Chairman and Chief Executive Officer of R.R. Donnelley & Sons Company, a financial printer, from 1989 to 1996. Officers are not elected for a fixed term of office but hold office until their successors have been elected or such officers resign or retire. PART II Items 5. through 8. The information required by these items is included in pages 20 through 44 and on the outside back cover of the Company's annual report to security holders for the year ended December 31, 1996. Such information is incorporated herein by reference, pursuant to General Instruction G(2). The referenced information from the Company's annual report to security holders has been filed as Exhibit 13 to this document. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. There have been no changes in independent accountants and no disagreements with independent accountants on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure during the last two years. PART III Items 10. through 13. Information regarding executive officers required by Item 401 of Regulation S-K is furnished in a separate disclosure in Part I of this report because the Company did not furnish such information in its definitive proxy statement prepared in accordance with Schedule 14A. The other information required by Items 10 through 13 is included in the Company's definitive proxy statement dated April 1, 1997, the last paragraph on page 5, the carryover paragraph and first full paragraph on page 6, the second full paragraph on page 7 through the final footnote on page 12 and the fourth paragraph on page 37 through page 57. Such information is incorporated herein by reference, pursuant to General Instruction G(3). PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. (a) Documents filed as a part of the report: (1) Financial Statements: Pages - ----- Report of Management.............................................. * Report of Independent Accountants................................. * Statements: Consolidated Statements of Income........................... * Consolidated Balance Sheets................................. * Consolidated Statements of Changes in Shareowners' Equity....................................... * Consolidated Statements of Cash Flows....................... * Notes to Consolidated Financial Statements.................. * (2) Financial Statement Schedules: Report of Independent Accountants.......................... 18 Schedules: II -- Valuation and Qualifying Accounts.................... 19 Separate financial statements of subsidiaries not consolidated and 50 percent or less owned persons are omitted since no such entity constitutes a "significant subsidiary" pursuant to the provisions of Regulation S-X, Article 3-9. (3) Exhibits: Exhibits identified in parentheses below, on file with the Securities and Exchange Commission ("SEC"), are incorporated herein by reference as exhibits hereto. Exhibit Number: (3)a Restated Certificate of Incorporation of the registrant filed January 10, 1989, Certificate of Correction of the registrant filed June 8, 1989, Certificate of Change of the registrant filed March 18, 1992, Certificate of Amendment of the registrant filed June 1, 1992, and Certificate of Amendment of the registrant filed April 20, 1994. (Exhibit 4 to Registration Statement No. 333-00573). - ------------ *Incorporated herein by reference to the appropriate portions of the Company's annual report to security holders for the year ended December 31, 1996. (See Part II.) (3)b By-Laws of the registrant, as amended January 15, 1997. (4) No instrument which defines the rights of holders of long term debt, of the registrant and all of its consolidated subsidiaries, is filed herewith pursuant to Regulation S-K, Item 601(b)(4)(iii)(A). Pursuant to this regulation, the registrant hereby agrees to furnish a copy of any such instrument to the SEC upon request. (10)(i)1 Form of Separation and Distribution Agreement by and among AT&T Corp., Lucent Technologies Inc. and NCR Corporation, dated as of February 1, 1996 and amended and restated as of March 29, 1996. (10)(i)2 Form of Distribution Agreement, dated as of November 20, 1996, by and between AT&T Corp. and NCR Corporation. (10)(i)3 Tax Sharing Agreement by and among AT&T Corp., Lucent Technologies Inc. and NCR Corporation, dated as of February 1, 1996 and amended and restated as of March 29, 1996. (10)(i)4 Employee Benefits Agreement by and between AT&T Corp. and Lucent Technologies Inc., dated as of February 1, 1996 and amended and restated as of March 29, 1996. (10)(i)5 Form of Employee Benefits Agreement, dated as of November 20, 1996, between AT&T Corp. and NCR Corporation. (10)(ii)(B)1 General Purchase Agreement between AT&T Corp. and Lucent Technologies Inc., dated February 1, 1996 and amended and restated as of March 29, 1996. (10)(ii)(B)2 Form of Volume Purchase Agreement, dated as of November 20, 1996, by and between AT&T Corp. and NCR Corporation. (10)(iii)(A)1 AT&T Short Term Incentive Plan as amended March, 1994 (Exhibit (10)(iii)(A)1 to Form 10-K for 1994, File No. 1-1105). (10)(iii)(A)2 AT&T 1987 Long Term Incentive Program as amended July 17, 1989 (Exhibit (10)(iii)(A)2 to Form SE dated March 24, 1993, File No. 1-1105). (10)(iii)(A)3 AT&T Senior Management Individual Life Insurance Program dated January 1, 1987 (Exhibit (10)(iii)(A)1 to Form SE, dated March 25, 1987, File No. 1-1105) and as revised December 1, 1994 (Exhibit (10)(iii)(A)3 to Form 10-K for 1994, File No. 1-1105). (10)(iii)(A)4 AT&T Senior Management Long Term Disability and Survivor Protection Plan, as amended and restated effective January 1, 1995. (10)(iii)(A)5 AT&T Senior Management Financial Counseling Program dated December 29, 1994 (Exhibit (10)(iii)(A)5 to Form 10-K for 1994, File No. 1-1105). (10)(iii)(A)6 AT&T Deferred Compensation Plan for Non-Employee Directors, as amended December 15, 1993 (Exhibit (10) (iii)(A)6 to Form 10-K for 1993, File No. 1-1105). (10)(iii)(A)7 The AT&T Directors Individual Life Insurance Program dated January 1, 1987, revised December 1, 1995. (10)(iii)(A)8 AT&T Plan for Non-Employee Directors' Travel Accident Insurance (Exhibit (10)(iii)(A)8 to Form 10-K for 1990, File No. 1-1105). (10)(iii)(A)9 AT&T Excess Benefit and Compensation Plan, as amended and restated effective October 1, 1996. (10)(iii)(A)10 AT&T Non-Qualified Pension Plan, as amended and restated January 1, 1995. (10)(iii)(A)11 AT&T Senior Management Incentive Award Deferral Plan, as amended December 20, 1995. (10)(iii)(A)12 AT&T Mid-Career Hire Program revised effective January 1, 1988 (Exhibit (10)(iii)(A)4 to Form SE, dated March 25, 1988, File No. 1-1105) including AT&T Mid-Career Pension Plan, as amended and restated October 1, 1996. (10)(iii)(A)13 AT&T 1984 Stock Option Plan, as modified December 19, 1984 (Exhibit 10(t) to Form SE, dated February 27,1985, File No. 0-13247). (10)(iii)(A)14 Form of Indemnification Contract for Officers and Directors (Exhibit (10)(iii)(A)6 to Form SE, dated March 25, 1987, File No. 1-1105). (10)(iii)(A)15 Pension Plan for AT&T Non-Employee Directors revised February 20, 1989 (Exhibit (10)(iii)(A)15 to Form 10-K for 1993, File No. 1-1105). (10)(iii)(A)16 AT&T Corp. Senior Management Basic Life Insurance Program, as amended May 17, 1995. (10)(iii)(A)17 Form of AT&T Benefits Protection Trust Agreement Exhibit (10)(iii)(A)17 to Form SE, dated March 25, 1992, File No. 1-1105). (10)(iii)(A)18 Form of Employment Agreement between AT&T Corp. and John R. Walter dated October 23, 1996. (10)(iii)(A)19 Employment Agreement between American Telephone and Telegraph Company and Richard W. Miller dated August 9, 1993 (Exhibit 10(iii)(A)19 to Form 10-K for 1995, File No. 1-1105). (12) Computation of Ratio of Earnings to Fixed Charges. (13) Specified portions (pages 20 through 44 and the outside back cover) of the Company's Annual Report to security holders for the year ended December 31, 1996. (21) List of subsidiaries of AT&T. (23) Consent of Coopers & Lybrand L.L.P. (24) Powers of Attorney executed by officers and directors who signed this report. (27) Financial Data Schedule. AT&T will furnish, without charge, to a security holder upon request a copy of the annual report to security holders and the proxy statement, portions of which are incorporated herein by reference thereto. AT&T will furnish any other exhibit at cost. (b) Reports on Form 8-K: During the fourth quarter 1996, Forms 8-K dated October 10, 1996 and October 28, 1996 were filed pursuant to Item 5 (Other Events). REPORT OF INDEPENDENT ACCOUNTANTS To the Shareowners of AT&T Corp.: Our report on the consolidated financial statements of AT&T Corp. and subsidiaries has been incorporated by reference in this Form 10-K from page 29 of the 1996 Annual Report to the Shareowners of AT&T Corp. In connection with our audits of such financial statements, we have also audited the related consolidated financial statement schedule listed in the index on page 14 of this Form 10-K. In our opinion, the consolidated financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. COOPERS & LYBRAND L.L.P. 1301 Avenue of the Americas New York, New York January 22, 1997 Schedule II--Sheet 1 AT&T CORP. AND ITS CONSOLIDATED SUBSIDIARIES SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS (Millions of Dollars) - ------------------------------------------------------------------------------------------------------- COL. A COL. B COL. C COL. D COL. E - ------------------------------------------------------------------------------------------------------- Balance at Charged to Balance Beginning Costs and at End Description of Period Expenses Deductions(a) of Period - ------------------------------------------------------------------------------------------------------- Year 1996 Allowances for doubtful accounts (b) ..... $1,287 $2,443 $2,342 $1,388 Reserves related to business restructuring, including force and facility consolidation (c) ..........$2,098 $ - -- $ 710 $1,388 Deferred tax asset valuation allowance ... $ 129 $ 39 $ 2 $ 166 Year 1995 Allowances for doubtful accounts (b) ..... $1,023 $2,272 $2,008 $1,287 Reserves related to business restructuring, including force and facility consolidation (c) ......... $ 699 $1,718 $ 319 $2,098 Deferred tax asset valuation allowance ... $ 36 $ 109 $ 16 $ 129 The Notes on Sheet 2 are an integral part of this Schedule.
Schedule II--Sheet 2 AT&T CORP. AND ITS CONSOLIDATED SUBSIDIARIES SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS (Millions of Dollars) - ------------------------------------------------------------------------------------------------------- COL. A COL. B COL. C COL. D COL. E - ------------------------------------------------------------------------------------------------------- Balance at Charged to Balance Beginning Costs and at End Description of Period Expenses Deductions(a) of Period - ------------------------------------------------------------------------------------------------------- Year 1994 Allowances for doubtful accounts (b) ..... $ 889 $1,697 $1,563 $1,023 Reserves related to business restructuring, including force and facility consolidation (c) ......... $ 952 $ 22 $ 275 $ 699 Deferred tax asset valuation allowance ... $ 43 $ 3 $ 10 $ 36 - ------------ (a) Amounts written off as uncollectible, net of recoveries. (b) Includes allowances for doubtful accounts on long-term receivables of $52, $35 and $32 in 1996, 1995 and 1994, respectively (included in Finance receivables in the Consolidated Balance Sheets). (c) Included primarily in Other current liabilities and in Other long-term liabilities and deferred credits in the Consolidated Balance Sheets.
SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. AT&T Corp. /s/ M. J. Wasser ------------------------------------ By: M. J. Wasser Vice President - Law and Secretary March 28, 1997 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated. Principal Executive Officers: # # Robert E. Allen Chairman # of the Board and # Chief Executive # Officer # # John R. Walter President, Chief # Operating Officer # and Director # # Principal Financial Officer: # # Richard W. Miller Senior Executive # Vice President and# Chief Financial # Officer # # Principal Accounting Officer: # # Maureen B. Tart Vice President ## By M. J. Wasser and Controller # (attorney-in-fact)* # Directors: # # March 28, 1997 Kenneth T. Derr # M. Kathryn Eickhoff # Walter Y. Elisha # Ralph S. Larsen # Donald F. McHenry # Michael I. Sovern # Joseph D. Williams # Thomas H. Wyman # Exhibit Index Exhibit Number: (3)a Restated Certificate of Incorporation of the registrant filed January 10, 1989, Certificate of Correction of the registrant filed June 8, 1989, Certificate of Change of the registrant filed March 18, 1992, Certificate of Amendment of the registrant filed June 1, 1992, and Certificate of Amendment of the registrant filed April 20, 1994. (Exhibit 4 to Registration Statement No. 333-00573). (3)b By-Laws of the registrant, as amended January 15, 1997. (4) No instrument which defines the rights of holders of long term debt, of the registrant and all of its consolidated subsidiaries, is filed herewith pursuant to Regulation S-K, Item 601(b)(4)(iii)(A). Pursuant to this regulation, the registrant hereby agrees to furnish a copy of any such instrument to the SEC upon request. (10)(i)1 Form of Separation and Distribution Agreement by and among AT&T Corp., Lucent Technologies Inc. and NCR Corporation, dated as of February 1, 1996 and amended and restated as of March 29, 1996. (10)(i)2 Form of Distribution Agreement, dated as of November 20, 1996, by and between AT&T Corp. and NCR Corporation. (10)(i)3 Tax Sharing Agreement by and among AT&T Corp., Lucent Technologies Inc. and NCR Corporation, dated as of February 1, 1996 and amended and restated as of March 29, 1996. (10)(i)4 Employee Benefits Agreement by and between AT&T Corp. and Lucent Technologies Inc., dated as of February 1, 1996 and amended and restated as of March 29, 1996. (10)(i)5 Form of Employee Benefits Agreement, dated as of November 20, 1996, between AT&T Corp. and NCR Corporation. (10)(ii)(B)1 General Purchase Agreement by and between AT&T Corp. and Lucent Technologies Inc., dated February 1, 1996 and amended and restated as of March 29, 1996. (10)(ii)(B)2 Form of Volume Purchase Agreement, dated as of November 20, 1996, by and between AT&T Corp. and NCR Corporation. (10)(iii)(A)1 AT&T Short Term Incentive Plan as amended March, 1994 (Exhibit (10)(iii)(A)1 to Form 10-K for 1994, File No. 1-1105). (10)(iii)(A)2 AT&T 1987 Long Term Incentive Program as amended July 17, 1989 (Exhibit (10)(iii)(A)2 to Form SE dated March 24, 1993, File No. 1-1105). (10)(iii)(A)3 AT&T Senior Management Individual Life Insurance Program dated January 1, 1987 (Exhibit (10)(iii)(A)1 to Form SE, dated March 25, 1987, File No. 1-1105) and as revised December 1, 1994 (Exhibit (10)(iii)(A)3 to Form 10-K for 1994, File No. 1-1105). (10)(iii)(A)4 AT&T Senior Management Long Term Disability and Survivor Protection Plan, as amended and restated effective January 1, 1995. (10)(iii)(A)5 AT&T Senior Management Financial Counseling Program dated December 29, 1994 (Exhibit (10)(iii)(A)5 to Form 10-K for 1994, File No. 1-1105). (10)(iii)(A)6 AT&T Deferred Compensation Plan for Non-Employee Directors, as amended December 15, 1993(Exhibit (10)(iii) (A)6 to Form 10-K for 1993, File No. 1-1105). (10)(iii)(A)7 The AT&T Directors Individual Life Insurance Program dated January 1, 1987, revised December 1, 1995. (10)(iii)(A)8 AT&T Plan for Non-Employee Directors' Travel Accident Insurance (Exhibit (10)(iii)(A)8 to Form 10-K for 1990, File No. 1-1105). (10)(iii)(A)9 AT&T Excess Benefit and Compensation Plan, as amended and restated effective October 1, 1996. (10)(iii)(A)10 AT&T Non-Qualified Pension Plan, as amended and restated January 1, 1995. (10)(iii)(A)11 AT&T Senior Management Incentive Award Deferral Plan, as amended December 20, 1995. (10)(iii)(A)12 AT&T Mid-Career Hire Program revised effective January 1, 1988 (Exhibit (10)(iii)(A)4 to Form SE, dated March 25, 1988, File No. 1-1105) including AT&T Mid-Career Pension Plan, as amended and restated October 1, 1996. (10)(iii)(A)13 AT&T 1984 Stock Option Plan, as modified December 19, 1984 (Exhibit 10(t) to Form SE, dated February 27,1985, File No. 0-13247). (10)(iii)(A)14 Form of Indemnification Contract for Officers and Directors (Exhibit (10)(iii)(A)6 to Form SE, dated March 25, 1987, File No. 1-1105). (10)(iii)(A)15 Pension Plan for AT&T Non-Employee Directors revised February 20, 1989 (Exhibit (10)(iii)(A)15 to Form 10-K for 1993, File No. 1-1105). (10)(iii)(A)16 AT&T Corp. Senior Management Basic Life Insurance Program, as amended May 17, 1995. (10)(iii)(A)17 Form of AT&T Benefits Protection Trust Agreement (Exhibit (10)(iii)(A)17 to Form SE, dated March 25, 1992, File No. 1-1105). (10)(iii)(A)18 Form of Employment Agreement between AT&T Corp. and John R. Walter dated October 23, 1996. (10)(iii)(A)19 Employment Agreement between American Telephone and Telegraph Company and Richard W. Miller dated August 9, 1993 (Exhibit 10(iii)(A)19 to Form 10-K for 1995, File No. 1-1105). (12) Computation of Ratio of Earnings to Fixed Charges. (13) Specified portions (pages 20 through 44 and the outside back cover) of the Company's Annual Report to security holders for the year ended December 31, 1996. (21) List of subsidiaries of AT&T. (23) Consent of Coopers & Lybrand L.L.P. (24) Powers of Attorney executed by officers and directors who signed this report. (27) Financial Data Schedule. EX-3.(II) 2 EXHIBIT (3)B BY-LAWS as amended by BOARD OF DIRECTORS, January 15, 1997 Article I Meeting of Shareholders Section 1. The annual meeting of the shareholders shall be held in May each year on such day, at such time and at such place as shall be designated in the notice of the meeting. A notice of the annual meeting as approved by the Board of Directors shall be mailed not less than ten nor more than fifty days before the meeting, directed to each shareholder entitled to vote at said meeting at his address as it appears on the record of shareholders unless he shall have filed with the Secretary a written request that notices intended for him be mailed to some other address, in which case it shall be directed to him at such other address. Section 2. The Board of Directors may fix, in advance, a date not more than fifty nor less than ten days before the date of any meeting of the shareholders as the record date for determination of shareholders entitled to notice of or to vote at such meeting, and only shareholders of record on such date shall be entitled to notice of or to vote at such meeting. Section 3. Special meetings of the shareholders may be called at any time by either the Chairman of the Board or the Board of Directors, and shall be called upon a request to the Chairman of the Board or Secretary, signed by shareholders representing at least one-third of the shares. Any such request shall specify the time and the purpose or purposes of the proposed meeting. The meeting shall be held at such place within or without the State of New York as may be designated in the notice of the meeting. A notice of not less than ten nor more than fifty days shall be given by mail for each special meeting, in the manner provided for notice of the annual meeting. Such notice shall state the purpose or purposes for which the meeting is called and the time when and the place where it is to be held and shall indicate that the notice is being issued by or at the direction of the person or persons calling the meeting. Section 4. Failure to receive notice of any meeting shall not invalidate the meeting. Section 5. Notice of shareholders business at annual meetings of shareholders shall be governed by the provisions of this By-Law. (1) The proposal of business to be considered by the shareholders may be made at an annual meeting of shareholders (a) pursuant to the company's notice of meeting pursuant to Section 1 of this Article I of these By-Laws, by or at the direction of the Board of Directors or (c) by any shareholder of the company who was a shareholder of record at the time of giving notice provided for in this By-Law, who is entitled to vote at the meeting and who complies with the notice procedures set forth in this By-Law. (2) For business to be properly brought before an annual meeting by a shareholder pursuant to clause (c) of paragraph (1) of this By-Law, the shareholder must have given timely notice thereof in writing to the Secretary of the company and such business must otherwise be a proper matter for shareholder action. To be timely, a shareholder's notice shall be delivered to the Secretary at the principal executive offices of the company 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 shareholder to be timely must be so delivered not earlier than the close of business on the 120th calendar day prior to such annual meeting but 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 Company. In no event shall the public announcement of an adjournment of an annual meeting commence a new time period for the giving of a shareholder's notice as described above. Such shareholder's notice shall set forth (a) as to any description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such shareholder and beneficial owner, if any, on whose behalf the proposal is made; and (b) as to the shareholder 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 shareholder, as they appear on the Company's books, and of such beneficial owner and (ii) the class and number of shares of the Company which are owned beneficially and of record by such shareholder and such beneficial owner. ARTICLE II. The Conduct of Shareholders' Meetings At all meetings of the shareholders, the holders of forty per centum of the shares entitled to vote thereat shall constitute a quorum, except as otherwise required by law; but the shareholders present may adjourn the meeting to another time or place despite the absence of a quorum. Every shareholder entitled to vote shall be entitled to one vote for each share standing in his name on the record of shareholders; and every shareholder entitled to vote may vote in person or by proxy. All elections by shareholders shall be by ballot. ARTICLE III. Inspectors The Board of Directors, in advance of any shareholders' meeting, shall appoint three Inspectors to act at the meeting or any adjournment thereof. In case any person appointed fails to appear or act, the vacancy may be filled by appointment made by the Board in advance of the meeting or at the meeting by the person presiding thereat. ARTICLE IV. The Board of Directors Section 1. The business of the company shall be managed under the direction of its Board of Directors, who shall be elected by the shareholders at the annual meeting. Section 2. The number of Directors shall be not less than ten nor more than twenty-five, the exact number of Directors within such minimum and maximum limits to be fixed and determined by the vote of a majority of the entire Board. In case of any increase in the number of Directors, the additional Directors may be elected by a majority of the Directors then in office. Section 3. Any vacancy in the Board may be filled by a majority vote of the remaining Directors, though less than a quorum. ARTICLE V. Meetings of Directors Section 1. Regular meetings shall be held at such times and places as the Board may determine. Section 2. Special meetings of the Directors may be called at any time by the Chairman of the Board, or by two members of the Executive Committee, and shall be called by the Chairman of the Board, or by the Secretary, forthwith upon request in writing signed by two Directors and specifying the object of the meeting. At least three days' notice of a special meeting shall be given in the manner provided for herein. Section 3. Any notice of a meeting of Directors required to be given may be given to each Director by mail or telegraph, addressed to him at his residence or usual place of business, or in person or by telephone, stating the time and place of the proposed meeting. Section 4. One-third of the entire Board shall constitute a quorum. Section 5. Meetings of the Directors may be held within or without the State of New York. Section 6. Any one or more members of the Board may participate in a meeting of the Board by means of a conference telephone or similar communications equipment allowing all persons participating in the meeting to hear each other at the same time. Participation by such means shall constitute presence in person at a meeting. Any action required or permitted to be taken by the Board may be taken without a meeting if all members of the Board consent in writing to the adoption of a resolution authorizing the action. The resolution and the written consents thereto by the members of the Board shall be filed with the minutes of the proceedings of the Board. ARTICLE VI. Executive Committee and Other Committees The Board of Directors, by resolution adopted by a majority of the entire Board, may designate from their number an Executive Committee and other committees, and may determine the quorum thereof. Any such committee shall consist of three or more members and shall serve at the pleasure of the Board. The Chairman of the Board, one or more Vice Chairmen of the Board and the President, if any, shall be members of the Executive Committee. The Executive Committee shall, except as otherwise provided by law or by resolution of the Board, have all the authority of the Board of Directors during the intervals between the meetings of the Board. The Executive Committee shall keep a record of its proceedings, which shall from time to time be reported to the Board of Directors. The Chairman of the Board shall preside at the meetings of the Executive Committee. Committees other than the Executive Committee shall, except as otherwise provided by law, have such authority as shall be provided by resolution of the Board. The Board may designate from time to time one or more Directors as alternate members of the Executive Committee or of any other committee, who may replace any absent member or members at any meeting of the committee. Any one or more members of the Executive Committee or any other committee established by the Board pursuant to this Article VI may participate in a meeting of such committee by means of a conference telephone or similar communications equipment allowing all persons participating in the meeting to hear each other at the same time. Participation by such means shall constitute presence in person at the meeting. Any action required or permitted to be taken by the Executive Committee or any other committee established by the Board pursuant to this Article VI may be taken without a meeting if all members of the committee consent in writing to the adoption of a resolution authorizing the action. The resolution and written consents thereto shall be filed with the minutes of the proceedings of the committee. ARTICLE VII. Officers of the Company Section l. The officers of the Company shall be elected by the Board of Directors, and may consist of a Chairman of the Board, one or more Vice Chairmen of the Board, a President, such number of Executive Vice Presidents and Senior Vice Presidents as the Board of Directors shall from time to time determine, a Secretary, a Treasurer and a Controller. The officers shall hold office until their successors have been elected. Section 2. The Board of Directors may appoint one or more Assistant Secretaries, one or more Assistant Treasurers, one or more Assistant Controllers, and such other officers and agents as the Board may consider necessary. ARTICLE VIII. Duties of the Chairman of the Board, President, Vice Chairmen of the Board, Executive Vice Presidents and Senior Vice Presidents Section 1. The Chairman of the Board shall be the chief executive officer of the company and shall have such authority and perform such duties as usually appertain to the chief executive office in business corporations. He shall preside at the meetings of the Board of Directors and he, or such officer as he may designate from time to time, shall preside at meetings of the shareholders. Section 2. The President, Vice Chairmen of the Board, Executive Vice Presidents and Senior Vice Presidents shall perform such duties as the Board of Directors or Chairman of the Board may from time to time determine. Section 3. In case of absence or inability of the Chairman of the Board, the President shall possess all the authority of the Chairman of the Board. ARTICLE IX. Duties of the Treasurer and Assistant Treasurers Section 1. The Treasurer shall receive all the funds of the company, and shall disburse them under the direction of the Board of Directors. All disbursement instruments shall be signed by such person or persons and in such manner as the Board may from time to time provide. Section 2. The Treasurer shall keep full and regular books, showing all his receipts and disbursements, which books shall be open at all times to the inspection of the Chairman of the Board or of any member of the Board of Directors; and he shall make such reports and perform such other duties as the Chairman of the Board or Board of Directors may require. Section 3. The Treasurer shall deposit all moneys received by him, in the corporate name of the company, with such depositories as shall be approved from time to time by the Board of Directors or by the Chairman of the Board, the President, a Vice Chairman of the Board or the Treasurer. Section 4. Assistant Treasurers shall have such of the authority and perform such of the duties of the Treasurer as may be provided in these by-laws or assigned to them by the Board of Directors or the Chairman of the Board or by the Treasurer upon the approval of the Chairman of the Board, the President or a Vice Chairman of the Board. During the Treasurer's absence or inability, his authority and duties shall be possessed by such Assistant Treasurer or Assistant Treasurers as the Board of Directors, the Chairman of the Board, the President or a Vice Chairman of the Board may designate. Section 5. The Board of Directors may require the Treasurer and Assistant Treasurers to give such security for the faithful performance of their duties as the Board shall from time to time determine. ARTICLE X. Duties of the Secretary and Assistant Secretaries Section 1. The Secretary shall send notice to the shareholders of all annual and special meetings, and to the Directors of meetings of the Board where notice is required to be given; and he shall perform such other duties as may be required of him by the Chairman of the Board or Board of Directors, and such as usually appertain to the office of Secretary. Section 2. The Secretary or in his absence an Assistant Secretary shall keep an accurate record of the proceedings of the Board of Directors and of the Executive Committee, and of all meetings of shareholders, and shall have the custody of the seal of the company and affix it to all instruments requiring the seal. Section 3. Assistant Secretaries shall have such of the authority and perform such of the duties of the Secretary as may be provided in these by-laws or assigned to them by the Board of Directors or the Chairman of the Board or by the Secretary upon the approval of the Chairman of the Board, the President or a Vice Chairman of the Board. During the Secretary's absence or inability, his authority and duties shall be possessed by such Assistant Secretary or Assistant Secretaries as the Board of Directors, the Chairman of the Board, the President or a Vice Chairman of the Board may designate. ARTICLE XI. Duties of the Controller The Controller shall be the principal accounting officer of the company and shall perform such duties as may be required of him by the Chairman of the Board or Board of Directors. ARTICLE XII. Transfer of Shares Section 1. Certificates for shares shall be issued by the Treasurer. Shares shall be transferable only on the record of shareholders of the company by the holder thereof in person or by attorney, upon surrender of the outstanding certificate therefor. This requirement shall be embodied in each certificate. Section 2. In case of the loss of a certificate, a new certificate may be issued upon such terms as the Board of Directors may prescribe. ARTICLE XIII. Indemnification of Directors and Officers The company is authorized, by (i) a resolution of shareholders, (ii) a resolution of Directors, or (iii) an agreement providing for such indemnification, to the fullest extent permitted by applicable law, to provide indemnification and to advance expenses to its Directors and officers in respect of claims, actions, suits or proceedings based upon, arising from, relating to or by reason of the fact that any such Director or officer serves or served in such capacity with the corporation or at the request of the company in any capacity with any other enterprise. ARTICLE XIV. Seal The common seal of the company shall be in the following form. ARTICLE XV. Amendments These by-laws may be amended by the shareholders at any meeting; or by the Board of Directors at any meeting by a majority vote of the full Board, or at two successive meetings by a majority vote of a quorum present. The notice of a special meeting of the Board at which such action is to be taken shall set forth the substance of the proposed amendment. EX-10 3 EXHIBIT (10)(I)1 SEPARATION AND DISTRIBUTION AGREEMENT BY AND AMONG AT&T CORP., LUCENT TECHNOLOGIES INC. AND NCR CORPORATION DATED AS OF FEBRUARY 1, 1996 AND AMENDED AND RESTATED AS OF MARCH 29, 1996 SEPARATION AND DISTRIBUTION AGREEMENT THIS SEPARATION AND DISTRIBUTION AGREEMENT, dated as of February 1, 1996, as amended and restated as of March 29, 1996, is by and among AT&T, Lucent and NCR. Capitalized terms used herein and not otherwise defined shall have the respective meanings assigned to them in Article I hereof. WHEREAS, the Board of Directors of AT&T has determined that it is in the best interests of AT&T and its shareholders to separate AT&T's existing businesses into three independent businesses; WHEREAS, in furtherance of the foregoing, it is appropriate and desirable to transfer the Lucent Assets to Lucent and its Subsidiaries and to cause Lucent and its Subsidiaries to assume the Lucent Liabilities, all as more fully described in this Agreement and the Ancillary Agreements; WHEREAS, the Board of Directors of AT&T has further determined that it is appropriate and desirable, on the terms and conditions contemplated hereby, to cause Lucent to offer and sell for its own account in the IPO a limited number of shares of Lucent Common Stock, and subsequently for AT&T to distribute to holders of shares of AT&T Common Stock the outstanding shares of Lucent Common Stock owned directly or indirectly by AT&T; WHEREAS, the Distribution is intended to qualify as a tax-free spin-off under Section 355 of the Code; WHEREAS, it is also expected that, following certain additional transfers of Assets and assignments and assumptions of Liabilities, AT&T will distribute to its shareholders all of the capital stock of NCR held directly or indirectly by AT&T and that, in connection therewith, AT&T and NCR will enter into such additional agreements as may be necessary to address matters not addressed by this Agreement or the Ancillary Agreements; and WHEREAS, it is appropriate and desirable to set forth the principal corporate transactions required to effect the Separation, the IPO and the Distribution and certain other agreements that will govern certain matters relating to the Separation, the IPO and the Distribution and the relationship of AT&T, Lucent, NCR and their respective Subsidiaries following the IPO and the Distribution. NOW, THEREFORE, the parties, intending to be legally bound, agree as follows: ARTICLE I DEFINITIONS For the purpose of this Agreement the following terms shall have the following meanings: 1.1. ACTION means any demand, action, suit, countersuit, arbitration, inquiry, proceeding or investigation by or before any federal, state, local, foreign or international Governmental Authority or any arbitration or mediation tribunal. 1.2. AFFILIATE of any Person means a Person that controls, is controlled by, or is under common control with such Person. As used herein, "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such entity, whether through ownership of voting securities or other interests, by contract or otherwise. 1.3. AGENT means the distribution agent to be appointed by AT&T to distribute to the shareholders of AT&T the shares of Lucent Common Stock held by AT&T pursuant to the Distribution. 1.4. AGREEMENT means this Separation and Distribution Agreement, including all of the Schedules hereto. 1.5. AMERICAN RIDGE means American Ridge Insurance Company, a Vermont corporation. 1.6. ANCILLARY AGREEMENTS means the deeds, lease assignments and assumptions, leases, subleases and sub-subleases, and the supplemental and other agreements and instruments related thereto, substantially in the forms attached as Schedule 2.5, the AT&T General Purchase Agreement and the supplemental and other agreements related thereto, the Brand License Agreement, the Employee Benefits Agreement, the Interim Services and Systems Replication Agreement, the NCR Volume Purchase Agreement, the Patent Assignments and related agreements regarding powers of attorney, the Patent Defensive Protection Agreements, the Patent Joint Ownership Agreement, the Patent License Agreement, the Tax Sharing Agreement, the Technology Access and Development Project Agreement, the Technology Assignment and Joint Ownership Agreements, the Technology License Agreement, the Trade Dress Assignment, the Trademark and Service Mark Assignment, the VTNS Agreement, and the agreements and other documents comprising the Non-U.S. Plan. 1.7. APPLICABLE DEADLINE has the meaning set forth in Section 9.3(b). 1.8. ARBITRATION ACT means the United States Arbitration Act, 9 U.S.C. Sections 1-14, as the same may be amended from time to time. 1.9. ARBITRATION DEMAND DATE has the meaning set forth in Section 9.3(a). 1.10. ARBITRATION DEMAND NOTICE has the meaning set forth in Section 9.3(a). 1.11. ASSETS means assets, properties and rights (including goodwill), wherever located (including in the possession of vendors or other third parties or elsewhere), whether real, personal or mixed, tangible, intangible or contingent, in each case whether or not recorded or reflected or required to be recorded or reflected on the books and records or financial statements of any Person, including the following: (a) all accounting and other books, records and files whether in paper, microfilm, microfiche, computer tape or disc, magnetic tape or any other form; (b) all apparatus, computers and other electronic data processing equipment, fixtures, machinery, equipment, furniture, office equipment, automobiles, trucks, aircraft, rolling stock, vessels, motor vehicles and other transportation equipment, special and general tools, test devices, prototypes and models and other tangible personal property; (c) all inventories of materials, parts, raw materials, supplies, work-in-process and finished goods and products; (d) all interests in real property of whatever nature, including easements, whether as owner, mortgagee or holder of a Security Interest in real property, lessor, sublessor, lessee, sublessee or otherwise; (e) all interests in any capital stock or other equity interests of any Subsidiary or any other Person, all bonds, notes, debentures or other securities issued by any Subsidiary or any other Person, all loans, advances or other extensions of credit or capital contributions to any Subsidiary or any other Person and all other investments in securities of any Person; (f) all license agreements, leases of personal property, open purchase orders for raw materials, supplies, parts or services, unfilled orders for the manufacture and sale of products and other contracts, agreements or commitments; (g) all deposits, letters of credit and performance and surety bonds; (h) all written technical information, data, specifications, research and development information, engineering drawings, operating and maintenance manuals, and materials and analyses prepared by consultants and other third parties; (i) all domestic and foreign patents, copyrights, trade names, trademarks, service marks and registrations and applications for any of the foregoing, mask works, trade secrets, inventions, other proprietary information and licenses from third Persons granting the right to use any of the foregoing; (j) all computer applications, programs and other software, including operating software, network software, firmware, middleware, design software, design tools, systems documentation and instructions; (k) all cost information, sales and pricing data, customer prospect lists, supplier records, customer and supplier lists, customer and vender data, correspondence and lists, product literature, artwork, design, development and manufacturing files, vendor and customer drawings, formulations and specifications, quality records and reports and other books, records, studies, surveys, reports, plans and documents; (l) all prepaid expenses, trade accounts and other accounts and notes receivables; (m) all rights under contracts or agreements, all claims or rights against any Person arising from the ownership of any Asset, all rights in connection with any bids or offers and all claims, choses in action or similar rights, whether accrued or contingent; (n) all rights under insurance policies and all rights in the nature of insurance, indemnification or contribution; (o) all licenses (including radio and similar licenses), permits, approvals and authorizations which have been issued by any Governmental Authority; (p) cash or cash equivalents, bank accounts, lock boxes and other deposit arrangements; and (q) interest rate, currency, commodity or other swap, collar, cap or other hedging or similar agreements or arrangements. 1.12. AT&T means AT&T Corp., a New York corporation. 1.13. AT&T COMMON STOCK means the Common Stock, $1.00 par value per share, of AT&T. 1.14. AT&T CP RATE during any month of determination shall be equal to the weighted average rate on all AT&T commercial paper (across all maturities) for such month. 1.15. AT&T GENERAL PURCHASE AGREEMENT means the General Purchase Agreement, dated as of the date hereof, as amended, by and between AT&T and Lucent. 1.16. AT&T GROUP means AT&T and each Person (other than any member of the Lucent Group) that is an Affiliate of AT&T immediately after the Closing Date (including any member of the NCR Group). 1.17. AT&T INDEMNITEES has the meaning set forth in Section 5.2. 1.18. AT&T LABORATORIES means the Assets of AT&T's Bell Laboratories division described or listed on Schedule 1.18 and any other Assets of AT&T's Bell Laboratories division that primarily relate to the AT&T Services Business or the NCR Business. 1.19. AT&T SERVICES BUSINESS means: (a) the business and operations of the telecommunications services divisions and Subsidiaries and the financial services and leasing divisions and Subsidiaries of AT&T consisting principally of the Communications Services Group, AT&T Wireless Services, Inc. and its Subsidiaries, Universal Card Services, Inc. and its Subsidiaries, AT&T Capital Corporation and its Subsidiaries, AT&T Solutions, AT&T Laboratories, Submarine Systems and, subject to Section 2.9(a), AT&T Ventures; (b) except as otherwise expressly provided herein, any terminated, divested or discontinued businesses or operations that at the time of termination, divestiture or discontinuation primarily related to the AT&T Services Business as then conducted; and (c) the terminated, divested or discontinued businesses and operations listed or described on Schedule 1.19. 1.20. AT&T SERVICES GROUP means each member of the AT&T Group other than any member of the NCR Group. 1.21. AT&T VENTURES means AT&T Ventures, a limited partnership. 1.22. ATTI means AT&T International Inc., a Delaware corporation. 1.23. BRAND LICENSE AGREEMENT means the Brand License Agreement, dated as of the date hereof, by and between AT&T and Lucent. 1.24. CHANGE OF CONTROL of any Person means any of the following: (a) the consummation of a merger, consolidation, or similar business combination involving such Person, or a sale or other disposition of all or substantially all of the assets of such Person; (b) the acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under such Act) of 40% or more of either (i) the then outstanding shares of common stock of such Person, or (ii) the combined voting power of the then outstanding voting securities of such Person entitled to vote generally in the election of directors; or (c) individuals who, as of the Distribution Date, constitute the Board of Directors of such Person (the "Incumbent Board") cease for any reason to constitute at least a majority of such Board; provided, however, that any individual becoming a director subsequent to the Distribution Date (other than any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of any Person other than the Board) whose election or nomination for election by the stockholders of such Person was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board. 1.25. CLOSING means the receipt by Lucent of the net proceeds of the IPO in accordance with the terms of the Underwriting Agreement. 1.26. CLOSING DATE means the first time at which any shares of Lucent Common Stock are sold to the Underwriters pursuant to the IPO in accordance with the terms of the Underwriting Agreement. 1.27. CODE means the Internal Revenue Code of 1986, as amended. 1.28. COMMISSION means the Securities and Exchange Commission. 1.29. CONSENTS means any consents, waivers or approvals from, or notification requirements to, any third parties. 1.30. CONTINGENT CLAIM COMMITTEE, CONTINGENT GAIN AND CONTINGENT LIABILITIES have the respective meanings set forth in Section 6.1. 1.31. CPR means the Center for Public Resources. 1.32. DELAYED TRANSFER ASSETS means any Lucent Assets that are expressly provided in this Agreement or any Ancillary Agreement to be transferred after the date of this Agreement. 1.33. DELAYED TRANSFER LIABILITIES means any Lucent Liabilities that are expressly provided in this Agreement or any Ancillary Agreement to be assumed after the date of this Agreement. 1.34. DETERMINATION REQUEST means a written request made to the Contingent Claim Committee, pursuant to Section 5.5(b), for a determination as to whether a Third Party Claim specified in such request constitutes a Shared Contingent Liability. 1.35. DISTRIBUTION means the distribution by AT&T on a pro rata basis to holders of AT&T Common Stock of all of the outstanding shares of Lucent Common Stock owned by AT&T on the Distribution Date as set forth in Article IV. 1.36. DISTRIBUTION DATE means the date determined pursuant to Section 4.1 on which the Distribution occurs. 1.37. EFFECTIVE IPO DATE means the date on which the IPO Registration Statement is declared effective by the Commission. 1.38. EFFECTIVE TIME means 5:00 p.m., Eastern Standard Time or Eastern Daylight Time (whichever shall be then in effect), on the Distribution Date. 1.39. EMPLOYEE BENEFITS AGREEMENT means the Employee Benefits Agreement, dated as of the date hereof, as amended, by and between AT&T and Lucent. 1.40. ENVIRONMENTAL LAW means any federal, state, local, foreign or international statute, ordinance, rule, regulation, code, license, permit, authorization, approval, consent, common law (including tort and environmental nuisance law), legal doctrine, order, judgment, decree, injunction, requirement or agreement with any Governmental Authority, now or hereafter in effect relating to health, safety, pollution or the environment (including ambient air, surface water, groundwater, land surface or subsurface strata) or to emissions, discharges, releases or threatened releases of any substance currently or at any time hereafter listed, defined, designated or classified as hazardous, toxic, waste, radioactive or dangerous, or otherwise regulated, under any of the foregoing, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of any such substances, including the Comprehensive Environmental Response, Compensation and Liability Act, the Superfund Amendments and Reauthorization Act and the Resource Conservation and Recovery Act and comparable provisions in state, local, foreign or international law. 1.41. ENVIRONMENTAL LIABILITIES means all Liabilities relating to, arising out of or resulting from any Environmental Law or contract or agreement relating to environmental, health or safety matters (including all removal, remediation or cleanup costs, investigatory costs, governmental response costs, natural resources damages, property damages, personal injury damages, costs of compliance with any settlement, judgment or other determination of Liability and indemnity, contribution or similar obligations) and all costs and expenses (including allocated costs of in-house counsel and other personnel), interest, fines, penalties or other monetary sanctions in connection therewith. 1.42. ESCALATION NOTICE has the meaning set forth in Section 9.2. 1.43. EXCESS PORTION has the meaning specified in Section 6.1. 1.44. EXCHANGE ACT means the Securities Exchange Act of 1934, as amended, together with the rules and regulations promulgated thereunder. 1.45. EXCLUDED ASSETS has the meaning set forth in Section 2.2(b). 1.46. EXCLUDED LIABILITIES has the meaning set forth in Section 2.3(b). 1.47. EXCLUSIVE AT&T CONTINGENT GAIN, EXCLUSIVE AT&T CONTINGENT LIABILITY, EXCLUSIVE LUCENT CONTINGENT GAIN, EXCLUSIVE LUCENT CONTINGENT LIABILITY, EXCLUSIVE NCR CONTINGENT GAIN, EXCLUSIVE NCR CONTINGENT LIABILITY AND EXCLUSIVE CONTINGENT LIABILITY have the respective meanings set forth in Section 6.1. 1.48. FINANCING FACILITY means the commercial paper facility and related credit agreement to be entered into prior to the Closing Date by and among AT&T, Lucent, and an agent or co-agents selected by AT&T and Lucent, pursuant to which, prior to the Closing Date, AT&T will issue commercial paper or otherwise borrow an amount determined by AT&T and, as of the Closing Date, Lucent will become the sole obligor and AT&T will have no further liability or obligation thereunder. 1.49. GOVERNMENTAL APPROVALS means any notices, reports or other filings to be made, or any consents, registrations, approvals, permits or authorizations to be obtained from, any Governmental Authority. 1.50. GOVERNMENTAL AUTHORITY shall mean any federal, state, local, foreign or international court, government, department, commission, board, bureau, agency, official or other regulatory, administrative or governmental authority. 1.51. GROUP means any of the AT&T Services Group, the Lucent Group or the NCR Group, as the context requires. 1.52. IDENTIFIED BELL LABS SERVICES means: (a) environmental, health and safety services provided by Lucent Bell Laboratories, including (i) compatibility, product compliance, telephone network interconnect, product design and mandatory standards consultation services, (ii) wireless safety, radiation protection and product safety services, (iii) groundwater remediation services, (iv) environmental and energy management, and (v) industrial hygiene, safety and toxicology; (b) technical support services provided by Lucent Bell Laboratories, including (i) technical cataloging and processing services and (ii) product design shop services; (c) additional research and similar services provided by Lucent Bell Laboratories; (d) information systems reengineering center services, including systems design and programming support for human resource, billing, procurement and facilities systems; and (e) services provided by Lucent Bell Laboratories relating to projects initiated prior to the date hereof but not completed prior to the Closing Date. 1.53. INDEMNIFYING PARTY has the meaning set forth in Section 5.4(a). 1.54. INDEMNITEE has the meaning set forth in Section 5.4(a). 1.55. INDEMNITY PAYMENT has the meaning set forth in Section 5.4(a). 1.56. INFORMATION means information, whether or not patentable or copyrightable, in written, oral, electronic or other tangible or intangible forms, stored in any medium, including studies, reports, records, books, contracts, instruments, surveys, discoveries, ideas, concepts, know-how, techniques, designs, specifications, drawings, blueprints, diagrams, models, prototypes, samples, flow charts, data, computer data, disks, diskettes, tapes, computer programs or other software, marketing plans, customer names, communications by or to attorneys (including attorney-client privileged communications), memos and other materials prepared by attorneys or under their direction (including attorney work product), and other technical, financial, employee or business information or data. 1.57. INSURANCE POLICIES means the insurance policies written by insurance carriers unaffiliated with AT&T pursuant to which Lucent or one or more of its Subsidiaries (or their respective officers or directors) will be insured parties after the Closing Date. 1.58. INSURANCE PROCEEDS means those monies: (a) received by an insured from an insurance carrier; (b) paid by an insurance carrier on behalf of the insured; or (c) received (including by way of set off) from American Ridge or any of its Subsidiaries or from any third party in the nature of insurance, contribution or indemnification in respect of any Liability (other than pursuant to or in connection with any RBOC Agreement); in any such case net of any applicable premium adjustments (including reserves and retrospectively rated premium adjustments) and net of any costs or expenses (including allocated costs of in-house counsel and other personnel) incurred in the collection thereof. 1.59. INTERIM SERVICES AND SYSTEMS REPLICATION AGREEMENT means the Interim Services and Systems Replication Agreement, dated as of the date hereof, by and among AT&T, Lucent and NCR. 1.60. IPO means the initial public offering by Lucent of shares of Lucent Common Stock pursuant to the IPO Registration Statement. 1.61. IPO REGISTRATION STATEMENT means the registration statement on Form S-1 to be filed under the Securities Act, pursuant to which the Lucent Common Stock to be issued in the IPO will be registered, together with all amendments thereto. 1.62. LIABILITIES means any and all losses, claims, charges, debts, demands, actions, causes of action, suits, damages, obligations, payments, costs and expenses, sums of money, accounts, reckonings, bonds, specialties, indemnities and similar obligations, exonerations, covenants, contracts, controversies, agreements, promises, doings, omissions, variances, guarantees, make whole agreements and similar obligations, and other liabilities, including all contractual obligations, whether absolute or contingent, matured or unmatured, liquidated or unliquidated, accrued or unaccrued, known or unknown, whenever arising, and including those arising under any law, rule, regulation, Action, threatened or contemplated Action (including the costs and expenses of demands, assessments, judgments, settlements and compromises relating thereto and attorneys' fees and any and all costs and expenses (including allocated costs of in-house counsel and other personnel), whatsoever reasonably incurred in investigating, preparing or defending against any such Actions or threatened or contemplated Actions), order or consent decree of any Governmental Authority or any award of any arbitrator or mediator of any kind, and those arising under any contract, commitment or undertaking, including those arising under this Agreement or any Ancillary Agreement, in each case, whether or not recorded or reflected or required to be recorded or reflected on the books and records or financial statements of any Person. 1.63. LUCENT means Lucent Technologies Inc., a Delaware corporation, formerly known as NS-MPG Inc. 1.64. LUCENT ASSETS has the meaning set forth in Section 2.2(a). 1.65. LUCENT BALANCE SHEET means the audited consolidated balance sheet of Lucent, including the notes thereto, as of December 31, 1995. 1.66. LUCENT BELL LABORATORIES means the Assets of AT&T's Bell Laboratories division as of the date hereof other than the Assets of AT&T Laboratories. 1.67. LUCENT BUSINESS means: (a) the business and operations of the telecommunications equipment divisions and Subsidiaries of AT&T consisting principally of the Network Systems Group, the Global Business Communications Systems Group, the Consumer Products Group, the Microelectronics Group, AT&T Paradyne and Lucent Bell Laboratories; and (b) except as otherwise expressly provided herein, any terminated, divested or discontinued businesses or operations that at the time of termination, divestiture or discontinuation primarily related to the Lucent Business as then conducted. 1.68. LUCENT COMMON STOCK means the Common Stock, $.01 par value per share, of Lucent. 1.69. LUCENT CONTRACTS means the following contracts and agreements to which AT&T or any of its Affiliates is a party or by which it or any of its Affiliates or any of their respective Assets is bound, whether or not in writing, except for any such contract or agreement that is contemplated to be retained by AT&T or any member of the AT&T Group pursuant to any provision of this Agreement or any Ancillary Agreement: (a) any supply or vendor contracts or agreements listed or described on Schedule 1.69(a); (b) any contract or agreement entered into in the name of, or expressly on behalf of, any division, business unit or member of the Lucent Group (other than ATTI or any Person controlled by ATTI); (c) any contract or agreement that relates primarily to the Lucent Business; (d) federal, state and local government and other contracts and agreements that are listed or described on Schedule 1.69(d) and any other government contracts or agreements entered into after the date hereof and prior to the Closing Date that relate primarily to the Lucent Business; (e) any contract or agreement to which ATTI or any Person controlled by ATTI is a party (or by which any of the Assets of ATTI or any such Person is bound), other than (i) any such contract or agreement to which AT&T World Services, Inc. is a party that primarily relates to AT&T's EasyLink Services business, AT&T's International Correspondence Assistance Program, or to AT&T's Federal Systems, including the contracts and agreements listed or described on Schedule 1.69(e)(i), (ii) any joint venture or other contract or agreement listed or described on Schedule 1.69(e)(ii), and (iii) any such contract or agreement that relates primarily to the AT&T Services Business or the NCR Business; (f) any contract or agreement representing capital or operating equipment lease obligations reflected on the Lucent Balance Sheet, including obligations as lessee under those contracts or agreements listed on Schedule 1.69(f) (as such Schedule may be supplemented by mutual agreement of the parties after the date hereof and prior to the Closing Date to assign capital and operating equipment lease obligations executed and delivered after the date of the Lucent Balance Sheet); (g) any contract or agreement that is otherwise expressly contemplated pursuant to this Agreement or any of the Ancillary Agreements to be assigned to Lucent or any member of the Lucent Group; (h) (i) any guarantee, indemnity, representation, warranty or other Liability of any member of the Lucent Group or the AT&T Group in respect of any other Lucent Contract, any Lucent Liability or the Lucent Business (including guarantees of financing incurred by customers or other third parties in connection with purchases of products or services from the Lucent Business), and (ii) the contracts, agreements and other documents listed or described on Schedule 1.69(h)); (i) the arrangements between AT&T and NEC Corp. with respect to the joint venture known as AT&T Japan Semiconductor Marketing, Ltd.; and (j) any Lucent OFL. No RBOC Agreement shall be deemed to be a Lucent Contract, except to the extent expressly set forth herein. 1.70. LUCENT GROUP means Lucent, each Subsidiary of Lucent and each other Person that is either controlled directly or indirectly by Lucent immediately after the Closing Date or that is contemplated to be controlled by Lucent pursuant to the Non-U.S. Plan (other than any Person that is contemplated not to be controlled by Lucent pursuant to the Non-U.S. Plan). 1.71. LUCENT INDEMNITEES has the meaning set forth in Section 5.3(a). 1.72. LUCENT LIABILITIES has the meaning set forth in Section 2.3(a). 1.73. LUCENT OFL'S has the meaning set forth in Section 7.3(a). 1.74. NCR means NCR Corporation (formerly named AT&T Global Information Solutions Company), a Maryland corporation. 1.75. NCR BUSINESS means: (a) the computer products, computer systems, data processing and information solutions business and operations as conducted by NCR and its Subsidiaries; (b) except as otherwise expressly provided herein, any terminated, divested or discontinued businesses or operations (i) that at the time of termination, divestiture or discontinuation primarily related to the NCR Business as then conducted, or (ii) that were conducted by NCR, or any Person that at any time was an Affiliate of NCR, prior to the acquisition of NCR by AT&T; and (c) the terminated, divested or discontinued businesses and operations listed or described on Schedule 1.75. 1.76. NCR COMMON STOCK means the Common Stock, par value $5.00 per share, of NCR. 1.77. NCR COVERED LIABILITIES has the meaning set forth in Section 5.3(b). 1.78. NCR DISTRIBUTION means the distribution by AT&T on a pro rata basis to holders of AT&T Common Stock of all of the outstanding shares of NCR owned directly or indirectly by AT&T. 1.79. NCR GROUP means NCR, each Subsidiary of NCR and each other Person that is either controlled directly or indirectly by NCR immediately after the Closing or that is contemplated to be controlled by NCR pursuant to the Non-U.S. Plan. 1.80. NCR INDEMNITEES has the meaning set forth in Section 5.2. 1.81. NCR VOLUME PURCHASE AGREEMENT means the Volume Purchase Agreement, dated as of the date hereof, by and between NCR and Lucent. 1.82. NYSE means The New York Stock Exchange, Inc. 1.83. NASSAU METALS LIABILITIES means all Environmental Liabilities primarily relating to, arising out of or resulting from the operations of AT&T Nassau Metals Corporation, as conducted at any time prior to, on or after the Closing Date. 1.84. NON-LUCENT ASSETS means any Assets of AT&T or any of its Affiliates (including any member of the NCR Group) other than Lucent Assets. 1.85. NON-U.S. PLAN means the Non-U.S. Plan, comprised of the series of transactions, agreements and other arrangements, pursuant to which the non-U.S. Assets and Liabilities of AT&T and its Affiliates have been or will be assigned among the parties hereto, which are set forth or described in Schedule 1.85 (as such Schedule may be supplemented by mutual consent of the parties prior to the Closing Date). 1.86. OFL'S mean all liabilities, obligations, contingencies and instruments and other Liabilities of any member of the AT&T Group of a financial nature with third parties existing on the date hereof or entered into or established between the date hereof and the Closing Date, including any of the following: (a) foreign exchange contracts; (b) letters of credit; (c) guarantees of third party loans to customers; (d) surety bonds (excluding surety for workers' compensation self-insurance); (e) interest support agreements on third party loans to customers; (f) performance bonds or guarantees issued by third parties; (g) swaps or other derivatives contracts; and (h) recourse arrangements on the sale of receivables or notes. 1.87. OTHER DISCONTINUED OPERATIONS means (a) the business and operations as conducted by any RBOC prior to its divestiture from AT&T, (b) Cincinnati Bell Concession Service and (c) any other terminated, divested or discontinued businesses and operations of AT&T, Lucent or NCR or of any former or current Affiliate of AT&T, Lucent or NCR (whether such business or operations were terminated, divested or discontinued prior to, at the time or after such Person was, became or ceased to be an Affiliate of AT&T, Lucent or NCR) that are not listed or described in, or on the Schedules to, the definitions of AT&T Services Business, Lucent Business or NCR Business or on Schedule 2.3(a)(v). 1.88. PATENT ASSIGNMENTS means the six Patent Assignments, effective as of March 29, 1996, executed and delivered by AT&T to Lucent, NCR to AT&T, AT&T to NCR, Lucent to NCR, and Lucent to AT&T. 1.89. PATENT DEFENSIVE PROTECTION AGREEMENTS means the two Defensive Protection Agreements, effective as of March 29, 1996, by and between AT&T and Lucent, and by and between Lucent and NCR, respectively. 1.90. PATENT JOINT OWNERSHIP AGREEMENT means the Patent Joint Ownership Agreement, effective as of March 29, 1996, by and between AT&T and Lucent. 1.91. PATENT LICENSE AGREEMENT means the Patent License Agreement, effective as of March 29, 1996, by and among AT&T, Lucent and NCR. 1.92. PERSON means an individual, a general or limited partnership, a corporation, a trust, a joint venture, an unincorporated organization, a limited liability entity, any other entity and any Governmental Authority. 1.93. PRIME RATE means the rate which Chemical Bank (or any successor thereto or other major money center commercial bank agreed to by the parties hereto) announces from time to time as its prime lending rate, as in effect from time to time. 1.94. PROSPECTUS means each preliminary, final or supplemental prospectus forming a part of the IPO Registration Statement. 1.95. RBOC means each of Ameritech Corporation, Bell Atlantic Corporation, BellSouth Corporation, NYNEX Corporation, Pacific Telesis Group, SBC Communications Inc., and U S West, Inc., and each of their respective Affiliates, and the respective successors and assigns of any of the foregoing. 1.96. RBOC AGREEMENTS means the Agreement Concerning Contingent Liabilities, Tax Matters and Termination of Certain Agreements among AT&T, and the Bell System Operating Companies Regional Holding Companies and affiliates, and the Agreement Regarding Sharing of Environmental Liabilities. 1.97. RBOC LIABILITY means any Liability of any member of any Group relating to, arising out of or resulting from any RBOC Agreement. 1.98. RBOC PLAN means the Plan of Reorganization filed on December 16, 1982, in the United States District Court for the District of Columbia in United States v. Western Electric Co., Inc., Civil Action No. 82-0192, as modified by the Court's orders and as thereafter amended, modified or supplemented. 1.99. RECORD DATE means the close of business on the date to be determined by the AT&T Board of Directors as the record date for determining shareholders of AT&T entitled to receive shares of Lucent Common Stock in the Distribution. 1.100. RELATED EXCLUSIVE CONTINGENT LIABILITIES has the meaning set forth in Section 6.1. 1.101. RETAINED RECEIVABLES means any and all accounts receivable and other rights to payment for goods or services sold, leased or otherwise provided in the conduct of the Lucent Business that as of the date hereof are payable by a third Person to AT&T, whether past due, due or to become due on or prior to June 30, 1996, including any interest, sales or use taxes, finance charges, late or returned check charges and other obligations of the account debtor with respect thereto, and any proceeds of any of the foregoing, that are (a) reflected in the CBS System for accounts receivable arising in the Global Business Communications Systems Group, (b) reflected in the CARMS system for accounts receivable arising in the Network Systems Group or the Microelectronics Group, or (c) accounts receivables arising in the Consumer Products Group if the account debtor is one of the 20 largest third-party domestic customers of the Consumer Products Group as of the date hereof; provided, however, that any accounts receivable arising in the Network Systems Group or the Microelectronics Group shall not be Retained Receivables if such accounts receivable were more than 90 days past due as of the date hereof. 1.102. RIDGE LUCENT POLICIES means any insurance policies written by American Ridge or any other captive insurance company of AT&T covering the Lucent Business or any member of the Lucent Group. 1.103. SECURITIES ACT means the Securities Act of 1933, as amended, together with the rules and regulations promulgated thereunder. 1.104. SECURITY INTEREST means any mortgage, security interest, pledge, lien, charge, claim, option, right to acquire, voting or other restriction, right-of-way, covenant, condition, easement, encroachment, restriction on transfer, or other encumbrance of any nature whatsoever. 1.105. SEPARATION means the transfer of the Lucent Assets to Lucent and its Subsidiaries and the assumption by Lucent and its Subsidiaries of the Lucent Liabilities, all as more fully described in this Agreement and the Ancillary Agreements. 1.106. SHARED AT&T PERCENTAGE, SHARED NCR PERCENTAGE, SHARED LUCENT PERCENTAGE, SHARED PERCENTAGE, SHARED CONTINGENT GAIN AND SHARED CONTINGENT LIABILITY have the respective meanings set forth in Section 6.1. 1.107. SUBMARINE SYSTEMS means the Assets, businesses and operations of AT&T's Submarine Systems, Inc., and the additional Assets listed or described in Section 2.2(b)(vi). 1.108. SUBSIDIARY of any Person means any corporation or other organization whether incorporated or unincorporated of which at least a majority of the securities or interests having by the terms thereof ordinary voting power to elect at least a majority of the board of directors or others performing similar functions with respect to such corporation or other organization is directly or indirectly owned or controlled by such Person or by any one or more of its Subsidiaries, or by such Person and one or more of its Subsidiaries; provided, however that no Person that is not directly or indirectly wholly owned by any other Person shall be a Subsidiary of such other Person unless such other Person controls, or has the right, power or ability to control, that Person. 1.109. TAX SHARING AGREEMENT means the Tax Sharing Agreement, dated as of the date hereof, as amended, by and among AT&T, Lucent and NCR. 1.110. TAXES has the meaning set forth in the Tax Sharing Agreement. 1.111. TECHNOLOGY ACCESS AND DEVELOPMENT PROJECT AGREEMENT means the Technology Access and Development Project Agreement, dated as of the date hereof, by and between NCR and Lucent. 1.112. TECHNOLOGY ASSIGNMENT AND JOINT OWNERSHIP AGREEMENTS means the two Technology Assignment and Joint Ownership Agreements, effective as of March 29, 1996, by and between AT&T and Lucent, and by and among AT&T, Lucent and NCR, respectively. 1.113. TECHNOLOGY LICENSE AGREEMENT means the Technology License Agreement, effective as of March 29, 1996, by and among AT&T, Lucent and NCR. 1.114. TELECOMMUNICATIONS SERVICE means any service providing the transmission of voice, data, image or other messages, by radio or by aid of wire, cable or other like connection now known or later developed between the points of origin and reception of such transmission or by means of any combination of the foregoing, including telecommunications services commonly characterized as local, toll (whether intraLATA or interLATA), long distance and cellular (whether mobile or fixed). 1.115. THIRD PARTY CLAIM has the meaning set forth in Section 5.5(a). 1.116. TRADE DRESS ASSIGNMENT means the Trade Dress Assignment, dated as of the date hereof, by AT&T to Lucent. 1.117. TRADEMARK AND SERVICE MARK ASSIGNMENT means the Trademark and Service Mark Assignment, dated as of the date hereof, by AT&T to Lucent. 1.118. UNDERWRITERS means the managing underwriters for the IPO. 1.119. UNDERWRITING AGREEMENT means the underwriting agreement to be entered into among Lucent and the Underwriters with respect to the IPO. 1.120. VALUE has the meaning set forth in Section 6.1. 1.121. VTNS AGREEMENT means the Virtual Telecommunications Network Service Agreement, between AT&T and Lucent, dated as of the date hereof. 1.122. WORKING CAPITAL FACILITY means the Working Capital Agreement to be entered into by Lucent, as borrower, and Chemical Bank, as Agent, and the Lending Banks named therein, to fund the working capital requirements of Lucent following the date hereof. ARTICLE II THE SEPARATION 2.1. TRANSFER OF ASSETS AND ASSUMPTION OF LIABILITIES. (a) Each of AT&T and NCR hereby assigns, transfers, conveys and delivers to Lucent, and agrees to cause its applicable Subsidiaries to assign, transfer, convey and deliver to Lucent, and Lucent hereby accepts from each of AT&T and NCR and their respective Subsidiaries, all of AT&T's and NCR's and their applicable Subsidiaries' respective right, title and interest in all Lucent Assets, other than the Delayed Transfer Assets. (b) Lucent hereby assumes and agrees faithfully to perform and fulfill all the Lucent Liabilities, other than the Delayed Transfer Liabilities, in accordance with their respective terms. Lucent shall be responsible for all Lucent Liabilities, regardless of when or where such Liabilities arose or arise, or whether the facts on which they are based occurred prior to or subsequent to the date hereof, regardless of where or against whom such Liabilities are asserted or determined (including any Lucent Liabilities arising out of claims made by AT&T's, Lucent's or NCR's respective directors, officers, employees, agents, Subsidiaries or Affiliates against any member of the AT&T Group or the Lucent Group) or whether asserted or determined prior to the date hereof, and regardless of whether arising from or alleged to arise from negligence, recklessness, violation of law, fraud or misrepresentation by any member of the AT&T Group or the Lucent Group or any of their respective directors, officers, employees, agents, Subsidiaries or Affiliates. (c) Each of the parties hereto agrees that the Delayed Transfer Assets will be assigned, transferred, conveyed and delivered, and the Delayed Transfer Liabilities will be assumed, in accordance with the terms of the agreements that provide for such assignment, transfer, conveyance and delivery, or such assumption, after the date of this Agreement or as otherwise set forth on Schedule 2.1(c). Following such assignment, transfer, conveyance and delivery of any Delayed Transfer Asset, or the assumption of any Delayed Transfer Liability, the applicable Delayed Transfer Asset or Delayed Transfer Liability shall be treated for all purposes of this Agreement and the Ancillary Agreements as an Lucent Asset or an Lucent Liability, as the case may be. (d) In the event that at any time or from time to time (whether prior to or after the Distribution Date), any party hereto (or any member of such party's respective Group), shall receive or otherwise possess any Asset that is allocated to any other Person pursuant to this Agreement or any Ancillary Agreement, such party shall promptly transfer, or cause to be transferred, such Asset to the Person so entitled thereto. Prior to any such transfer, the Person receiving or possessing such Asset shall hold such Asset in trust for any such other Person. 2.2. LUCENT ASSETS. (a) For purposes of this Agreement, "Lucent Assets" shall mean (without duplication): (i) any and all Assets that are expressly contemplated by this Agreement or any Ancillary Agreement (or Schedule 2.2(a)(i) or any other Schedule hereto or thereto) as Assets to be transferred to Lucent or any other member of the Lucent Group; (ii) all issued and outstanding capital stock of ATTI and any and all Assets owned by ATTI or its Subsidiaries as of the date of the transfer of such capital stock to Lucent pursuant to Section 2.8(b), except for the Assets contemplated to be sold or otherwise transferred to any member of the AT&T Group pursuant to the Non-U.S. Plan; (iii) any Exclusive Lucent Contingent Gain and any Shared Lucent Percentage of any Shared Contingent Gain; (iv) (A) any amounts actually paid to AT&T after the Closing Date pursuant to any RBOC Agreement in respect of any Lucent Liability or any Nassau Metals Liability, (B) any rights of any member of the Lucent Group under any RBOC Agreement in respect of any Lucent Liability or any Nassau Metals Liability, and (C) subject to Section 7.1, any rights of any member of the Lucent Group under any of the Insurance Policies, including any rights thereunder arising after the Distribution Date in respect of any Insurance Policies that are occurrence policies; (v) (A) any Assets that Section 2.5(b) contemplates will be transferred to, or be retained by, any member of the Lucent Group, (B) any Lucent Contracts and (C) all issued and outstanding capital stock of AT&T Nassau Metals Corporation and the other Subsidiaries of AT&T listed on Schedule 2.2(a)(v); (vi) any Assets reflected in the Lucent Balance Sheet as Assets of Lucent and its Subsidiaries, subject to any dispositions of such Assets subsequent to the date of the Lucent Balance Sheet; and (vii) except as contemplated by Section 2.5(b), any and all Assets owned or held immediately prior to the Closing Date by AT&T or any of its Subsidiaries that are used primarily in the Lucent Business. The intention of this clause (vii) is only to rectify any inadvertent omission of transfer or conveyance of any Assets that, had the parties given specific consideration to such Asset as of the date hereof, would have otherwise been classified as a Lucent Asset. No Asset shall be deemed to be a Lucent Asset solely as a result of this clause (vii) if such Asset is within the category or type of Asset expressly covered by the subject matter of an Ancillary Agreement. In addition, no Asset shall be deemed a Lucent Asset solely as a result of this clause (vii) unless a claim with respect thereto is made by Lucent on or prior to the first anniversary of the Distribution Date. Notwithstanding the foregoing, the Lucent Assets shall not in any event include the Excluded Assets referred to in Section 2.2(b) below. (b) For the purposes of this Agreement, "Excluded Assets" shall mean: (i) the Assets listed or described on Schedule 2.2(b)(i); (ii) the Retained Receivables; (iii) any and all Assets that are expressly contemplated by this Agreement or any Ancillary Agreement (or the Schedules hereto or thereto) as Assets to be retained by AT&T or any other member of the AT&T Group (including the NCR Group); (iv) any contract or agreement described in clause (e)(i) through (e)(iii) of the definition of Lucent Contract; (v) except to the extent expressly set forth in Section 2.2(a)(iii) or (iv), respectively, (A) any Contingent Gains and (B) any rights in respect of, or proceeds received pursuant to, any RBOC Agreement; and (vi) all Assets (including land, buildings, manufacturing equipment and inventory) of the undersea repeaters factory of Lucent's Microelectronic Group located in Clark, New Jersey. 2.3. LUCENT LIABILITIES. (a) For the purposes of this Agreement, "Lucent Liabilities" shall mean (without duplication): (i) any and all Liabilities that are expressly contemplated by this Agreement or any Ancillary Agreement (or the Schedules hereto or thereto) as Liabilities to be assumed by Lucent or any member of the Lucent Group, and all agreements, obligations and Liabilities of any member of the Lucent Group under this Agreement or any of the Ancillary Agreements; (ii) all Liabilities (other than Taxes based on, or measured by reference to, net income), including any employee-related Liabilities and Environmental Liabilities, primarily relating to, arising out of or resulting from: (A) the operation of the Lucent Business, as conducted at any time prior to, on or after the Closing Date (including any Liability relating to, arising out of or resulting from any act or failure to act by any director, officer, employee, agent or representative (whether or not such act or failure to act is or was within such Person's authority)); (B) the operation of any business conducted by any member of the Lucent Group at any time after the Closing Date (including any Liability relating to, arising out of or resulting from any act or failure to act by any director, officer, employee, agent or representative (whether or not such act or failure to act is or was within such Person's authority)); or (C) any Lucent Assets (including any Lucent Contracts and any real property and leasehold interests); in any such case whether arising before, on or after the Closing Date; (iii) subject to the terms of Article VI, all Exclusive Lucent Contingent Liabilities and the Shared Lucent Percentage of any Shared Contingent Liabilities; (iv) all Liabilities relating to, arising out of or resulting from the Working Capital Facility and, as of the Closing Date, the Financing Facility, in each case other than any third party costs and expenses incurred by any member of the AT&T Group; (v) all Liabilities relating to, arising out of or resulting from any of the terminated, divested or discontinued businesses and operations listed or described on Schedule 2.3(a)(v); (vi) all Liabilities of ATTI or its Subsidiaries, as of the date of the transfer of the capital stock of ATTI to Lucent pursuant to Section 2.8(b), except for the Liabilities contemplated to be assumed by any member of the AT&T Group pursuant to the Non-U.S. Plan, and all Liabilities of any other member of the Lucent Group; and (vii) all Liabilities reflected as liabilities or obligations of Lucent in the Lucent Balance Sheet, subject to any discharge of such Liabilities subsequent to the date of the Lucent Balance Sheet. Notwithstanding the foregoing, the Lucent Liabilities shall not include the Excluded Liabilities referred to in Section 2.3(b) below. Subject to Articles V and VI hereof, the Lucent Liabilities shall not include any Nassau Metals Liabilities. (b) For the purposes of this Agreement, "Excluded Liabilities" shall mean: (i) any and all Liabilities that are expressly contemplated by this Agreement or any Ancillary Agreement (or the Schedules hereto or thereto) as Liabilities to be retained or assumed by AT&T or any other member of the AT&T Group (including the NCR Group), and all agreements and obligations of any member of the AT&T Group under this Agreement or any of the Ancillary Agreements; (ii) subject to the terms of Article VI, all Exclusive AT&T Services Contingent Liabilities and Exclusive NCR Contingent Liabilities and the Shared AT&T Percentage and the Shared NCR Percentage of any Shared Contingent Liabilities; and (iii) except as set forth in any Ancillary Agreement, all Environmental Liabilities accrued as of the date hereof solely relating to, arising out of or resulting from the existence of any leasehold interest that is an Lucent Asset if the applicable lessor, sublessor or sub-sublessor under the applicable lease, sublease or sub-sublease is a member of the AT&T Services Group or the NCR Group. 2.4. TERMINATION OF AGREEMENTS. (a) Except as set forth in Section 2.4(b), in furtherance of the releases and other provisions of Section 5.1 hereof, Lucent and each member of the Lucent Group, on the one hand, and each of AT&T, NCR and the respective members of the AT&T Services Group and the NCR Group, on the other hand, hereby terminate, any and all agreements, arrangements, commitments or understandings, whether or not in writing, between or among Lucent and/or any member of the Lucent Group, on the one hand, and AT&T or NCR and/or any member of the AT&T Services Group or the NCR Group, on the other hand, effective as of the Closing Date; provided, however, to the extent any such agreement, arrangement, commitment or understanding is inconsistent with any Ancillary Agreement, such termination shall be effective as of the date of effectiveness of the applicable Ancillary Agreement. No such terminated agreement, arrangement, commitment or understanding (including any provision thereof which purports to survive termination) shall be of any further force or effect after the Closing Date (or, to the extent contemplated by the proviso to the immediately preceding sentence, after the effective date of the applicable Ancillary Agreement). Each party shall, at the reasonable request of any other party, take, or cause to be taken, such other actions as may be necessary to effect the foregoing. (b) The provisions of Section 2.4(a) shall not apply to any of the following agreements, arrangements, commitments or understandings (or to any of the provisions thereof): (i) this Agreement and the Ancillary Agreements (and each other agreement or instrument expressly contemplated by this Agreement or any Ancillary Agreement to be entered into by any of the parties hereto or any of the members of their respective Groups); (ii) any agreements, arrangements, commitments or understandings listed or described on Schedule 2.4(b)(ii); (iii) any agreements, arrangements, commitments or understandings to which any Person other than the parties hereto and their respective Affiliates is a party (it being understood that to the extent that the rights and obligations of the parties and the members of their respective Groups under any such agreements, arrangements, commitments or understandings constitute Lucent Assets or Lucent Liabilities, they shall be assigned pursuant to Section 2.1); (iv) any intercompany accounts payable or accounts receivable accrued as of the Closing Date that are reflected in the books and records of the parties or otherwise documented in writing in accordance with past practices; (v) any agreements, arrangements, commitments or understandings to which AT&T Capital Corporation or any other non-wholly owned Subsidiary of AT&T, Lucent or NCR, as the case may be, is a party (it being understood that directors' qualifying shares or similar interests will be disregarded for purposes of determining whether a Subsidiary is wholly owned); (vi) any written Tax sharing or Tax allocation agreements to which any member of any Group is a party; and (vii) any other agreements, arrangements, commitments or understandings that this Agreement or any Ancillary Agreement expressly contemplates will survive the Closing Date. 2.5. DOCUMENTS RELATING TO TRANSFER OF REAL PROPERTY INTERESTS AND TANGIBLE PROPERTY LOCATED THEREON. (a) In furtherance of the assignment, transfer and conveyance of Lucent Assets and the assumption of Lucent Liabilities set forth in Section 2.1(a) and (b), simultaneously with the execution and delivery hereof or as promptly as practicable thereafter, each of AT&T, Lucent and NCR, or their applicable Subsidiaries, is executing and delivering or will execute and deliver deeds, lease assignments and assumptions, leases, subleases and sub-subleases substantially in the forms attached as Schedule 2.5 (which in certain cases includes different forms for real property and leasehold interests located outside of the United States), with such changes as may be necessary to conform to any laws, regulations or usage applicable in the jurisdiction in which the relevant real property is located. Set forth in, or referenced by, such Schedule is, among other things, a summary of each property or interest therein to be conveyed, assigned, leased, subleased or sub-subleased, the applicable entities relevant to each property and their capacities with respect to each property (e.g., as transferor, transferee, assignor, assignee, lessor, lessee, sublessor, sublessee, sub-sublessor or sub-sublessee), and any terms applicable to each property that are not specified in the forms of deed, lease assignment and assumption, lease, sublease or sub-sublease (e.g., rent and term). (b) Except as otherwise expressly provided in this Agreement or any Ancillary Agreement, all tenant improvements, fixtures, furniture, office equipment, servers, private branch exchanges, artwork and other tangible property (other than equipment subject to capital or operating equipment leases, which will be transferred or retained based on whether the associated capital or operating equipment lease is or is not an Lucent Contract) located as of the date hereof on any real property that is covered by any Ancillary Agreement referred to in Section 2.5(a), including the Schedules thereto, shall, except to the extent expressly set forth on a Schedule referred to in Section 2.5(a), be transferred or retained as follows: (i) DEEDS AND ASSIGNMENTS. In the case of any real property or leasehold interests covered by an Ancillary Agreement set forth on Schedule 2.5 that is a deed or lease assignment and assumption, all such tangible property will be transferred to the transferee or assignee of the applicable real property or leasehold interest; (ii) SHARED FACILITIES WITHOUT THIRD PARTY LEASES. In the case of any real property or leasehold interests covered by an Ancillary Agreement set forth on Schedule 2.5 that is a lease, all such tangible property will be retained by the lessor under the applicable lease, except that any such tangible property (other than tenant improvements, fixtures, furniture and artwork) used exclusively by the lessee shall be transferred to, or retained by, the lessee. (iii) SHARED DOMESTIC FACILITIES WITH THIRD PARTY LEASES. In the case of any real property or leasehold interests located in the United States covered by an Ancillary Agreement set forth on Schedule 2.5 that is a sublease or sub-sublease, all such tangible property will be retained by the sublessor or sub-sublessor, respectively, under the applicable sublease or sub-sublease, except that any such tangible property (other than tenant improvements, fixtures and artwork), including furniture used exclusively by the sublessee or sub-sublessee, respectively, shall be transferred to, or retained by, such sublessee or sub-sublessee. (iv) SHARED NON-U.S. FACILITIES WITH THIRD PARTY LEASES. In the case of any real property or leasehold interests located outside of the United States covered by an Ancillary Agreement set forth on Schedule 2.5 that is a sublease or sub-sublease, all such tangible property will be retained by the sublessor or sub-sublessor, respectively, under the applicable sublease or sub-sublease, except that any such tangible property (other than tenant improvements, fixtures, furniture and artwork) used exclusively by the sublessee or sub-sublessee, respectively, shall be transferred to, or retained by, such sublessee or sub-sublessee. In the case of this Section 2.5(b), all determinations as to exclusive use by any member of a Group shall be made without regard to infrequent and immaterial use by the members of any other Group, if the transfer of such Asset to, or the retention of such Asset by, such first Group would not interfere in any material respect with either the business or operations of any such other Group. Notwithstanding the foregoing provisions of this Section 2.5(b), any artwork located as of the date hereof in the private office of any senior manager or officer of any Group may, at the election of such senior manager or officer, be retained by, or transferred to, the Group by which such executive is employed as of the Closing Date. (c) In the case of any real property or leasehold interest that is covered by Section 2.5(b)(i) and any of Section 2.5(b)(ii), (iii) or (iv), all such tangible property shall first be allocated pursuant to the provisions of Section 2.5(b)(i) and thereafter pursuant to whichever of such other clauses is applicable. 2.6. DOCUMENTS RELATING TO OTHER TRANSFERS OF ASSETS AND ASSUMPTION OF LIABILITIES. In furtherance of the assignment, transfer and conveyance of Lucent Assets and the assumption of Lucent Liabilities set forth in Section 2.1(a) and (b), simultaneously with the execution and delivery hereof or as promptly as practicable thereafter, (i) each of AT&T and NCR shall execute and deliver, and each shall cause its respective Subsidiaries to execute and deliver, such bills of sale, stock powers, certificates of title, assignments of contracts and other instruments of transfer, conveyance and assignment as and to the extent necessary to evidence the transfer, conveyance and assignment of all of AT&T's, NCR's and their respective Subsidiaries' right, title and interest in and to the Lucent Assets to Lucent and (ii) Lucent shall execute and deliver, to AT&T, NCR and their respective Subsidiaries such bills of sale, stock powers, certificates of title, assumptions of contracts and other instruments of assumption as and to the extent necessary to evidence the valid and effective assumption of the Lucent Liabilities by Lucent. 2.7. OTHER ANCILLARY AGREEMENTS. (a) Effective as of the date hereof, except as provided in Section 2.7(b) or Section 2.8, each of AT&T, Lucent and NCR will execute and deliver all Ancillary Agreements to which it is a party. (b) Effective as of March 29, 1996, the parties shall execute and deliver each of the following Ancillary Agreements to which it is a party: (i) the Patent Assignments and related agreements regarding powers of attorney; (ii) the Patent License Agreement; (iii) the Patent Joint Ownership Agreement; (iv) the Patent Defensive Protection Agreements; (v) the Technology Assignment and Joint Ownership Agreements; and (vi) the Technology License Agreement. (a) 2.8. THE NON-U.S. PLAN. (a) Each of AT&T, Lucent and NCR shall take, and shall cause each member of its respective Group to take, such action as reasonably necessary to consummate the transactions contemplated by the Non-U.S. Plan (whether prior to or after the Closing Date). Notwithstanding anything in this Agreement or in any Ancillary Agreement to the contrary, no party shall be entitled to receive or retain any Asset unless such party shall have paid any consideration contemplated to be paid in connection therewith pursuant to the Non-U.S. Plan. (b) After the date hereof and on or prior to the Closing Date, AT&T shall transfer all of its right, title and interest in and to all of the issued and outstanding capital stock in each of ATTI and NCS Ventures, Inc., a Delaware corporation, to Lucent by means of a contribution of such capital stock by AT&T to Lucent. The parties hereto shall execute, or cause to be executed, such transfer instruments as they mutually deem appropriate to effectuate and evidence such transfer. 2.9. AT&T VENTURES; LUCENT FOUNDATION. (a) On or prior to the Closing Date, AT&T shall transfer to Lucent 35% of AT&T's interest as a limited partner in AT&T Ventures and Lucent shall assume all Liabilities of a limited partner of AT&T Ventures relating to such interest. AT&T and Lucent shall use reasonable best efforts to cooperate so that Lucent will be admitted to AT&T Ventures as a limited partner in respect of such interest. Without duplication of any such Liability assumed in its capacity as a limited partner, Lucent shall indemnify, defend and hold harmless each AT&T Indemnitee and each NCR Indemnitee from and against 35% of any and all Liabilities of the AT&T Indemnitees or the NCR Indemnitees, respectively, relating to, arising out of or resulting from AT&T Ventures, including in respect of any capital calls or commitments and in connection with the operation or management thereof. (b) (i) Following the date hereof, Lucent will incorporate a private foundation to be qualified under Section 501(c)(3) of the Code. The AT&T Foundation will make an $18 million grant to the new foundation formed by Lucent, as soon as is reasonably practicable following such new foundation's request, subject to the satisfaction by such new foundation of the following requirements: the election or appointment of a governing board of directors or trustees, the adoption of by-laws, the hiring of a professional staff, the formulation of a mission statement, and commencement of the development of programs and priorities for funding grants. The determination as to whether such requirements have been satisfied shall be made by the trustees of the AT&T Foundation in their sole discretion and shall be binding on all parties. Such $18 million grant shall be payable, at the AT&T Foundation's election, in cash or in appreciated property (or any combination thereof). All determinations with respect to the fair market value of any appreciated property will be made by the trustees of the AT&T Foundation in their sole discretion and shall be binding on all parties. (ii) The AT&T Foundation has approved a 1996 grant budget that includes grants totalling $13 million relating to Lucent initiatives. The staffs of the AT&T Foundation and the new foundation to be formed by Lucent pursuant to subparagraph (i) above will work together to administer the grants relating to these Lucent initiatives. In the event such $13 million has not been fully disbursed prior to the Distribution Date, the AT&T Foundation will transfer to the new foundation formed by Lucent an amount equal to the portion of such $13 million that has not been disbursed, and such foundation will assume the obligation to make grants equal to such remaining amount. The AT&T Foundation will also allocate up to $1 million of its 1996 administrative budget for administrative costs related to Lucent programs. 2.10. DISCLAIMER OF REPRESENTATIONS AND WARRANTIES. (a) Each of AT&T (on behalf of itself and each member of the AT&T Services Group), Lucent (on behalf of itself and each member of the Lucent Group) and NCR (on behalf of itself and each member of the NCR Group) understands and agrees that, except as expressly set forth herein (including in Section 7.2(g)) or in any Ancillary Agreement, no party to this Agreement, any Ancillary Agreement or any other agreement or document contemplated by this Agreement, any Ancillary Agreement or otherwise, is representing or warranting in any way as to the Assets, businesses or Liabilities transferred or assumed as contemplated hereby or thereby, as to any consents or approvals required in connection therewith, as to the value or freedom from any Security Interests of, or any other matter concerning, any Assets of such party, or as to the absence of any defenses or right of setoff or freedom from counterclaim with respect to any claim or other Asset, including any accounts receivable, of any party, or as to the legal sufficiency of any assignment, document or instrument delivered hereunder to convey title to any Asset or thing of value upon the execution, delivery and filing hereof or thereof. Except as may expressly be set forth herein or in any Ancillary Agreement, all such Assets are being transferred on an "as is," "where is" basis (and, in the case of any real property, by means of a quitclaim or similar form deed or conveyance) and the respective transferees shall bear the economic and legal risks that any conveyance shall prove to be insufficient to vest in the transferee good and marketable title, free and clear of any Security Interest. 2.11. FINANCING ARRANGEMENTS. (a) Prior to the Closing Date, AT&T and Lucent shall enter into the Financing Facility. AT&T and Lucent agree to take all such reasonable action as may be necessary to permit AT&T to borrow such amount as it shall determine under the Financing Facility prior to the Closing Date and to assure the assignment to and the assumption by Lucent of all obligations thereunder and the full release and discharge of each of AT&T and any other member of the AT&T Group of all of its obligations thereunder as of the Closing Date in accordance with the terms of the Financing Facility. AT&T and Lucent shall participate in the preparation of all materials and presentations as may be reasonably necessary to secure funding pursuant to the Financing Facility, including rating agency presentations necessary to obtain the requisite ratings needed to secure the financing under the Financing Facility and such assignment, assumption, release and discharge. As of the time of such assignment, assumption, release and discharge, AT&T shall pay all third party costs and expenses incurred by any member of the AT&T Group associated with the Financing Facility. (b) Simultaneously with or following the execution and delivery of this Agreement, Lucent intends to enter into the Working Capital Facility. Lucent agrees to cause all obligations of AT&T or any other member of the AT&T Group, if any, under the Working Capital Facility to be terminated at the Closing Date. Lucent shall pay all expenses associated with the Working Capital Facility. 2.12. GOVERNMENTAL APPROVALS AND CONSENTS. (a) To the extent that the Separation requires any Governmental Approvals or Consents, the parties will use their reasonable best efforts to obtain any such Governmental Approvals and Consents. (b) If and to the extent that the valid, complete and perfected transfer or assignment (or novation of any federal government contract) to the Lucent Group of any Lucent Assets (or from the Lucent Group of any Non-Lucent Assets) would be a violation of applicable laws or require any Consent or Governmental Approval in connection with the Separation, the IPO or the Distribution, then, unless AT&T shall otherwise determine, the transfer or assignment to or from the Lucent Group, as the case may be, of such Lucent Assets or Non-Lucent Assets, respectively, shall be automatically deemed deferred and any such purported transfer or assignment shall be null and void until such time as all legal impediments are removed and/or such Consents or Governmental Approvals have been obtained. Notwithstanding the foregoing, such Asset shall be deemed an Lucent Asset for purposes of determining whether any Liability is an Lucent Liability. (c) If the transfer or assignment of any Assets intended to be transferred or assigned hereunder, including pursuant to the Non-U.S. Plan, is not consummated prior to or at the Closing Date, whether as a result of the provisions of Section 2.12(b) or for any other reason, then the Person retaining such Asset shall thereafter hold such Asset for the use and benefit, insofar as reasonably possible, of the Person entitled thereto (at the expense of the Person entitled thereto). In addition, the Person retaining such Asset shall take such other actions as may be reasonably requested by the Person to whom such Asset is to be transferred in order to place such Person, insofar as reasonably possible, in the same position as if such Asset had been transferred as contemplated hereby and so that all the benefits and burdens relating to such Lucent Assets (or such Non-Lucent Assets, as the case may be), including possession, use, risk of loss, potential for gain, and dominion, control and command over such Assets, are to inure from and after the Closing Date to the Lucent Group (or the AT&T Group, as the case may be). (d) If and when the Consents and/or Governmental Approvals, the absence of which caused the deferral of transfer of any Asset pursuant to Section 2.12(b), are obtained, the transfer of the applicable Asset shall be effected in accordance with the terms of this Agreement and/or the applicable Ancillary Agreement. (e) The Person retaining an Asset due to the deferral of the transfer of such Asset shall not be obligated, in connection with the foregoing, to expend any money unless the necessary funds are advanced by the Person entitled to the Asset, other than reasonable out-of-pocket expenses, attorneys' fees and recording or similar fees, all of which shall be promptly reimbursed by the Person entitled to such Asset. 2.13. NOVATION OF ASSUMED LUCENT LIABILITIES. (a) Each of AT&T, Lucent and NCR, at the request of any of the others, shall use their reasonable best efforts to obtain, or to cause to be obtained, any consent, substitution, approval or amendment required to novate (including with respect to any federal government contract) or assign all obligations under agreements, leases, licenses and other obligations or Liabilities (including Lucent OFL's) of any nature whatsoever that constitute Lucent Liabilities or Nassau Metals Liabilities, or to obtain in writing the unconditional release of all parties to such arrangements other than any member of the Lucent Group, so that, in any such case, Lucent and its Subsidiaries will be solely responsible for such Liabilities; provided, however, that none of AT&T, Lucent or NCR shall be obligated to pay any consideration therefor to any third party from whom such consents, approvals, substitutions and amendments are requested. (b) If AT&T, Lucent or NCR is unable to obtain, or to cause to be obtained, any such required consent, approval, release, substitution or amendment, the applicable member of the AT&T Services Group or the NCR Group, as the case may be, shall continue to be bound by such agreements, leases, licenses and other obligations and, unless not permitted by law or the terms thereof (except to the extent expressly set forth in Section 7.3 in the case of Lucent OFL's), Lucent shall, as agent or subcontractor for AT&T, NCR or such other Person, as the case may be, pay, perform and discharge fully all the obligations or other Liabilities of AT&T, NCR or such other Person, as the case may be, thereunder from and after the date hereof. Lucent shall indemnify each AT&T Indemnitee and each NCR Indemnitee, and hold each of them harmless against any Liabilities arising in connection therewith. Except as expressly set forth in Section 7.3 in the case of Lucent OFL's, each of AT&T and NCR, as the case may be, shall, without further consideration, pay and remit, or cause to be paid or remitted, to Lucent promptly all money, rights and other consideration received by it or any member of its respective Group in respect of such performance (unless any such consideration is an Excluded Asset). If and when any such consent, approval, release, substitution or amendment shall be obtained or such agreement, lease, license or other rights or obligations shall otherwise become assignable or able to be novated, each of AT&T and NCR, as the case may be, shall thereafter assign, or cause to be assigned, all its rights, obligations and other Liabilities thereunder or any rights or obligations of any member of its respective Group to Lucent without payment of further consideration and Lucent shall, without the payment of any further consideration, assume such rights and obligations. 2.14. NOVATION OF ASSUMED LIABILITIES OTHER THAN LUCENT LIABILITIES. (a) Each of AT&T, Lucent and NCR, at the request of any of the others, shall use their reasonable best efforts to obtain, or to cause to be obtained, any consent, substitution, approval or amendment required to novate or assign all obligations under agreements, leases, licenses and other obligations or Liabilities of any nature whatsoever that do not constitute Lucent Liabilities or Nassau Metals Liabilities, or to obtain in writing the unconditional release of all parties to such arrangements other than any member of the AT&T Group, so that, in any such case, the members of the AT&T Group will be solely responsible for such Liabilities; provided, however, that none of AT&T, Lucent or NCR shall be obligated to pay any consideration therefor to any third party from whom such consents, approvals, substitutions and amendments are requested. (b) If AT&T, Lucent or NCR is unable to obtain, or to cause to be obtained, any such required consent, approval, release, substitution or amendment, the applicable member of the Lucent Group shall continue to be bound by such agreements, leases, licenses and other obligations and, unless not permitted by law or the terms thereof, AT&T shall cause a member of the AT&T Group, as agent or subcontractor for such member of the Lucent Group, to pay, perform and discharge fully all the obligations or other Liabilities of such member of the Lucent Group thereunder from and after the date hereof. AT&T shall indemnify each Lucent Indemnitee and hold each of them harmless against any Liabilities arising in connection therewith. Lucent shall cause each member of the Lucent Group without further consideration, to pay and remit, or cause to be paid or remitted, to AT&T or to another member of the AT&T Group specified by AT&T promptly all money, rights and other consideration received by it or any member of the Lucent Group in respect of such performance. If and when any such consent, approval, release, substitution or amendment shall be obtained or such agreement, lease, license or other rights or obligations shall otherwise become assignable or able to be novated, Lucent shall promptly assign, or cause to be assigned, all its rights, obligations and other Liabilities thereunder or any rights or obligations of any member of the Lucent Group to AT&T or to another member of the AT&T Group specified by AT&T without payment of further consideration and AT&T, without the payment of any further consideration shall, or shall cause such other member of the AT&T Group to, assume such rights and obligations. 2.15. THIRD PARTY PATENT LICENSE AGREEMENTS. (a) Except as otherwise set forth in this Section 2.15, effective as of the date of execution of the Patent Assignments and other agreements set forth in Section 2.7(b), AT&T hereby: (i) grants to each of Lucent and NCR the right to share with AT&T the license rights granted by any third party to AT&T pursuant to any patent license agreement between AT&T and such third party existing as of the date hereof and (ii) grants to Lucent the right to receive any net royalty payments from third parties pursuant to the patent license agreements referred to in clause (i) above. Except as otherwise set forth in this Section 2.15, AT&T will retain all rights in and to the patent license agreements referred to in this Section 2.15. (b) The grants set forth in the first sentence of Section 2.15(a) shall not apply to (i) the patent license agreements set forth in Schedule 2.15(b) or (ii) any other patent license agreement with respect to which there otherwise exists, on or prior to the date of execution of the Patent Assignments, written provision for the allocation or sharing of rights under such patent license agreement between or among any two or all three of AT&T, Lucent and NCR. (c) Except as set forth in Section 2.15(d), in the event that any grant of rights set forth in Section 2.15(a) would violate or is found to violate the terms of, or result in the loss of rights or imposition of penalty under, any patent license agreement covered thereby, or would not be effective subsequent to the Distribution Date, such grant of rights with respect to such patent license agreement shall be deemed null and void and, in lieu thereof, (i) effective as of the Distribution Date, AT&T hereby transfers any such patent license agreement to Lucent without retaining any rights therein (and AT&T waives any such right it could otherwise retain) and (ii) Lucent shall use all reasonable efforts to arrange for the grant by the applicable third party of comparable rights (other than any right to receive royalty payments) to each of AT&T and NCR, provided that none of Lucent, AT&T or NCR shall be obligated to pay any consideration therefor. (d) In the event that any transfer set forth in Section 2.15(c) would violate or is found to violate the terms of, or result in the loss of rights or imposition of penalty under, any patent license agreement covered thereby, or would not be effective subsequent to the Distribution Date, such transfer shall be deemed null and void and, in lieu thereof, (i) AT&T hereby retains all rights under any such patent license agreement, (ii) AT&T will pay over to Lucent any royalty payments it may receive from any third party pursuant to any such patent license agreement and (iii) AT&T shall use all reasonable efforts to arrange for the grant by the applicable third party of comparable rights (other than any right to royalty payments) to each of Lucent and NCR, provided that none of Lucent, AT&T or NCR shall be obligated to pay any consideration therefor. (e) In the event that license rights under any patent license agreement intended to be granted or transferred to Lucent under this Section 2.15 are not effectively granted or transferred (including in the event such grant or transfer is not effective after the Distribution Date and/or the parties are unable to arrange for the grant by the applicable third party of comparable license rights to Lucent), then, at the written request of Lucent: (i) AT&T will exercise any have-made rights it may have under the applicable third-party license agreement to have Lucent make, and will purchase from Lucent, such products or other materials as Lucent may direct using the applicable third-party patents as to which AT&T has such have-made rights (at the price and on the terms to be paid and agreed to by the Person or Persons to whom AT&T may be directed to sell such products or other materials pursuant to the following clause (ii)); and (ii) following any such purchase, AT&T will sell such products or other materials to such Person or Persons, on such terms, as may be directed by Lucent (except that AT&T will not be required to make any representations, warranties or commitments in respect thereof other than to provide to such Person or Persons the representations, warranties and commitments of Lucent in respect thereof, for which only Lucent, and not AT&T, will be responsible). In connection with the foregoing, Lucent will cause the Person or Persons to which such products or other materials are sold to acknowledge in writing that only Lucent and the members of the Lucent Group, and not AT&T or any member of the AT&T Group, will be responsible to such Person or Persons in respect of such products or other materials. Nothing in this Section (e) shall be construed to require AT&T or any member of the AT&T Group to violate any applicable laws, rules or regulations of any Governmental Authority. (f) In the event AT&T makes any purchases and sales as directed by Lucent under the foregoing paragraph (e), then: (i) Lucent will promptly reimburse AT&T for all costs and expenses (including allocated costs of in-house counsel and other personnel) that AT&T or any member of the AT&T Group may incur in connection with such actions, plus a fee of two percent (2%); and (ii) Lucent will indemnify and hold harmless AT&T and each AT&T Indemnitee for all Liabilities that may arise as a result of such actions (including any claims by the purchaser of such products or materials, any loss incurred on the sale of such products or materials by AT&T to the Person or Persons directed by Lucent, or arising out of the failure of such Person or Persons to purchase such products or materials on the terms directed by Lucent, and any claims alleging any infringement of any patent, copyright, trademark or misappropriation of a trade secret, any product liability claims, and any other claims, in connection with such products or materials). (g) Each of AT&T, Lucent and NCR agrees that it will fulfill any obligations it may have to any third party pursuant to the patent license agreements to which the provisions of this Section 2.15 apply. 2.16. CERTAIN TERMINATION RIGHTS. (a) Notwithstanding anything in this Agreement or any Ancillary Agreement to the contrary, the rights granted to Lucent and the members of the Lucent Group shall be subject to the provisions of this Section 2.16. (b) Except as otherwise expressly provided in this Section 2.16, in the event that, at any time prior to the fifth anniversary of this Agreement, Lucent or any member of the Lucent Group offers, furnishes or provides, either directly or indirectly (whether through any reseller or joint venture or otherwise), any Telecommunications Services of the type offered by the AT&T Services Business as of the Closing Date, then: (i) pursuant to Section 2.5 and Article IX of the Brand License Agreement, AT&T may, in its sole discretion, terminate all or any portion of the rights granted to Lucent and the members of the Lucent Group pursuant to the Brand License Agreement; (ii) AT&T may, in its sole discretion, terminate all or any remaining portion of the purchase commitments made by AT&T and the members of the AT&T Group in the AT&T General Purchase Agreement; (iii) AT&T may, in its sole discretion, exercise either the Full Grant rights or the Partial Grant rights described in subparagraphs 8.4(b) and 8.4(c), respectively, of the Supplemental General Purchase Agreement, dated as of the date hereof, between AT&T and Lucent; (iv) AT&T may, in its sole discretion, terminate all or any portion of the rights to patents and technology of AT&T or any member of the AT&T Group granted to Lucent and the members of the Lucent Group pursuant to the Patent License Agreement and the Technology License Agreement; and (v) at AT&T's direction, which may be given in its sole discretion, Lucent and the members of the Lucent Group will reconvey to AT&T or any member of the AT&T Group all of their right, title and interest in any and all patents and technology in which Lucent or any member of the Lucent Group was granted an undivided one-half interest pursuant to the Patent Assignments or the Technology Assignment and Joint Ownership Agreement. (c) Lucent and the members of the Lucent Group shall not be deemed to offer, furnish or provide, either directly or indirectly, any Telecommunications Services (and Section 2.16(b) will not apply) solely by virtue of either of the following: (i) a passive investment by Lucent or any of the members of the Lucent Group of, in the aggregate, (A) less than 5% of the ownership interest in any Person that offers, furnishes or provides Telecommunications Services in the United States or (B) not more than 15% of the ownership interest in any Person that offers, furnishes or provides Telecommunications Services solely outside of the United States (it being understood that Telecommunications Services operating outside the United States will be considered solely outside the United States notwithstanding the ability of such Telecommunications Services to receive transmissions from or send transmissions to the United States, so long as such Telecommunications Services may not be used to send and receive transmissions solely within the United States); or (ii) an investment by Lucent or any of the members of the Lucent Group of, in the aggregate, not more than 40% of the ownership interest in any Person outside the United States formed for the purpose of building a network or similar system for the provision of Telecommunications Services solely outside of the United States, which network or system is built by Lucent or any members of the Lucent Group; so long as Lucent and the members of the Lucent Group divest such interest to, in the aggregate, not more than 15% of the ownership interest in such Person within one year of commencement of the provision of any Telecommunications Services over such network or system, or such longer period as may be necessary to permit such reduction in interest and to which AT&T shall consent, which consent will not be unreasonably withheld; or (iii) the offer, furnishing or provision by Lucent and the members of the Lucent Group, either directly or indirectly, of Telecommunications Services from which the aggregate revenues in any fiscal year do not exceed one percent of the aggregate revenues of Lucent and the members of the Lucent Group for such fiscal year, provided that, in determining whether such one percent threshold has been met, any resale of Telecommunications Services provided by AT&T or any member of the AT&T Group to Lucent or any member of the Lucent Group pursuant to the VTNS Agreement or any tariff or contract shall not be considered as Telecommunications Services offered, furnished or provided by Lucent and the members of the Lucent Group. ARTICLE III THE IPO AND ACTIONS PENDING THE IPO 3.1. TRANSACTIONS PRIOR TO THE IPO. (a) Subject to the conditions specified in Section 3.3, AT&T and Lucent shall use their reasonable best efforts to consummate the IPO. Such actions shall include, but not necessarily be limited to, those specified in this Section 3.1. (b) Lucent shall file the IPO Registration Statement, and such amendments or supplements thereto, as may be necessary in order to cause the same to become and remain effective as required by law or by the Underwriters, including, but not limited to, filing such amendments to the IPO Registration Statement as may be required by the Underwriting Agreement, the Commission or federal, state or foreign securities laws. AT&T and Lucent shall also cooperate in preparing, filing with the Commission and causing to become effective a registration statement registering the Lucent Common Stock under the Exchange Act, and any registration statements or amendments thereof which are required to reflect the establishment of, or amendments to, any employee benefit and other plans necessary or appropriate in connection with the IPO, the Separation, the Distribution or the other transactions contemplated by this Agreement and the Ancillary Agreements. (c) Lucent shall enter into the Underwriting Agreement, in form and substance reasonably satisfactory to Lucent and shall comply with its obligations thereunder. (d) AT&T and Lucent shall consult with each other and the Underwriters regarding the timing, pricing and other material matters with respect to the IPO. (e) Lucent shall use its reasonable best efforts to take all such action as may be necessary or appropriate under state securities and blue sky laws of the United States (and any comparable laws under any foreign jurisdictions) in connection with the IPO. (f) Lucent shall prepare, file and use reasonable best efforts to seek to make effective, an application for listing of the Lucent Common Stock issued in the IPO on the NYSE, subject to official notice of issuance. (g) Lucent shall participate in the preparation of materials and presentations as the Underwriters shall deem necessary or desirable. (h) Lucent shall pay all third party costs, fees and expenses relating to the IPO, all of the reimbursable expenses of the Underwriters pursuant to the Underwriting Agreement, all of the costs of producing, printing, mailing and otherwise distributing the Prospectus, as well as the Underwriters' discount as provided in the Underwriting Agreement. 3.2. PROCEEDS OF THE IPO. The IPO will be a primary offering of Lucent Common Stock and the net proceeds of the IPO will be retained by Lucent. 3.3. CONDITIONS PRECEDENT TO CONSUMMATION OF THE IPO. As soon as practicable after the date of this Agreement, the parties hereto shall use their reasonable best efforts to satisfy the following conditions to the consummation of the IPO. The obligations of the parties to consummate the IPO shall be conditioned on the satisfaction, or waiver by AT&T, of the following conditions: (a) The IPO Registration Statement shall have been filed and declared effective by the Commission, and there shall be no stop-order in effect with respect thereto. (b) The Financing Facility shall have been executed and delivered, pursuant to which AT&T shall have borrowed an amount of funds determined by AT&T, and AT&T shall be satisfied in its sole discretion that as of the Closing Date it will have no further liability or obligation whatsoever under either the Working Capital Facility or the Financing Facility. (c) The actions and filings with regard to state securities and blue sky laws of the United States (and any comparable laws under any foreign jurisdictions) described in Section 3.1 shall have been taken and, where applicable, have become effective or been accepted. (d) The Lucent Common Stock to be issued in the IPO shall have been accepted for listing on the NYSE, on official notice of issuance. (e) Lucent shall have entered into the Underwriting Agreement and all conditions to the obligations of Lucent and the Underwriters shall have been satisfied or waived. (f) AT&T shall be satisfied in its sole discretion that it will own at least 80.1% of the outstanding Lucent Common Stock following the IPO on a fully diluted basis, after giving effect to the issuance of any shares of restricted stock or employee stock options to any employees of Lucent, and all other conditions to permit the Distribution to qualify as a tax-free distribution to AT&T, Lucent and AT&T's shareholders shall, to the extent applicable as of the time of the IPO, be satisfied and there shall be no event or condition that is likely to cause any of such conditions not to be satisfied as of the time of the Distribution or thereafter. (g) No order, injunction or decree issued by any court or agency of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the Separation or the IPO or any of the other transactions contemplated by this Agreement or any Ancillary Agreement shall be in effect. (h) Such other actions as the parties hereto may, based upon the advice of counsel, reasonably request to be taken prior to the Separation and the IPO in order to assure the successful completion of the Separation and the IPO and the other transactions contemplated by this Agreement shall have been taken. (i) This Agreement shall not have been terminated. (j) A pricing committee of AT&T officers designated by the Board of Directors of AT&T shall have determined that the terms of the IPO are acceptable to AT&T. ARTICLE IV THE DISTRIBUTION 4.1. THE DISTRIBUTION. (a) Subject to Section 4.3 hereof, on or prior to the Distribution Date, AT&T will deliver to the Agent for the benefit of holders of record of AT&T Common Stock on the Record Date, a single stock certificate, endorsed by AT&T in blank, representing all of the outstanding shares of Lucent Common Stock then owned by AT&T or any member of the AT&T Group, and shall cause the transfer agent for the shares of AT&T Common Stock to instruct the Agent to distribute on the Distribution Date the appropriate number of such shares of Lucent Common Stock to each such holder or designated transferee or transferees of such holder. (b) Subject to Section 4.4, each holder of AT&T Common Stock on the Record Date (or such holder's designated transferee or transferees) will be entitled to receive in the Distribution a number of shares of Lucent Common Stock equal to the number of shares of AT&T Common Stock held by such holder on the Record Date multiplied by a fraction the numerator of which is the number of shares of Lucent Common Stock beneficially owned by AT&T or any other member of the AT&T Group on the Record Date and the denominator of which is the number of shares of AT&T Common Stock outstanding on the Record Date. (c) Lucent and AT&T, as the case may be, will provide to the Agent all share certificates and any information required in order to complete the Distribution on the basis specified above. 4.2. ACTIONS PRIOR TO THE DISTRIBUTION. (a) AT&T and Lucent shall prepare and mail, prior to the Distribution Date, to the holders of AT&T Common Stock, such information concerning Lucent, its business, operations and management, the Distribution and such other matters as AT&T shall reasonably determine and as may be required by law. AT&T and Lucent will prepare, and Lucent will, to the extent required under applicable law, file with the Commission any such documentation and any requisite no action letters which AT&T determines are necessary or desirable to effectuate the Distribution and AT&T and Lucent shall each use its reasonable best efforts to obtain all necessary approvals from the Commission with respect thereto as soon as practicable. (b) AT&T and Lucent shall take all such action as may be necessary or appropriate under the securities or blue sky laws of the United States (and any comparable laws under any foreign jurisdiction) in connection with the Distribution. (c) AT&T and Lucent shall take all reasonable steps necessary and appropriate to cause the conditions set forth in Section 4.3 (subject to Sections 4.3(d)) to be satisfied and to effect the Distribution on the Distribution Date. (d) Lucent shall prepare and file, and shall use its reasonable best efforts to have approved, an application for the listing of the Lucent Common Stock to be distributed in the Distribution on the NYSE, subject to official notice of distribution. 4.3. CONDITIONS TO DISTRIBUTION. The AT&T Board currently intends to effect the Distribution by December 31, 1996. Subject to any restrictions contained in the Underwriting Agreement, the AT&T Board shall have the sole discretion to determine the date of consummation of the Distribution at any time after the Closing Date and on or prior to December 31, 1996. AT&T shall be obligated to consummate the Distribution no later than December 31, 1996, subject to the satisfaction, or waiver by the AT&T Board in its sole discretion, of the conditions set forth below. In the event that any such condition shall not have been satisfied or waived on or before December 31, 1996, AT&T shall consummate the Distribution as promptly as practicable following the satisfaction or waiver of all such conditions. (a) a private letter ruling from the Internal Revenue Service shall have been obtained, and shall continue in effect, to the effect that, among other things, the Distribution will qualify as a tax-free distribution for federal income tax purposes under Section 355 of the Code and the transfer to Lucent of the Lucent Assets and the assumption by Lucent of the Lucent Liabilities in connection with the Separation will not result in the recognition of any gain or loss to AT&T, Lucent or AT&T's or Lucent's shareholders for federal income tax purposes, and such ruling shall be in form and substance satisfactory to AT&T in its sole discretion; (b) any material Governmental Approvals and Consents necessary to consummate the Distribution shall have been obtained and be in full force and effect; (c) no order, injunction or decree issued by any court or agency of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the Distribution shall be in effect and no other event outside the control of AT&T shall have occurred or failed to occur that prevents the consummation of the Distribution; and (d) no other events or developments shall have occurred subsequent to the Closing Date that, in the judgment of the Board of Directors of AT&T, would result in the Distribution having a material adverse effect on AT&T or on the shareholders of AT&T. The foregoing conditions are for the sole benefit of AT&T and shall not give rise to or create any duty on the part of AT&T or the AT&T Board of Directors to waive or not waive any such condition. 4.4. FRACTIONAL SHARES. As soon as practicable after the Distribution Date, AT&T shall direct the Agent to determine the number of whole shares and fractional shares of Lucent Common Stock allocable to each holder of record or beneficial owner of AT&T Common Stock as of the Record Date, to aggregate all such fractional shares and sell the whole shares obtained thereby at the direction of AT&T either to AT&T, in open market transactions or otherwise, in each case at then prevailing trading prices, and to cause to be distributed to each such holder or for the benefit of each such beneficial owner, 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. 4.5. THE LUCENT BOARD OF DIRECTORS. AT&T and Lucent shall each take all actions which may be required to elect or otherwise appoint as directors of Lucent, on or prior to the Distribution Date, persons to be designated by a nominating committee of Lucent's Board of Directors (which nominating committee shall be comprised of individuals who are at such time neither officers nor directors of AT&T) as additional or substitute members of the Board of Directors of Lucent on the Distribution Date. ARTICLE V MUTUAL RELEASES; INDEMNIFICATION 5.1. RELEASE OF PRE-CLOSING CLAIMS. (a) Except as provided in Section 5.1(c), effective as of the Closing Date, Lucent does hereby, for itself and each other member of the Lucent Group, their respective Affiliates (other than any member of the AT&T Group), successors and assigns, and all Persons who at any time prior to the Closing Date have been shareholders, directors, officers, agents or employees of any member of the Lucent Group (in each case, in their respective capacities as such), remise, release and forever discharge each of AT&T and NCR, the respective members of the AT&T Services Group and the NCR Group, their respective Affiliates (other than any member of the Lucent Group), successors and assigns, and all Persons who at any time prior to the Closing Date have been shareholders, directors, officers, agents or employees of any member of the AT&T Services Group or the NCR Group (in each case, in their respective capacities as such), and their respective heirs, executors, administrators, successors and assigns, from any and all Liabilities whatsoever, whether at law or in equity (including any right of contribution), whether arising under any contract or agreement, by operation of law or otherwise, existing or arising from any acts or events occurring or failing to occur or alleged to have occurred or to have failed to occur or any conditions existing or alleged to have existed on or before the Closing Date, including in connection with the transactions and all other activities to implement any of the Separation, the IPO and the Distribution. (b) Except as provided in Section 5.1(c), effective as of the Closing Date, each of AT&T and NCR does hereby, for itself and each other member of the AT&T Services Group and the NCR Group, their respective Affiliates (other than any member of the Lucent Group), successors and assigns, and all Persons who at any time prior to the Closing Date have been shareholders, directors, officers, agents or employees of any member of the AT&T Services Group or the NCR Group (in each case, in their respective capacities as such), remise, release and forever discharge Lucent, the respective members of the Lucent Group, their respective Affiliates (other than any member of the AT&T Group), successors and assigns, and all Persons who at any time prior to the Closing Date have been shareholders, directors, officers, agents or employees of any member of the Lucent Group (in each case, in their respective capacities as such), and their respective heirs, executors, administrators, successors and assigns, from any and all Liabilities whatsoever, whether at law or in equity (including any right of contribution), whether arising under any contract or agreement, by operation of law or otherwise, existing or arising from any acts or events occurring or failing to occur or alleged to have occurred or to have failed to occur or any conditions existing or alleged to have existed on or before the Closing Date, including in connection with the transactions and all other activities to implement any of the Separation, the IPO and the Distribution. (c) Nothing contained in Section 5.1(a) or (b) shall impair any right of any Person to enforce this Agreement, any Ancillary Agreement or any agreements, arrangements, commitments or understandings that are specified in Section 2.4(b) or the applicable Schedules thereto not to terminate as of the Closing Date, in each case in accordance with its terms. Nothing contained in Section 5.1(a) or (b) shall release any Person from: (i) any Liability provided in or resulting from any agreement among any members of the AT&T Services Group, the Lucent Group or the NCR Group that is specified in Section 2.4(b) or the applicable Schedules thereto as not to terminate as of the Closing Date, or any other Liability specified in such Section 2.4(b) as not to terminate as of the Closing Date; (ii) any Liability, contingent or otherwise, assumed, transferred, assigned or allocated to the Group of which such Person is a member in accordance with, or any other Liability of any member of any Group under, this Agreement or any Ancillary Agreement; (iii) any Liability for the sale, lease, construction or receipt of goods, property or services purchased, obtained or used in the ordinary course of business by a member of one Group from a member of any other Group prior to the Closing Date; (iv) any Liability for unpaid amounts for products or services or refunds owing on products or services due on a value-received basis for work done by a member of one Group at the request or on behalf of a member of another Group; (v) any Liability that the parties may have with respect to indemnification or contribution pursuant to this Agreement for claims brought against the parties by third Persons, which Liability shall be governed by the provisions of this Article V and Article VI and, if applicable, the appropriate provisions of the Ancillary Agreements; or (vi) any Liability the release of which would result in the release of any Person other than a Person released pursuant to this Section 5.1; provided that the parties agree not to bring suit or permit any of their Subsidiaries to bring suit against any Person with respect to any Liability to the extent that such Person would be released with respect to such Liability by this Section 5.1 but for the provisions of this clause (vi). (d) Lucent shall not make, and shall not permit any member of the Lucent Group to make, any claim or demand, or commence any Action asserting any claim or demand, including any claim of contribution or any indemnification, against AT&T, NCR or any member of the AT&T Services Group or NCR Group, or any other Person released pursuant to Section 5.1(a), with respect to any Liabilities released pursuant to Section 5.1(a). AT&T shall not, and shall not permit any member of the AT&T Services Group, to make any claim or demand, or commence any Action asserting any claim or demand, including any claim of contribution or any indemnification, against Lucent or any member of the Lucent Group, or any other Person released pursuant to Section 5.1(b), with respect to any Liabilities released pursuant to Section 5.1(b). NCR shall not, and shall not permit any member of the NCR Group, to make any claim or demand, or commence any Action asserting any claim or demand, including any claim of contribution or any indemnification, against Lucent or any member of the Lucent Group, or any other Person released pursuant to Section 5.1(b), with respect to any Liabilities released pursuant to Section 5.1(b). (e) It is the intent of each of AT&T, Lucent and NCR by virtue of the provisions of this Section 5.1 to provide for a full and complete release and discharge of all Liabilities existing or arising from all acts and events occurring or failing to occur or alleged to have occurred or to have failed to occur and all conditions existing or alleged to have existed on or before the Closing Date, between or among Lucent or any member of the Lucent Group, on the one hand, and AT&T, NCR or any member of the AT&T Services Group or the NCR Group, on the other hand (including any contractual agreements or arrangements existing or alleged to exist between or among any such members on or before the Closing Date), except as expressly set forth in Section 5.1(c). At any time, at the request of any other party, each party shall cause each member of its respective Group to execute and deliver releases reflecting the provisions hereof. 5.2. INDEMNIFICATION BY LUCENT. Except as provided in Section 5.4, Lucent shall indemnify, defend and hold harmless AT&T, each member of the AT&T Services Group and each of their respective directors, officers and employees, and each of the heirs, executors, successors and assigns of any of the foregoing (collectively, the "AT&T Indemnitees"), and NCR, each member of the NCR Group and each of their respective directors, officers and employees, and each of the heirs, executors, successors and assigns of any of the foregoing (collectively, the "NCR Indemnitees"), from and against any and all Liabilities of the AT&T Indemnitees and the NCR Indemnitees, respectively, relating to, arising out of or resulting from any of the following items (without duplication): (a) the failure of Lucent or any other member of the Lucent Group or any other Person to pay, perform or otherwise promptly discharge any Lucent Liabilities, any Nassau Metals Liabilities or Lucent Contract in accordance with their respective terms, whether prior to or after the Closing Date or the date hereof; (b) the Lucent Business, any Lucent Liability, any Lucent Contract or any Nassau Metals Liabilities; (c) any breach by Lucent or any member of the Lucent Group of this Agreement or any of the Ancillary Agreements; and (d) any untrue statement or alleged untrue statement of a material fact or omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, with respect to all information contained in any IPO Registration Statement or Prospectus. 5.3. INDEMNIFICATION BY AT&T AND BY NCR. (a) AT&T shall indemnify, defend and hold harmless Lucent, each member of the Lucent Group and each of their respective directors, officers and employees, and each of the heirs, executors, successors and assigns of any of the foregoing (collectively, the "Lucent Indemnitees"), from and against any and all Liabilities of the Lucent Indemnitees relating to, arising out of or resulting from any of the following items (without duplication): (i) the failure of AT&T or any other member of the AT&T Group or any other Person to pay, perform or otherwise promptly discharge any Liabilities of the AT&T Group other than the Lucent Liabilities, the Nassau Metals Liabilities and the NCR Covered Liabilities, whether prior to or after the Closing Date or the date hereof; (ii) the AT&T Services Business or any Liability of the AT&T Group other than the Lucent Liabilities, the Nassau Metals Liabilities and the NCR Covered Liabilities; and (iii) any breach by AT&T or any member of the AT&T Services Group of this Agreement or any of the Ancillary Agreements. (b) NCR shall indemnify, defend and hold harmless each Lucent Indemnitee from and against any and all Liabilities of the Lucent Indemnitees relating to, arising out of or resulting from any of the following items (without duplication): (i) the failure of NCR or any member of the NCR Group or any other Person to pay, perform or otherwise promptly discharge any Exclusive NCR Contingent Liability or any Shared NCR Percentage of any Shared Contingent Liability, whether prior to or after the Closing Date or the date hereof; and (ii) any breach by NCR or any member of the NCR Group of this Agreement or any of the Ancillary Agreements, or any other agreement that is not contemplated to be terminated as of the Closing Date pursuant to Section 2.4(b) (collectively, the "NCR Covered Liabilities"). (c) NCR shall indemnify, defend and hold harmless each AT&T Indemnitee from and against any and all Liabilities of the AT&T Indemnitees relating to, arising out of or resulting from any NCR Covered Liability. 5.4. INDEMNIFICATION OBLIGATIONS NET OF INSURANCE PROCEEDS AND OTHER AMOUNTS. (a) The parties intend that any Liability subject to indemnification or reimbursement pursuant to this Article V or Article VI will be net of Insurance Proceeds and any amounts recovered pursuant to an RBOC Agreement that actually reduce the amount of the Liability. Accordingly, the amount which any party (an "Indemnifying Party") is required to pay to any Person entitled to indemnification hereunder (an "Indemnitee") will be reduced by any Insurance Proceeds theretofore actually recovered by or on behalf of the Indemnitee in reduction of the related Liability and by any amount actually theretofore recovered pursuant to an RBOC Agreement. If an Indemnitee receives a payment (an "Indemnity Payment") required by this Agreement from an Indemnifying Party in respect of any Liability and subsequently receives Insurance Proceeds, or recovers any amount pursuant to an RBOC Agreement, then the Indemnitee will pay to the Indemnifying Party an amount equal to the excess of the Indemnity Payment received over the amount of the Indemnity Payment that would have been due if the Insurance Proceeds and/or RBOC Agreement recovery had been received, realized or recovered before the Indemnity Payment was made. (b) In the case of any Shared Contingent Liability, any Insurance Proceeds, or recoveries pursuant to any RBOC Agreement actually received, realized or recovered by any party in respect of the Shared Contingent Liability will be shared among the parties in such manner as may be necessary so that the obligations of the parties for such Shared Contingent Liability, net of such Insurance Proceeds or recovery pursuant to an RBOC Agreement, will remain in proportion to their respective Shared Percentages, regardless of which party or parties may actually receive, realize or recover such Insurance Proceeds or amount pursuant to an RBOC Agreement. (c) An insurer who would otherwise be obligated to pay any claim shall not be relieved of the responsibility with respect thereto or, solely by virtue of the indemnification provisions hereof, have any subrogation rights with respect thereto, it being expressly understood and agreed that no insurer or any other third party shall be entitled to a "windfall" (i.e., a benefit they would not be entitled to receive in the absence of the indemnification provisions) by virtue of the indemnification provisions hereof. Nothing contained in this Agreement or any Ancillary Agreement shall obligate any member of any Group to seek to collect or recover any Insurance Proceeds. 5.5. PROCEDURES FOR INDEMNIFICATION OF THIRD PARTY CLAIMS. (a) If an Indemnitee shall receive notice or otherwise learn of the assertion by a Person (including any Governmental Authority) who is not a member of the AT&T Services Group, the Lucent Group or the NCR Group of any claim or of the commencement by any such Person of any Action (collectively, a "Third Party Claim") with respect to which an Indemnifying Party may be obligated to provide indemnification to such Indemnitee pursuant to Section 5.2 or 5.3, or any other Section of this Agreement or any Ancillary Agreement, such Indemnitee shall give such Indemnifying Party and, if AT&T is not the Indemnifying Party, AT&T written notice thereof within 20 days after becoming aware of such Third Party Claim. Any such notice shall describe the Third Party Claim in reasonable detail. If any Person shall receive notice or otherwise learn of the assertion of a Third Party Claim which may reasonably be determined to be a Shared Contingent Liability, such Person (if other than AT&T) shall give AT&T and any other party to this Agreement written notice thereof within 20 days after becoming aware of such Third Party Claim. Any such notice shall describe the Third Party Claim in reasonable detail. Notwithstanding the foregoing, the failure of any Indemnitee or other Person to give notice as provided in this Section 5.5(a) shall not relieve the related Indemnifying Party of its obligations under this Article V, except to the extent that such Indemnifying Party is actually prejudiced by such failure to give notice. (b) If the Indemnitee, the party receiving any notice pursuant to Section 5.5(a) or any other party to this Agreement believes that the Third Party Claim is or may be a Shared Contingent Liability, such Indemnitee or other party may make a Determination Request at any time following any notice given by the Indemnitee to an Indemnifying Party or given by any other Person to AT&T pursuant to Section 5.5(a). AT&T may make such a Determination Request at any time. Unless all parties have acknowledged that the applicable Third Party Claim (including any Third Party Claim set forth on Schedule 6.6) is not a Shared Contingent Liability or unless a determination to such effect has been made in accordance with Section 6.6, AT&T shall be entitled (but not obligated) to assume the defense of such Third Party Claim as if it were the Indemnifying Party hereunder. In any such event, AT&T shall be entitled to reimbursement of all the costs and expenses (including allocated costs of in-house counsel and other personnel) of such defense once a final determination or acknowledgment is made as to the status of the Third Party Claim from the applicable party or parties that would have been required to pay such amounts if the status of the Third Party Claim had been determined immediately; provided that, if such Third Party Claim is determined to be a Shared Contingent Liability, such costs and expenses shall be shared as provided in Section 5.5(c). (c) AT&T shall assume the defense of, and may seek to settle or compromise, any Third Party Claim that is a Shared Contingent Liability, and the costs and expenses (including allocated costs of in-house counsel and other personnel) thereof shall be included in the calculation of the amount of the applicable Shared Contingent Liability in determining the reimbursement obligations of the other parties with respect thereto pursuant to Section 6.4. Any Indemnitee in respect of a Shared Contingent Liability shall have the right to employ separate counsel and to participate in (but not control) the defense, compromise, or settlement thereof, but all fees and expenses of such counsel shall be the expense of such Indemnitee. (d) Other than in the case of a Shared Contingent Liability, an Indemnifying Party may elect to defend (and, unless the Indemnifying Party has specified any reservations or exceptions, to seek to settle or compromise), at such Indemnifying Party's own expense and by such Indemnifying Party's own counsel, any Third Party Claim. Within 30 days after the receipt of notice from an Indemnitee in accordance with Section 5.5(a) (or sooner, if the nature of such Third Party Claim so requires), the Indemnifying Party shall notify the Indemnitee of its election whether the Indemnifying Party will assume responsibility for defending such Third Party Claim, which election shall specify any reservations or exceptions. After notice from an Indemnifying Party to an Indemnitee of its election to assume the defense of a Third Party Claim, such Indemnitee shall have the right to employ separate counsel and to participate in (but not control) the defense, compromise, or settlement thereof, but the fees and expenses of such counsel shall be the expense of such Indemnitee except as set forth in the next sentence. In the event that (i) the Third Party Claim is not a Shared Contingent Liability and (ii) the Indemnifying Party has elected to assume the defense of the Third Party Claim but has specified, and continues to assert, any reservations or exceptions in such notice, then, in any such case, the reasonable fees and expenses of one separate counsel for all Indemnitees shall be borne by the Indemnifying Party. (e) Other than in the case of a Shared Contingent Liability, if an Indemnifying Party elects not to assume responsibility for defending a Third Party Claim, or fails to notify an Indemnitee of its election as provided in Section 5.5(d), such Indemnitee may defend such Third Party Claim at the cost and expense (including allocated costs of in-house counsel and other personnel) of the Indemnifying Party. (f) Unless the Indemnifying Party has failed to assume the defense of the Third Party Claim in accordance with the terms of this Agreement, no Indemnitee may settle or compromise any Third Party Claim that is not a Shared Contingent Liability without the consent of the Indemnifying Party. No Indemnitee may settle or compromise any Third Party Claim that is a Shared Contingent Liability without the consent of AT&T. (g) In the case of a Third Party Claim that is not a Shared Contingent Liability, no Indemnifying Party shall consent to entry of any judgment or enter into any settlement of the Third Party Claim without the consent of the Indemnitee if the effect thereof is to permit any injunction, declaratory judgment, other order or other nonmonetary relief to be entered, directly or indirectly, against any Indemnitee. In the case of a Third Party Claim that is a Shared Contingent Liability, AT&T shall not consent to entry of any judgment or enter into any settlement of the Third Party Claim without the consent of the Indemnitee if the effect thereof is to permit any injunction, declaratory judgment, other order or other nonmonetary relief to be entered, directly or indirectly, against any Indemnitee. (h) The provisions of Section 5.5 and Section 5.6 shall not apply to Taxes (which are covered by the Tax Sharing Agreement). 5.6. ADDITIONAL MATTERS. (a) Any claim on account of a Liability which does not result from a Third Party Claim shall be asserted by written notice given by the Indemnitee to the related Indemnifying Party. Such Indemnifying Party shall have a period of 30 days after the receipt of such notice within which to respond thereto. If such Indemnifying Party does not respond within such 30-day period, such Indemnifying Party shall be deemed to have refused to accept responsibility to make payment. If such Indemnifying Party does not respond within such 30-day period or rejects such claim in whole or in part, such Indemnitee shall be free to pursue such remedies as may be available to such party as contemplated by this Agreement and the Ancillary Agreements. (b) In the event of payment by or on behalf of any Indemnifying Party to any Indemnitee in connection with any Third Party Claim, such Indemnifying Party shall be subrogated to and shall stand in the place of such Indemnitee as to any events or circumstances in respect of which such Indemnitee may have any right, defense or claim relating to such Third Party Claim against any claimant or plaintiff asserting such Third Party Claim or against any other person. Such Indemnitee shall cooperate with such Indemnifying Party in a reasonable manner, and at the cost and expense (including allocated costs of in-house 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 with respect to Shared Contingent Liabilities, the Indemnifying Party shall fully indemnify the named defendant against all costs of defending the Action (including court costs, sanctions imposed by a court, attorneys' fees, experts' fees and all other external expenses, and the allocated costs of in-house counsel and other personnel), the costs of any judgment or settlement, and the cost of any interest or penalties relating to any judgment or settlement. 5.7. REMEDIES CUMULATIVE. The remedies provided in this Article V shall be cumulative and, subject to the provisions of Article IX, shall not preclude assertion by any Indemnitee of any other rights or the seeking of any and all other remedies against any Indemnifying Party. 5.8. SURVIVAL OF INDEMNITIES. The rights and obligations of each of AT&T, Lucent and NCR and their respective Indemnitees under this Article V shall survive the sale or other transfer by any party of any Assets or businesses or the assignment by it of any Liabilities. 5.9. RBOC AGREEMENT PROCEDURES. (a) With respect to the RBOC Agreements, and except as otherwise provided in this Section 5.9 or as otherwise agreed by the parties hereto, AT&T shall be the party to provide and receive notices and all other information to and from the RBOCs, and otherwise to deal with the RBOCs, in respect of all matters arising under the RBOC Agreements or the RBOC Plan. Without limiting the foregoing, AT&T shall continue as the representative of all Groups to the contingent liability oversight committee, except as and to the extent AT&T and the other parties to the RBOC Agreements may otherwise agree. (b) After the date hereof, AT&T and Lucent will cooperate with each other to take reasonable steps to transfer to Lucent the responsibilities for providing and receiving notices and other information to and from, and for otherwise dealing with, the RBOCs in respect of Lucent Liabilities and any Nassau Metals Liabilities that may be subject to sharing with the RBOCs under any RBOC Agreements (other than Shared Contingent Liabilities, which will be controlled by AT&T in accordance with the provisions of Section 5.5(c)), including the right to receive directly from the RBOCs any sharing payments that may be due from the RBOCs under any RBOC Agreements in respect of Lucent Liabilities or Nassau Metals Liabilities. Unless and until such responsibilities are transferred to Lucent in accordance with the foregoing, the provisions of the following paragraphs (c), (d) and (e) will apply. (c) In the event that Lucent determines that any Lucent Liability or any Nassau Metals Liability (other than a Shared Contingent Liability) is or may be subject to sharing with the RBOCs pursuant to any RBOC Agreement, and Lucent so requests, AT&T will promptly submit any notice, claim or other information or material with respect thereto as may be required by such RBOC Agreement and provided by Lucent to AT&T in accordance with the notice provisions of Section 12.5 hereof. Upon receipt of any amounts from any RBOCs with respect to their sharing obligation under an RBOC Agreement relating to an Lucent Liability or any Nassau Metals Liability (other than a Shared Contingent Liability), AT&T will promptly remit such amounts to Lucent. AT&T will also forward to Lucent, in accordance with the notice provisions of Section 12.5 hereof, any notices, information or other materials that it may receive from the RBOCs pursuant to such RBOC Agreement in respect of any Lucent Liability or any Nassau Metals Liability. Notwithstanding the foregoing, in no event shall AT&T have any liability for its failure or delay in submitting or forwarding any such notice, claim, information or other material except to the extent Lucent is prejudiced thereby. AT&T shall have no obligation to send, deliver or make any such notice or claim, or take any other action under any RBOC Agreement in respect of any Lucent Liability or any Nassau Metals Liability, unless Lucent shall request that AT&T do so, and provide AT&T with any necessary notice, claim or other information or material, as set forth above. (d) In the event any member of the Lucent Group desires to commence an arbitration or other proceeding to recover any amounts that may be due under any RBOC Agreement in respect of an Lucent Liability or any Nassau Metals Liability (other than a Shared Contingent Liability), AT&T will take such action as such member of the Lucent Group may reasonably request to commence such arbitration or other proceeding in accordance with such RBOC Agreement, including consenting to be the named party in such arbitration or other proceeding, but such arbitration or other proceeding will be managed and controlled by such member of the Lucent Group and such member of the Lucent Group will be responsible for the prosecution of such arbitration or other proceeding and all decisions made with respect thereto. (e) Lucent will, upon receipt of any invoice therefor, promptly reimburse AT&T for all costs or expenses (including allocated costs of in-house counsel and other personnel) incurred in taking any actions pursuant to the foregoing paragraphs (c) and (d), and will defend, indemnify and hold harmless AT&T and each other AT&T Indemnitee with respect to all matters taken at the direction of or on behalf of any member of the Lucent Group in connection with any RBOC Agreement. (f) Each party hereto further agrees that it will from time to time promptly provide AT&T with all such information, notices and other materials (and shall make available the former, current and future directors, officers, employees, other personnel and agents of the members of its respective Group as witnesses and any books, records or other documents within its control or which it otherwise has the ability to make available) as AT&T may determine to be necessary or advisable to permit AT&T to pursue any rights or potential rights under each such RBOC Agreement, to perform the obligations of any member of the AT&T Group under each such RBOC Agreement in accordance with the respective terms thereof and to defend itself, its Affiliates and any other Person for which AT&T may have any indirect liability (through an indemnification obligation or otherwise) from any claims or potential claims thereunder. 5.10. ALLEGED INFRINGEMENT OR MISAPPROPRIATION. (a) The provisions of this Section 5.10 shall apply notwithstanding any other provisions of this Agreement or any Ancillary Agreement. In the event of any claim, action, proceeding or suit by a third party against any member of the AT&T Group alleging an infringement of any patent, copyright, trademark or misappropriation of a trade secret with respect to any product, software or other material provided by or ordered from the Lucent Business prior to the Closing Date (other than any such product, software or other material provided under and ordered pursuant to the AT&T General Purchase Agreement, or any supplemental or related agreement thereto, with respect to which an infringement or misappropriation indemnity is provided under such agreement) for use by the AT&T Services Business or the NCR Business (whether used alone or in combination with any product, software or other material provided by the Lucent Business or by a third party), Lucent, at its expense, shall defend and hold harmless each such member of the AT&T Group with respect to such claim, action, proceeding or suit, subject to the conditions and exceptions stated in paragraphs (b), (c) and (d) below. Lucent shall reimburse each such member of the AT&T Group for all costs, expenses or attorneys' fees (including allocated costs of in-house counsel and other personnel) incurred at Lucent's written request or authorization, and shall indemnify each such member of the AT&T Group against any liability assessed against it by final judgment, on account of such infringement or misappropriation arising out of such use. (b) If the use by any member of the AT&T Group of any such product, software or other material referred to in Section 5.10(a) is enjoined or in the opinion of such member of the AT&T Group is likely to be enjoined, Lucent shall, at its expense and at the sole option of such member of the AT&T Group, (i) replace the enjoined product, software or materials with a substitute free of any infringement; (ii) modify the enjoined product, software or materials so that they will be free of the infringement; or (iii) procure for such member of the AT&T Group a license or other right to use the enjoined product, software or materials. In the alternative, such member of the AT&T Group, may at its option, procure a license with a reasonable royalty rate payable to the third party alleging infringement, and Lucent shall reimburse, indemnify and hold harmless such member of the AT&T Group for all liability for payment of such reasonable royalty. (c) AT&T or another member of the AT&T Group shall give Lucent prompt written notice of all such claims, actions, proceedings or suits alleging infringement or misappropriation and Lucent shall have full and complete authority to assume the sole defense thereof, including appeals, and to settle the same; provided, however, that this does not limit any rights of any member of the AT&T Group concerning injunctions addressed in Section 5.10(b). The members of the AT&T Group shall, upon Lucent's request and at Lucent's expense, furnish all information and assistance available to such members of the AT&T Group and cooperate in every reasonable way to facilitate the defense and/or settlement of any such claim, action, proceeding or suit. (d) The foregoing indemnity will not apply to any alleged infringement or misappropriation if and to the extent such alleged infringement or misappropriation arises from (i) the use by any member of the AT&T Group of any product, software or other material provided by the Lucent Business, in combination with any product, software or other material provided after the Closing Date by a third party (other than any third-party product, software, other material or components furnished to such member of the AT&T Group by any member of the Lucent Group), or (ii) any changes made by any member of the AT&T Group after the Closing Date in any combination of any product, software or other material provided by the Lucent Business, with any product, software or other material provided by a third party (other than any third-party product, software, other material or components furnished by the Lucent Group), except for the addition of any product, software or other material provided by any member of the Lucent Group after the Closing Date to any such combination in place as of the Closing Date. ARTICLE VI CONTINGENT GAINS AND CONTINGENT LIABILITIES 6.1. DEFINITIONS RELATING TO CONTINGENT GAINS AND CONTINGENT LIABILITIES. For the purpose of this Agreement the following terms shall have the following meanings: (a) CONTINGENT CLAIM COMMITTEE means a committee composed of one representative designated from time to time by each of AT&T, NCR and Lucent that shall be established in accordance with Section 6.6. (b) CONTINGENT GAIN means any claim or other right of AT&T, Lucent, NCR or any their respective Affiliates, whenever arising, against any Person other than AT&T, Lucent, NCR or any of their respective Affiliates, if and to the extent that (i) such claim or right has accrued as of the Closing Date (based on then existing law) and (ii) the existence or scope of the obligation of such other Person as of the Closing Date was not acknowledged, fixed or determined in any material respect, due to a dispute or other uncertainty as of the Closing Date or as a result of the failure of such claim or other right to have been discovered or asserted as of the Closing Date. A claim or right meeting the foregoing definition shall be considered a Contingent Gain regardless of whether there was any Action pending, threatened or contemplated as of the Closing Date with respect thereto. For purposes of the foregoing, a claim or right shall be deemed to have accrued as of the Closing Date if all the elements of the claim necessary for its assertion shall have occurred on or prior to the Closing Date, such that the claim or right, were it asserted in an Action on or prior to the Closing Date, would not be dismissed by a court on ripeness or similar grounds. Notwithstanding the foregoing, none of (i) any payment to any member of any Group pursuant to or in respect of any of the RBOC Agreements, (ii) any Insurance Proceeds, (iii) any Excluded Assets, (iv) any reversal of any litigation or other reserve, or (v) any matters relating to Taxes (which are governed by the Tax Sharing Agreement) shall deemed to be a Contingent Gain. (c) CONTINGENT LIABILITY means any Liability, other than Liabilities for Taxes (which are governed by the Tax Sharing Agreement), of AT&T, Lucent, NCR or any of their respective Affiliates, whenever arising, to any Person other than AT&T, Lucent, NCR or any of their respective Affiliates, if and to the extent that (i) such Liability has accrued as of the Closing Date (based on then existing law) and (ii) the existence or scope of the obligation of AT&T, Lucent, NCR or any of their respective Affiliates as of the Closing Date with respect to such Liability was not acknowledged, fixed or determined in any material respect, due to a dispute or other uncertainty as of the Closing Date or as a result of the failure of such Liability to have been discovered or asserted as of the Closing Date (it being understood that the existence of a litigation or other reserve with respect to any Liability shall not be sufficient for such Liability to be considered acknowledged, fixed or determined). In the case of any Liability a portion of which had accrued as of the Closing Date and a portion of which accrues after the Closing Date, only that portion that had accrued as of the Closing Date shall be considered a Contingent Liability. For purposes of the foregoing, a Liability shall be deemed to have accrued as of the Closing Date if all the elements necessary for the assertion of a claim with respect to such Liability shall have occurred on or prior to the Closing Date, such that the claim, were it asserted in an Action on or prior to the Closing Date, would not be dismissed by a court on ripeness or similar grounds. For purposes of clarification of the foregoing, the parties agree that no Liability relating to, arising out of or resulting from any obligation of any Person to perform the executory portion of any contract or agreement existing as of the Closing Date, or to satisfy any obligation accrued under any Plan (as defined in the Employee Benefits Agreement) as of the Closing Date, shall deemed to be a Contingent Liability. (d) EXCESS PORTION means that portion, if any, of the aggregate Value of all amounts actually paid by AT&T, Lucent or NCR (in each case, together with any members of its respective Group), in respect of any single Exclusive Contingent Liability of such Group or any Related Exclusive Contingent Liabilities of such Group that is in excess of $100 million. (e) EXCLUSIVE AT&T CONTINGENT GAIN means any Contingent Gain if such Contingent Gain primarily relates to any AT&T Services Business, including the matters listed or described on Schedule 6.1(e) hereto, or if such Contingent Gain is expressly assigned to AT&T pursuant to this Agreement or any Ancillary Agreement. (f) EXCLUSIVE LUCENT CONTINGENT GAIN means any Contingent Gain if such Contingent Gain primarily relates to any Lucent Business, including the matters listed or described on Schedule 6.1(f) hereto, or if such Contingent Gain is expressly assigned to Lucent pursuant to this Agreement or any Ancillary Agreement. (g) EXCLUSIVE NCR CONTINGENT GAIN means any Contingent Gain if such Contingent Gain primarily relates to any NCR Business, including the matters listed or described on Schedule 6.1(g) hereto, or if such Contingent Gain is expressly assigned to NCR pursuant to this Agreement or any Ancillary Agreement. (h) EXCLUSIVE AT&T CONTINGENT LIABILITY means any Contingent Liability (other than an RBOC Liability) if such Contingent Liability primarily relates to any AT&T Services Business, including the matters listed or described on Schedule 6.1(e) hereto (as supplemented pursuant to Section 6.6(d)), or if such Contingent Liability is expressly assigned to AT&T pursuant to this Agreement or any Ancillary Agreement. (i) EXCLUSIVE CONTINGENT LIABILITY means any Exclusive AT&T Contingent Liability, Exclusive NCR Contingent Liability or Exclusive Lucent Contingent Liability. (j) EXCLUSIVE LUCENT CONTINGENT LIABILITY means any Contingent Liability (other than an RBOC Liability) if (i) such Contingent Liability primarily relates to any Lucent Business or to the matters listed or described on Schedule 2.3(a)(v), including the matters listed or described on Schedule 6.1(f) (as supplemented pursuant to Section 6.6(d)) hereto, (ii) such Contingent Liability relates to, arises out of or results from any Nassau Metals Liability, or (iii) such Contingent Liability is expressly assigned to Lucent pursuant to this Agreement or any Ancillary Agreement. The parties agree that the matters specified on Schedule 6.1(f)(iv) shall be deemed Exclusive Lucent Contingent Liabilities to the extent reflected thereon. (k) EXCLUSIVE NCR CONTINGENT LIABILITY means any Contingent Liability (other than an RBOC Liability) if such Contingent Liability primarily relates to any NCR Business, including the matters listed or described on Schedule 6.1(g) (as supplemented pursuant to Section 6.6(d)) hereto, or if such Contingent Liability is expressly assigned to NCR pursuant to this Agreement or any Ancillary Agreement. (l) RELATED EXCLUSIVE CONTINGENT LIABILITIES of any Group means: (i) in the case of any Exclusive Contingent Liabilities of such Group other than Environmental Liabilities, any set or group of Exclusive Contingent Liabilities of such Group (but not including any Exclusive Contingent Liabilities of any other Group) arising from: (A) any single Action (including any group of Actions that are consolidated as a single Action and any Action or Actions certified as a class action); (B) any Action that is brought or threatened to be brought as a class action and that is settled; or (C) any group of Actions (other than workers' compensation Actions by or on behalf of former or current employees of any member of such Group) asserting claims in respect of repetitive stress injuries (RSIs) that arise or are alleged to arise from the manufacture or sale of equipment, such as computer keyboards, to third parties; and (ii) in the case of any Exclusive Contingent Liabilities of such Group that are Environmental Liabilities: (A) any and all Environmental Liabilities of such Group associated with a single site; and (B) any and all Environmental Liabilities of such Group arising from separate sites but listed on the National Priorities List as a single site. Exclusive Contingent Liabilities of such Group that are Environmental Liabilities of such Group arising from sites listed separately on the National Priorities List shall not be deemed to be Related Exclusive Contingent Liabilities. Whether sites not listed on the National Priorities List shall be deemed to be a "single site" for purposes of clause (B) of this definition shall be determined by applying the definition of "on-site" contained in 40 C.F.R. Section 300.5 (as in effect an as of the date of this Agreement) which provides that "On-site means the areal extent of contamination and all suitable areas in very close proximity to the contamination necessary for implementation of the response action." Site identifications by a state or local Governmental Authority similar in import to those authorized by the definition of "on-site" in 40 C.F.R. Section 300.5 (as in effect as of the date of this Agreement) shall similarly be determinative of whether sites not listed on the National Priorities List shall be deemed to be a "single site" for purposes of this definition. (m) SHARED AT&T PERCENTAGE means 75%. (n) SHARED CONTINGENT GAIN means any Contingent Gain that is not an Exclusive AT&T Contingent Gain, an Exclusive Lucent Contingent Gain or an Exclusive NCR Contingent Gain, including any Contingent Gain relating to, arising out of or resulting from the matters set forth on Schedule 6.1(n). (o) SHARED CONTINGENT LIABILITY means, without duplication: (i) any Contingent Liability that is not an Exclusive AT&T Contingent Liability, an Exclusive Lucent Contingent Liability or an Exclusive NCR Contingent Liability; (ii) any RBOC Liability; (iii) any Liability (other than Taxes) relating to, arising out of or resulting from any Other Discontinued Operation; and (iv) any Liability (other than Taxes) relating to, arising out of or resulting from the matters set forth on Schedule 6.1(n). (p) SHARED NCR PERCENTAGE means 3%. (q) SHARED LUCENT PERCENTAGE means 22%. (r) SHARED PERCENTAGE means the Shared AT&T Percentage, the Shared NCR Percentage or the Shared Lucent Percentage, as the case may be. (s) VALUE means the aggregate amount of all cash payments, the fair market value of all non-cash payments and the incremental cost of providing any goods or services made or provided in respect of any Exclusive Contingent Liability or Related Exclusive Contingent Liabilities, whether in satisfaction of any judgment, in settlement of any Action or threatened Action or otherwise (including all costs and expenses (including allocated costs of in-house counsel and other personnel), of defending or investigating any Action or threatened Action), net of: (i) any Insurance Proceeds received or realized in respect of the applicable Exclusive Contingent Liability or Related Exclusive Contingent Liabilities (applied in reduction of the applicable Liability in the manner contemplated by Section 5.4), (ii) any Tax benefits associated with such payments or the provision of such goods or services (based on assumed effective Tax rate equal to the effective Tax rate of the applicable party for the fiscal year immediately preceding the year in which such payments are made or goods or services provided (it being understood that the effective Tax rate for any party whose earnings for such immediately preceding fiscal year are consolidated for federal income tax purposes with another corporation shall be the effective Tax rate of the corporation filing such federal income tax return for such immediately preceding fiscal year)), (iii) any amounts received pursuant to any RBOC Agreement in respect of the Exclusive Contingent Liability or Related Exclusive Contingent Liabilities, (iv) any other amounts recovered (including by way of set off) from a third party in connection with any such Action or threatened Action and (v) the amount of any reserve, account payable or similar accrual in respect of the Exclusive Contingent Liability or Related Exclusive Contingent Liabilities, net of any offsetting receivables in respect of such Exclusive Contingent Liability or Related Exclusive Contingent Liabilities, in each case as reflected on the Lucent Balance Sheet or the audited consolidated balance sheet of AT&T, including the notes thereto, as of December 31, 1995 (and without giving effect to any subsequent adjustment of any such reserve, account payable, accrual or offsetting receivable). 6.2. CONTINGENT GAINS. (a) Each of AT&T, Lucent and NCR shall have sole and exclusive right to any benefit received with respect to any Exclusive AT&T Contingent Gain, Exclusive Lucent Contingent Gain or Exclusive NCR Contingent Gain, respectively. Each of AT&T, Lucent and NCR shall have sole and exclusive authority to commence, prosecute, settle, manage, control, conduct, waive, forego, release, discharge, forgive and otherwise determine all matters whatsoever with respect to any Exclusive AT&T Contingent Gain, Exclusive Lucent Contingent Gain or Exclusive NCR Contingent Gain, respectively. (b) Any benefit that may be received from any Shared Contingent Gain shall be shared among AT&T, Lucent and NCR in proportion to the Shared AT&T Percentage, the Shared Lucent Percentage and the Shared NCR Percentage, respectively, and shall be paid in accordance with Section 6.5. Notwithstanding the foregoing, AT&T shall have sole and exclusive authority to commence, prosecute, settle, manage, control, conduct, waive, forgo, release, discharge, forgive and otherwise determine all matters whatsoever with respect to any Shared Contingent Gain. Neither Lucent nor NCR shall take, or permit any member of their respective Groups to take, any action (including commencing any claim) that would interfere with such rights and powers of AT&T. AT&T shall use its reasonable efforts to notify each of Lucent and NCR in the event that it commences an Action with respect to a Shared Contingent Gain; provided that the failure to provide such notice shall not give rise to any rights on the part of Lucent or NCR against AT&T or affect any other provision of this Section 6.2. Each of Lucent and NCR acknowledges that AT&T may elect not to pursue any Shared Contingent Gain for any reason whatsoever (including a different assessment of the merits of any Action, claim or right than Lucent or NCR or any business reasons that are in the best interests of AT&T or a member of the AT&T Services Group, without regard to the best interests of any member of the Lucent Group or the NCR Group) and that no member of the AT&T Group shall have any liability to any Person (including any member of the Lucent Group or the NCR Group) as a result of any such determination. (c) In the event of any dispute as to whether any claim or right is a Contingent Gain or whether any Contingent Gain is a Shared Contingent Gain, an Exclusive AT&T Contingent Gain, an Exclusive Lucent Contingent Gain or an Exclusive NCR Contingent Gain, AT&T may, but shall not be obligated to, commence prosecution or other assertion of such claim or right pending resolution of such dispute. In the event that AT&T commences any such prosecution or assertion and, upon resolution of the dispute, a party other than AT&T is determined hereunder to have the exclusive right to such claim or right, AT&T shall, promptly upon the request of such other party, discontinue the prosecution or assertion of such right or claim and transfer the control thereof to the party so determined to have the right thereto. In such event, the party having the right to such claim or right will reimburse AT&T for all costs and expenses (including allocated costs of in-house counsel and other personnel), reasonably incurred prior to resolution of such dispute in the prosecution or assertion of such claim or right. 6.3. EXCLUSIVE CONTINGENT LIABILITIES. (a) Except as otherwise provided in this Section 6.3, each Exclusive Contingent Liability or Related Exclusive Contingent Liability shall constitute a Liability for which indemnification is provided by AT&T, Lucent or NCR, as the case may be, pursuant to Article V hereof and shall be subject to the procedures set forth in Article V with respect thereto. (b) Notwithstanding anything to the contrary in this Agreement, except as set forth in paragraph (f) of this Section 6.3, if the aggregate Value of all amounts paid by AT&T, Lucent or NCR (in each case, together with any members of its respective Group) in respect of any single Exclusive Contingent Liability of such Group or any Related Exclusive Contingent Liabilities of such Group is in excess of $100 million, each of AT&T, Lucent or NCR, as the case may be, shall be entitled to reimbursement from each of the others for a share of the Excess Portion in accordance with the following percentages: (i) in the case of Exclusive AT&T Contingent Liabilities, AT&T shall bear 75 percent of such Excess Portion, Lucent shall bear 22 percent of such Excess Portion, and NCR shall bear 3 percent of such Excess Portion; (ii) in the case of Exclusive NCR Contingent Liabilities, NCR shall bear 50 percent of such Excess Portion, AT&T shall bear 37 percent of such Excess Portion and Lucent shall bear 13 percent of such Excess Portion; and (iii) in the case of Exclusive Lucent Contingent Liabilities, Lucent shall bear 50 percent of such Excess Portion, AT&T shall bear 47 percent of such Excess Portion and NCR shall bear 3 percent of such Excess Portion. (c) In the event that after any payment is made by any party to any other party in accordance with the allocation set forth in Section 6.3(b), any party or any member of such party's Group receives any Insurance Proceeds, obtains any recovery pursuant to an RBOC Agreement or obtains any other amounts that, in any such case, would reduce the Value of all amounts paid by such party and the members of its Group in respect of the applicable Exclusive Contingent Liability or Liabilities, such party will promptly notify each other party of the receipt of such Insurance Proceeds or recovery of such amount pursuant to an RBOC Agreement or otherwise and will promptly reimburse each other party for the amount of any payment that such first party would not have been entitled to receive if it had received such Insurance Proceeds or obtained such recovery pursuant to an RBOC Agreement or otherwise on or prior to the date it received a payment pursuant to this Section. Each such repayment will be accompanied by interest accruing from the date of receipt of the original payment pursuant to this Section to the date of such repayment at a rate equal to the Prime Rate plus 2% per annum. (d) Each party agrees to use its reasonable best efforts to advise each other party if it becomes aware of one or more Exclusive Contingent Liabilities that may result in a Value of $100 million or more; provided, however, that no failure to give any such notice shall relieve any other party of any obligation pursuant to this Agreement. In the event of any such notice, or if any other party otherwise determines that any such risk may exist, the other parties will be entitled at their own expense to monitor any such Action. In any such event, the parties will enter into a mutually acceptable joint defense agreement so as to maintain to the extent reasonably practicable the attorney-client privilege with respect thereto. (e) It shall not be a defense to any obligation by any party to pay any amount in respect of any Excess Portion that such party was not consulted in the defense thereof, that such party's views or opinions as to the conduct of such defense were not accepted or adopted, that such party does not approve of the quality or manner of the defense thereof or that such Excess Portion was incurred by reason of a settlement rather than by a judgment or other determination of liability (even if, subject to Section 5.5(g), such settlement was effected without the consent or over the objection of such party). (f) Neither AT&T nor Lucent (nor any member of their respective Groups) will be entitled to reimbursement pursuant to this Section 6.3 for a share of the Excess Portion in respect of any Exclusive Contingent Liability or Related Exclusive Contingent Liabilities that would be subject to sharing with the RBOCs pursuant to any RBOC Agreement, unless the applicable party shall have pursued in good faith any recovery to which it or any member of its Group may be entitled under such RBOC Agreement in respect of such Exclusive Contingent Liability or Related Exclusive Contingent Liabilities. 6.4. SHARED CONTINGENT LIABILITIES. (a) As set forth in Section 5.5(c), AT&T shall assume the defense of, and may seek to settle or compromise, any Third Party Claim that is a Shared Contingent Liability, and the costs and expenses (including allocated costs of in-house counsel and other personnel) thereof shall be included in the calculation of the amount of the applicable Shared Contingent Liability in determining the reimbursement obligations of the other parties with respect thereto pursuant to this Section 6.4. (b) Each of AT&T, Lucent and NCR shall be responsible for its Shared Percentage of any Shared Contingent Liability. It shall not be a defense to any obligation by any party to pay any amount in respect of any Shared Contingent Liability that such party was not consulted in the defense thereof, that such party's views or opinions as to the conduct of such defense were not accepted or adopted, that such party does not approve of the quality or manner of the defense thereof or that such Shared Contingent Liability was incurred by reason of a settlement rather than by a judgment or other determination of liability (even if, subject to Section 5.5(g), such settlement was effected without the consent or over the objection of such party). 6.5. PAYMENTS. (a) Any amount owed in respect of any Shared Contingent Liabilities (including reimbursement for the cost or expense (including allocated costs of in-house counsel and other personnel) of defense of (i) any Third Party Claim that is a Shared Contingent Liability), (ii) any Excess Portion of any Exclusive Contingent Liabilities or of any Related Exclusive Contingent Liabilities or (iii) any Shared Contingent Gains pursuant to this Article VI shall be remitted promptly after the party entitled to such amount provides an invoice (including reasonable supporting information with respect thereto) to the party owing such amount. (b) In the case of any Shared Contingent Liability, AT&T shall be entitled to reimbursement from Lucent and NCR in advance of a final determination of any Action for amounts paid in respect of costs and expenses (including allocated costs of in-house counsel and other personnel) related thereto, from time to time as such costs and expenses are incurred. In the case of any Shared Contingent Gain, AT&T shall be entitled to retain from the amount of the Shared Contingent Gain otherwise payable to Lucent and NCR, Lucent's and NCR's respective Shared Percentage of the costs and expenses (including allocated costs of in-house counsel and other personnel) paid or incurred by or on behalf of any member of the AT&T Services Group in connection with such Shared Contingent Gain. (c) Any amounts billed and properly payable in accordance with this Article VI that are not paid within 30 days of such bill shall bear interest at the Prime Rate plus 2% per annum. 6.6. PROCEDURES TO DETERMINE STATUS OF CONTINGENT LIABILITY OR CONTINGENT GAIN. (a) With respect to the Actions set forth on Schedule 6.6, and with respect to any other matters not set forth on Schedules 6.1(e), 6.1(f), 6.1(g) or 6.1(n) (regardless of whether such matters are currently pending but not set forth on such Schedules or are asserted or filed hereafter), AT&T, Lucent and NCR will form the Contingent Claim Committee for the purpose of resolving whether: (i) any claim or right is a Contingent Gain; (ii) any Contingent Gain is a Shared Contingent Gain, an Exclusive AT&T Contingent Gain, an Exclusive Lucent Contingent Gain or an Exclusive NCR Contingent Gain; (iii) any Liability is a Contingent Liability; (iv) any Contingent Liability is a Shared Contingent Liability, an Exclusive AT&T Contingent Liability, an Exclusive Lucent Contingent Liability or an Exclusive NCR Contingent Liability; or (v) any Exclusive Contingent Liabilities constitute Related Exclusive Contingent Liabilities. (b) Any of the parties may refer any potential Contingent Gains or Contingent Liabilities to the Contingent Claim Committee for resolution as described in Section 6.6(a) and the Contingent Claim Committee's determination (which shall be made within 30 days of such referral), if unanimous, shall be binding on all of the parties and their respective successors and assigns. In the event that the Contingent Claim Committee cannot reach a unanimous determination as to the nature or status of any such Contingent Liabilities or Contingent Gains within 30 days after such referral, the issue will be submitted for arbitration pursuant to the procedures set forth in Article IX of this Agreement, subject to Section 9.8. The outcome of the arbitration pursuant to Article IX (subject to Section 9.8) shall be final and binding on all parties and their respective successors and assigns. (c) In resolving, with respect to any Action set forth on Schedule 6.6 or any other matter not set forth in Schedules 6.1(e), 6.1(f), 6.1(g) and 6.1(n), whether (i) any Contingent Gain is a Shared Contingent Gain, an Exclusive AT&T Contingent Gain, an Exclusive Lucent Contingent Gain or an Exclusive NCR Contingent Gain or (ii) any Contingent Liability is a Shared Contingent Liability, an Exclusive AT&T Contingent Liability, an Exclusive Lucent Contingent Liability or an Exclusive NCR Contingent Liability, the categorization of Contingent Claims and Contingent Liabilities reflected in Schedules 6.1(e), 6.1(f), 6.1(g) and 6.1(n) shall be considered and used as a precedential guide. (d) At any time or from time to time prior to the Closing Date, the Solicitor General of AT&T, following consultation with representatives of each of Lucent and NCR, may amend or supplement any of Schedules 6.1(e), 6.1(f), 6.1(g) and 6.1(n). Without limiting the foregoing, prior to the Closing Date, the parties will continue to review Schedule 6.6 to determine whether any matter set forth therein will be reassigned to one of Schedules 6.1(e), 6.1(f), 6.1(g) or 6.1(n). 6.7. CERTAIN CASE ALLOCATION MATTERS. (a) Lucent and NCR acknowledge that Third Party Claims may be asserted in respect of alleged repetitive stress injuries in a single Action (including a group of consolidated Actions) that involve both computer keyboards or related equipment manufactured in the conduct of the NCR Business (which would constitute an Exclusive NCR Contingent Liability) and computer keyboards or related equipment manufactured in the conduct of the discontinued computer operations of AT&T and its Affiliates, other than any member of the NCR Group (which would constitute an Exclusive Lucent Contingent Liability). Lucent and NCR agree to use their reasonable best efforts to share responsibility (including for all costs and expenses (including allocated costs of in-house counsel and other personnel)) for any such Third Party Claims or Actions, notwithstanding any allocation of such Actions set forth in Schedules 6.1(e), 6.1(f), 6.1(g) and 6.1(n), so that, to the maximum extent reasonably practicable, the parties will have the same rights and obligations (including pursuant to Article V hereof) as would have been applicable if such matters had been commenced as separate Actions. Third Party Claims with respect to computer keyboards or related equipment manufactured in the conduct of the NCR Business shall not be deemed to be Related Exclusive Contingent Liabilities with Third Party Claims with respect to any computer keyboards or related equipment manufactured in the conduct of the discontinued computer operations of AT&T and its Affiliates (other than any member of the NCR Group). (b) The parties agree that if any Action not set forth on Schedule 6.1(e), 6.1(f), 6.1(g) or 6.1(n) involves separate and distinct claims that, if not joined in a single Action, would constitute separate Exclusive Contingent Liabilities of two or more parties, they will use their reasonable best efforts to segregate such separate and distinct claims so that the Liabilities associated with each such claim (including all costs and expenses (including allocated costs of in-house counsel and other personnel)) shall be treated as Exclusive Contingent Liabilities of the appropriate party and so that each party shall have the rights and obligations with respect to each such claim (including pursuant to Article V hereof) as would have been applicable had such claims been commenced as separate Actions. Notwithstanding the foregoing provisions, this Section 6.7(b) shall not apply to any separate and distinct claim that is de minimis or frivolous in nature. (c) The parties agree that notwithstanding anything in this Agreement to the contrary, all Liabilities arising out of, resulting from or relating to the Action commenced by Bell Atlantic Corporation and DSC Communications Corporation against AT&T and Lucent in the United States District Court for the Eastern District of Texas on February 14, 1996, (i) to the extent relating to Caller ID services, shall be Exclusive AT&T Contingent Liabilities and (ii) to the extent relating to telecommunications equipment, systems or software, shall be Exclusive Lucent Contingent Liabilities; provided however that each of the parties shall bear its own costs and expenses (including allocated costs of in-house counsel and other personnel) of defending any such claims, including any such costs and expenses of any related document productions. ARTICLE VII INTERIM OPERATIONS AND CERTAIN OTHER MATTERS 7.1. INSURANCE MATTERS. (a) Lucent agrees that it will pay to AT&T $1 million per month (prorated on a daily basis for any partial month) in respect of the period from the date hereof until the Distribution Date, such amount to be payable in arrears by the 10th day of the next succeeding month, in respect of Insurance Policies under which Lucent will continue to have coverage following the date hereof. AT&T and Lucent agree to cooperate in good faith to provide for an orderly transition of insurance coverage from the date hereof through the Distribution Date and for the treatment of any Insurance Policies that will remain in effect following the Closing Date on a mutually agreeable basis. In no event shall AT&T, any other member of the AT&T Group or any AT&T Indemnitee or NCR Indemnitee have liability or obligation whatsoever to any member of the Lucent Group in the event that any Insurance Policy or other contract or policy of insurance shall be terminated or otherwise cease to be in effect for any reason, shall be unavailable or inadequate to cover any Liability of any member of the Lucent Group for any reason whatsoever or shall not be renewed or extended beyond the current expiration date. (b) As promptly as practicable, each party shall use its reasonable best efforts to consummate the transactions set forth on Schedule 7.1(b) with respect to American Ridge and its Subsidiaries. (c) (i) Except in the case of the Ridge Lucent Policies and except as otherwise provided in any Ancillary Agreement, the parties intend by this Agreement that Lucent and each other member of the Lucent Group be successors-in-interest to all rights that any member of the Lucent Group may have as of the Closing Date as a subsidiary, affiliate, division or department of AT&T prior to the Closing Date under any policy of insurance issued to AT&T by any insurance carrier unaffiliated with AT&T or under any agreements related to such policies executed and delivered prior to the Closing Date, including any rights such member of the Lucent Group may have, as an insured or additional named insured, subsidiary, affiliate, division or department, to avail itself of any such policy of insurance or any such agreements related to such policies as in effect prior to the Closing Date. At the request of Lucent, AT&T shall take all reasonable steps, including the execution and delivery of any instruments, to effect the foregoing; provided however that AT&T shall not be required to pay any amounts, waive any rights or incur any Liabilities in connection therewith. (ii) Except in the case of the Ridge Lucent Policies and except as otherwise contemplated by any Ancillary Agreement, after the Closing Date, none of AT&T or Lucent or any member of their respective Groups shall, without the consent of the other, provide any such insurance carrier with a release, or amend, modify or waive any rights under any such policy or agreement, if such release, amendment, modification or waiver would adversely affect any rights or potential rights of any member of the other Group thereunder; provided however that the foregoing shall not (A) preclude any member of any Group from presenting any claim or from exhausting any policy limit, (B) require any member of any Group to pay any premium or other amount or to incur any Liability, or (C) require any member of any Group to renew, extend or continue any policy in force. Each of Lucent and AT&T will share such information as is reasonably necessary in order to permit the other to manage and conduct its insurance matters in an orderly fashion. (d) This Agreement shall not be considered as an attempted assignment of any policy of insurance or as a contract of insurance and shall not be construed to waive any right or remedy of any member of the AT&T Group in respect of any Insurance Policy or any other contract or policy of insurance. (e) Lucent does hereby, for itself and each other member of the Lucent Group, their respective Affiliates (other than any member of the AT&T Group), successors and assigns, and all Persons who at any time have been shareholders, directors, officers, agents or employees of any member of the Lucent Group (in each case, in their respective capacities as such), agree that all Ridge Lucent Policies will automatically be terminated in all respects as of the Distribution Date (without any further action by any Person) and, as of such date, remise, release and forever discharge each AT&T Indemnitee and each NCR Indemnitee with respect thereto. Lucent agrees to indemnify, defend and hold harmless each member of the AT&T Group and each AT&T Indemnitee and NCR Indemnitee if any Person shall claim that it is entitled to any payment from any of the foregoing in respect of any Ridge Lucent Policy. At the request of AT&T, Lucent will take, or cause to be taken, all action necessary to terminate any Ridge Lucent Policies and all Liabilities of any member of the AT&T Group thereunder, effective as of the Distribution Date. (f) Lucent does hereby, for itself and each other member of the Lucent Group, agree that no member of the AT&T Group or any AT&T Indemnitee or NCR Indemnitee shall have any Liability whatsoever as a result of the insurance policies and practices of AT&T and its Affiliates as in effect at any time prior to the Closing Date, including as a result of the level or scope of any such insurance, the creditworthiness of any insurance carrier, the terms and conditions of any policy, the adequacy or timeliness of any notice to any insurance carrier with respect to any claim or potential claim or otherwise. (g) Nothing in this Agreement shall be deemed to restrict any member of the Lucent Group from acquiring at its own expense any other insurance policy in respect of any Liabilities or covering any period. 7.2. COLLECTION OF ACCOUNTS RECEIVABLE. (a) Lucent acknowledges on behalf of itself and each other member of the Lucent Group that it is aware that the Retained Receivables are Excluded Assets and that certain Persons that are account debtors with respect to accounts receivables included in the Lucent Assets (or that in the future may otherwise become payable to a member of the Lucent Group) are also account debtors with respect to the Retained Receivables. Lucent agrees that from and after the date hereof and prior to December 31, 1997, unless otherwise specifically directed by AT&T, Lucent, as agent for AT&T, will take all commercially reasonable steps consistent with the Lucent Business's current practices to service and collect the Retained Receivables. AT&T and Lucent will cooperate to establish as promptly as practicable mutually acceptable operational procedures. In addition, Lucent will use all reasonable best efforts to satisfy any conditions to the payment of any Retained Receivables and to fulfill all obligations to the applicable account debtors related to such Retained Receivables; provided, however that if, in order to collect any Retained Receivables, Lucent is required to engage a collection agency or to institute legal proceedings or any other Action it shall be entitled to be reimbursed for its reasonable out-of-pocket costs and expenses incurred in connection therewith. After December 31, 1997, the parties will negotiate in good faith with respect to the final disposition of any then outstanding Retained Receivables. (b) Any payment made by an account debtor to Lucent or any member of the Lucent Group with respect to an account receivable shall be applied to the Retained Receivables (and paid over to AT&T in accordance with this Section 7.2) before they are applied to any other account receivable whenever arising for such account debtor (regardless of the respective dates of such accounts receivable or of any specific notation to the contrary by the applicable account debtor), unless the applicable account debtor specifies that such payment shall be applied to another account payable of such account debtor that (i) arose from an order placed after the date of this Agreement and (ii) is both due and paid prior to the first due date of any Retained Receivable or any other account receivable of such account debtor. (c) Each of AT&T and Lucent shall deliver to the other such schedules and other information with respect to the Retained Receivables and the accounts receivables included in the Lucent Assets as each shall reasonably request from time to time in order to permit such parties to reconcile their respective records and to monitor the collection of all accounts receivable (whether Lucent Assets or Retained Receivables). Each of Lucent and AT&T shall afford the other reasonable access to its books and records relating to any accounts receivable. Without limiting the foregoing, Lucent shall at all times maintain the ability to provide to AT&T promptly upon request a true and complete schedule of all Retained Receivables due and owing as of the end of the prior month. (d) By the 15th day of each month (or if such day is not a business day, by the next business day), Lucent hereby irrevocably agrees to pay over, or cause to be paid over, in immediately available funds to AT&T, at no cost or charge to AT&T or any of its Affiliates (other than any member of the Lucent Group), any and all amounts which were received (or deemed received in accordance with Section 7.2(b)) during the immediately preceding month by any member of the Lucent Group in respect of the Retained Receivables. Any such amounts not paid over to AT&T by the date specified in the first sentence of this Section 7.2(d) shall bear interest at the Prime Rate plus 2% per annum. (e) Nothing in this Agreement or any Ancillary Agreement shall be construed to grant to any member of the Lucent Group any right, title or interest in any Retained Receivable and no member of the Lucent Group shall have any right or power to, and no member of the Lucent Group shall, grant or suffer to exist any right of set off, lien or any other Security Interest in any Retained Receivables or proceeds thereof. Lucent will not, and it will not permit any member of the Lucent Group to, extend or otherwise change the amount or other terms of payment of any Retained Receivable, unless Lucent shall have paid to AT&T an amount equal to the full amount of such Retained Receivable. Lucent hereby irrevocably and unconditionally agrees that it shall not assert (and it shall not permit any member of the Lucent Group to assert) any offsets, claims, counterclaims or defenses in respect of the Retained Receivables or its obligations to pay over any such Retained Receivables to AT&T hereunder (whether existing on the date hereof or arising hereafter and whether or not relating to the transactions contemplated by this Agreement, any Ancillary Agreement or otherwise). (f) AT&T shall retain the right to collect or seek to collect in such manner as it may in its sole discretion determine all or any portion of the Retained Receivables. (g) Lucent hereby represents and warrants to AT&T that each Retained Receivable constitutes a legal, valid and binding obligation of the applicable account debtor enforceable against such account debtor in accordance with its respective terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, moratorium and other similar laws affecting the enforcement of creditors' rights generally, and is not subject to any Security Interest or any other lien, claim, defense or right of set-off. (h) On or prior to February 15, 1996, Lucent shall deliver to AT&T a true and correct list of each of the Retained Receivables in such form as AT&T shall reasonably request. Such list shall specify the face amount of each Retained Receivable and a summary of the total Retained Receivables, including the allocations thereof among the Lucent business units, the applicable credit loss reserve thereon and such other information as AT&T shall reasonably request. 7.3. OPERATING FINANCIAL LIABILITIES. (a) As between Lucent and AT&T, Lucent hereby irrevocably assumes and agrees to pay, perform, satisfy and discharge all liabilities, obligations, contingencies and other Liabilities under, or otherwise relating to, arising out of or resulting from, all Lucent OFL's. For purposes of this Agreement, the term "Lucent OFL" means the OFL's listed or described on Schedule 7.3(a) and any other OFL's that are primarily related to, arise out of or result from any Lucent Asset, Lucent Liability (including any Lucent Contract) or Lucent Business or that were otherwise entered into in connection with the conduct of the Lucent Business. The parties hereto acknowledge that there may be OFL's that are Lucent OFL's that are not set forth or described on such Schedule 7.3(a), either because such OFL's are entered into after the date hereof or because such OFL's were inadvertently excluded from such Schedule. As a result, the parties agree to cooperate in good faith to supplement Schedule 7.3(a) as any additional Lucent OFL's are identified. In the event that any OFL is so added to such Schedule 7.3(a), AT&T will retroactively bill Lucent in accordance with this Section 7.3 for any amount payable by any member of the AT&T Group on or after the date hereof, and AT&T will retroactively credit Lucent in accordance with this Section 7.3 for any amount paid to any member of the AT&T Group on or after the date hereof, together in each case with interest thereon from the date of payment by or to any such member of the AT&T Group, as the case may be, to the date of settlement of such bill or credit, at the AT&T CP Rate that would have been applicable if such Lucent OFL had originally been included on Schedule 7.3(a), subject to increase pursuant to Section 7.3(c)(ii). (b) (i) AT&T may, from time to time, set forth on Schedule 7.3(a) whether any Lucent OFL's are to be paid, performed, satisfied and discharged directly by Lucent. AT&T may at any time or from time to time on at least 30 days' written notice to Lucent, modify such Schedule 7.3(a) to change whether any Lucent OFL shall thereafter be paid, performed, satisfied and discharged directly by Lucent or by AT&T. AT&T shall, in the absence of any default by Lucent under this Section 7.3, pay, or cause to be paid, all other Lucent OFL's, and Lucent agrees to reimburse AT&T for such payments in accordance with the terms of this Section 7.3. If Lucent is in default of any of its obligations under this Section 7.3, AT&T shall no longer be required to pay, or cause to be paid, any Lucent OFL's and Lucent shall be required directly to pay, perform, satisfy and discharge such Lucent OFL's. (ii) In the event that payments are made by a third party under any Lucent OFL, if Lucent is not in default of any of its obligations under this Section 7.3, (A) if any such payment is made to any member of the Lucent Group, such member of the Lucent Group will be entitled to retain any such payments received by it, and (B) if any such payment is made to any member of the AT&T Group, such member of the AT&T Group shall, at AT&T's election, either remit any such amounts it receives to Lucent or net such amounts against payments AT&T is then required to make under any other Lucent OFL or against payments then owed (whether or not then due) to AT&T by Lucent hereunder. (iii) In the event that payments are made by a third party under any Lucent OFL, if Lucent is in default of any of its obligations under this Section 7.3, (A) if any such payment is made to any member of the Lucent Group, Lucent shall promptly remit any such payments to AT&T, and (B) if any such payment is made to any member of the AT&T Group, AT&T shall be entitled (but not required) to apply any such payments to satisfy, any such breach by Lucent, either, at AT&T's option, by netting amounts then owed (whether or not then due) to AT&T by Lucent hereunder or by paying over such monies in order to satisfy any obligation in respect of any Lucent OFL. (iv) In the event that payment or receipt of commodities or other property is called for under any Lucent OFL, the parties will mutually agree upon reasonable then current market-based valuations to convert such payment or receipt into dollars, unless Lucent determines to make delivery or take receipt under the Lucent OFL in commodities or property. (c) (i) AT&T shall issue a statement to Lucent for the payments due from or payable to Lucent pursuant to this Section 7.3 in respect of any month by the tenth business day of the following month. Each such statement shall set forth the AT&T CP Rate for the immediately preceding month. Interest will accrue and be payable by Lucent on all amounts due pursuant to this Section 7.3 in respect of Lucent OFL's at the AT&T CP Rate in effect for the month immediately preceding the month in which the statement is issued from the date of payment of any such amount by any member of the AT&T Group under any Lucent OFL to the date of payment therefor to AT&T by Lucent. In the event payments are due by AT&T to Lucent under this Section 7.3, AT&T will pay interest at the AT&T CP Rate in effect for the month immediately preceding the month in which the statement is issued from the date of receipt by AT&T under an Lucent OFL to the date of payment by AT&T. All payments under this Section 7.3 shall be in same day funds. (ii) Lucent agrees to pay AT&T any amounts due (including in respect of interest) within 10 days of receipt of each statement. AT&T will remit to Lucent any payments (including in respect of interest) received by any member of the AT&T Group under any Lucent OFL (to the extent not netted in accordance with Section 7.3(b)) within 10 days of the date of statement. Any amounts not paid when due shall bear interest at the Prime Rate plus 2% per annum in lieu of the AT&T CP Rate. (d) (i) Lucent may prepay (or effect the early termination) of any Lucent OFL's provided that no additional Liability is thereby created for any member of the AT&T Group other than any Liabilities that are fully discharged and satisfied by Lucent simultaneously with such prepayment or early termination. (ii) Without AT&T's written consent, Lucent will not enter into or permit any amendment, modification or waiver of any provision of any Lucent OFL; provided that AT&T agrees that it will consent to any such amendments, modifications or waivers that do not create additional obligations or Liabilities for any member of the AT&T Group or otherwise adversely affect any member of the AT&T Group. (iii) Each party will give prompt notice to the other party of any default by it or, if it becomes aware thereof, by any third party under any Lucent OFL. (iv) In the event that Lucent makes any payment in respect of an Lucent OFL, Lucent will be subrogated to all rights of AT&T or any member of the AT&T Group with respect to such Lucent OFL, including with respect to collateral, to the extent of such payment. 7.4. CERTAIN BUSINESS MATTERS. (a) No member of any Group shall have any duty to refrain from (i) engaging in the same or similar activities or lines of business as any member of any other Group, (ii) doing business with any potential or actual supplier or customer of any member of any other Group, or (iii) engaging in, or refraining from, any other activities whatsoever relating to any of the potential or actual suppliers or customers of any member of any other Group. (b) Each of AT&T, Lucent and NCR is aware that from time to time certain business opportunities may arise which more than one Group may be financially able to undertake, and which are, from their nature, in the line of more than one Group's business and are of practical advantage to more than one Group. In connection therewith, the parties agree that if prior to (but not following) the Distribution Date, any of AT&T, Lucent or NCR acquires knowledge of an opportunity that meets the foregoing standard with respect to more than one Group, none of AT&T, Lucent or NCR shall have any duty to communicate or offer such opportunity to any of the others and may pursue or acquire such opportunity for itself, or direct such opportunity to any other Person, unless (i) such opportunity relates primarily to the AT&T Services Business, the Lucent Business or the NCR Business, in which case the party that acquires knowledge of such opportunity shall use its reasonable best efforts to communicate and offer such opportunity to AT&T, Lucent or NCR, respectively, or (ii) such opportunity relates both to the AT&T Services Business and the Lucent Business but not primarily to either one, in which case such party shall use its reasonable best efforts to communicate and offer such opportunity to Lucent. Notwithstanding the foregoing, no party shall be required to so communicate or offer any such opportunity if it would result in the breach of any contract or agreement or violate any applicable law, rule or regulation of any Governmental Authority, no party shall have any obligation to finance (or provide any other assistance whatsoever) to any other party in connection with any such opportunity. In the event the foregoing clause (i) or (ii) is applicable, no party, other than the party to whom the opportunity must be offered in accordance with such clauses, shall pursue or acquire such opportunity for itself, or direct such opportunity to any other Person, unless the party to whom the opportunity is required to be offered does not within a reasonable period of time begin to pursue, or does not thereafter continue to pursue, such opportunity diligently and in good faith. 7.5. LATE PAYMENTS. Except as expressly provided to the contrary in this Agreement or in any Ancillary Agreement, any amount not paid when due pursuant to this Agreement or any Ancillary Agreement (and any amounts billed or otherwise invoiced or demanded and properly payable that are not paid within 30 days of such bill, invoice or other demand) shall accrue interest at a rate per annum equal to the Prime Rate plus 2%. 7.6. TRANSITIONAL BELL LABS SERVICES. Prior to, on, and after the Closing Date, AT&T and each member of the AT&T Group, shall have the right, to obtain from Lucent or any member of the Lucent Group, the Identified Bell Labs Services, and such other services that are provided by Lucent Bell Laboratories that AT&T may from time to time reasonably determine are necessary to assure a smooth and orderly transition of the businesses, in each case on a commercially reasonable basis. Each of the parties shall use their reasonable best efforts to identify and document any such additional services on or prior to the Closing Date; provided, however, that whether or not identified prior to the Closing Date, prior to, on, and after the Closing Date, each member of the AT&T Group shall continue to have the right to obtain such services, on commercially reasonable terms, as contemplated by this Section 7.6. ARTICLE VIII EXCHANGE OF INFORMATION; CONFIDENTIALITY 8.1. AGREEMENT FOR EXCHANGE OF INFORMATION; ARCHIVES. (a) Each of AT&T, Lucent and NCR, on behalf of its respective Group, agrees to provide, or cause to be provided, to each other Group, at any time before or after the Distribution Date, as soon as reasonably practicable after written request therefor, any Information in the possession or under the control of such respective Group which the requesting party reasonably needs (i) to comply with reporting, disclosure, filing or other requirements imposed on the requesting party (including under applicable securities or tax laws) by a Governmental Authority having jurisdiction over the requesting party, (ii) for use in any other judicial, regulatory, administrative, tax or other proceeding or in order to satisfy audit, accounting, claims, regulatory, litigation, tax or other similar requirements, or (iii) to comply with its obligations under this Agreement, any Ancillary Agreement or any Lucent OFL; provided, however, that in the event that any party determines that any such provision of Information could be commercially detrimental, violate any law or agreement, or waive any attorney-client privilege, the parties shall take all reasonable measures to permit the compliance with such obligations in a manner that avoids any such harm or consequence. (b) After the Closing Date, Lucent shall have access during regular business hours (as in effect from time to time) to the documents and objects of historic significance that relate to the Lucent Business that are located in the AT&T Archives located at 5 Reineman Road, Warren, New Jersey. Lucent may obtain copies (but not originals) of documents for bona fide business purposes and may obtain objects for exhibition purposes for commercially reasonable periods of time if required for bona fide business purposes, provided that Lucent shall cause any such objects to be returned promptly in the same condition in which they were delivered to Lucent and Lucent shall comply with any rules, procedures or other requirements, and shall be subject to any restrictions (including prohibitions on removal of specified objects), that are then applicable to AT&T. Lucent shall pay $125 per hour for archives research services (subject to increase from time to time to reflect rates then in effect for AT&T generally). Nothing herein shall be deemed to restrict the access of any member of the AT&T Group or the NCR Group to any such documents or objects or to impose any liability on any member of the AT&T Group if any such documents or objects are not maintained or preserved by AT&T. (c) After the date hereof, (i) Lucent shall maintain in effect at its own cost and expense adequate systems and controls to the extent necessary to enable the members of the AT&T Group to satisfy their respective reporting, accounting, audit and other obligations, and (ii) Lucent shall provide, or cause to be provided, to AT&T in such form as AT&T shall request, at no charge to AT&T, all financial and other data and information as AT&T determines necessary or advisable in order to prepare AT&T financial statements and reports or filings with any Governmental Authority. 8.2. OWNERSHIP OF INFORMATION. Any Information owned by one Group that is provided to a requesting party pursuant to Section 8.1 shall be deemed to remain the property of the providing party. Unless specifically set forth herein, nothing contained in this Agreement shall be construed as granting or conferring rights of license or otherwise in any such Information. 8.3. COMPENSATION FOR PROVIDING INFORMATION. The party requesting such Information agrees to reimburse the other party for the reasonable costs, if any, of creating, gathering and copying such Information, to the extent that such costs are incurred for the benefit of the requesting party. Except as may be otherwise specifically provided elsewhere in this Agreement or in any other agreement between the parties, such costs shall be computed in accordance with the providing party's standard methodology and procedures. 8.4. RECORD RETENTION. To facilitate the possible exchange of Information pursuant to this Article VIII and other provisions of this Agreement after the Distribution Date, the parties agree to use their reasonable best efforts to retain all Information in their respective possession or control on the Distribution Date in accordance with the policies of AT&T as in effect on the Closing Date. No party will destroy, or permit any of its Subsidiaries to destroy, any Information which the other party may have the right to obtain pursuant to this Agreement prior to the third anniversary of the date hereof without first using its reasonable best efforts to notify the other party of the proposed destruction and giving the other party the opportunity to take possession of such information prior to such destruction; provided, however, that in the case of any Information relating to Taxes or to Environmental Liabilities, such period shall be extended to the expiration of the applicable statute of limitations (giving effect to any extensions thereof). 8.5. LIMITATION OF LIABILITY. No party shall have any liability to any other party in the event that any Information exchanged or provided pursuant to this Agreement which is an estimate or forecast, or which is based on an estimate or forecast, is found to be inaccurate, in the absence of willful misconduct by the party providing such Information. No party shall have any liability to any other party if any Information is destroyed after reasonable best efforts by such party to comply with the provisions of Section 8.4. 8.6. OTHER AGREEMENTS PROVIDING FOR EXCHANGE OF INFORMATION. The rights and obligations granted under this Article VIII are subject to any specific limitations, qualifications or additional provisions on the sharing, exchange or confidential treatment of Information set forth in any Ancillary Agreement. 8.7. PRODUCTION OF WITNESSES; RECORDS; COOPERATION. (a) After the Closing Date, except in the case of an adversarial Action by one party against another party (which shall be governed by such discovery rules as may be applicable under Article IX or otherwise), each party hereto shall use its reasonable best efforts to make available to each other party, upon written request, the former, current and future directors, officers, employees, other personnel and agents of the members of its respective Group as witnesses and any books, records or other documents within its control or which it otherwise has the ability to make available, to the extent that any such person (giving consideration to business demands of such directors, officers, employees, other personnel and agents) or books, records or other documents may reasonably be required in connection with any Action in which the requesting party may from time to time be involved, regardless of whether such Action is a matter with respect to which indemnification may be sought hereunder. The requesting party shall bear all costs and expenses (including allocated costs of in-house counsel and other personnel) in connection therewith. (b) If an Indemnifying Party or AT&T chooses to defend or to seek to compromise or settle any Third Party Claim, or if any party chooses to prosecute or otherwise evaluate or to pursue any Contingent Gain or any recovery in respect of any RBOC Agreement, the other parties shall make available to such Indemnifying Party, AT&T or such other party, as the case may be, upon written request, the former, current and future directors, officers, employees, other personnel and agents of the members of its respective Group as witnesses and any books, records or other documents within its control or which it otherwise has the ability to make available, to the extent that any such person (giving consideration to business demands of such directors, officers, employees, other personnel and agents) or books, records or other documents may reasonably be required in connection with such defense, settlement or compromise, or such prosecution, evaluation or pursuit, as the case may be, and shall otherwise cooperate in such defense, settlement or compromise, or such prosecution, evaluation or pursuit, as the case may be. (c) Without limiting the foregoing, the parties shall cooperate and consult to the extent reasonably necessary with respect to any Actions, Contingent Liabilities and Contingent Gains. (d) Without limiting any provision of this Section, each of the parties agrees to cooperate, and to cause each member of its respective Group to cooperate, with each other in the defense of any infringement or similar claim with respect any intellectual property and shall not claim to acknowledge, or permit any member of its respective Group to claim to acknowledge, the validity or infringing use of any intellectual property of a third Person in a manner that would hamper or undermine the defense of such infringement or similar claim. (e) The obligation of the parties to provide witnesses pursuant to this Section 8.7 is intended to be interpreted in a manner so as to facilitate cooperation and shall include the obligation to provide as witnesses inventors and other officers without regard to whether the witness or the employer of the witness could assert a possible business conflict (subject to the exception set forth in the first sentence of Section 8.7(a)). (f) In connection with any matter contemplated by this Section 8.7, the parties will enter into a mutually acceptable joint defense agreement so as to maintain to the extent practicable any applicable attorney-client privilege or work product immunity of any member of any Group. 8.8. CONFIDENTIALITY. (a) Subject to Section 8.9, each of AT&T, Lucent and NCR, on behalf of itself and each member of its respective Group, agrees to hold, and to cause its respective directors, officers, employees, agents, accountants, counsel and other advisors and representatives to hold, in strict confidence, with at least the same degree of care that applies to AT&T's confidential and proprietary information pursuant to policies in effect as of the Closing Date, all Information concerning each such other Group that is either in its possession (including Information in its possession prior to any of the date hereof, the Closing Date or the Distribution Date) or furnished by any such other Group or its respective directors, officers, employees, agents, accountants, counsel and other advisors and representatives at any time pursuant to this Agreement, any Ancillary Agreement or otherwise, and shall not use any such Information other than for such purposes as shall be expressly permitted hereunder or thereunder, except, in each case, to the extent that such Information has been (i) in the public domain through no fault of such party or any member of such Group or any of their respective directors, officers, employees, agents, accountants, counsel and other advisors and representatives, (ii) later lawfully acquired from other sources by such party (or any member of such party's Group) which sources are not themselves bound by a confidentiality obligation), or (iii) independently generated without reference to any proprietary or confidential Information of the other party. (b) Each party agrees not to release or disclose, or permit to be released or disclosed, any such Information to any other Person, except its directors, officers, employees, agents, accountants, counsel and other advisors and representatives who need to know such Information (who shall be advised of their obligations hereunder with respect to such Information), except in compliance with Section 8.9. Without limiting the foregoing, when any Information is no longer needed for the purposes contemplated by this Agreement or any Ancillary Agreement, each party will promptly after request of the other party either return to the other party all Information in a tangible form (including all copies thereof and all notes, extracts or summaries based thereon) or certify to the other party that it has destroyed such Information (and such copies thereof and such notes, extracts or summaries based thereon). 8.9. PROTECTIVE ARRANGEMENTS. In the event that any party or any member of its Group either determines on the advice of its counsel that it is required to disclose any Information pursuant to applicable law or receives any demand under lawful process or from any Governmental Authority to disclose or provide Information of any other party (or any member of any other party's Group) that is subject to the confidentiality provisions hereof, such party shall notify the other party prior to disclosing or providing such Information and shall cooperate at the expense of the requesting party in seeking any reasonable protective arrangements requested by such other party. Subject to the foregoing, the Person that received such request may thereafter disclose or provide Information to the extent required by such law (as so advised by counsel) or by lawful process or such Governmental Authority. ARTICLE IX ARBITRATION; DISPUTE RESOLUTION 9.1. AGREEMENT TO ARBITRATE. Except as otherwise specifically provided in any Ancillary Agreement, the procedures for discussion, negotiation and arbitration set forth in this Article IX shall apply to all disputes, controversies or claims (whether sounding in contract, tort or otherwise) that may arise out of or relate to, or arise under or in connection with this Agreement or any Ancillary Agreement, or the transactions contemplated hereby or thereby (including all actions taken in furtherance of the transactions contemplated hereby or thereby on or prior to the date hereof), or the commercial or economic relationship of the parties relating hereto or thereto, between or among any member of the AT&T Services Group, the Lucent Group and the NCR Group. Each party agrees on behalf of itself and each member of its respective Group that the procedures set forth in this Article IX shall be the sole and exclusive remedy in connection with any dispute, controversy or claim relating to any of the foregoing matters and irrevocably waives any right to commence any Action in or before any Governmental Authority, except as expressly provided in Sections 9.7(b) and 9.8 and except to the extent provided under the Arbitration Act in the case of judicial review of arbitration results or awards. Each party on behalf of itself and each member of its respective Group irrevocably waives any right to any trial by jury with respect to any claim, controversy or dispute set forth in the first sentence of this Section 9.1. 9.2. ESCALATION. (a) It is the intent of the parties to use their respective reasonable best efforts to resolve expeditiously any dispute, controversy or claim between or among them with respect to the matters covered hereby that may arise from time to time on a mutually acceptable negotiated basis. In furtherance of the foregoing, any party involved in a dispute, controversy or claim may deliver a notice (an "Escalation Notice") demanding an in person meeting involving representatives of the parties at a senior level of management of the parties (or if the parties agree, of the appropriate strategic business unit or division within such entity). A copy of any such Escalation Notice shall be given to the General Counsel, or like officer or official, of each party involved in the dispute, controversy or claim (which copy shall state that it is an Escalation Notice pursuant to this Agreement). Any agenda, location or procedures for such discussions or negotiations between the parties may be established by the parties from time to time; provided, however, that the parties shall use their reasonable best efforts to meet within 30 days of the Escalation Notice. (b) The parties may, by mutual consent, retain a mediator to aid the parties in their discussions and negotiations by informally providing advice to the parties. Any opinion expressed by the mediator shall be strictly advisory and shall not be binding on the parties, nor shall any opinion expressed by the mediator be admissible in any arbitration proceedings. The mediator may be chosen from a list of mediators previously selected by the parties or by other agreement of the parties. Costs of the mediation shall be borne equally by the parties involved in the matter, except that each party shall be responsible for its own expenses. Mediation is not a prerequisite to a demand for arbitration under Section 9.3. 9.3. DEMAND FOR ARBITRATION. (a) At any time after the first to occur of (i) the date of the meeting actually held pursuant to the applicable Escalation Notice or (ii) 45 days after the delivery of an Escalation Notice (as applicable, the "Arbitration Demand Date"), any party involved in the dispute, controversy or claim (regardless of whether such party delivered the Escalation Notice) may, unless the Applicable Deadline has occurred, make a written demand (the "Arbitration Demand Notice") that the dispute be resolved by binding arbitration, which Arbitration Demand Notice shall be given to the parties to the dispute, controversy or claim in the manner set forth in Section 12.5. In the event that any party shall deliver an Arbitration Demand Notice to another party, such other party may itself deliver an Arbitration Demand Notice to such first party with respect to any related dispute, controversy or claim with respect to which the Applicable Deadline has not passed without the requirement of delivering an Escalation Notice. No party may assert that the failure to resolve any matter during any discussions or negotiations, the course of conduct during the discussions or negotiations or the failure to agree on a mutually acceptable time, agenda, location or procedures for the meeting, in each case, as contemplated by Section 9.2, is a prerequisite to a demand for arbitration under Section 9.3. In the event that any party delivers an Arbitration Demand Notice with respect to any dispute, controversy or claim that is the subject of any then pending arbitration proceeding or of a previously delivered Arbitration Demand Notice, all such disputes, controversies and claims shall be resolved in the arbitration proceeding for which an Arbitration Demand Notice was first delivered unless the arbitrator in his or her sole discretion determines that it is impracticable or otherwise inadvisable to do so. (b) Except as may be expressly provided in any Ancillary Agreement, any Arbitration Demand Notice may be given until one year and 45 days after the later of the occurrence of the act or event giving rise to the underlying claim or the date on which such act or event was, or should have been, in the exercise of reasonable due diligence, discovered by the party asserting the claim (as applicable and as it may in a particular case be specifically extended by the parties in writing, the "Applicable Deadline"). Any discussions, negotiations or mediations between the parties pursuant to this Agreement or otherwise will not toll the Applicable Deadline unless expressly agreed in writing by the parties. Each of the parties agrees on behalf of itself and each member of its Group that if an Arbitration Demand Notice with respect to a dispute, controversy or claim is not given prior to the expiration of the Applicable Deadline, as between or among the parties and the members of their Groups, such dispute, controversy or claim will be barred. Subject to Sections 9.7(d) and 9.8, upon delivery of an Arbitration Demand Notice pursuant to Section 9.3(a) prior to the Applicable Deadline, the dispute, controversy or claim shall be decided by a sole arbitrator in accordance with the rules set forth in this Article IX. 9.4. ARBITRATORS. (a) Within 15 days after a valid Arbitration Demand Notice is given, the parties involved in the dispute, controversy or claim referenced therein shall attempt to select a sole arbitrator satisfactory to all such parties. (b) In the event that such parties are not able jointly to select a sole arbitrator within such 15-day period, such parties shall each appoint an arbitrator (who need not be disinterested as to the parties or the matter) within 30 days after delivery of the Arbitration Demand Notice. If one party appoints an arbitrator within such time period and the other party or parties fail to appoint an arbitrator within such time period, the arbitrator appointed by the one party shall be the sole arbitrator of the matter. (c) In the event that a sole arbitrator is not selected pursuant to paragraph (a) or (b) above and, instead, two or three arbitrators are selected pursuant to paragraph (b) above, the two or three arbitrators will, within 30 days after the appointment of the later of them to be appointed, select an additional arbitrator who shall act as the sole arbitrator of the dispute. After selection of such sole arbitrator, the initial arbitrators shall have no further role with respect to the dispute. In the event that the arbitrators so appointed do not, within 30 days after the appointment of the later of them to be appointed, agree on the selection of the sole arbitrator, any party involved in such dispute may apply to CPR, New York, New York to select the sole arbitrator, which selection shall be made by such organization within 30 days after such application. Any arbitrator selected pursuant to this paragraph (c) shall be disinterested with respect to any of the parties and the matter and shall be reasonably competent in the applicable subject matter. (d) The sole arbitrator selected pursuant to paragraph (a), (b) or (c) above will set a time for the hearing of the matter which will commence no later than 90 days after the date of appointment of the sole arbitrator pursuant to paragraph (a), (b) or (c) above and which hearing will be no longer than 30 days (unless in the judgment of the arbitrator the matter is unusually complex and sophisticated and thereby requires a longer time, in which event such hearing shall be no longer than 90 days). The final decision of such arbitrator will be rendered in writing to the parties not later than 60 days after the last hearing date, unless otherwise agreed by the parties in writing. (e) The place of any arbitration hereunder will be New York, New York, unless otherwise agreed by the parties. 9.5. HEARINGS. Within the time period specified in Section 9.4(d), the matter shall be presented to the arbitrator at a hearing by means of written submissions of memoranda and verified witness statements, filed simultaneously, and responses, if necessary in the judgment of the arbitrator or both the parties. If the arbitrator deems it to be essential to a fair resolution of the dispute, live cross-examination or direct examination may be permitted, but is not generally contemplated to be necessary. The arbitrator shall actively manage the arbitration with a view to achieving a just, speedy and cost-effective resolution of the dispute, claim or controversy. The arbitrator may, in his or her discretion, set time and other limits on the presentation of each party's case, its memoranda or other submissions, and refuse to receive any proffered evidence, which the arbitrator, in his or her discretion, finds to be cumulative, unnecessary, irrelevant or of low probative nature. Except as otherwise set forth herein, any arbitration hereunder will be conducted in accordance with the CPR Rules for Non-Administered Arbitration of Business Disputes then prevailing (except that the fee schedule of CPR will not apply). Except as expressly set forth in Section 9.8(b), the decision of the arbitrator will be final and binding on the parties, and judgment thereon may be had and will be enforceable in any court having jurisdiction over the parties. Arbitration awards will bear interest at an annual rate of the Prime Rate plus 2% per annum. To the extent that the provisions of this Agreement and the prevailing rules of the CPR conflict, the provisions of this Agreement shall govern. 9.6. DISCOVERY AND CERTAIN OTHER MATTERS. (a) Any party involved in the applicable dispute may request limited document production from the other party or parties of specific and expressly relevant documents, with the reasonable expenses of the producing party incurred in such production paid by the requesting party. Any such discovery (which rights to documents shall be substantially less than document discovery rights prevailing under the Federal Rules of Civil Procedure) shall be conducted expeditiously and shall not cause the hearing provided for in Section 9.5 to be adjourned except upon consent of all parties involved in the applicable dispute or upon an extraordinary showing of cause demonstrating that such adjournment is necessary to permit discovery essential to a party to the proceeding. Depositions, interrogatories or other forms of discovery (other than the document production set forth above) shall not occur except by consent of the parties involved in the applicable dispute. Disputes concerning the scope of document production and enforcement of the document production requests will be determined by written agreement of the parties involved in the applicable dispute or, failing such agreement, will be referred to the arbitrator for resolution. All discovery requests will be subject to the parties' rights to claim any applicable privilege. The arbitrator will adopt procedures to protect the proprietary rights of the parties and to maintain the confidential treatment of the arbitration proceedings (except as may be required by law). Subject to the foregoing, the arbitrator shall have the power to issue subpoenas to compel the production of documents relevant to the dispute, controversy or claim. (b) The arbitrator shall have full power and authority to determine issues of arbitrability but shall otherwise be limited to interpreting or construing the applicable provisions of this Agreement or any Ancillary Agreement, and will have no authority or power to limit, expand, alter, amend, modify, revoke or suspend any condition or provision of this Agreement or any Ancillary Agreement; it being understood, however, that the arbitrator will have full authority to implement the provisions of this Agreement or any Ancillary Agreement, and to fashion appropriate remedies for breaches of this Agreement (including interim or permanent injunctive relief); provided that the arbitrator shall not have (i) any authority in excess of the authority a court having jurisdiction over the parties and the controversy or dispute would have absent these arbitration provisions or (ii) any right or power to award punitive or treble damages. It is the intention of the parties that in rendering a decision the arbitrator give effect to the applicable provisions of this Agreement and the Ancillary Agreements and follow applicable law (it being understood and agreed that this sentence shall not give rise to a right of judicial review of the arbitrator's award). (c) If a party fails or refuses to appear at and participate in an arbitration hearing after due notice, the arbitrator may hear and determine the controversy upon evidence produced by the appearing party. (d) Arbitration costs will be borne equally by each party involved in the matter, except that each party will be responsible for its own attorney's fees and other costs and expenses, including the costs of witnesses selected by such party. 9.7. CERTAIN ADDITIONAL MATTERS. (a) Any arbitration award shall be a bare award limited to a holding for or against a party and shall be without findings as to facts, issues or conclusions of law (including with respect to any matters relating to the validity or infringement of patents or patent applications) and shall be without a statement of the reasoning on which the award rests, but must be in adequate form so that a judgment of a court may be entered thereupon. Judgment upon any arbitration award hereunder may be entered in any court having jurisdiction thereof. (b) Prior to the time at which an arbitrator is appointed pursuant to Section 9.4, any party may seek one or more temporary restraining orders in a court of competent jurisdiction if necessary in order to preserve and protect the status quo. Neither the request for, or grant or denial of, any such temporary restraining order shall be deemed a waiver of the obligation to arbitrate as set forth herein and the arbitrator may dissolve, continue or modify any such order. Any such temporary restraining order shall remain in effect until the first to occur of the expiration of the order in accordance with its terms or the dissolution thereof by the arbitrator. (c) Except as required by law, the parties shall hold, and shall cause their respective officers, directors, employees, agents and other representatives to hold, the existence, content and result of mediation or arbitration in confidence in accordance with the provisions of Article VIII and except as may be required in order to enforce any award. Each of the parties shall request that any mediator or arbitrator comply with such confidentiality requirement. (d) In the event that at any time the sole arbitrator shall fail to serve as an arbitrator for any reason, the parties shall select a new arbitrator who shall be disinterested as to the parties and the matter in accordance with the procedures set forth herein for the selection of the initial arbitrator. The extent, if any, to which testimony previously given shall be repeated or as to which the replacement arbitrator elects to rely on the stenographic record (if there is one) of such testimony shall be determined by the replacement arbitrator. 9.8. LIMITED COURT ACTIONS. (a) Notwithstanding anything herein to the contrary, in the event that any party reasonably determines the amount in controversy in any dispute, controversy or claim (or any series of related disputes, controversies or claims) under this Agreement or any Ancillary Agreement is, or is reasonably likely to be, in excess of $100 million and if such party desires to commence an Action in lieu of complying with the arbitration provisions of this Article, such party shall so state in its Arbitration Demand Notice or by notice given to the other parties within 20 days after receipt of an Arbitration Demand Notice with respect thereto. If the other parties to the arbitration do not agree that the amount in controversy in such dispute, controversy or claim (or such series of related disputes, controversies or claims) is, or is reasonably likely to be, in excess of $100 million, the arbitrator selected pursuant to Section 9.4 hereof shall decide whether the amount in controversy in such dispute, controversy or claim (or such series of related disputes, controversies or claims) is, or is reasonably likely to be, in excess of $100 million. The arbitrator shall set a date that is no later than ten days after the date of his or her appointment for submissions by the parties with respect to such issue. There shall not be any discovery in connection with such issue. The arbitrator shall render his or her decision on such issue within five days of such date so set by the arbitrator. In the event that the arbitrator determines that the amount in controversy in such dispute, controversy or claim (or such series of related disputes, controversies or claims) is or is reasonably likely to be in excess of $100 million, the provisions of Sections 9.4(d) and (e), 9.5, 9.6, 9.7 and 9.10 hereof shall not apply and on or before (but, except as expressly set forth in Section 9.8(b), not after) the tenth business day after the date of such decision, any party to the arbitration may elect, in lieu of arbitration, to commence an Action with respect to such dispute, controversy or claim (or such series of related disputes, controversies or claims) in any court of competent jurisdiction. If the arbitrator does not so determine, the provisions of this Article (including with respect to time periods) shall apply as if no determinations were sought or made pursuant to this Section 9.8(a). (b) In the event that an arbitration award in excess of $100 million is issued in any arbitration proceeding commenced hereunder, any party may, within 60 days after the date of such award, submit the dispute, controversy or claim (or series of related disputes, controversies or claims) giving rise thereto to a court of competent jurisdiction, regardless of whether such party or any other party sought to commence an Action in lieu of proceeding with arbitration in accordance with Section 9.8(a). In such event, the applicable court may elect to rely on the record developed in the arbitration or, if it determines that it would be advisable in connection with the matter, allow the parties to seek additional discovery or to present additional evidence. Each party shall be entitled to present arguments to the court with respect to whether any such additional discovery or evidence shall be permitted and with respect to all other matters relating to the applicable dispute, controversy or claim (or series of related disputes, controversies or claims). (c) No party shall raise as a defense the statute of limitations if the applicable Arbitration Demand Notice was delivered on or prior to the Applicable Deadline and, if applicable, if the matter is submitted to a court of competent jurisdiction within the 60-day period specified in Section 9.8(b). 9.9. CONTINUITY OF SERVICE AND PERFORMANCE. Unless otherwise agreed in writing, the parties will continue to provide service and honor all other commitments under this Agreement and each Ancillary Agreement during the course of dispute resolution pursuant to the provisions of this Article IX with respect to all matters not subject to such dispute, controversy or claim. 9.10. LAW GOVERNING ARBITRATION PROCEDURES. The interpretation of the provisions of this Article IX, only insofar as they relate to the agreement to arbitrate and any procedures pursuant thereto, shall be governed by the Arbitration Act and other applicable federal law. In all other respects, the interpretation of this Agreement shall be governed as set forth in Section 12.2. ARTICLE X FURTHER ASSURANCES AND ADDITIONAL COVENANTS 10.1. FURTHER ASSURANCES. (a) In addition to the actions specifically provided for elsewhere in this Agreement, each of the parties hereto shall use its reasonable best efforts, prior to, on and after the Closing Date, to take, or cause to be taken, all actions, and to do, or cause to be done, all things, reasonably necessary, proper or advisable under applicable laws, regulations and agreements to consummate and make effective the transactions contemplated by this Agreement and the Ancillary Agreements. (b) Without limiting the foregoing, prior to, on and after the Closing Date, each party hereto shall cooperate with the other parties, and without any further consideration, but at the expense of the requesting party, to execute and deliver, or use its reasonable best efforts to cause to be executed and delivered, all instruments, including instruments of conveyance, assignment and transfer, and to make all filings with, and to obtain all consents, approvals or authorizations of, any Governmental Authority or any other Person under any permit, license, agreement, indenture or other instrument (including any Consents or Governmental Approvals), and to take all such other actions as such party may reasonably be requested to take by any other party hereto from time to time, consistent with the terms of this Agreement and the Ancillary Agreements, in order to effectuate the provisions and purposes of this Agreement and the Ancillary Agreements and the transfers of the Lucent Assets and the assignment and assumption of the Lucent Liabilities and the other transactions contemplated hereby and thereby. Without limiting the foregoing, each party will, at the reasonable request, cost and expense of any other party, take such other actions as may be reasonably necessary to vest in such other party good and marketable title, free and clear of any Security Interest, if and to the extent it is practicable to do so. (c) On or prior to the Closing Date, AT&T, Lucent and NCR in their respective capacities as direct and indirect stockholders of their respective Subsidiaries, shall each ratify any actions which are reasonably necessary or desirable to be taken by AT&T, Lucent, NCR or any other Subsidiary of AT&T, as the case may be, to effectuate the transactions contemplated by this Agreement. On or prior to the Closing Date, AT&T and Lucent shall take all actions as may be necessary to approve the stock-based employee benefit plans of Lucent in order to satisfy the requirement of Rule 16b-3 under the Exchange Act and Section 162(m) of the Code. (d) The parties hereto agree to take any reasonable actions necessary in order for the Distribution to qualify as a tax-free distribution pursuant to Section 355 of the Code. (e) AT&T, Lucent and NCR, and each of the members of their respective Groups, waive (and agree not to assert against any of the others) any claim or demand that any of them may have against any of the others for any Liabilities or other claims relating to or arising out of: (i) the failure of Lucent or any member of the Lucent Group, on the one hand, or of AT&T, NCR or any member of the AT&T Services Group or the NCR Group, on the other hand, to provide any notification or disclosure required under any state Environmental Law in connection with the Separation or the other transactions contemplated by this Agreement, including the transfer by any member of any Group to any member of any other Group of ownership or operational control of any Assets not previously owned or operated by such transferee; or (ii) any inadequate, incorrect or incomplete notification or disclosure under any such state Environmental Law by the applicable transferor. To the extent any Liability to any Governmental Authority or any third Person arises out of any action or inaction described in clause (i) or (ii) above, the transferee of the applicable Asset hereby assumes and agrees to pay any such Liability. (f) Prior to the Closing Date, if one or more of the parties identifies any commercial or other service that is needed to assure a smooth and orderly transition of the businesses in connection with the consummation of the transactions contemplated hereby, and that is not otherwise governed by the provisions of this Agreement or any Ancillary Agreement, the parties will cooperate in determining whether there is a mutually acceptable arm's-length basis on which one or more of the other parties will provide such service. 10.2. QUALIFICATION AS TAX-FREE DISTRIBUTION. After the Closing Date, none of AT&T, Lucent or NCR shall take, or permit any member of its respective Group to take, any action which could reasonably be expected to prevent the Distribution from qualifying as a tax-free distribution within the meaning of Section 355 of the Code or any other transaction contemplated by this Agreement or any Ancillary Agreement which is intended by the parties to be tax-free from failing so to qualify. Without limiting the foregoing, after the Closing Date and on or prior to the Distribution Date, Lucent shall not issue or grant, and shall not permit any member of the Lucent Group to issue or grant, directly or indirectly, any shares of Lucent Common Stock or any rights, warrants, options or other securities to purchase or acquire (whether upon conversion, exchange or otherwise) any shares of Lucent Common Stock (whether or not then exercisable, convertible or exchangeable). ARTICLE XI TERMINATION 11.1. TERMINATION BY MUTUAL CONSENT. This Agreement may be terminated at any time prior to the Distribution Date by the mutual consent of AT&T, Lucent and NCR. 11.2. OTHER TERMINATION. This Agreement may be terminated by AT&T at any time prior to the Closing Date. The obligations of the parties under Article IV (including the obligation to pursue or effect the Distribution) may be terminated by AT&T if the Distribution Date shall not have occurred on or prior to December 31, 1997. 11.3. EFFECT OF TERMINATION. (a) In the event of any termination of this Agreement prior to the Closing Date, no party to this Agreement (or any of its directors or officers) shall have any Liability or further obligation to any other party. (b) In the event of any termination of this Agreement on or after the Closing Date, only the provisions of Article IV will terminate and the other provisions of this Agreement and each Ancillary Agreement shall remain in full force and effect. ARTICLE XII MISCELLANEOUS 12.1. COUNTERPARTS; ENTIRE AGREEMENT; CORPORATE POWER. (a) This Agreement and each Ancillary Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other party. (b) This Agreement, and the Ancillary Agreements and the Exhibits, Schedules and Appendices hereto and thereto contain the entire agreement between the parties with respect to the subject matter hereof, supersede all previous agreements, negotiations, discussions, writings, understandings, commitments and conversations with respect to such subject matter and there are no agreements or understandings between the parties other than those set forth or referred to herein or therein. (c) AT&T represents on behalf of itself and each other member of the AT&T Services Group, Lucent represents on behalf of itself and each other member of the Lucent Group and NCR represents on behalf of itself and each other member of the NCR Group as follows: (i) each such Person has the requisite corporate or other power and authority and has taken all corporate or other action necessary in order to execute, deliver and perform each of this Agreement and each other Ancillary Agreements to which it is a party and to consummate the transactions contemplated hereby and thereby; and (ii) this Agreement and each Ancillary Agreement to which it is a party has been duly executed and delivered by it and constitutes a valid and binding agreement of it enforceable in accordance with the terms thereof. (d) Each party hereto acknowledges that it and each other party hereto is executing certain of the Ancillary Agreements by facsimile, stamp or mechanical signature. Each party hereto expressly adopts and confirms each such facsimile, stamp or mechanical signature made in its respective name as if it were a manual signature, agrees that it will not assert that any such signature is not adequate to bind such party to the same extent as if it were signed manually and agrees that at the reasonable request of any other party hereto at any time it will as promptly as reasonably practicable cause each such Ancillary Agreement to be manually executed (any such execution to be as of the date of the initial date thereof). (e) Notwithstanding any provision of this Agreement or any Ancillary Agreement, neither AT&T, Lucent nor NCR shall be required to take or omit to take any act that would violate its fiduciary duties to any minority stockholders of AT&T Capital Corporation or any other non-wholly owned Subsidiary of AT&T, Lucent or NCR, as the case may be (it being understood that directors' qualifying shares or similar interests will be disregarded for purposes of determining whether a Subsidiary is wholly owned). 12.2. GOVERNING LAW. Except as set forth in Section 9.10, this Agreement and, unless expressly provided therein, each Ancillary Agreement, shall be governed by and construed and interpreted in accordance with the laws of the State of New York (other than as to its laws of arbitration which shall be governed under the Arbitration Act or other applicable federal law pursuant to Section 9.10), irrespective of the choice of laws principles of the State of New York, as to all matters, including matters of validity, construction, effect, enforceability, performance and remedies. 12.3. ASSIGNABILITY. (a) Except as set forth in any Ancillary Agreement, this Agreement and each Ancillary Agreement shall be binding upon and inure to the benefit of the parties hereto and thereto, respectively, and their respective successors and assigns; provided, however, that no party hereto or thereto may assign its respective rights or delegate its respective obligations under this Agreement or any Ancillary Agreement without the express prior written consent of the other parties hereto or thereto. (b) Lucent agrees and acknowledges on behalf of itself and each other member of the Lucent Group that (i) AT&T and NCR may enter into a separation and distribution agreement and other agreements and instruments in connection with the NCR Distribution or otherwise providing for certain arrangements between AT&T and NCR and that no consent of any member of the Lucent Group will be required in connection therewith, (ii) certain transfers of Assets and Liabilities may occur after the date hereof between members of the AT&T Services Group and the NCR Group and that no consent of any member of the Lucent Group will be required in connection therewith, (iii) AT&T shall have no obligation to proceed with the NCR Distribution, and (iv) except as set forth below, all of the rights and obligations of the NCR Group shall continue regardless of whether NCR is an Affiliate of AT&T. Lucent agrees that if any technical or other nonmaterial amendments to this Agreement or any Ancillary Agreement are advisable in connection with the NCR Distribution or the separation of the NCR Business from the AT&T Services Business, Lucent will reasonably cooperate with AT&T and NCR in connection therewith for no additional consideration. Without limiting the foregoing, effective immediately on notice to Lucent, without any further action required by any member of the Lucent Group, AT&T may assume any Asset or Liability of any member of the NCR Group hereunder or under any Ancillary Agreement (and any rights of any member of the NCR Group in connection therewith) and all members of the NCR Group shall thereupon automatically be released therefrom. 12.4. THIRD PARTY BENEFICIARIES. Except for the indemnification rights under this Agreement of any AT&T Indemnitee, Lucent Indemnitee or NCR Indemnitee in their respective capacities as such, (a) the provisions of this Agreement and each Ancillary Agreement are solely for the benefit of the parties and are not intended to confer upon any Person except the parties any rights or remedies hereunder, and (b) there are no third party beneficiaries of this Agreement or any Ancillary Agreement and neither this Agreement nor any Ancillary Agreement shall provide any third person with any remedy, claim, liability, reimbursement, claim of action or other right in excess of those existing without reference to this Agreement or any Ancillary Agreement. No party hereto shall have any right, remedy or claim with respect to any provision of this Agreement or any Ancillary Agreement to the extent such provision relates solely to the other two parties hereto or the members of such other two parties' respective Groups. No party shall be required to deliver any notice under this Agreement or under any Ancillary Agreement to any other party with respect to any matter in which such other party has no right, remedy or claim. 12.5. NOTICES. All notices or other communications under this Agreement or any Ancillary Agreement shall be in writing and shall be deemed to be duly given when (a) delivered in person or (b) deposited in the United States mail or private express mail, postage prepaid, addressed as follows: If to AT&T, to: AT&T Corp. 131 Morristown Road Basking Ridge, NJ 07920 Attn: Vice President-Law and Corporate Secretary If to Lucent, to: Lucent Technologies Inc. 600 Mountain Avenue Murray Hill, New Jersey 07974 Attn: General Counsel If to NCR, to: NCR Corporation 1700 S. Patterson Blvd. Dayton, Ohio 45479 Attn: Chief Financial Officer with a copy to: NCR Corporation 1700 S. Patterson Blvd. Dayton, Ohio 45479 Attn: General Counsel Any party may, by notice to the other party, change the address to which such notices are to be given. 12.6. SEVERABILITY. If any provision of this Agreement or any Ancillary Agreement or the application thereof to any Person or circumstance is determined by a court of competent jurisdiction to be invalid, void or unenforceable, the remaining provisions hereof or thereof, or the application of such provision to Persons or circumstances or in jurisdictions other than those as to which it has been held invalid or unenforceable, shall remain in full force and effect and shall in no way be affected, impaired or invalidated thereby, so long as the economic or legal substance of the transactions contemplated hereby or thereby, as the case may be, is not affected in any manner adverse to any party. Upon such determination, the parties shall negotiate in good faith in an effort to agree upon such a suitable and equitable provision to effect the original intent of the parties. 12.7. FORCE MAJEURE. No party shall be deemed in default of this Agreement or any Ancillary Agreement to the extent that any delay or failure in the performance of its obligations under this Agreement or any Ancillary Agreement results from any cause beyond its reasonable control and without its fault or negligence, such as acts of God, acts of civil or military authority, embargoes, epidemics, war, riots, insurrections, fires, explosions, earthquakes, floods, unusually severe weather conditions, labor problems or unavailability of parts, or, in the case of computer systems, any failure in electrical or air conditioning equipment. In the event of any such excused delay, the time for performance shall be extended for a period equal to the time lost by reason of the delay. 12.8. PUBLICITY. Prior to the Distribution, each of Lucent, NCR and AT&T shall consult with each other prior to issuing any press releases or otherwise making public statements with respect to the IPO, the Distribution or any of the other transactions contemplated hereby and prior to making any filings with any Governmental Authority with respect thereto. 12.9. EXPENSES. Except as expressly set forth in this Agreement (including Section 3.1(h) hereof) or in any Ancillary Agreement, whether or not the IPO or the Distribution is consummated, all third party fees, costs and expenses paid or incurred in connection with the Distribution will be paid by AT&T. 12.10. HEADINGS. The article, section and paragraph headings contained in this Agreement and in the Ancillary Agreements are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement or any Ancillary Agreement. 12.11. SURVIVAL OF COVENANTS. Except as expressly set forth in any Ancillary Agreement, the covenants, representations and warranties contained in this Agreement and each Ancillary Agreement, and liability for the breach of any obligations contained herein, shall survive each of the Separation, the IPO and the Distribution and shall remain in full force and effect regardless of whether AT&T shall consummate, delay, modify or abandon the NCR Distribution. 12.12. WAIVERS OF DEFAULT. Waiver by any party of any default by the other party of any provision of this Agreement or any Ancillary Agreement shall not be deemed a waiver by the waiving party of any subsequent or other default, nor shall it prejudice the rights of the other party. 12.13. SPECIFIC PERFORMANCE. In the event of any actual or threatened default in, or breach of, any of the terms, conditions and provisions of this Agreement or any Ancillary Agreement, the party or parties who are or are to be thereby aggrieved shall have the right to specific performance and injunctive or other equitable relief of its rights under this Agreement or such Ancillary Agreement, in addition to any and all other rights and remedies at law or in equity, and all such rights and remedies shall be cumulative. The parties agree that the remedies at law for any breach or threatened breach, including monetary damages, are inadequate compensation for any loss and that any defense in any action for specific performance that a remedy at law would be adequate is waived. Any requirements for the securing or posting of any bond with such remedy are waived. 12.14. AMENDMENTS. (a) No provisions of this Agreement or any Ancillary Agreement shall be deemed waived, amended, supplemented or modified by any party, unless such waiver, amendment, supplement or modification is in writing and signed by the authorized representative of the party against whom it is sought to enforce such waiver, amendment, supplement or modification. Without limiting the foregoing, the parties agree that any waiver, amendment, supplement or modification of this Agreement or any Ancillary Agreement that solely relates to and affects only two of the three parties hereto shall not require the consent of the third party hereto. (b) Without limiting the foregoing, the parties anticipate that, prior to the Closing Date, some or all of the Schedules to this Agreement may be amended or supplemented and, in such event, such amended or supplemented Schedules shall be attached hereto in lieu of the original Schedules. 12.15. INTERPRETATION. Words in the singular shall be held to include the plural and vice versa and words of one gender shall be held to include the other genders as the context requires. The terms "hereof," "herein," and "herewith" and words of similar import shall, unless otherwise stated, be construed to refer to this Agreement (or the applicable Ancillary Agreement) as a whole (including all of the Schedules, Exhibits and Appendices hereto and thereto) and not to any particular provision of this Agreement (or such Ancillary Agreement). Article, Section, Exhibit, Schedule and Appendix references are to the Articles, Sections, Exhibits, Schedules and Appendices to this Agreement (or the applicable Ancillary Agreement) unless otherwise specified. The word "including" and words of similar import when used in this Agreement (or the applicable Ancillary Agreement) shall mean "including, without limitation," unless the context otherwise requires or unless otherwise specified. The word "or" shall not be exclusive. For all purposes of this Agreement, "allocated costs of in-house counsel and other personnel" shall be determined in accordance with the principles set forth in Schedule 12.15. Unless expressly stated to the contrary in this Agreement or in any Ancillary Agreement, all references to "the date hereof," "the date of this Agreement," "hereby" and "hereupon" and words of similar import shall all be references to February 1, 1996, regardless of any amendment or restatement hereof. IN WITNESS WHEREOF, the parties have caused this Separation and Distribution Agreement to be executed by their duly authorized representatives. AT&T CORP. By: /s/ - ------------------------ Name: Title: LUCENT TECHNOLOGIES INC. By: /s/ - ------------------------ Name: Title: NCR CORPORATION By: /s/ - ------------------------ Name: Title: EX-10 4 EXHIBIT (10)(I)2 FORM OF DISTRIBUTION AGREEMENT BY AND BETWEEN AT&T CORP. AND NCR CORPORATION DATED AS OF ________, 1996 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. 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. 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. 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. 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. 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 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; (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, 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 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 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; (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- 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. 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" (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. (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 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- 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 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 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 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). 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 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 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. TNESS 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: EX-10 5 EXHIBIT (10)(I)3 TAX SHARING AGREEMENT BY AND AMONG AT&T CORP., LUCENT TECHNOLOGIES INC. AND NCR CORPORATION DATED AS OF FEBRUARY 1, 1996 AND AMENDED AND RESTATED AS OF MARCH 29, 1996 TABLE OF CONTENTS ARTICLE I DEFINITIONS 1.1 ADJUSTMENT................................................... 1 1.2. AGREEMENT.................................................... 1 1.3. AT&T TAX ADJUSTMENT.......................................... 2 1.4. AT&T TAX BENEFIT............................................. 2 1.5. CONSOLIDATION................................................ 2 1.6. CONSOLIDATED RETURN.......................................... 2 1.7. CONTROLLING PARTY............................................ 2 1.8. CORRELATIVE ADJUSTMENT....................................... 2 1.9. DISPUTED ADJUSTMENT.......................................... 3 1.10. FINAL DETERMINATION.......................................... 3 1.11. INDEPENDENT THIRD PARTY...................................... 3 1.12. INDEMNIFIED PARTY............................................ 4 1.13. INDEMNIFYING PARTY........................................... 4 1.14. INITIAL DETERMINATION........................................ 4 1.15. INTERESTED PARTY............................................. 4 1.16. INTERESTED PARTY NOTICE...................................... 4 1.17. NCR TAX ADJUSTMENT........................................... 4 1.18. NCR TAX BENEFIT.............................................. 4 1.19. LUCENT TAX ADJUSTMENT........................................ 5 1.20. LUCENT TAX BENEFIT........................................... 5 1.21. NON-LINE OF BUSINESS ADJUSTMENT.............................. 5 1.22. RESTRUCTURING ADJUSTMENT..................................... 5 1.23. RETURN....................................................... 5 1.24. SEPARATE RETURN.............................................. 6 1.25. SEPARATION AGREEMENT......................................... 6 1.26. SIGNIFICANT OBLIGATION....................................... 6 1.27. TAX.......................................................... 6 1.28. TAX ADJUSTMENTS.............................................. 6 1.29. TAX BENEFITS................................................. 6 1.30. TAX CONTEST.................................................. 6 1.31. TAXING AUTHORITY............................................. 7 1.32. ULTIMATE DETERMINATION....................................... 7 ARTICLE II TAX ADJUSTMENTS/BENEFITS 2.1. IN GENERAL.................................................... 7 2.2. TAX ADJUSTMENTS AND BENEFITS.................................. 8 2.3. RESTRUCTURING ADJUSTMENTS..................................... 9 2.4. NON-LINE OF BUSINESS ADJUSTMENTS.............................. 11 ARTICLE III TAX CONTESTS 3.1. NOTIFICATION OF TAX CONTESTS.................................. 14 3.2. TAX CONTEST SETTLEMENT RIGHTS................................. 14 3.3. TAX CONTEST PARTICIPATION..................................... 15 3.4. TAX CONTEST WAIVER............................................ 16 3.5. TAX CONTEST DISPUTE RESOLUTION................................ 17 ARTICLE IV PROCEDURE AND PAYMENT 4.1. PROCEDURE..................................................... 20 4.2. PAYMENT....................................................... 21 4.3. INTEREST...................................................... 21 ARTICLE V OTHER TAX MATTERS 5.1. TAX POLICIES AND PROCEDURES DURING CONSOLIDATION ............. 22 5.2. COOPERATION................................................... 23 5.3. FILING OF RETURNS............................................. 23 ARTICLE VI MISCELLANEOUS 6.1. GOVERNING LAW................................................. 24 6.2. AFFILIATES.................................................... 24 6.3. INCORPORATION OF SEPARATION AGREEMENT PROVISIONS ............. 24 6.4. NOTICES....................................................... 24 6.5. CONFLICTING OR INCONSISTENT PROVISIONS........................ 25 6.6. DURATION...................................................... 25 6.7. AMENDMENT..................................................... 25 6.8. TAX ALLOCATION AGREEMENTS..................................... 26 TAX SHARING AGREEMENT THIS TAX SHARING AGREEMENT, dated as of February 1, 1996, is by and among AT&T, Lucent and NCR. Capitalized terms used herein shall have the respective meanings assigned to them in the Separation Agreement unless otherwise defined in Article I hereof. WHEREAS, AT&T, Lucent and NCR have executed the Separation Agreement pursuant to which AT&T's existing businesses will be separated into three independent businesses; and WHEREAS, it is appropriate and desirable to set forth the principles and responsibilities of the parties to this Agreement regarding future Adjustments with respect to Taxes, Tax Contests and other related Tax matters. NOW, THEREFORE, the parties, intending to be legally bound, agree as follows: ARTICLE I DEFINITIONS For the purpose of this Agreement the following terms shall have the following meanings: 1.1. ADJUSTMENT means the deemed increase or decrease in a Tax, determined on an issue-by-issue or transaction-by-transaction basis, as appropriate, and using the assumptions set forth in the next sentence, resulting from an adjustment made or proposed by a Taxing Authority with respect to any amount reflected or required to be reflected on any Return relating to such Tax. For purposes of determining such deemed increase or decrease in a Tax, the following assumptions will be used: (a) in the case of any income Tax, the highest marginal Tax rate or, in the case of any other Tax, the highest applicable Tax rate, in each case in effect with respect to that Tax for the Taxable period or any portion of the Taxable period to which the adjustment relates; and (b) such determination shall be made without regard to whether any actual increase or decrease in such Tax will in fact be realized with respect to the Return to which such adjustment relates. 1.2. AGREEMENT means this Tax Sharing Agreement, including any schedules, exhibits and appendices attached hereto. 1.3. AT&T TAX ADJUSTMENT means, with respect to any Taxable period or portion of a Taxable period, and as computed separately with respect to each Tax, the net increase in each such Tax equal to the sum of all Adjustments made pursuant to a Final Determination with respect to each such Tax for each such Taxable period or portion of a Taxable period that are clearly attributable to the AT&T Services Business; provided, however, that any Adjustment comprising a Restructuring Adjustment shall not be considered in determining the amount of any AT&T Tax Adjustment. 1.4. AT&T TAX BENEFIT means, with respect to any Taxable period or portion of a Taxable period, and as computed separately with respect to each Tax, the net decrease in each such Tax equal to the sum of all Adjustments made pursuant to a Final Determination with respect to each such Tax for each such Taxable period or portion of a Taxable period that are clearly attributable to the AT&T Services Business; provided, however, that any Adjustment comprising a Restructuring Adjustment shall not be considered in determining the amount of any AT&T Tax Benefit. 1.5. CONSOLIDATION means, as appropriate, any Taxable period or any portion of a Taxable period during which (a) one or more members of the Lucent Group are members of an AT&T Consolidated Return; or (b) one or more members of the NCR Group are members of an AT&T Consolidated Return. 1.6. CONSOLIDATED RETURN means, as appropriate, (a) for any Taxable period or any portion of a Taxable period ending or deemed to end on or prior to the Distribution Date, any consolidated or combined Return that includes one or more members of the AT&T Group and/or one or more members of the Lucent Group; and (b) for any Taxable period, or any portion of a Taxable period, beginning or deemed to begin after the Distribution Date and ending or deemed to end on or prior to the date of the NCR Distribution, any consolidated or combined Return that includes one or more members of the AT&T Services Group and/or one or more members of the NCR Group. 1.7. CONTROLLING PARTY means AT&T or any other member of the AT&T Services Group, Lucent or any other member of the Lucent Group or NCR or any other member of the NCR Group, as the case may be, that filed or, if no such Return has been filed, was required to file, a Return that is the subject of any Tax Contest, or any successor and/or assign of any of the foregoing; provided, however, that in the case of any Consolidated Return, the Person that actually filed such Consolidated Return (or any successor and/or assign of such Person) will be the Controlling Party. 1.8. CORRELATIVE ADJUSTMENT means, in the case of an Adjustment comprising either a Restructuring Adjustment or Non-Line of Business Adjustment, the net present value of any future increases or decreases in a Tax that would be realized, using the assumptions set forth in the next sentence, by either AT&T or any other member of the AT&T Services Group, Lucent or any other member of the Lucent Group or NCR or any other member of the NCR Group, as the case may be, in one or more Taxable periods (or any portion of a Taxable period) but only if such increases or decreases (a) will take effect or begin to take effect in the Taxable period or portion of a Taxable period immediately following the Taxable period or portion of a Taxable period in which the Restructuring Adjustment or Non-Line of Business Adjustment to such Tax was made; and (b) are a direct result of such an Adjustment to that Tax in the immediately preceding Taxable period or portion of such Taxable period. For purposes of determining the net present value of any such future increases or decreases in a Tax, the following assumptions will be used: (i) a discount rate equal to the sum of the Prime Rate as of the date of the Final Determination relating to such Restructuring Adjustment or Non-Line of Business Adjustment plus 3.5%; (ii) in the case of any income Tax, the highest marginal Tax rate or, in the case of any other Tax, the highest applicable Tax rate, in each case in effect with respect to that Tax for the Taxable period, or portion of the Taxable period, in which the Restructuring Adjustment or Non-Line of Business Adjustment was made; (iii) the depreciation, amortization or credit rate or lives, if applicable, in effect for the Taxable period, or portion of the Taxable period, in which the Restructuring Adjustment or Non- Line of Business Adjustment was made; and (iv) such determination shall be made without regard to whether any actual increases or decreases in such Tax will in fact be realized with respect to the future Returns to which such Correlative Adjustment relates. 1.9. DISPUTED ADJUSTMENT has the meaning set forth in Section 3.4(b) hereof. 1.10. FINAL DETERMINATION means (a) a decision, judgment, decree or other order by any court of competent jurisdiction, which has become final and is either no longer subject to appeal or for which a determination not to appeal has been made; (b) a closing agreement made under Section 7121 of the Code or any comparable foreign, state, local, municipal or other Taxing statute; (c) a final disposition by any Taxing Authority of a claim for refund; or (d) any other written agreement relating to an Adjustment between any Taxing Authority and any Controlling Party the execution of which is final and prohibits such Taxing Authority or the Controlling Party from seeking any further legal or administrative remedies with respect to such Adjustment. 1.11. INDEPENDENT THIRD PARTY means a nationally recognized law firm or any of the following accounting firms or their successors: Arthur Andersen & Co.; Ernst & Young; KPMG Peat Marwick & Main; Deloitte & Touche; Coopers & Lybrand; and Price Waterhouse & Co. 1.12. INDEMNIFIED PARTY has the meaning set forth in Section 4.1 hereof. 1.13. INDEMNIFYING PARTY has the meaning set forth in Section 4.1 hereof. 1.14. INITIAL DETERMINATION has the meaning set forth in Section 3.5(b)(i) hereof. 1.15. INTERESTED PARTY means AT&T or any other member of the AT&T Services Group, Lucent or any other member of the Lucent Group or NCR or any other member of the NCR Group (including any successor and/or assign of any of each of the foregoing), as the case may be, to the extent (a) such Person is not the Controlling Party with respect to a Tax Contest; and (b) such Person (i) may be liable for, or required to make, any indemnity payment, reimbursement or other payment pursuant to the provisions of this Agreement with respect to such Tax Contest; or (ii) may be entitled to receive any indemnity payment, reimbursement or other payment pursuant to the provisions of this Agreement with respect to such Tax Contest; provided, however, that in no event shall a member of either the AT&T Services Group, the Lucent Group or the NCR Group, as the case may be, be an Interested Party in a Tax Contest in which another member of its Group is the Controlling Party with respect to the Tax Contest. 1.16. INTERESTED PARTY NOTICE has the meaning set forth in Section 3.4(b) hereof. 1.17. NCR TAX ADJUSTMENT means, with respect to any Taxable period or portion of a Taxable period, and as computed separately with respect to each Tax, the net increase in each such Tax equal to the sum of all Adjustments made pursuant to a Final Determination with respect to each such Tax for each such Taxable period or portion of a Taxable period that are clearly attributable to the NCR Business; provided, however, that any Adjustment comprising a Restructuring Adjustment shall not be considered in determining the amount of any NCR Tax Adjustment. 1.18. NCR TAX BENEFIT means, with respect to any Taxable period or portion of a Taxable period, and as computed separately with respect to each Tax, the net decrease in each such Tax equal to the sum of all Adjustments made pursuant to a Final Determination with respect to each such Tax for each such Taxable period or portion of a Taxable period that are clearly attributable to the NCR Business; provided, however, that any Adjustment comprising a Restructuring Adjustment shall not be considered in determining the amount of any NCR Tax Benefit. 1.19. LUCENT TAX ADJUSTMENT means, with respect to any Taxable period or portion of a Taxable period, and as computed separately with respect to each Tax, the net increase in each such Tax equal to the sum of all Adjustments made pursuant to a Final Determination with respect to each such Tax for each such Taxable period or portion of a Taxable period that are clearly attributable to either the Lucent Assets or the Lucent Business; provided, however, that any Adjustment comprising a Restructuring Adjustment shall not be considered in determining the amount of any Lucent Tax Adjustment. 1.20. LUCENT TAX BENEFIT means, with respect to any Taxable period or portion of a Taxable period, and as computed separately with respect to each Tax, the net decrease in each such Tax equal to the sum of all Adjustments made pursuant to a Final Determination with respect to each such Tax for each such Taxable period or portion of a Taxable period that are clearly attributable to either the Lucent Assets or the Lucent Business; provided, however, that any Adjustment comprising a Restructuring Adjustment shall not be considered in determining the amount of any Lucent Tax Benefit. 1.21. NON-LINE OF BUSINESS ADJUSTMENT means, with respect to any Taxable period or portion of a Taxable period, and as computed separately with respect to each Tax, the net increase or decrease in each such Tax, as the case may be, equal to the sum of all Adjustments made pursuant to a Final Determination with respect to each such Tax for each such Taxable period or portion of a Taxable period other than (a) any Restructuring Adjustments and any Correlative Adjustment attributable to such Restructuring Adjustments; (b) any Tax Adjustments; and (c) any Tax Benefits. 1.22. RESTRUCTURING ADJUSTMENT means, with respect to any Taxable period or portion of a Taxable period, and as computed separately with respect to each Tax, the net increase or decrease in each such Tax, as the case may be, equal to the sum of all Adjustments made pursuant to a Final Determination with respect to each such Tax for each Taxable period or portion of a Taxable period that are attributable to, or as a result of, any transactions undertaken to effectuate the separation of AT&T's existing businesses into three independent businesses as contemplated under the Separation Agreement including, but not limited to, any transactions undertaken pursuant to or relating to the Separation, the IPO, the Distribution, the Non-U.S. Plan, the merger of RMC with and into AT&T and the NCR Distribution. 1.23. RETURN means any return, report, form or similar statement or document (including, without limitation, any related or supporting information or schedule attached thereto and any information return, claim for refund, amended return and declaration of estimated tax) that has been or is required to be filed with any Taxing Authority or that has been or is required to be furnished to any Taxing Authority in connection with the determination, assessment or collection of any Taxes or the administration of any laws, regulations or administrative requirements relating to any Taxes. 1.24. SEPARATE RETURN means any Return other than a Consolidated Return. 1.25. SEPARATION AGREEMENT means the Separation and Distribution Agreement, dated the date hereof, by and among AT&T Corp., Lucent Technologies Inc. and NCR Corporation. 1.26. SIGNIFICANT OBLIGATION means, in the case of an Interested Party, and with respect to any Adjustment comprising either a Restructuring Adjustment or Non- Line of Business Adjustment, either (a) a Shared Percentage that is greater than or equal to 30%; or (b) an obligation to make or right to receive any indemnity payment, reimbursement or other payment with respect to any such Adjustment (including the effect of a Correlative Adjustment relating thereto) pursuant to the terms of this Agreement that (i) in the case of any federal income Tax is greater than $5 million, and (ii) in the case of any other Tax is greater than $1 million. 1.27. TAX (and, with correlative meanings, "Taxes" and "Taxable") means, without limitation, and as determined on a jurisdiction-by-jurisdiction basis, each foreign or U.S. federal, state, local or municipal income, alternative or add-on minimum, gross receipts, sales, use, ad valorem, transfer, franchise, profits, license, withholding, payroll, employment, excise, severance, stamp, occupation, premium, property or any other tax, custom, tariff, impost, levy, duty, governmental fee or other like assessment or charge of any kind whatsoever, together with any interest or penalty, addition to tax or additional amount related thereto, imposed by any Taxing Authority. 1.28. TAX ADJUSTMENTS means any AT&T Tax Adjustment, any NCR Tax Adjustment or any Lucent Tax Adjustment, as the case may be. 1.29. TAX BENEFITS means any AT&T Tax Benefit, any NCR Tax Benefit or any Lucent Tax Benefit, as the case may be. 1.30. TAX CONTEST means, without limitation, any audit, examination, claim, suit, action or other proceeding relating to Taxes in which an Adjustment to Taxes may be proposed, collected or assessed and in respect of which an indemnity payment, reimbursement or other payment may be sought under this Agreement. 1.31. TAXING AUTHORITY means any Governmental Authority or any subdivision, agency, commission or authority thereof, or any quasi-governmental or private body having jurisdiction over the assessment, determination, collection or other imposition of Taxes. 1.32. ULTIMATE DETERMINATION has the meaning set forth in Section 3.5(b)(iii) hereof. ARTICLE II TAX ADJUSTMENTS/BENEFITS 2.1 IN GENERAL. (a) In determining Lucent's liability and/or obligation to make, or Lucent's right to receive, any indemnity payment, reimbursement or other payment in respect of any Tax under this Agreement, any Taxable period or portion of a Taxable period that includes the Distribution Date shall be deemed to include and end on such Distribution Date and Lucent shall have no liability and/or obligation to make, or right to receive, any indemnity payment, reimbursement or other payment in respect of any Tax under this Agreement with respect to any Taxable period or portion of a Taxable period that begins or is deemed to begin after the Distribution Date. (b) In determining NCR's liability and/or obligation to make, or NCR's right to receive, any indemnity payment, reimbursement or other payment in respect of any Tax under this Agreement, any Taxable period or portion of a Taxable period that includes the date of the NCR Distribution shall be deemed to include and end on such date and NCR shall have no liability and/or obligation to make, or right to receive, any indemnity payment, reimbursement or other payment under this Agreement in respect of any Tax with respect to any Taxable period or portion of a Taxable period that begins or is deemed to begin after the date of the NCR Distribution. (c) Any Adjustment relating to or arising out of the employment of employees or former employees the Liabilities with respect to which are assumed by Lucent pursuant to Section 2.1(a) of the Employee Benefits Agreement shall be deemed to be Adjustments that are clearly attributable to the Lucent Business and shall be deemed to comprise a Lucent Tax Adjustment or Lucent Tax Benefit, as the case may be. All other Adjustments relating to or arising out of the employment of employees or former employees shall be deemed to be Adjustments that are clearly attributable to the AT&T Services Business and shall be deemed to comprise an AT&T Tax Adjustment or AT&T Tax Benefit, as the case may be, except to the extent that such Adjustments arise out of or relate to the employment of such individuals by NCR, in which case they shall be deemed to be Adjustments that are clearly attributable to the NCR Business and shall be deemed to comprise a NCR Tax Adjustment or NCR Tax Benefit, as the case may be. 2.2. TAX ADJUSTMENTS AND BENEFITS. (a) Lucent shall be liable for, and shall indemnify and hold harmless, subject to Section 3.4 and Section 3.5 hereof, any member of the AT&T Services Group and/or the NCR Group, as appropriate, against any and all Lucent Tax Adjustments for any Taxable period or portion of a Taxable period ending or deemed to end on or before the Distribution Date, in each case with respect to any Return of any member of the Lucent Group, the AT&T Services Group or the NCR Group. Lucent shall be entitled to receive, and shall be paid, subject to Section 3.4 and Section 3.5 hereof, (i) by AT&T, the amount of any Lucent Tax Benefits for any Taxable period or portion of a Taxable period ending or deemed to end on or before the Distribution Date with respect to any Return of any member of the AT&T Services Group; and/or (ii) by NCR, the amount of any Lucent Tax Benefits for any Taxable period or portion of a Taxable period ending or deemed to end on or before the Distribution Date with respect to any Return of any member of the NCR Group. (b) AT&T shall be liable for, and shall indemnify and hold harmless, as appropriate, and subject to Section 3.4 and Section 3.5 hereof, (i) any member of the Lucent Group against any and all AT&T Tax Adjustments for any Taxable period or portion of a Taxable period ending or deemed to end on or before the Distribution Date; and/or (ii) any member of the NCR Group against any and all AT&T Tax Adjustments for any Taxable period or portion of a Taxable period ending or deemed to end on or before the date of the NCR Distribution, in each case with respect to any Return of any member of the Lucent Group, the AT&T Services Group or the NCR Group. AT&T shall be entitled to receive, and shall be paid, subject to Section 3.4 and Section 3.5 hereof, (i) by Lucent, the amount of any AT&T Tax Benefits for any Taxable period or portion of a Taxable period ending or deemed to end on or before the Distribution Date with respect to any Return of any member of the Lucent Group; and/or (ii) by NCR, the amount of any AT&T Tax Benefits for any Taxable period or any portion of a Taxable period ending or deemed to end on or before the date of the NCR Distribution with respect to any Return of any member of the NCR Group. (c) NCR shall be liable for, and shall indemnify and hold harmless, as appropriate, and subject to Section 3.4 and Section 3.5 hereof, (i) any member of the AT&T Services Group against any and all NCR Tax Adjustments for any Taxable period or portion of a Taxable period ending or deemed to end on or before the date of the NCR Distribution; and (ii) any member of the Lucent Group against any and all NCR Tax Adjustments for any Taxable period or portion of a Taxable period ending or deemed to end on or before the Distribution Date, in each case with respect to any Return of any member of the Lucent Group, the AT&T Services Group or the NCR Group. NCR shall be entitled to receive, and shall be paid, subject to Section 3.4 and Section 3.5 hereof, (i) by AT&T, the amount of any NCR Tax Benefits for any Taxable period or portion of a Taxable period ending or deemed to end on the date of the NCR Distribution with respect to any Return of any member of the AT&T Services Group; and/or (ii) by Lucent, the amount of any NCR Tax Benefits for any Taxable period or portion of a Taxable period ending or deemed to end on the Distribution Date with respect to any Return of any member of the Lucent Group. 2.3. RESTRUCTURING ADJUSTMENTS. (a) Lucent shall be liable for, and shall indemnify and hold harmless, as appropriate, any member of the AT&T Services Group and/or the NCR Group against Lucent's share, as determined in Section 2.3(d) below, of any Restructuring Adjustment the amount of which increases a Tax for any Taxable period or portion of a Taxable period ending or deemed to end on or before the Distribution Date, in each case with respect to any Return of any member of the Lucent Group, the AT&T Services Group or the NCR Group. Lucent shall be entitled to receive, and shall be paid (i) by AT&T, Lucent's share, as determined in Section 2.3(d) below, of any Restructuring Adjustment the amount of which decreases a Tax for any Taxable period or portion of a Taxable period ending or deemed to end on or before the Distribution Date with respect to any Return of any member of the AT&T Services Group; and/or (ii) by NCR, Lucent's share, as determined in Section 2.3(d) below, of any Restructuring Adjustment the amount of which decreases a Tax for any Taxable period or portion of a Taxable period ending or deemed to end on or before the Distribution Date with respect to any Return of any member of the NCR Group. (b) AT&T shall be liable for, and shall indemnify and hold harmless, as appropriate, (i) any member of the Lucent Group against AT&T's share, as determined in Section 2.3(d) below, of any Restructuring Adjustment the amount of which increases a Tax for any Taxable period or portion of a Taxable period ending or deemed to end on or before the Distribution Date; and (ii) any member of the NCR Group against AT&T's share, as determined in Section 2.3(d) below, of any Restructuring Adjustment the amount of which increases a Tax for any Taxable period or portion of a Taxable period ending or deemed to end on or before the date of the NCR Distribution, in each case with respect to any Return of any member of the Lucent Group, the AT&T Services Group or the NCR Group. AT&T shall be entitled to receive, and shall be paid (i) by Lucent, AT&T's share, as determined in Section 2.3(d) below, of any Restructuring Adjustment the amount of which decreases a Tax for any Taxable period or portion of a Taxable period ending or deemed to end on or before the Distribution Date with respect to any Return of any member of the Lucent Group; and/or (ii) by NCR, AT&T's share, as determined in Section 2.3(d) below, of any Restructuring Adjustment the amount of which decreases a Tax for any Taxable period or portion of a Taxable period ending or deemed to end on or before the date of the NCR Distribution with respect to any Return of any member of the NCR Group. (c) NCR shall be liable for, and shall indemnify and hold harmless, as appropriate, (i) any member of the Lucent Group against NCR's share, as determined in Section 2.3(d) below, of any Restructuring Adjustment the amount of which increases a Tax for any Taxable period or portion of a Taxable period ending or deemed to end on or before the Distribution Date; and (ii) any member of the AT&T Services Group against NCR's share, as determined in Section 2.3(d) below, of any Restructuring Adjustment the amount of which increases a Tax for any Taxable period or portion of a Taxable period ending or deemed to end on or before the date of the NCR Distribution, in each case with respect to any Return of any member of the Lucent Group, the AT&T Services Group or the NCR Group. NCR shall be entitled to receive, and shall be paid (i) by Lucent, NCR's share, as determined in Section 2.3(d) below, of any Restructuring Adjustment the amount of which decreases a Tax for any Taxable period or portion of a Taxable period ending or deemed to end on or before the Distribution Date with respect to any Return of any member of the Lucent Group; and/or (ii) by AT&T, NCR's share, as determined in Section 2.3(d) below, of any Restructuring Adjustment the amount of which decreases a Tax for any Taxable period or portion of a Taxable period ending or deemed to end on or before the date of the NCR Distribution with respect to any Return of any member of the AT&T Services Group. (d) AT&T, Lucent and NCR shall share the amount of any Restructuring Adjustment if, and to the extent, each such party is liable for and/or has an obligation to make, or has the right to receive, as the case may be, any indemnity payment, reimbursement or other payment with respect to such Restructuring Adjustment under this Agreement, in proportion to the Shared AT&T Percentage, the Shared Lucent Percentage and the Shared NCR Percentage, respectively; provided, however, that in the event that there is any Correlative Adjustment with respect to any such Restructuring Adjustment, then AT&T, Lucent and NCR shall share such Restructuring Adjustment in the following manner in order to ensure that the party or parties that will bear the burden or inure to the benefit of the Correlative Adjustment in the future will share the Restructuring Adjustment in proportion to each of their respective Shared Percentages after giving effect to such Correlative Adjustment: (i) first, the amount of any such Restructuring Adjustment shall be increased or decreased, as appropriate, by the amount of the Correlative Adjustment, the net amount resulting from such increase or decrease being hereinafter referred to as the "Net Restructuring Adjustment" for purposes of this Section 2.3(d); (ii) second, the Net Restructuring Adjustment shall be allocated among AT&T, Lucent and NCR in proportion to the Shared AT&T Percentage, the Shared Lucent Percentage and the Shared NCR Percentage, respectively, to the extent each such party is liable for and/or has an obligation to make, or has the right to receive, as the case may be, any indemnity payment, reimbursement or other payment with respect to such Restructuring Adjustment under this Agreement; and (iii) finally, with respect to a party to which a Correlative Adjustment is attributable, that party's share of the Net Restructuring Adjustment as allocated pursuant to paragraph (ii) of this Section 2.3(d) will be increased or decreased, as appropriate, by the amount, if any, of the Correlative Adjustment that is attributable to such party in order to arrive at such party's share of the Restructuring Adjustment. Notwithstanding any other provision of this Agreement or the Separation Agreement to the contrary, in the case of any Adjustment comprising a Restructuring Adjustment that relates to the Distribution and arises as a result of the acquisition of all or a portion of the Lucent stock and/or its assets by any means whatsoever by any Person other than an Affiliate of Lucent following such Distribution, then the Shared Lucent Percentage with respect to such Adjustment shall be 100% and each of the Shared AT&T Percentage and the Shared NCR Percentage shall be 0%. (e) Following the determination of a party's share of a Restructuring Adjustment pursuant to Section 2.3(d) above, and subject to Section 3.4 and 3.5 hereof, the Controlling Party that controls the Tax Contest to which such Restructuring Adjustment relates shall (i) be entitled to reimbursement from AT&T, Lucent and/or NCR, as the case may be, for each of their respective shares, if any, of any Restructuring Adjustment the amount of which increases a Tax; and (ii) reimburse AT&T, Lucent or NCR, as the case may be, for each of their respective shares, if any, of any Restructuring Adjustment the amount of which decreases a Tax. 2.4. NON-LINE OF BUSINESS ADJUSTMENTS. (a) Lucent shall be liable for, and shall indemnify and hold harmless, as appropriate, any member of the AT&T Services Group and/or the NCR Group against Lucent's share, as determined in Section 2.4(d) below, of any Non-Line of Business Adjustment the amount of which increases a Tax for any Taxable period or portion of a Taxable period ending or deemed to end on or before the Distribution Date, in each case with respect to any Return of any member of the Lucent Group, the AT&T Services Group or the NCR Group. Lucent shall be entitled to receive, and shall be paid (i) by AT&T, Lucent's share, as determined in Section 2.4(d) below, of any Non-Line of Business Adjustment the amount of which decreases a Tax for any Taxable period or portion of a Taxable period ending or deemed to end on or before the Distribution Date with respect to any Return of any member of the AT&T Services Group; and/or (ii) by NCR, Lucent's share, as determined in Section 2.4(d) below, of any Non-Line of Business Adjustment the amount of which decreases a Tax for any Taxable period or portion of a Taxable period ending or deemed to end on or before the Distribution Date with respect to any Return of any member of the NCR Group. (b) AT&T shall be liable for, and shall indemnify and hold harmless, as appropriate, (i) any member of the Lucent Group against AT&T's share, as determined in Section 2.4(d) below, of any Non-Line of Business Adjustment the amount of which increases a Tax for any Taxable period or portion of a Taxable period ending or deemed to end on or before the Distribution Date; and (ii) any member of the NCR Group against AT&T's share, as determined in Section 2.4(d) below, of any Non-Line of Business Adjustment the amount of which increases a Tax for any Taxable period or portion of a Taxable period ending or deemed to end on or before the date of the NCR Distribution, in each case with respect to any Return of any member of the Lucent Group, the AT&T Services Group or the NCR Group. AT&T shall be entitled to receive, and shall be paid (i) by Lucent, AT&T's share, as determined in Section 2.4(d) below, of any Non-Line of Business Adjustment the amount of which decreases a Tax for any Taxable period or portion of a Taxable period ending or deemed to end on or before the Distribution Date with respect to any Return of any member of the Lucent Group; and/or (ii) by NCR, AT&T's share, as determined in Section 2.4(d) below, of any Non-Line of Business Adjustment the amount of which decreases a Tax for any Taxable period or portion of a Taxable period ending or deemed to end on or before the date of the NCR Distribution with respect to any Return of any member of the NCR Group. (c) NCR shall be liable for, and shall indemnify and hold harmless, as appropriate, (i) any member of the Lucent Group against NCR's share, as determined in Section 2.4(d) below, of any Non-Line of Business Adjustment the amount of which increases a Tax for any Taxable period or portion of a Taxable period ending or deemed to end on or before the Distribution Date; and (ii) any member of the AT&T Services Group against NCR's share, as determined in Section 2.4(d) below, of any Non-Line of Business Adjustment the amount of which increases a Tax for any Taxable period or portion of a Taxable period ending or deemed to end on or before the date of the NCR Distribution, in each case with respect to any Return of any member of the Lucent Group, the AT&T Services Group or the NCR Group. NCR shall be entitled to receive, and shall be paid (i) by Lucent, NCR's share, as determined in Section 2.4(d) below, of any Non-Line of Business Adjustment the amount of which decreases a Tax for any Taxable period or portion of a Taxable period ending or deemed to end on or before the Distribution Date with respect to any Return of any member of the Lucent Group; and/or (ii) by AT&T, NCR's share, as determined in Section 2.4(d) below, of any Non-Line of Business Adjustment the amount of which decreases a Tax for any Taxable period or portion of a Taxable period ending or deemed to end on or before the date of the NCR Distribution with respect to any Return of any member of the AT&T Services Group. (d) AT&T, Lucent and NCR shall share the amount of any Non-Line of Business Adjustment if, and to the extent, each such party is liable for and/or has an obligation to make, or has the right to receive, as the case may be, any indemnity payment, reimbursement or other payment with respect to such Non-Line of Business Adjustment under this Agreement, in proportion to the Shared AT&T Percentage, the Shared Lucent Percentage and the Shared NCR Percentage, respectively; provided, however, that in the event that there is any Correlative Adjustment with respect to any such Non-Line of Business Adjustment, then AT&T, Lucent and NCR shall share such Non-Line of Business Adjustment in the following manner in order to ensure that the party or parties that will bear the burden or inure to the benefit of the Correlative Adjustment in the future will share the Non-Line of Business Adjustment in proportion to each of their respective Shared Percentages after giving effect to such Correlative Adjustment: (i) first, the amount of any such Non-Line of Business Adjustment shall be increased or decreased, as appropriate, by the amount of the Correlative Adjustment, the net amount resulting from such increase or decrease being hereinafter referred to as the "Net Non-Line of Business Adjustment" for purposes of this Section 2.4(d); (ii) second, the Net Non-Line of Business Adjustment shall be allocated among AT&T, Lucent and NCR in proportion to the Shared AT&T Percentage, the Shared Lucent Percentage and the Shared NCR Percentage, respectively, to the extent each such party is liable for and/or has an obligation to make, or has the right to receive, as the case may be, any indemnity payment, reimbursement or other payment with respect to such Non-Line of Business Adjustment under this Agreement; and (iii) finally, with respect to a party to which a Correlative Adjustment is attributable, that party's share of the Net Non-Line of Business Adjustment as allocated pursuant to paragraph (ii) of this Section 2.4(d) will be increased or decreased, as appropriate, by the amount, if any, of the Correlative Adjustment that is attributable to such party in order to arrive at such party's share of the Non-Line of Business Adjustment. (e) Following the determination of a party's share of a Non-Line of Business Adjustment pursuant to Section 2.4(d) above, and subject to Section 3.4 and 3.5 hereof, the Controlling Party that controls the Tax Contest to which such Non-Line of Business Adjustment relates shall (i) be entitled to reimbursement from AT&T, Lucent and/or NCR, as the case may be, for each of their respective shares, if any, of any Non-Line of Business Adjustment the amount of which increases a Tax; and (ii) reimburse AT&T, Lucent or NCR, as the case may be, for each of their respective shares, if any, of any Non-Line of Business Adjustment the amount of which decreases a Tax. ARTICLE III TAX CONTESTS 3.1. NOTIFICATION OF TAX CONTESTS. The Controlling Party shall promptly notify all Interested Parties of (a) the commencement of any Tax Contest pursuant to which such Interested Parties may be required to make or entitled to receive an indemnity payment, reimbursement or other payment under this Agreement; and (b) as required and specified in Section 3.4 hereof, any Final Determination made with respect to any Tax Contest pursuant to which such Interested Parties may be required to make or entitled to receive any indemnity payment, reimbursement or other payment under this Agreement. The failure of a Controlling Party to promptly notify any Interested Party as specified in the preceding sentence shall not relieve any such Interested Party of any liability and/or obligation which it may have to the Controlling Party under this Agreement except to the extent that the Interested Party was prejudiced by such failure, and in no event shall such failure relieve the Interested Party from any other liability or obligation which it may have to such Controlling Party. 3.2. TAX CONTEST SETTLEMENT RIGHTS. The Controlling Party shall have the sole right to contest, litigate, compromise and settle any Adjustment that is made or proposed in a Tax Contest without obtaining the prior consent of any Interested Party; provided, however, that, unless waived by the parties in writing, the Controlling Party shall, in connection with any proposed or assessed Adjustment in a Tax Contest for which an Interested Party may be required to make or entitled to receive an indemnity payment, reimbursement or other payment under this Agreement (a) keep all such Interested Parties informed in a timely manner of all actions taken or proposed to be taken by the Controlling Party; and (b) provide all such Interested Parties with copies of any correspondence or filings submitted to any Taxing Authority or judicial authority, in each case in connection with any contest, litigation, compromise or settlement relating to any such Adjustment in a Tax Contest. The failure of a Controlling Party to take any action as specified in the preceding sentence with respect to an Interested Party shall not relieve any such Interested Party of any liability and/or obligation which it may have to the Controlling Party under this Agreement except to the extent that the Interested Party was prejudiced by such failure, and in no event shall such failure relieve the Interested Party from any other liability or obligation which it may have to such Controlling Party. The Controlling Party may, in its sole discretion, take into account any suggestions made by an Interested Party with respect to any such contest, litigation, compromise or settlement of any Adjustment in a Tax Contest. All costs of any Tax Contest are to be borne by the Controlling Party; provided, however, that (x) any costs related to an Interested Party's attendance at any meeting with a Taxing Authority or hearing or proceeding before any judicial authority pursuant to Section 3.3 hereof, and (y) the costs of any legal or other representatives retained by an Interested Party in connection with any Tax Contest that is subject to the provisions of this Agreement, shall be borne by such Interested Party. 3.3. TAX CONTEST PARTICIPATION. (a) Unless waived by the parties in writing, the Controlling Party shall provide an Interested Party with written notice reasonably in advance of, and such Interested Party shall have the right to attend, any formally scheduled meetings with Taxing Authorities or hearings or proceedings before any judicial authorities in connection with any contest, litigation, compromise or settlement of any proposed or assessed Adjustment comprising any Tax Adjustment or Tax Benefit that is the subject of any Tax Contest pursuant to which such Interested Party may be required to make or entitled to receive an indemnity payment, reimbursement or other payment under this Agreement. In addition, unless waived by the parties in writing, the Controlling Party shall provide each such Interested Party with draft copies of any correspondence or filings to be submitted to any Taxing Authority or judicial authority with respect to such Adjustments for such Interested Party's review and comment. The Controlling Party shall provide such draft copies reasonably in advance of the date that they are to be submitted to the Taxing Authority or judicial authority and the Interested Party shall provide its comments, if any, with respect thereto within in a reasonable time before such submission. The failure of a Controlling Party to provide any notice, correspondence or filing as specified in this Section 3.3(a) to an Interested Party shall not relieve any such Interested Party of any liability and/or obligation which it may have to the Controlling Party under this Agreement except to the extent that the Interested Party was prejudiced by such failure, and in no event shall such failure relieve the Interested Party from any other liability or obligation which it may have to such Controlling Party. (b) Unless waived by the parties in writing, the Controlling Party shall provide an Interested Party with written notice reasonably in advance of, and such Interested Party shall have the right to attend, any formally scheduled meetings with Taxing Authorities or hearings or proceedings before any judicial authorities in connection with any contest, litigation, compromise or settlement of any proposed or assessed Adjustment comprising any Restructuring Adjustment or Non-Line of Business Adjustment that is the subject of any Tax Contest pursuant to which such Interested Party may be required to make or entitled to receive an indemnity payment, reimbursement or other payment under this Agreement, but only if the Interested Party bears, or in the good faith judgment of the Controlling Party, may bear, a Significant Obligation with respect to such Adjustment; provided, however, that the Controlling Party may, in its sole discretion, permit an Interested Party that does not bear, or potentially bear, such a Significant Obligation with respect to such an Adjustment comprising a Restructuring Adjustment or Non-Line of Business Adjustment to attend any such meetings, hearings or proceedings that relate to such Adjustment. In addition, unless waived by the parties in writing, the Controlling Party shall provide each such Interested Party with draft copies of any correspondence or filings to be submitted to any Taxing Authority or judicial authority with respect to such Adjustments for such Interested Party's review and comment. The Controlling Party shall provide such draft copies reasonably in advance of the date that they are to be submitted to the Taxing Authority or judicial authority and the Interested Party shall provide its comments, if any, with respect thereto within in a reasonable time before such submission. The failure of a Controlling Party to provide any notice, correspondence or filing as specified in this Section 3.3(b) to an Interested Party shall not relieve any such Interested Party of any liability and/or obligation which it may have to the Controlling Party under this Agreement except to the extent that the Interested Party was prejudiced by such failure, and in no event shall such failure relieve the Interested Party from any other liability or obligation which it may have to such Controlling Party. 3.4. TAX CONTEST WAIVER. (a) The Controlling Party shall promptly provide written notice, sent postage prepaid by United States mail, certified mail, return receipt requested, to all Interested Parties in a Tax Contest (i) that a Final Determination has been made with respect to such Tax Contest; and (ii) enumerating the amount of the Interested Party's share of each Adjustment reflected in such Final Determination of the Tax Contest for which such Interested Party may be required to make or entitled to receive an indemnity payment, reimbursement or other payment under this Agreement. (b) Within ninety (90) days after an Interested Party receives the notice described in Section 3.4(a) hereof from the Controlling Party, such Interested Party shall execute a written statement giving notice to the Controlling Party (i) that the Interested Party agrees with each Adjustment (and its share thereof) enumerated in the notice described in Section 3.4(a) hereof except with respect to those Adjustments (and/or its shares thereof) that, in the good faith judgment of the Interested Party, it disagrees with and has specifically enumerated its disagreement with, including the amount of such disagreement, in the statement (each such disagreed Adjustment (and/or share thereof) hereinafter referred to as a "Disputed Adjustment"); and (ii) that the Interested Party thereby waives it right to a determination by an Independent Third Party pursuant to the provisions of Section 3.5 hereof with respect to all Adjustments to which it agrees with its share (this statement hereinafter referred to as the "Interested Party Notice"). The failure of an Interested Party to provide the Interested Party Notice to the Controlling Party within the ninety (90) day period specified in the preceding sentence shall be deemed to indicate that such Interested Party agrees with its share of all Adjustments enumerated in the notice described in Section 3.4(a) hereof and that such Interested Party waives it right to a determination by an Independent Third Party with respect to all such Adjustments (and its shares thereof) pursuant to Section 3.5 hereof. (c) During the ninety (90) day period immediately following the Controlling Party's receipt of the Interested Party Notice described in Section 3.4(b) above, the Controlling Party and the Interested Party shall in good faith confer with each other to resolve any disagreement over each Disputed Adjustment that was specifically enumerated in such Interested Party Notice. At the end of the ninety (90) day period specified in the preceding sentence, unless otherwise extended in writing by the mutual consent of the parties, the Interested Party shall be deemed to agree with all Disputed Adjustments that were specifically enumerated in the Interested Party Notice and waive its right to a determination by an Independent Third Party pursuant to Section 3.5 hereof with respect to all such Disputed Adjustments unless, and to the extent, that at any time during such ninety (90) day (or extended) period, either the Controlling Party or the Interested Party has given the other party written notice that it is seeking a determination by an Independent Third Party pursuant to Section 3.5 hereof regarding the propriety of any such Disputed Adjustment. (d) Notwithstanding anything in this Agreement to the contrary, an Interested Party that does not have a Significant Obligation with respect to an Adjustment comprising either a Restructuring Adjustment or Non-Line of Business Adjustment has no right to a determination by an Independent Third Party under section 3.5 hereof with respect to any such Adjustment comprising a Restructuring Adjustment or Non-Line of Business Adjustment. 3.5. TAX CONTEST DISPUTE RESOLUTION. (a) In the event that either a Controlling Party or an Interested Party has given the other party written notice as required in Section 3.4(c) hereof that it is seeking a determination by an Independent Third Party pursuant to this Section 3.5 with respect to any Disputed Adjustment that was enumerated in an Interested Party Notice, then the parties shall, within ten (10) days after a party has received such notice, jointly select an Independent Third Party to make such determination. In the event that the parties cannot jointly agree on an Independent Third Party to make such determination within such ten (10) day period, then the Controlling Party and the Interested Party shall each immediately select an Independent Third Party and the Independent Third Parties so selected by the parties shall jointly select, within ten (10) days of their selection, another Independent Third Party to make such determination. (b) In making its determination as to the propriety of any Disputed Adjustment, the Independent Third Party selected pursuant to Section 3.5(a) above shall assume that the Interested Party is not required or entitled under applicable law to be a member of any Consolidated Return. In addition, the Independent Third Party shall make its determination according to the following procedure: (i) The Independent Third Party shall first analyze each Disputed Adjustment for which a determination is sought pursuant to this Section 3.5 on a stand alone basis to determine whether the actual outcome reached with respect to such Disputed Adjustment as reflected in the Final Determination of the Tax Contest was fair and appropriate taking into account the following exclusive criteria: (A) the facts relating to such Adjustment; (B) the applicable law, if any, with respect to such Adjustment; (C) the position of the applicable Taxing Authority with respect to compromise, settlement or litigation of such Adjustment; (D) the strength of the factual and legal arguments made by the Controlling Party in reaching the outcome with respect to such Adjustment as reflected in the Final Determination of the Tax Contest; and (E) the strength of the factual and legal arguments being made by the Interested Party for the alternative outcome being asserted by such Interested Party (including the availability of facts, information and documentation to support such alternative outcome). Based on this analysis, the Independent Third Party shall determine what is the fair and appropriate outcome (hereinafter referred to as the "Initial Determination") with respect to each such Disputed Adjustment. (ii) The Interested Party shall not be entitled to modification of its share of a Disputed Adjustment under this Section 3.5 if, as the case may be, either (A) the amount that would be paid by the Interested Party under the Initial Determination with respect to such Disputed Adjustment is 80% or more than the amount that would be paid by the Interested Party with respect to such Disputed Adjustment under the actual outcome reached with respect to such Disputed Adjustment; or (B) the amount that would be received by the Interested Party under the Initial Determination with respect to such Disputed Adjustment is 120% or less than the amount that the Interested Party would receive with respect to such Disputed Adjustment under the actual outcome reached with respected to such Disputed Adjustment. The Independent Third Party will provide notice to the Controlling Party and the Interested Party in the event the Interested Party is not entitled to modification of its share of the Disputed Adjustment pursuant to this paragraph (ii). (iii) If the modification of an Interested Party's share of a Disputed Adjustment under this Section 3.5 is not prohibited pursuant to paragraph (ii) above, then the Independent Third Party shall determine what is the fair and appropriate outcome (hereinafter referred to as the "Ultimate Determination") to the Interested Party with respect to such Disputed Adjustment in the context of the entire Tax Contest as it relates to the Interested Party. In making this determination, the Independent Third Party shall consider the Disputed Adjustment as if it were raised in an independent audit of the Interested Party by the appropriate Taxing Authority and the Independent Third Party shall take into account and give appropriate weight in its sole discretion to the following exclusive criteria: (A) the strength of the legal and factual support for other potential, non-frivolous Adjustments with respect to matters that were actually raised and contested by the applicable Taxing Authority in the Tax Contest for which the Interested Party could have been liable under this Agreement but which were eliminated or reduced as a result of the Controlling Party agreeing to the Disputed Adjustment as reflected in the Final Determination of the Tax Contest; (B) the effect of the actual outcome reached with respect to the Disputed Adjustment on other Taxable periods and on other positions taken or proposed to be taken in Returns filed or proposed to be filed by the Interested Party; (C) the realistic possibility of avoiding examination of potential, non-frivolous issues for which the Interested Party could be liable under this Agreement and that were contemporaneously identified in writings by the party or parties during the course of the Tax Contest but which had not been raised and contested by the applicable Taxing Authority in the Tax Contest; and (D) the benefits to the Interested Party in reaching a Final Determination, and the strategy and rationale with respect to the Interested Party's Disputed Adjustment that the Controlling Party had for agreeing to such Disputed Adjustment in reaching the Final Determination, in each case that were contemporaneously identified in writings by the party or parties during the course of the Tax Contest. (iv) The Interested Party shall only be entitled to modification of its share of a Disputed Adjustment under this Section 3.5 if, as the case may be, either (A) the amount that would be paid by the Interested Party under the Ultimate Determination with respect to such Disputed Adjustment is less than 80% of the amount that would be paid by the Interested Party with respect to such Disputed Adjustment under the actual outcome reached with respect to such Disputed Adjustment; or (B) the amount that would be received by the Interested Party under the Ultimate Determination with respect to such Disputed Adjustment is more than 120% of the amount that the Interested Party would receive with respect to such Disputed Adjustment under the actual outcome reached with respected to such Disputed Adjustment. If an Interested Party is entitled to modification of its share of any Disputed Adjustment under the preceding sentence, the amount the Interested Party is entitled to receive, or is required to pay, as the case may be, with respect to such Disputed Adjustment shall be equal to the amount of the Ultimate Determination of such Disputed Adjustment. The Independent Third Party will provide notice to the Controlling Party and the Interested Party stating whether the Interested Party is entitled to modification of its share of the Disputed Adjustment pursuant to this paragraph (iv) and, if the Interested Party is entitled to such modification, the amount as determined in the preceding sentence that the Interested Party is entitled to receive from, or required to pay to, the Controlling Party with respect to such Disputed Adjustment. (c) Any determination made or notice given by an Independent Third Party pursuant to this Section 3.5 shall be (i) in writing; (ii) made within sixty (60) days following the selection of the Independent Third Party as set forth in Section 3.5(a) of this Agreement unless such period is otherwise extended by the mutual consent of the parties; and (iii) final and binding upon the parties. The costs of any Independent Third Party retained pursuant to this Section 3.5 shall be shared equally by the parties. The Controlling Party and the Interested Party shall provide the Independent Third Party jointly selected pursuant to Section 3.5(a) hereof with such information or documentation as may be appropriate or necessary in order for such Independent Third Party to make the determination requested of it. Upon issuance of an Independent Third Party's notice under Section 3.5(b)(ii) or Section 3.5(b)(iv) hereof, the Controlling Party or the Interested Party, as the case may be, shall pay as specified in Article IV of this Agreement, the amount, if any, of the Disputed Adjustment to the appropriate party. ARTICLE IV PROCEDURE AND PAYMENT 4.1. PROCEDURE. (a) If an Interested Party has any liability and/or obligation to make, or the right to receive, any indemnity payment, reimbursement or other payment with respect to an Adjustment under this Agreement for which it does not have a right to a determination by an Interested Third Party under Section 3.5 hereof, then the amount of such Adjustment shall be immediately due and payable upon receipt by the Interested Party of a notice of Final Determination of a Tax Contest as required and specified in Section 3.4(a) hereof. (b) If after (i) notice of a Final Determination of a Tax Contest as required and specified in Section 3.4(a) hereof has been given by a Controlling Party to an Interested Party; and (ii) the Interested Party receiving such notice has either: (A) failed to provide the Interested Party Notice specified in Section 3.4(b) hereof within the ninety (90) day period set forth in Section 3.4(b); (B) provided the Interested Party Notice specified in Section 3.4(b) hereof within the ninety (90) day period specified in Section 3.4(b) agreeing to all Adjustments (and the Interested Party's share of all such Adjustments) and waiving the right to an Independent Third Party determination pursuant to Section 3.5 hereof with respect to all such Adjustments (and the Interested Party's share of such Adjustments); (C) provided the Interested Party Notice specified in Section 3.4(b) hereof within the ninety (90) day period specified in Section 3.4(b) agreeing with some, but not all, Adjustments (and the Interested Party's share of such agreed Adjustments) and waiving the right to an Independent Third Party Determination pursuant to Section 3.5 hereof with respect to all such agreed Adjustments (and the Interested Party's share of such Adjustments); or (D) provided the Interested Party Notice specified in Section 3.4(b) hereof within the ninety (90) day period specified in Section 3.4(b) specifically enumerating the Disputed Adjustments to which it does not agree and for which the notice specified in either Section 3.5(b)(ii) or Section 3.5(b)(iv) hereof relating to any such Disputed Adjustment has been given by an independent Third Party; then the amount of any Adjustment agreed to or deemed to be agreed to by the Interested Party, or for which an Independent Third Party notice has been given pursuant to either Section 3.5(b)(ii) or Section 3.5(b)(iv) hereof, as set forth in each of clause (A), (B, (C) or (D) above, shall be immediately due and payable. (c) Any Person entitled to any indemnification, reimbursement or other payment under this Agreement with respect to the amount of any Adjustment that has become immediately due and payable under this Section 4.1 (the "Indemnified Party") shall notify in writing the Person against whom such indemnification, reimbursement or other payment is sought (the "Indemnifying Party") of its right to and the amount of such indemnification, reimbursement or other payment; provided, however, that the failure to notify the Indemnifying Party shall not relieve the Indemnifying Party from any liability and/or obligation which it may have to an Indemnified Party on account of the provisions contained in this Agreement except to the extent that the Indemnifying Party was prejudiced by such failure, and in no event shall such failure relieve the Indemnifying Party from any other liability or obligation which it may have to such Indemnified Party. The Indemnifying Party shall make such indemnity payment, reimbursement or other payment to the Indemnified Party within thirty (30) days of the receipt of the written notice specified in the preceding sentence. 4.2. PAYMENT. Any indemnity payment, reimbursement or other payment required to be made pursuant to this Agreement by an Indemnifying Party to an Indemnified Party shall be made, at the option of the Indemnifying Party, by (a) certified check payable to the order of the Indemnified Party; or (b) wire transfer of immediately available funds to such bank and/or other account of the Indemnified Party as from time to time the Indemnified Party shall have directed the Indemnifying Party, in writing. 4.3. INTEREST. Any indemnity payment, reimbursement or other payment required to be made by an Interested Party pursuant to this Agreement shall bear interest at the Prime Rate plus 2%, per annum, from the date such Interested Party receives the notice of Final Determination made with respect to a Tax Contest as provided in Section 3.4(a) hereof. Any indemnity payment, reimbursement or other payment required to be made by a Controlling Party to an Interested Party pursuant to this Agreement shall bear interest at the Prime Rate plus 2%, per annum, from a date thirty (30) days after the date of a Final Determination made with respect to a Tax Contest. ARTICLE V OTHER TAX MATTERS 5.1. TAX POLICIES AND PROCEDURES DURING CONSOLIDATION. It is understood and agreed that during Consolidation: (a) Members of the Lucent Group and members of the NCR Group, respectively, shall each adopt and follow the Tax policies and procedures that have been established by AT&T and communicated to Lucent and NCR unless, AT&T shall otherwise consent, as provided herein. In the event that a member of the Lucent Group and/or the NCR Group desires to adopt and follow a Tax policy or procedure that is different from that established by AT&T, Lucent and/or NCR, as the case may be, shall, in writing, (i) request AT&T's consent to do so; and (ii) provide AT&T with the reasons for the request to adopt and follow such different Tax policy or procedure. If AT&T determines in its good faith judgment that it would be reasonable and appropriate from the perspective of the AT&T Services Group for such member of the Lucent Group and/or the NCR Group to adopt and follow such different Tax policy or procedure, AT&T shall provide its written consent thereto. (b) AT&T shall provide to Lucent and NCR timely written notice of any material proposed change in established Tax policies or procedures. (c) AT&T shall establish all Return positions and make all Tax elections relating to a Consolidated Return. Members of the Lucent Group and members of the NCR Group shall take such Consolidated Return positions and make such Tax elections relating to a Consolidated Return as may be taken or made by AT&T, or as reasonably requested by AT&T to be taken or made by any member of the Lucent Group and/or any member of the NCR Group, as the case may be, unless AT&T shall otherwise consent, as provided herein. In the event that Lucent and/or NCR determines that it would be reasonable and appropriate for any member of the Lucent Group or any member of the NCR Group, respectively, to take positions or make elections relating to a Consolidated Return that are different from those taken or made by AT&T (or reasonably requested by AT&T of any member of the Lucent Group or any member of the NCR Group), Lucent and/or NCR, as the case may be, shall, in writing, (i) request AT&T's consent to do so; and (ii) provide AT&T with the reasons for the request to take such different positions or make such different elections. If AT&T determines in its good faith judgment that it would be reasonable and appropriate from the perspective of the AT&T Services Group for such member of the Lucent Group and/or the NCR Group to take such different positions or make such different elections, AT&T shall provide its written consent thereto. 5.2. COOPERATION. Except as otherwise provided in this Agreement, and without limiting the provisions contained in Article VIII of the Separation Agreement which are incorporated herein by reference pursuant to Section 6.3(a) hereof, each member of the AT&T Services Group, the Lucent Group and/or the NCR Group, as the case may be, shall, at their own expense, cooperate with each other in the filing of, or any Tax Contest relating to, any Return and any other matters relating to Taxes and, in connection therewith, shall (i) maintain appropriate books and records for any and all Taxable periods or any portion of a Taxable period that may be required by AT&T's record retention policies; (ii) provide to each other such information as may be necessary or useful in the filing of, or any Tax Contest relating to, any such Return; (iii) execute and deliver such consents, elections, powers of attorney and other documents that may be required or appropriate for the proper filing of any such Return or in conjunction with any Tax Contest relating to any such Return; and (iv) make available for responding to inquiries of any other party or any Taxing Authority, appropriate employees and officers of and advisors retained by any member of the AT&T Services Group, the Lucent Group, or the NCR Group, as the case may be. 5.3. FILING OF RETURNS. The Person that would be the Controlling Party with respect to any Tax Contest relating to a Return for which any indemnity payment, reimbursement or other payment may be sought under this Agreement shall (a) prepare and file, or cause to be prepared and filed, any such Return within the time prescribed for filing such Return (including all extensions of time for filing); and (b) shall timely pay, or cause to be timely paid, the amount of any Tax shown to be due and owing on any such Return; provided, however, that in the case of Taxes which are Liabilities of Lucent pursuant to Section 2.3(a)(ii) of the Separation Agreement, if AT&T or any other member of the AT&T Group is required pursuant to this Agreement to file such Return and pay the Taxes shown as due thereon, Lucent will pay to AT&T, in advance of the date on which AT&T must pay such Taxes, an amount equal to the amount of such Taxes which are Liabilities of Lucent. Such Person shall bear all costs associated with preparing and filing, or causing to be prepared and filed, any such Return. Except as provided in Section 5.1(c) hereof (relating to Consolidated Returns), such Person shall establish all Return positions and make all Tax elections relating to such Returns. ARTICLE VI MISCELLANEOUS 6.1. GOVERNING LAW. To the extent not preempted by any applicable foreign or U.S. federal, state, or local Tax law, this Agreement shall be governed by and construed and interpreted in accordance with the laws of the State of New York, irrespective of the choice of laws principles of the State of New York, as to all matters, including matters of validity, construction, effect, performance and remedies. 6.2. AFFILIATES. Each of the parties hereto shall cause to be performed, and hereby guarantees the performance of, all actions, agreements and obligations set forth herein to be performed by any Affiliate of such party; provided, however, that for purposes of the foregoing, no Person shall be considered an Affiliate of a party if such Person is a member of another party's Group. 6.3. INCORPORATION OF SEPARATION AGREEMENT PROVISIONS. The following provisions of the Separation Agreement are hereby incorporated herein by reference, and unless otherwise expressly specified herein, such provisions shall apply as if they are fully set forth herein (references in this Section 6.3 to an "Article" shall mean Articles of the Separation Agreement): (a) Article VIII (relating to Exchange of Information and Confidentiality); and (b) Article XII (relating to Miscellaneous Provisions, except as otherwise specified herein). 6.4. NOTICES. Except for any notice or other communication required to be given by a Controlling Party under this Agreement, AT&T, Lucent and NCR (or any other Person delegated in writing by each of the foregoing) shall serve as the single point of contact to receive or give any notice or other communication required or permitted to be given to any member of each of their respective Groups under this Agreement. Unless specifically provided otherwise in this Agreement, all notices or other communications under this Agreement shall be in writing and shall deemed to be duly given when (a) delivered in person; or (b) sent by facsimile; or (c) deposited in the United States mail, postage prepaid and sent certified mail, return receipt requested; or (d) deposited in private express mail, postage prepaid, addressed as follows: If to any member of the AT&T Services Group, to: AT&T Corp. 412 Mt. Kemble Avenue Morristown, New Jersey 07960 Attn: Vice President - Taxes and Tax Counsel Facsimile: (201) 644-6823 If to any member of the Lucent Group, to: Lucent Technologies Inc. 600 Mountain Avenue Murray Hill, New Jersey 07974 Attn: Vice President - Taxes and Tax Counsel Facsimile: If to any member of the NCR Group, to: NCR Corporation 1700 S. Patterson Blvd. Dayton, Ohio 45479 Attn: Assistant Vice President & Director, Corporate Taxes Facsimile: (513) 445-6935 Any party may, by written notice to the other parties, change the address to which such notices are to be given. 6.5. CONFLICTING OR INCONSISTENT PROVISIONS. In the event that any provision or term of this Agreement conflicts or is inconsistent with any provision or term of any other agreement between or among AT&T or any other member of the AT&T Group, Lucent or any other member of the Lucent Group and/or NCR or any other member of the NCR Group, as the case may be, which is in effect on or prior to the date hereof, the provision or term of this Agreement shall control and apply and the provision or term of any other agreement shall, to the extent of such conflict or inconsistency, be inoperative and inapplicable. 6.6. DURATION. Notwithstanding anything in this Agreement or the Separation Agreement to the contrary, the provisions of this Agreement shall survive for the full period of all applicable statutes of limitations (giving effect to any waiver, mitigation or extension thereof). 6.7. AMENDMENT. Without limiting the provisions contained in Article XII of the Separation Agreement which are incorporated herein by reference pursuant to Section 6.3(b) hereof: (a) The parties agree that any waiver, amendment, supplement or modification of this Agreement that solely relates to and affects only two of the three parties hereto shall not require the consent of the third party hereto. Without limiting the foregoing, effective immediately on notice to Lucent, without any further action required by any member of the Lucent Group, AT&T may assume any Liability of any member of the NCR Group and all members of the NCR Group shall thereupon automatically be released therefrom. (b) The parties acknowledge that the provisions of this Agreement may not fully reflect all of their respective concerns with respect to state and local Taxes. Consequently, the parties will cooperate in determining whether to amend or supplement this Agreement no later than February 29, 1996. To the extent no such amendment or supplement is executed on or prior to February 29, 1996, the provisions of this Agreement shall remain in full force and effect. 6.8. TAX ALLOCATION AGREEMENTS. Lucent hereby assumes and agrees faithfully to perform and fulfill all obligations and other Liabilities of any member of the Lucent Group under the Federal Tax Allocation Agreement and the State and Local Income Tax Allocation Agreement, in accordance with each of their respective terms. IN WITNESS WHEREOF, the parties hereto have caused this Tax Sharing Agreement to be executed by their duly authorized representatives. AT&T CORP. By: /s/ - --------------------- Name: Title: LUCENT TECHNOLOGIES INC. By: /s/ - --------------------- Name: Title: NCR CORPORATION By: /s/ - --------------------- Name: Title: EX-10 6 EXHIBIT (10)(I)4 EMPLOYEE BENEFITS AGREEMENT BETWEEN AT&T CORP. AND LUCENT TECHNOLOGIES INC. DATED AS OF FEBRUARY 1, 1996 AND AMENDED AND RESTATED AS OF MARCH 29, 1996 EMPLOYEE BENEFITS AGREEMENT This EMPLOYEE BENEFITS AGREEMENT, dated as of February 1, 1996, and amended and restated as of March 29, 1996, is by and between AT&T and Lucent. Capitalized terms used herein (other than the formal names of AT&T Plans (as defined below) and related trusts of AT&T) and not otherwise defined shall have the respective meanings assigned to them in Article I hereof or as assigned to them in the Separation and Distribution Agreement (as defined below). WHEREAS, the Board of Directors of AT&T has determined that it is in the best interests of AT&T and its shareholders to separate AT&T's existing businesses into three independent businesses; WHEREAS, in furtherance of the foregoing, AT&T, Lucent and NCR have entered into a Separation and Distribution Agreement, dated as of the date hereof (the "Separation and Distribution Agreement") and certain other agreements that will govern certain matters relating to the Separation, the IPO, the Distribution and the relationship of AT&T, Lucent and NCR and their respective Subsidiaries following the IPO and the Distribution; and WHEREAS, pursuant to the Separation and Distribution Agreement, AT&T and Lucent have agreed to enter into this agreement allocating assets, liabilities and responsibilities with respect to certain employee compensation and benefit plans and programs between them. NOW, THEREFORE, the parties, intending to be legally bound, agree as follows: ARTICLE I DEFINITIONS For purposes of this Agreement the following terms shall have the following meanings: 1.1 414(l)(1) AMOUNT is defined in Section 3.2(b)(i)(A). 1.2 1992 COLLECTIVE BARGAINING AGREEMENT is defined in Section 5.18. 1.3 AGREEMENT means this Employee Benefits Agreement, including all the Schedules and Exhibits hereto. 1.4 AGGREGATE LUCENT STOCK VALUE means the Lucent Stock Value multiplied by the number of shares of Lucent Common Stock issued and outstanding as of Immediately after the Distribution Date. 1.5 ASA is defined in Section 8.11. 1.6 ASA AGREEMENT means the agreement with ASA described in Section 8.11. 1.7 ASO CONTRACT is defined in Section 5.7(a)(i). 1.8 ASSIGNED SPLIT DOLLAR POLICIES is defined in Section 6.9. 1.9 ATTIMCO means the AT&T Investment Management Corporation, a Delaware corporation. 1.10 AT&T DEFERRED SEVERANCE ACCOUNT means an account established on the financial books and records of AT&T or an AT&T Entity to reflect a liability to pay a deferred severance benefit to an AT&T Executive. 1.11 AT&T ENTITY means any Person that is, at the relevant time, an Affiliate of AT&T, except that, for periods beginning on and after the Participation Commencement Date, the term "AT&T Entity" shall not include Lucent or a Lucent Entity. 1.12 AT&T EXECUTIVE means an employee or former employee of AT&T, an AT&T Entity, Lucent or a Lucent Entity, who immediately before the Close of the Distribution Date is eligible to participate in or receive a benefit under any AT&T Executive Benefit Plan. 1.13 AT&T GROUP PENSION TRUST is defined in Section 3.1. 1.14 AT&T LEAVE OF ABSENCE PROGRAMS means the Local Leave, Disability Leave, Educational Leave of Absence, Accompanying AT&T Employed Spouse-Foreign Assignment Leave, Personal Leave, Union Business Leave, Anticipated Disability Leave, Care of Newborn/Newly Adopted Child Leave, Family Care Leave, Military Leave, Transition Leave, Special Leave, Enhanced Leave, and ELOA Plus Leave Programs offered from time to time under the personnel policies and practices of AT&T. 1.15 AT&T LTD PLANS means the AT&T Long-Term Disability Plan for Management Employees and the AT&T Long Term Disability Plan for Occupational Employees. 1.16 AT&T MANAGEMENT SAVINGS GROUP TRUST means the group trust under IRS Rev. Rul. 81-100 established in connection with the AT&T LTSPME and the AT&T RSPSP pursuant to a group trust agreement between AT&T and Fidelity Management Trust Company. 1.17 AT&T MPP means the AT&T Management Pension Plan. Unless the context indicates otherwise, AT&T MPP includes disability pensions payable from the AT&T LTD VEBA and death benefits payable under the AT&T Special Accidental Death Insurance Policy. 1.18 AT&T OCCUPATIONAL SAVINGS GROUP TRUST means the group trust under IRS Rev. Rul. 81-100 established in connection with the AT&T LTSSP pursuant to a group trust agreement between AT&T and Bankers Trust Company. 1.19 AT&T PP means the AT&T Pension Plan. Unless the context indicates otherwise, AT&T PP includes disability pensions payable from the AT&T LTD VEBA and death benefits payable under the AT&T Special Accidental Death Insurance Policy. 1.20 AT&T SADBP means the AT&T Sickness and Accident Disability Benefit Plan. 1.21 AT&T SPECIAL EXECUTIVE DEFERRAL ACCOUNT means an account established on the financial books and records of any member of the AT&T Group to reflect a liability to pay a special pension enhancement, hiring bonus or benefit to an AT&T Executive pursuant to an Individual Agreement. 1.22 AT&T STOCK VALUE means the average of the daily high and low per-share prices of the AT&T Common Stock as listed on the NYSE during each of the five trading days immediately preceding the ex-dividend date for the Distribution. 1.23 AT&T TRANSFERRED EMPLOYEE means an individual who (a) on the Participation Commencement Date, is either actively employed by or on leave of absence from Lucent or a Lucent Entity (including for purposes of this definition any division or business unit of AT&T on the Participation Commencement Date that is part of the Lucent Business), if such individual is part of a work group or organization that, at any time before the Close of the Distribution Date, moves to the employ of AT&T or an AT&T Entity and that, after such move, performs substantially the same functions as before such move; (b) on the Participation Commencement Date, is either actively employed by or on leave of absence from a Subsidiary of AT&T that becomes a Lucent Entity before the Close of the Distribution Date, if such individual, at any time before the Close of the Distribution Date, moves to the employ of AT&T or an AT&T Entity that does not become a Lucent Entity before the Close of the Distribution Date; or (c) on the Participation Commencement Date, is either actively employed by or on leave of absence from Lucent or a Lucent Entity in a common support function, is at any time before the Close of the Distribution Date designated by AT&T for transfer to AT&T or an AT&T Entity and, at any time after the Participation Commencement Date and before the Close of the Distribution Date, moves to the employ of AT&T or an AT&T Entity. In addition, AT&T and Lucent may designate, by mutual agreement, any other individual or group of individuals as AT&T Transferred Employees. 1.24 AT&T WCP means the AT&T Workers' Compensation Program, comprised of the various arrangements established by AT&T or an AT&T Entity to comply with the workers' compensation requirements of the states in which AT&T and its Affiliates conduct business. 1.25 AUDITING PARTY is defined in Section 8.7(b)(i). 1.26 AWARD means an award under a Long Term Incentive Plan or a Short Term Incentive Plan. 1.27 BDEC is defined in Section 5.16(a). 1.28 BDS is defined in Section 5.16(a). 1.29 CECRA, when immediately preceded by "AT&T," means the AT&T Child/Elder Care Reimbursement Account Plan. When immediately preceded by "Lucent," CECRA means the child/elder care reimbursement account plan to be established by Lucent pursuant to Section 2.3. 1.30 CHANGE is defined in Section 5.8(b)(i). 1.31 CLOSE OF THE DISTRIBUTION DATE means 11:59:59 P.M., Eastern Standard Time or Eastern Daylight Time (whichever shall then be in effect), on the Distribution Date. 1.32 COBRA means the continuation coverage requirements for "group health plans" under Title X of the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended, and as codified in Code Section 4980B and ERISA Sections 601 through 608. 1.33 CODE means the Internal Revenue Code of 1986, as amended, or any successor federal income tax law. Reference to a specific Code provision also includes any proposed, temporary, or final regulation in force under that provision. 1.34 COLLECTIVE BARGAINING AGREEMENT means the National AT&T/CWA/IBEW Memorandum of Understanding, including all Attachments, National Items and letters included as a part thereof, executed by AT&T and the CWA and IBEW as of May 28, 1995, and such local collective bargaining agreements into which the National AT&T/CWA/IBEW Memorandum of Understanding has been incorporated. 1.35 CORPORATE-OWNED LIFE INSURANCE means the life insurance policies owned by AT&T insuring the lives of certain AT&T Executives and certain other highly compensated employees of AT&T or an AT&T Entity that were purchased by AT&T between the years 1985 and 1992. 1.36 COVERED AT&T AWARDS means any AT&T Options or non-vested AT&T performance shares, stock units, restricted stock or restricted stock units held as of the Close of the Distribution Date by Transferred Individuals who as of the Distribution Date are either active employees of or on a leave of absence from Lucent or a Lucent Entity. 1.37 CWA means the Communication Workers of America, AFL-CIO. 1.38 DEFERRAL PLAN, when immediately preceded by "AT&T," means the AT&T Senior Management Incentive Award Deferral Plan. When immediately preceded by "Lucent," Deferral Plan means the senior management incentive award deferral plan to be established by Lucent pursuant to Section 2.3. 1.39 DOL means the United States Department of Labor. 1.40 ERISA means the Employee Retirement Income Security Act of 1974, as amended. Reference to a specific provision of ERISA also includes any proposed, temporary, or final regulation in force under that provision. 1.41 ESOP, when immediately preceded by "AT&T," means the AT&T Employee Stock Ownership Plan. When immediately preceded by "Lucent," ESOP means the employee stock ownership plan to be established by Lucent pursuant to Section 2.3. 1.42 ESOP TRUST, when immediately preceded by "AT&T," means the trust established by AT&T forming part of the AT&T ESOP. When immediately preceded by "Lucent," ESOP Trust has the meaning set forth in Section 4.3(a). 1.43 EXECUTIVE BENEFIT PLANS, when immediately preceded by "AT&T," means the executive benefit and nonqualified plans, programs, and arrangements established, maintained, agreed upon, or assumed by AT&T or an AT&T Entity for the benefit of employees and former employees of AT&T or an AT&T Entity before the Close of the Distribution Date, including the plans listed in Schedule 1, but excluding the Senior Management Ground Transportation Program. When immediately preceded by "Lucent," Executive Benefit Plans means the executive benefit plans and programs to be established by Lucent pursuant to Section 2.3 that correspond to the respective AT&T Executive Benefit Plans. 1.44 EXISTING ACQUISITION LOAN is defined in Section 4.2(c)(ii). 1.45 FMLA means the Family and Medical Leave Act of 1993, as amended. 1.46 FOREIGN PLAN means a Plan maintained by AT&T, an AT&T Entity, Lucent, or a Lucent Entity for the benefit of employees outside the U.S. 1.47 FUNDING POLICY AMOUNT is defined in Section 3.2(b)(i)(A). 1.48 GROSS VALUE OF THE ASSUMED STOCK AWARDS means the sum of (a) the Lucent Stock Value multiplied by the number of shares of Lucent Common Stock that Immediately after the Distribution Date would be issuable in respect of then outstanding Covered AT&T Awards, assuming all then outstanding Covered AT&T Awards were converted into replacement Awards as of such time in accordance with the terms of Section 6.4(a), plus (b) the aggregate amount paid to AT&T by Lucent on or after the Closing Date and prior to the Close of the Distribution Date pursuant to Section 8.2(f)(i) and (iii), plus (c) the aggregate of the exercise prices paid to AT&T on or after the Closing Date and prior to the Close of the Distribution Date in respect of the exercise of all AT&T Options that constitute Covered AT&T Awards and for which payments are made by Lucent to AT&T pursuant to Section 8.2(f)(i) as a result of such exercise. 1.49 GROUP INSURANCE POLICIES is defined in Section 5.7(b)(i). 1.50 GROUP LIFE PROGRAM, when immediately preceded by "AT&T," means the AT&T Dependent Accidental Loss Insurance Plan, the AT&T Dependent Group Life Insurance Plan, the AT&T Group Life Insurance Plan, the AT&T Supplementary Accidental Loss Insurance Plan and the AT&T Supplementary Life Insurance Plan. When immediately preceded by "Lucent," Group Life Program means the life insurance plans and programs to be established by Lucent pursuant to Section 2.3 that correspond to the respective AT&T Group Life Programs. 1.51 HCFA means the Health Care Financing Administration. 1.52 HCRA PLAN, when immediately preceded by "AT&T," means the AT&T Health Care Reimbursement Account Plan. When immediately preceded by "Lucent," HCRA Plan means the Health Care Reimbursement Account Plan to be established by Lucent pursuant to Section 2.3. 1.53 HEALTH AND WELFARE PLANS, when immediately preceded by "AT&T," means the health and welfare plans listed on Schedule II established and maintained by AT&T for the benefit of employees and retirees of AT&T and certain AT&T Entities, and such other welfare plans or programs as may apply to such employees and retirees as of the Distribution Date. When immediately preceded by "Lucent," Health and Welfare Plans means the health and welfare plans to be established by Lucent pursuant to Section 2.3 that correspond to the respective AT&T Health and Welfare Plans. 1.54 HEALTH PLANS, when immediately preceded by "AT&T," means the AT&T Dental Expense Plan for Active Employees, the AT&T Dental Expense Plan for Retired Employees, the AT&T Medical Plans, the AT&T HCRA Plan and the AT&T Vision Care Plan. When immediately preceded by "Lucent," Health Plans means the health plans to be established by Lucent pursuant to Section 2.3 that correspond to the respective AT&T Health Plans. 1.55 HEALTH PLANS BENEFIT TRUST, when immediately preceded by "AT&T," means the American Telephone and Telegraph Company Health Plans Benefit Trust. When immediately preceded by "Lucent," Health Plans Benefit Trust means the trust to be established by Lucent pursuant to Section 5.1 that corresponds to the AT&T Health Plans Benefit Trust. 1.56 HEALTH TRUSTS, when immediately preceded by "AT&T," means the AT&T Health Plans Benefit Trust, the AT&T Management VEBA, and the AT&T Union VEBA. When immediately preceded by "Lucent," Health Trusts means the trusts to be established by Lucent pursuant to Section 5.1 that correspond to the respective AT&T Health Trusts. 1.57 HMO means a health maintenance organization that provides benefits under the AT&T Medical Plans or the Lucent Medical Plans. 1.58 HMO AGREEMENTS is defined in Section 5.7(c)(i). 1.59 HPSS is defined in Section 5.21(c)(v). 1.60 HWLI COMMITTEE means the Health, Welfare and Life Insurance Committee established pursuant to Section 5.9. 1.61 IBEW means the International Brotherhood of Electrical Workers. 1.62 IMMEDIATELY AFTER THE DISTRIBUTION DATE means 12:00 A.M., Eastern Standard Time or Eastern Daylight Time (whichever shall then be in effect), on the day after the Distribution Date. 1.63 INITIAL ALLOCATION AMOUNT is defined in Section 3.2(b)(i)(A). 1.64 INDIVIDUAL AGREEMENT means an individual contract or agreement (whether written or unwritten) entered into between AT&T, an AT&T Entity, Lucent or a Lucent Entity and an AT&T Executive that establishes the right of such individual to special executive compensation or benefits, including a supplemental pension benefit, hiring bonus, loan, guaranteed payment, special allowance, tax equalization or disability benefit, or share units granted (and payable in the form of cash or otherwise) under individual phantom share agreements, or that provides benefits similar to those identified in Schedule I. 1.65 IRS means the Internal Revenue Service. 1.66 LEGALLY PERMISSIBLE is defined in Section 5.15(a)(iv). 1.67 LEGALLY PERMITTED is defined in Section B.4 of Exhibit B. 1.68 LESOP, when immediately preceded by "AT&T," means the portion of the AT&T LTSSP that is a leveraged employee stock ownership plan. When immediately preceded by "Lucent," LESOP means the portion of the Lucent LTSSP that is a leveraged employee stock ownership plan. 1.69 LESOP TRUST, when immediately preceded by "AT&T," means the trust established by AT&T under Article 20 of the AT&T LTSSP. When immediately preceded by "Lucent," LESOP Trust has the meaning set forth in Section 4.2(c)(i). 1.70 LONG TERM INCENTIVE PLAN, when immediately preceded by "AT&T," means any of the AT&T 1984 Stock Option Plan, the AT&T 1987 Long Term Incentive Program, and such other stock-based incentive plans assumed by AT&T by reason of merger, acquisition, or otherwise, including incentive plans of NCR, Teradata Corporation, AT&T Wireless Services, Inc. (formerly McCaw Cellular Communications, Inc.), and Lin Broadcasting Corporation. When immediately preceded by "Lucent," Long Term Incentive Plan means the long term incentive plan to be established by Lucent pursuant to Section 2.3. 1.71 LTD VEBA, when immediately preceded by "AT&T," means the American Telephone & Telegraph Company Long-Term Disability Plans Benefit Trust. When immediately preceded by "Lucent," LTD VEBA means the welfare benefit fund to be established by Lucent pursuant to Section 5.1 that corresponds to the AT&T LTD VEBA. 1.72 LTSPME, when immediately preceded by "AT&T," means the AT&T Long Term Savings Plan for Management Employees. When immediately preceded by "Lucent," LTSPME means the management savings plan to be established by Lucent pursuant to Section 2.3 that corresponds to the AT&T LTSPME. 1.73 LTSSP, when immediately preceded by "AT&T," means the AT&T Long Term Savings and Security Plan. When immediately preceded by "Lucent," LTSSP means the occupational savings plan to be established by Lucent pursuant to Section 2.3 that corresponds to the AT&T LTSSP. 1.74 LUCENT ACQUISITION LOAN is defined in Section 4.2(c)(ii). 1.75 LUCENT ADMINISTRATIVE EMPLOYEES is defined in Section 8.1(c). 1.76 LUCENT ENTITY means any Person that is, at the relevant time, a Subsidiary of Lucent or is otherwise controlled, directly or indirectly, by Lucent. 1.77 LUCENT INDIVIDUAL means any individual who (a) on the Participation Commencement Date, is either actively employed by or on leave of absence from Lucent or a Lucent Entity (including for purposes of this definition any division or business unit of AT&T or an AT&T Entity on the Participation Commencement Date that is part of the Lucent Business), other than any AT&T Transferred Employee; (b) on the Participation Commencement Date, is either actively employed by or on leave of absence from AT&T or an AT&T Entity as part of a work group or organization that, at any time after the Participation Commencement Date and before the Close of the Distribution Date, moves to the employ of Lucent or a Lucent Entity from the employ of AT&T or an AT&T Entity and that, after such move, performs substantially the same functions as before such move; (c) on the Participation Commencement Date, is either actively employed by or on leave of absence from AT&T or an AT&T Entity in a common support function, is at any time before the Close of the Distribution Date designated by AT&T for transfer to Lucent or a Lucent Entity and, at any time after the Participation Commencement Date and before the Close of the Distribution Date, moves to the employ of Lucent or a Lucent Entity from the employ of AT&T or an AT&T Entity; (d) on the Participation Commencement Date, is either actively employed by or on leave of absence from a Subsidiary of AT&T that becomes a Lucent Entity before the Close of the Distribution Date, other than any AT&T Transferred Employee; (e) at any time after the Participation Commencement Date and before the Close of the Distribution Date both (i) is declared to be surplus by AT&T or an AT&T Entity and (ii) applies for, obtains and accepts employment with Lucent or a Lucent Entity; or (f) is a Lucent Administrative Employee. In addition, AT&T and Lucent may designate, by mutual agreement, any other individual or group of individuals as Lucent Individuals. 1.78 LUCENT STOCK VALUE means the average of the daily high and low per-share prices of the Lucent Common Stock as listed on the NYSE during each of the five trading days immediately preceding the ex-dividend date for the Distribution. 1.79 LUCENT WCP CLAIMS is defined in Section 5.15(a)(i). 1.80 MANAGEMENT EMPLOYEE means any individual who is an "Employee" as defined under the terms of the AT&T MPP or the Pension Plan to be established by Lucent pursuant to Section 2.3 that corresponds to the AT&T MPP. 1.81 MANAGEMENT TRANSITION PERIOD means the period beginning Immediately after the Distribution Date and ending on the earlier of December 31, 1997 and the end of the third calendar month that ends after the Distribution Date. 1.82 MANAGEMENT VEBA, when immediately preceded by "AT&T," means The American Telephone and Telegraph Company Management and Nonrepresented Employees Postretirement Health Benefits Trust. When immediately preceded by "Lucent," Management VEBA means the welfare benefit fund to be established by Lucent pursuant to Section 5.1 that corresponds to the AT&T Management VEBA. 1.83 MATERIAL FEATURE means any feature of a Plan that could reasonably be expected to be of material importance to the sponsoring employer or the participants and beneficiaries of the Plan, which could include, depending on the type and purpose of the particular Plan, the class or classes of employees eligible to participate in such Plan, the nature, type, form, source, and level of benefits provided by the employer under such Plan and the amount or level of contributions, if any, required to be made by participants (or their dependents or beneficiaries) to such Plan. 1.84 MEDICAL PLANS, when immediately preceded by "AT&T," means the AT&T Medical Expense Plan for Management Employees, the AT&T Medical Expense Plan for Occupational Employees and the AT&T Medical Expense Plan for Retired Employees. When immediately preceded by "Lucent," Medical Plans means the medical plans to be established by Lucent pursuant to Section 2.3 that correspond to the respective AT&T Medical Plans. 1.85 MPA means the Mandatory Portability Agreement established as of January 1, 1985 among AT&T, American Information Technologies Corporation, Bell Atlantic Corporation, Bell Communications Research, Inc., BellSouth Corporation, Cincinnati Bell Telephone Company, NYNEX Corporation, Pacific Telesis Group, Inc., The Southern New England Telephone Company, Southwestern Bell Corporation and US WEST, Inc. that provides, in accordance with Section 559 of the Tax Reform Act of 1984, for the mutual recognition of service credit and the transfer of benefit obligations for specified employees who terminate employment with one "Interchange Company" as defined under such agreement and subsequently commence employment with another such Interchange Company. 1.86 NON-EMPLOYEE DIRECTOR, when immediately preceded by "AT&T," means a member of AT&T's Board of Directors who is not an employee of AT&T, an AT&T Entity, Lucent, or a Lucent Entity. When immediately preceded by "Lucent," Non-Employee Director means a member of Lucent's Board of Directors who is not an employee of AT&T, an AT&T Entity, Lucent or a Lucent Entity. 1.87 NON-EMPLOYEE DIRECTOR PLANS, when immediately preceded by "AT&T," means the AT&T Deferred Compensation Plan for Non-Employee Directors, the AT&T Directors' Individual Life Insurance Program and the AT&T Pension Plan for Non-Employee Directors. When immediately preceded by "Lucent," Non-Employee Director Plans means the plans and programs to be established by Lucent pursuant to Section 2.3 that correspond to the AT&T Non-Employee Director Plans. 1.88 NON-PARTIES is defined in Section 8.7(b)(ii). 1.89 OCCUPATIONAL EMPLOYEE means any individual who is an "Employee" as defined under the terms of the AT&T PP or the Pension Plan to be established by Lucent pursuant to Section 2.3 that corresponds to the AT&T PP. 1.90 OCCUPATIONAL TRANSITION PERIOD means the period beginning Immediately after the Distribution Date and ending on May 30, 1998, the scheduled expiration date of the Collective Bargaining Agreement as in effect on the date hereof. 1.91 OPTION, when immediately preceded by "AT&T," means an option to purchase AT&T Common Stock. When immediately preceded by "Lucent," Option means an option to purchase Lucent Common Stock, in each case pursuant to a Long Term Incentive Plan. 1.92 OUTSOURCE is defined in Sections 5.10(b) and 5.15(a)(iii) for purposes of such respective sections. 1.93 PARTICIPATING COMPANY means (a) AT&T, (b) any Person that AT&T has approved for participation in, and which is participating in, a Plan sponsored by AT&T, and (c) any Person (other than an individual) which, by the terms of such a Plan, participates in such Plan or any employees of which, by the terms of such Plan, participate in or are covered by such Plan. 1.94 PARTICIPATION COMMENCEMENT DATE means February 1, 1996. 1.95 PBGC means the Pension Benefit Guaranty Corporation. 1.96 PENSION PLANS, when immediately preceded by "AT&T," means the AT&T MPP and the AT&T PP. When immediately preceded by "Lucent," Pension Plans means the respective management and occupational pension plans to be established by Lucent pursuant to Section 2.3 that correspond to the AT&T Pension Plans. 1.97 PLAN, when immediately preceded by "AT&T" or "Lucent," means any plan, policy, program, payroll practice, on-going arrangement, contract, trust, insurance policy or other agreement or funding vehicle providing benefits to employees, former employees or Non-Employee Directors of AT&T or an AT&T Entity, or Lucent or a Lucent Entity, as applicable. 1.98 QDRO means a domestic relations order which qualifies under Code Section 414(p) and ERISA Section 206(d) and which creates or recognizes an alternate payee's right to, or assigns to an alternate payee, all or a portion of the benefits payable to a participant under any of the AT&T Pension Plans, the AT&T Savings Plans, or the AT&T ESOP. 1.99 QMCSO means a medical child support order which qualifies under ERISA Section 609(a) and which creates or recognizes the existence of an alternate recipient's right to, or assigns to an alternate recipient the right to, receive benefits for which a participant or beneficiary is eligible under an AT&T Health Plan. 1.100 RABBI TRUST, when immediately preceded by "AT&T," means the American Telephone and Telegraph Company Benefits Protection Trust. When immediately preceded by "Lucent," Rabbi Trust means the grantor trust to be established by Lucent pursuant to Section 6.8(a) that corresponds to the AT&T Rabbi Trust. 1.101 RABBI TRUST DETERMINATION DATE is defined in Section 6.8(b)(i). 1.102 RATIO means the amount obtained by dividing the AT&T Stock Value by the Lucent Stock Value. 1.103 RFA means Retirement Funding Account. 1.104 RSPSP, when immediately preceded by "AT&T," means the AT&T Retirement Savings and Profit Sharing Plan. When immediately preceded by "Lucent," RSPSP means the savings plan to be established by Lucent pursuant to Section 2.3 that corresponds to the AT&T RSPSP. 1.105 SAVINGS PLANS, when immediately preceded by "AT&T," means the AT&T LTSPME, the AT&T LTSSP and the AT&T RSPSP. When immediately preceded by "Lucent," Savings Plans means the Lucent LTSPME, the Lucent LTSSP and the Lucent RSPSP. 1.106 SEPARATION AND DISTRIBUTION AGREEMENT is defined in the third paragraph of the preamble of this Agreement. 1.107 SHORT TERM INCENTIVE PLAN, when immediately preceded by "AT&T," means the AT&T Short Term Incentive Plan. When immediately preceded by "Lucent," Short Term Incentive Plan means the AT&T Short Term Incentive Plan to be established by Lucent pursuant to Section 2.3. 1.108 SPLIT DOLLAR LIFE INSURANCE means the life insurance policies purchased by AT&T on behalf of certain AT&T Executives and AT&T Non-Employee Directors under (a) the AT&T Senior Management Individual Life Insurance Program, (b) the AT&T Senior Management Basic Life Insurance Program and (c) the AT&T Directors' Individual Life Insurance Program, with respect to which such AT&T Executives or AT&T Non-Employee Directors (or their assignees or delegates), respectively, have executed collateral assignments for the benefit of AT&T. 1.109 SPREAD is defined in Section 8.2(f). 1.110 STOCK PURCHASE PLAN, when immediately preceded by "AT&T," means the AT&T 1996 Employee Stock Purchase Plan. When immediately preceded by "Lucent," Stock Purchase Plan means the employee stock purchase plan to be established by Lucent pursuant to Section 2.3. 1.111 TRANSFERRED INDIVIDUAL means any individual who, as of the Close of the Distribution Date: (a) is either then actively employed by, or then on a leave of absence from, Lucent or a Lucent Entity; or (b) is neither then actively employed by, nor then on a leave of absence from, Lucent or a Lucent Entity, but who (i) was a Lucent Individual, or (ii) whose most recent active employment with AT&T or a past or present Affiliate of AT&T was with an entity or a corporate division having a "Company Code," "Managed Entity Code" or "Legal Entity Code" set forth in Schedule V, to the extent such information is available, and who has not had an intervening period of employment covered by an interchange agreement under which assets and liabilities with respect to the individual were or are to be transferred from an AT&T Pension Plan, or (iii) otherwise is identified pursuant to a methodology approved by the Lucent Senior Vice President-Human Resources and the AT&T Senior Vice President-Benefits and Compensation, which methodology shall be consistent with the intent of the parties that former employees of AT&T or a past or present Affiliate of AT&T will be aligned with the entity for which they most recently worked and based upon the business of such entity. Transferred Individuals shall also include the Lucent Administrative Employees and the individuals designated as such pursuant to Section 9.2. An alternate payee under a QDRO, alternate recipient under a QMCSO, beneficiary or covered dependent, in each case, of an employee or former employee described in either of the preceding two sentences shall also be a Transferred Individual with respect to that employee's or former employee's benefit under the applicable Plans. Such an alternate payee, alternate recipient, beneficiary, or covered dependent shall not otherwise be considered a Transferred Individual with respect to his or her own benefits under any applicable Plans unless he or she is a Transferred Individual by virtue of either of the first two sentences of this definition. In addition, AT&T and Lucent may designate, by mutual agreement, any other individuals, or group of individuals, as Transferred Individuals. An individual may be a Transferred Individual pursuant to this definition regardless of whether such individual is or was a Lucent Individual and regardless of whether such individual is, as of the Distribution Date, alive, actively employed, on a temporary leave of absence from active employment, on layoff, terminated from employment, retired or on any other type of employment or post-employment status relative to an AT&T Plan, and regardless of whether, as of the Close of the Distribution Date, such individual is then receiving any benefits from an AT&T Plan. Notwithstanding the foregoing, if the Distribution does not occur on or before December 31, 1997, references in this definition to the Close of the Distribution Date shall be deemed to refer to the close of business on the earlier of the date AT&T publicly announces that the Distribution will not occur and December 31, 1997. 1.112 TRANSITION INDIVIDUAL means any individual who: (a) is a Transferred Individual who during the applicable Transition Period becomes an employee of AT&T or an AT&T Entity without an intervening period of employment covered by an interchange agreement under which assets and liabilities with respect to the individual were or are to be transferred from an AT&T Pension Plan; or (b) is an employee or former employee of AT&T or an AT&T Entity as of the Distribution Date (but is not a Transferred Individual) who during the applicable Transition Period becomes an employee of Lucent or a Lucent Entity without an intervening period of employment covered by an interchange agreement under which assets and liabilities with respect to the individual were or are to be transferred from an AT&T Pension Plan; or (c) is an individual described in clause (a) or (b) of this definition whose employer changes during the applicable Transition Period either (i) from AT&T or an AT&T Entity to Lucent or a Lucent Entity, or (ii) from Lucent or a Lucent Entity to AT&T or an AT&T Entity without an intervening period of employment covered by an interchange agreement under which assets and liabilities with respect to the individual were or are to be transferred from an AT&T Pension Plan. For these purposes, the applicable Transition Period is determined by the positions (Management Employee or Occupational Employee) from which and into which the individual is hired as more fully set forth in Sections 2.5(b) and 2.5(c). An alternate payee under a QDRO, alternate recipient under a QMCSO, beneficiary or covered dependent, in each case, of an individual described in clause (a), (b), or (c) of this definition shall also be a Transition Individual with respect to that individual's benefit under the applicable Plans. Such an alternate payee, alternate recipient, beneficiary, and covered dependent shall not otherwise be considered a Transition Individual with respect to his or her own benefits under any applicable Plans unless he or she is a Transition Individual by virtue of clause (a), (b), or (c) of this definition. 1.113 TRANSITION PERIOD means the Management Transition Period or the Occupational Transition Period, as applicable. 1.114 TRUST-OWNED LIFE INSURANCE (VEBA) means the group life insurance policies purchased from The Prudential Insurance Company of America by the trustee of the AT&T Management VEBA. 1.115 UNFUNDED COST SHARING AGREEMENTS means the 1983 Force Adjustment Cost Reimbursement and Indemnification Agreement established as of January 1, 1984 among AT&T, American Information Technologies Corporation, Bell Atlantic Corporation, BellSouth Corporation, NYNEX Corporation, Pacific Telesis Group, Inc., Southwestern Bell Corporation, and US WEST, Inc., which provides for reimbursement by AT&T and certain AT&T Entities to the other parties of certain expenses for medical and dental benefits and certain post-retirement pension increases for employees designated for reassignment from the other parties to AT&T on or about January 1, 1984, and the Unfunded Post-Retirement Benefits Cost Sharing Agreement established as of January 1, 1984 among AT&T, Advanced Mobile Phone Service, Inc., American Information Technologies Corporation, Bell Atlantic Corporation, BellSouth Corporation, Central Services Organization, NYNEX Corporation, Pacific Telesis Group, Inc., Southwestern Bell Corporation, and US WEST, Inc., which provides for the allocation of expenses relating to post-retirement medical, dental, specified disability and future contingent pension increases with respect to Bell System employees who retired before January 1, 1984 or who otherwise left the service of a Bell System Company before that date with eligibility to continue any such benefits on or after January 1, 1984. 1.116 UNION VEBA, when immediately preceded by "AT&T," means the American Telephone and Telegraph Company Represented Employees Post-Retirement Health Benefits Trust. When immediately preceded by "Lucent," Union VEBA means the welfare benefit fund to be established by Lucent pursuant to Section 5.1 that corresponds to the AT&T Union VEBA. 1.117 U.S. means the 50 United States and the District of Columbia. 1.118 VALUE is defined in Section 8.2(f). 1.119 VEBA, when immediately preceded by "AT&T," means any voluntary employees' beneficiary association trust sponsored by AT&T. When immediately preceded by "Lucent," VEBA means any voluntary employees' beneficiary association trust sponsored by Lucent. 1.120 VEBA PLANS is defined in Section 5.3. ARTICLE II GENERAL PRINCIPLES 2.1 ASSUMPTION OF LIABILITIES. (a) LUCENT LIABILITIES. Lucent hereby assumes and agrees to pay, perform, fulfill and discharge, in accordance with their respective terms, all of the following (regardless of when or where such Liabilities arose or arise or were or are incurred): (i) all Liabilities to or relating to Lucent Individuals and Transferred Individuals, and their respective dependents and beneficiaries, in each case relating to, arising out of or resulting from employment by AT&T or an AT&T Entity before becoming Lucent Individuals or Transferred Individuals, respectively (including Liabilities under AT&T Plans and Lucent Plans); (ii) all other Liabilities to or relating to Lucent Individuals, Transferred Individuals and other employees or former employees of Lucent or a Lucent Entity, and their dependents and beneficiaries, to the extent relating to, arising out of or resulting from future, present or former employment with Lucent or a Lucent Entity (including Liabilities under AT&T Plans and Lucent Plans); (iii) all Liabilities relating to, arising out of or resulting from any other actual or alleged employment relationship with Lucent or a Lucent Entity; (iv) all Liabilities relating to, arising out of or resulting from the imposition of withdrawal liability under Subtitle E of Title IV of ERISA as a result of a complete or partial withdrawal of AT&T Network Construction Services, Inc. from a "multiemployer plan" within the meaning of ERISA Section 4021, except to the extent that such withdrawal liability is imposed solely as a result of the Separation, the IPO, or the Distribution; and (v) all other Liabilities relating to, arising out of or resulting from obligations, liabilities and responsibilities expressly assumed or retained by Lucent, a Lucent Entity, or a Lucent Plan pursuant to this Agreement. Notwithstanding the foregoing, Lucent shall not, by virtue of any provision of this Agreement or the Separation and Distribution Agreement, be deemed to have assumed any Excluded Liability or to have agreed to alter or amend any provision of Article VI of the Separation and Distribution Agreement. (b) EXCLUDED LIABILITIES. All Liabilities to or relating to AT&T Transferred Employees and their respective dependents and beneficiaries relating to, arising out of or resulting from employment by Lucent or a Lucent Entity before becoming AT&T Transferred Employees or employment by AT&T or an AT&T Entity (including Liabilities under AT&T Plans) shall be "Excluded Liabilities" within the meaning of the Separation and Distribution Agreement. 2.2 LUCENT PARTICIPATION IN AT&T PLANS. (a) PARTICIPATION IN AT&T PENSION, SAVINGS, HEALTH AND WELFARE AND EXECUTIVE BENEFIT PLANS. Effective as of the Participation Commencement Date and subject to the terms and conditions of this Agreement, Lucent shall become a Participating Company in the AT&T Plans in effect as of the Participation Commencement Date. Each Lucent Entity that is, as of the date of this Agreement, a Participating Company in any of the AT&T Plans shall continue as such. Effective as of any date on or after the Participation Commencement Date and before the Distribution Date, a Lucent Entity not described in the preceding sentence may, at its request and with the consent of AT&T (which shall not be unreasonably withheld), become a Participating Company in any or all of the AT&T Plans. Without Lucent consent, neither Lucent nor any Lucent Entity shall become a Participating Company in an AT&T Plan established after the Participation Commencement Date. (b) PARTICIPATION IN AT&T STOCK PURCHASE PLAN. If the AT&T Stock Purchase Plan is approved by the shareholders of AT&T at the 1996 annual meeting, then (i) effective as of July 1, 1996, Lucent shall become a Participating Company in the AT&T Stock Purchase Plan; and (ii) effective as of July 1, 1996, any Lucent Entity may (at the discretion of AT&T in accordance with the terms of the AT&T Stock Purchase Plan) become a Participating Company in the AT&T Stock Purchase Plan. (c) AT&T'S GENERAL OBLIGATIONS AS PLAN SPONSOR. AT&T shall continue through the Close of the Distribution Date to administer, or cause to be administered, in accordance with their terms and applicable law, the AT&T Plans, and shall have the sole discretion and authority to interpret the AT&T Plans as set forth therein. Before the Close of the Distribution Date, AT&T shall not, without first consulting with Lucent (on behalf of itself and each Lucent Entity which is a Participating Company), amend any Material Feature of any AT&T Plan in which Lucent or a Lucent Entity is a Participating Company, except to the extent such amendment would not affect any benefits of Lucent Individuals or Transferred Individuals under such Plan or as may be necessary or appropriate to comply with any collective bargaining agreement or applicable law. (d) LUCENT'S GENERAL OBLIGATIONS AS PARTICIPATING COMPANY. Lucent shall perform with respect to its participation in the AT&T Plans, and shall cause each other Lucent Entity that is a Participating Company in any AT&T Plan to perform, the duties of a Participating Company as set forth in such Plans or any procedures adopted pursuant thereto, including: (i) assisting in the administration of claims, to the extent requested by the claims administrator of the applicable AT&T Plan; (ii) cooperating fully with AT&T Plan auditors, benefit personnel and benefit vendors; (iii) preserving the confidentiality of all financial arrangements AT&T has or may have with any vendors, claims administrators, trustees or any other entity or individual with whom AT&T has entered into an agreement relating to the AT&T Plans; and (iv) preserving the confidentiality of participant health information (including health information in relation to FMLA leaves). (e) TERMINATION OF PARTICIPATING COMPANY STATUS. Effective as of the Close of the Distribution Date, Lucent and each Lucent Entity shall cease to be a Participating Company in the AT&T Plans, except that Lucent and each Lucent Entity shall cease to be a Participating Company in the AT&T Rabbi Trust as of the Rabbi Trust Determination Date. 2.3 ESTABLISHMENT OF LUCENT PLANS. Effective Immediately after the Distribution Date, Lucent shall adopt, or cause to be adopted, the Lucent Pension Plans, the Lucent Savings Plans, the Lucent ESOP, the Lucent Stock Purchase Plan (if the AT&T Stock Purchase Plan is then in existence), the Lucent Health and Welfare Plans, and the Lucent Executive Benefit Plans for the benefit of the Transferred Individuals and other current, future, and former employees of Lucent and the Lucent Entities. Except for the Lucent Long Term Incentive Plan and the Lucent Stock Purchase Plan, the foregoing Lucent Plans as in effect Immediately after the Distribution Date shall be substantially identical in all Material Features to the corresponding AT&T Plans as in effect as of the Close of the Distribution Date. The Lucent Long Term Incentive Plan and the Lucent Stock Purchase Plan shall be adopted by Lucent and approved by AT&T as sole shareholder of Lucent, before the Closing Date, to become effective Immediately after the Distribution Date. Effective as of the Closing Date, Lucent shall adopt, or cause to be adopted, the Lucent Non-Employee Director Plans, for the benefit of Lucent Non-Employee Directors who were, immediately before the Closing Date, AT&T Non-Employee Directors. The Lucent Non-Employee Director Plans shall be substantially identical in all Material Features to the corresponding AT&T Non-Employee Director Plans as in effect on the Closing Date, except that they need not provide for the accrual of additional benefits after the Closing Date. In addition, before the Closing Date, Lucent may adopt, and in that event AT&T shall approve as sole shareholder of Lucent, a plan or other arrangement for the payment of compensation of the Lucent Non-Employee Directors in Lucent Common Stock, under which the number of shares permitted to be issued before the Close of the Distribution Date shall not exceed 10,000 in the aggregate. 2.4 TERMS OF PARTICIPATION BY TRANSFERRED INDIVIDUALS IN LUCENT PLANS AND LUCENT NON-EMPLOYEE DIRECTORS IN LUCENT NON-EMPLOYEE DIRECTOR PLANS. (a) LUCENT PLANS. The Lucent Plans shall be, with respect to Transferred Individuals, in all respects the successors in interest to, and shall not provide benefits that duplicate benefits provided by, the corresponding AT&T Plans. AT&T and Lucent shall agree on methods and procedures, including amending the respective Plan documents, to prevent Transferred Individuals from receiving duplicative benefits from the AT&T Plans and the Lucent Plans. Lucent shall not permit any Lucent Plan to commence benefit payments to any Transferred Individual until it receives notice from AT&T regarding the date on which payments under the corresponding AT&T Plan shall cease. With respect to Transferred Individuals, each Lucent Plan shall provide that all service, all compensation and all other benefit-affecting determinations that, as of the Close of the Distribution Date, were recognized under the corresponding AT&T Plan shall, as of Immediately after the Distribution Date, receive full recognition, credit, and validity and be taken into account under such Lucent Plan to the same extent as if such items occurred under such Lucent Plan, except to the extent that duplication of benefits would result. The provisions of this Agreement for the transfer of assets from certain trusts relating to AT&T Plans (including Foreign Plans) to the corresponding trusts relating to Lucent Plans (including Foreign Plans) are based upon the understanding of the parties that each such Lucent Plan will assume all Liabilities of the corresponding AT&T Plan to or relating to Transferred Individuals, as provided for herein. If any such Liabilities are not effectively assumed by the appropriate Lucent Plan, then the amount of assets transferred to the trust relating to such Lucent Plan from the trust relating to the corresponding AT&T Plan shall be recomputed, ab initio, as set forth below but taking into account the retention of such Liabilities by such AT&T Plan, and assets shall be transferred by the trust relating to such Lucent Plan to the trust relating to such AT&T Plan so as to place each such trust in the position it would have been in, had the initial asset transfer been made in accordance with such recomputed amount of assets. (b) LUCENT NON-EMPLOYEE DIRECTOR PLANS. The Lucent Non-Employee Director Plans shall be, with respect to the Lucent Non-Employee Directors who participated in the corresponding AT&T Non-Employee Director Plans, in all respects the successors in interest to, and shall not provide benefits that duplicate benefits provided by such AT&T Plans. 2.5 TRANSITION INDIVIDUALS. Portability of benefits (without duplication thereof) for Transition Individuals shall be set forth in the separate agreements provided for below. (a) MANDATORY PORTABILITY AGREEMENT. Effective as of the Participation Commencement Date, AT&T shall designate Lucent as, and Lucent shall become, an Interchange Company under the MPA, with all the applicable rights and obligations of such an Interchange Company. Each Lucent Entity that is an Interchange Company as of the date of this Agreement shall continue as such. Effective as of any date on or after the Participation Commencement Date, any other Lucent Entity that becomes a Participating Company in the AT&T Pension Plans pursuant to Section 2.2 may, at its request and with the consent of AT&T (which shall not be unreasonably withheld), become an Interchange Company. Effective Immediately after the Distribution Date, the Lucent Pension Plans shall be "Interchange Company Pension Plans" under, and subject to the terms of, the MPA. AT&T shall use its reasonable best efforts to seek an amendment of the MPA to allow Lucent to become a "Tier II Signatory Company" under the MPA with the same rights and obligations as have been granted to AirTouch International, Inc. as a Tier II Signatory Company. Lucent shall take any and all action, including any action reasonably requested by AT&T, to become a Tier II Signatory Company under the MPA. During the applicable Transition Periods, neither AT&T nor Lucent shall permit any Transition Individual covered by the Interchange Agreements described above to waive portability under the MPA with respect to movement as a Transition Individual. (b) MANAGEMENT INTERCHANGE AGREEMENT. On or before the Closing Date, AT&T and Lucent shall enter into an Interchange Agreement providing for (among other things) the portability of benefits and mutual recognition of service during the Management Transition Period with respect to Transition Individuals who terminate employment with AT&T or an AT&T Entity and who become Management Employees (or employees covered by an alternate benefit program) of Lucent or a Lucent Entity and Transition Individuals who terminate employment with Lucent or a Lucent Entity and who become Management Employees (or employees covered by an alternate benefit program) of AT&T or an AT&T Entity after the Distribution Date, as more fully described in Section 2.5(d). (c) OCCUPATIONAL INTERCHANGE AGREEMENT. On or before the Closing Date, AT&T and Lucent shall enter into an Interchange Agreement providing for the portability of benefits and mutual recognition of service during the Occupational Transition Period with respect to Transition Individuals who cease employment with AT&T or an AT&T Entity and who become Occupational Employees of Lucent or a Lucent Entity and Transition Individuals who cease employment with Lucent or a Lucent Entity and who become Occupational Employees of AT&T or an AT&T Entity after the Distribution Date, as more fully described in Section 2.5(d). (d) TERMS OF THE MANAGEMENT AND OCCUPATIONAL INTERCHANGE AGREEMENTS. The Interchange Agreements described in Sections 2.5(b) and 2.5(c) shall provide in a mutually agreeable manner for the following with respect to Transition Individuals: (i) prohibition of the commencement of benefits under any transferor AT&T or Lucent Pension Plan, and suspension of any benefits already commenced, with respect to any individual for whom the liability for benefits is transferred either from the AT&T Pension Plans to the Lucent Pension Plans or from the Lucent Pension Plans to the AT&T Pension Plans; (ii) transfer of service credit between the AT&T Plans and the Lucent Plans, where appropriate; (iii) transfer of assets and liabilities between the AT&T Pension Plans and the Lucent Pension Plans in the same manner and in accordance with the same methods and assumptions as prescribed by the MPA, regardless of whether such employees are covered by the MPA (but in no event shall a Transition Individual be entitled to obtain overlapping benefits under both the MPA and the Interchange Agreement); (iv) transfer of accounts between the AT&T Savings Plans and the Lucent Savings Plans; (v) transfer of accounts between the AT&T ESOP and the Lucent ESOP; (vi) transfer of accounts between the AT&T Stock Purchase Plan and the Lucent Stock Purchase Plan; (vii) mutual maintenance and recognition by the AT&T Health and Welfare Plans and the Lucent Health and Welfare Plans of the coverage elections and all amounts applied to deductibles and out-of-pocket maximums met under the other company's Health and Welfare Plans for plan years in the applicable Transition Period; (viii) mutual maintenance and recognition by the AT&T Health and Welfare Plans and the Lucent Health and Welfare Plans of all lifetime maximum benefits reached under the other company's Health and Welfare Plans; (ix) transfer of service credit, assets, and liabilities between the AT&T Executive Benefit Plans and the Lucent Executive Benefit Plans and the related trusts, insurance policies and other funding vehicles; (x) allocation and transfer of RFA assets and liabilities between the applicable AT&T Health and Welfare Plans and the applicable Lucent Health and Welfare Plans and the related trusts, insurance policies and other funding vehicles; and (xi) assumption of Individual Agreements. Each of the service crediting provisions described above shall be subject to any applicable "service bridging" or "break in service" rules under the AT&T Plans and the Lucent Plans. (e) RESTRICTION ON PLAN AMENDMENTS. During the Management Transition Period, neither AT&T nor Lucent shall adopt any amendment, or allow any amendment to be adopted, to any of their respective Pension Plans, Savings Plans or ESOPs that would violate Code Section 411(d)(6) or that would create an optional form of benefit subject to Code Section 411(d)(6). ARTICLE III DEFINED BENEFIT PLANS 3.1 ESTABLISHMENT OF MIRROR PENSION TRUSTS. Before the Close of the Distribution Date, AT&T shall cause the trust presently established under the AT&T Pension Plans to be amended and restated as a group trust under IRS Rev. Rul. 81-100 (the "AT&T Group Pension Trust") in a form reasonably satisfactory to Lucent. AT&T shall establish, or cause to be established, a new master pension trust under the AT&T Pension Plans, which shall be substantially identical in all Material Features to the trust established under the AT&T Pension Plans as in effect before such amendment and restatement and which shall be a participating trust in the AT&T Group Pension Trust. Effective Immediately after the Distribution Date, Lucent shall establish, or cause to be established, a master pension trust qualified in accordance with Code Section 401(a), exempt from taxation under Code Section 501(a)(1), and forming part of the Lucent Pension Plans, which shall be a participating trust in the AT&T Group Pension Trust, subject to ratification of such participation by the Board of Directors of Lucent or its authorized delegate after the Close of the Distribution Date (and Lucent shall seek such ratification within 60 days after the Close of the Distribution Date). 3.2 ASSUMPTION OF PENSION PLAN LIABILITIES AND ALLOCATION OF INTERESTS IN THE AT&T MASTER PENSION TRUST. (a) ASSUMPTION OF LIABILITIES BY LUCENT PENSION PLAN. Immediately after the Distribution Date, all Liabilities to or relating to Transferred Individuals under the AT&T MPP or AT&T PP, as applicable, shall cease to be Liabilities of the AT&T MPP or AT&T PP, as applicable, and shall be assumed by the corresponding Lucent Pension Plan. (b) ASSET ALLOCATIONS AND TRANSFERS. (i) CALCULATION OF ASSET ALLOCATION. (A) As soon as practicable after the Close of the Distribution Date, AT&T shall cause to be calculated, for the AT&T MPP and the corresponding Lucent Pension Plan, as of Immediately after the Distribution Date, (1) the "Funding Policy Amount," which shall be consistent with the minimum amount necessary to satisfy AT&T's pension funding policy as set forth in Schedule VI, as applied to the AT&T MPP and the corresponding Lucent Pension Plan; (2) the "414(l)(1) Amount," which shall equal the minimum amount necessary to fully fund benefits under the AT&T MPP and the corresponding Lucent Pension Plan on a "termination basis" (as that term is defined in Treas. Reg. Section 1.414(l)-1(b)(5)); and (3) the "Initial Allocation Amount," which shall equal the Funding Policy Amount for that particular Pension Plan, plus one-half times the difference (positive or negative) between (x) the amount of assets as of the Close of the Distribution Date of the AT&T MPP and (y) the sum of the Funding Policy Amounts for the AT&T MPP and the corresponding Lucent Pension Plan. The assumptions used in determining the 414(l)(1) Amount for each Pension Plan shall be those used in the determination of the minimum required contribution under ERISA for the Plan year beginning January 1, 1996, except that the discount rates shall be the rates issued by the PBGC for valuing annuities in terminating single-employer pension plans during the month containing the Close of the Distribution Date. (B) If the aggregate amount of the assets of the AT&T MPP as of the Close of the Distribution Date is not less than the sum of the 414(l)(1) Amounts for the AT&T MPP and the corresponding Lucent Pension Plan, then such assets shall be allocated between the AT&T MPP and the corresponding Lucent Pension Plan in accordance with the following: (1) if the Initial Allocation Amount is greater than or equal to the 414(l)(1) Amount for the AT&T MPP, and the Initial Allocation Amount is greater than or equal to the 414(l)(1) Amount for the corresponding Lucent Pension Plan, then the amounts of assets allocated to the AT&T MPP and the corresponding Lucent Pension Plan shall equal their respective Initial Allocation Amounts; (2) if the Initial Allocation Amount is greater than or equal to the 414(l)(1) Amount for the AT&T MPP, but the Initial Allocation Amount is less than the 414(l)(1) Amount for the corresponding Lucent Pension Plan, then the amount of assets allocated to the Lucent Pension Plan shall equal the 414(l)(1) Amount for that Pension Plan, and the amount of assets allocated to the AT&T MPP shall equal the excess of (x) the total amount of assets, as of the Close of the Distribution Date, of the AT&T MPP over (y) the 414(l)(1) Amount for the corresponding Lucent Pension Plan; and (3) if the Initial Allocation Amount is less than the 414(l)(1) Amount for the AT&T MPP, but the Initial Allocation Amount is greater than or equal to the 414(l)(1) Amount for the corresponding Lucent Pension Plan, then the amount of assets allocated to the AT&T MPP shall equal the 414(l)(1) Amount for the AT&T MPP, and the amount of assets allocated to the corresponding Lucent Pension Plan shall equal the excess of (x) the total amount of assets, as of the Close of the Distribution Date, of the AT&T MPP over (y) the 414(l)(1) Amount for the AT&T MPP. (C) If the aggregate amount of the assets of the AT&T MPP as of the Close of the Distribution Date is less than the sum of the 414(l)(1) Amounts for the AT&T MPP and the corresponding Lucent Pension Plan, then such assets shall be allocated between the AT&T MPP and the corresponding Lucent Pension Plan as follows: (i) AT&T and Lucent shall obtain a quote from a mutually agreeable insurance company for the provision of immediate and deferred annuities payable under the AT&T MPP and the corresponding Lucent Pension Plan for all accrued benefits under the AT&T MPP as of the Close of the Distribution Date; (ii) if the amount of assets as of the Close of the Distribution Date is not less than the amount of such quote, the amount of assets allocated to the AT&T MPP and the corresponding Lucent Pension Plan shall equal the portion of the quote allocable to each plan plus one-half of the excess, if any, over such quote; and (iii) if the amount of assets as of the Close of the Distribution Date is less than the amount of such quote, the amount of assets allocated to the AT&T MPP and the corresponding Lucent Pension Plan shall be determined on a plan termination basis in accordance with ERISA Section 4044 using the same assumptions as those used in computing the 414(l)(1) Amounts. (ii) CALCULATION OF THE AT&T PP'S ASSET ALLOCATION. The asset allocation of the AT&T PP and the corresponding Lucent Pension Plan shall be determined by applying Section 3.2(b)(i) but substituting "AT&T PP" for "AT&T MPP" wherever it appears in that section. (iii) SEGREGATION OF LUCENT PENSION PLANS' INTERESTS WITHIN THE AT&T GROUP PENSION TRUST. The actual segregation of the interests of the Lucent Pension Plans in the AT&T Group Pension Trust into separate trust accounts shall occur as soon as practicable after the calculation of such interests pursuant to Section 3.2(b)(i) and (ii), but in no event before AT&T determines that the calculation and the data on which it is based are acceptably complete, accurate and consistent. In addition, the interests so calculated shall be adjusted as of the date of the actual segregation by AT&T to the extent necessary or appropriate to reasonably and appropriately reflect additional pension contributions, interest, investment gains and losses, and benefit payments and data corrections, enhancements, and computational refinements from Immediately after the Distribution Date through the date of the actual segregation of such interests. If the master pension trust established by Lucent pursuant to the last sentence of Section 3.1 is for any reason not then a participating trust in the AT&T Group Pension Trust, such master pension trust shall be entitled to receive its allocable share of the assets of the AT&T Group Pension Trust as determined pursuant to the foregoing provisions of this Section 3.2(b) in redemption of the interests therein of the Lucent Pension Plans as promptly as prudently practicable. Such allocable share shall consist of Lucent's allocable share of each class of assets in the AT&T Group Pension Trust, unless AT&T and Lucent agree otherwise. ARTICLE IV DEFINED CONTRIBUTION PLANS 4.1 LTSPMEs AND RSPSPs. (a) MANAGEMENT SAVINGS PLAN TRUSTS. Effective Immediately after the Distribution Date, Lucent shall establish, or cause to be established, separate trusts qualified under Code Section 401(a), exempt from taxation under Code Section 501(a)(1), and forming part of the Lucent LTSPME and Lucent RSPSP, which shall be participating trusts in the AT&T Management Savings Group Trust. (b) ASSUMPTION OF LIABILITIES AND TRANSFER OF ASSETS. Effective Immediately after the Distribution Date: (i) the Lucent LTSPME and the Lucent RSPSP shall assume and be solely responsible for all Liabilities to or relating to Transferred Individuals under the AT&T LTSPME and the AT&T RSPSP, respectively; and (ii) AT&T shall cause the accounts of the Transferred Individuals under the AT&T LTSPME and the AT&T RSPSP which are held by their related trusts as of the Close of the Distribution Date to be transferred to the Lucent LTSPME and the Lucent RSPSP, respectively, and their related trusts, and Lucent shall cause such transferred accounts to be accepted by such plans and trusts. Effective no later than Immediately after the Distribution Date, Lucent shall use its reasonable best efforts to enter into such agreements satisfactory to Lucent to accomplish such assumptions and transfers, the maintenance of the necessary participant records, the appointment of Fidelity Institutional Trust Company as initial trustee under the Lucent LTSPME and the Lucent RSPSP, and the engagement of Fidelity Records Management Company as initial recordkeeper under such plans. 4.2 LTSSPS AND LESOPS. (a) OCCUPATIONAL SAVINGS PLAN TRUSTS. Effective Immediately after the Distribution Date, Lucent shall establish, or cause to be established, a separate trust, qualified in accordance with Code Section 401(a), exempt from taxation under Code Section 501(a)(1), and forming part of the Lucent LTSSP, which shall be a participating trust in the AT&T Occupational Savings Group Trust. (b) ASSUMPTION OF LTSSP LIABILITIES. Effective Immediately after the Distribution Date: (i) the Lucent LTSSP shall assume and be solely responsible for all Liabilities to or relating to Transferred Individuals under the AT&T LTSSP, other than Liabilities referred to in Section 4.2(c); and (ii) AT&T shall cause the accounts of the Transferred Individuals under the AT&T LTSSP which are held by its related trust as of the Close of the Distribution Date to be transferred to the Lucent LTSSP and its related trust, and Lucent shall cause such transferred accounts to be accepted by such plans and trusts. Effective no later than Immediately after the Distribution Date, Lucent shall use its reasonable best efforts to enter into agreements satisfactory to Lucent to accomplish such assumption and transfer, the maintenance of the necessary participant records, the appointment of the then-current trustee under the AT&T LTSSP as initial trustee under the Lucent LTSSP, and the engagement of the then-current recordkeeper of the AT&T LTSSP as initial recordkeeper under such plans. (c) LEVERAGED STOCK OWNERSHIP PLAN. (i) Effective Immediately after the Distribution Date, Lucent shall establish, or cause to be established, a separate trust (the "Lucent LESOP Trust"), qualified in accordance with Code Section 401(a), exempt from taxation under Code Section 501(a), and forming part of the Lucent LTSSP. (ii) Before the Distribution Date, AT&T and Lucent shall use their reasonable best efforts to renegotiate the note agreement between Bankers Trust Company, as trustee of the AT&T LESOP, and various lenders dated March 9, 1990 (the "Existing Acquisition Loan") so that it is restructured into two note agreements for two loans, the principal amount of one being attributable to the accounts to be transferred to the Lucent LESOP Trust pursuant to Section 4.2(c)(iii) (the "Lucent Acquisition Loan") and the principal amount of the other being attributable to the accounts remaining in the AT&T LESOP (the "AT&T Acquisition Loan"). The principal amount of the Lucent Acquisition Loan shall be determined by multiplying the principal amount of the Existing Acquisition Loan as of the Distribution Date by the fraction described in Section 4.2(c)(iii). AT&T and Lucent shall use their reasonable best efforts to cause the terms of the AT&T Acquisition Loan and the Lucent Acquisition Loan to be as favorable to Lucent and AT&T, respectively, as the terms of the Existing Acquisition Loan, and, to the extent permitted by applicable law, including Code Section 133, the terms of the Lucent Acquisition Loan to be no less favorable to Lucent and the Lucent LESOP Trust than the terms of the AT&T Acquisition Loan are to AT&T and the AT&T LESOP Trust. (iii) Effective Immediately after the Distribution Date: (A) the Lucent LTSSP shall assume and be solely responsible for all Liabilities to or relating to Transferred Individuals under the AT&T LTSSP that relate to, arise out of or result from the AT&T LESOP; (B) AT&T shall cause the accounts of the Transferred Individuals under the AT&T LTSSP which are held by the AT&T LESOP Trust as of the Close of the Distribution Date to be transferred to the Lucent LTSSP and the Lucent LESOP Trust; (C) if the Existing Acquisition Loan has been restructured into, and subject to the terms of, the AT&T Acquisition Loan and the Lucent Acquisition Loan, AT&T shall cause the trustee of the AT&T LESOP Trust to transfer to the Lucent LESOP Trust a portion of the assets held in the "Suspense Account" (as defined in Article 20 of the AT&T LTSSP) attributable to the Transferred Individuals, determined by multiplying the number of shares of AT&T Common Stock and the fair market value of any other assets held in such suspense account as of the Close of the Distribution Date by a fraction, the numerator of which is the amount deemed to be employer matching contributions attributable to Lucent Individuals and other employees of Lucent and the Lucent Entities for the latest calendar month that ends on or before the Distribution Date, and the denominator of which is the total amount deemed to be employer matching contributions for all participants in the AT&T LTSSP for such calendar month; and (D) Lucent shall cause all accounts transferred pursuant to clauses (B) and (C) to be accepted by such plan and trust. Effective no later than Immediately after the Distribution Date, Lucent shall use its reasonable best efforts to enter into agreements acceptable to Lucent to accomplish such assumption and transfers, the maintenance of the necessary participant and suspense account records, the appointment of Bankers Trust Company as initial trustee of the Lucent LESOP Trust, and the engagement of the then-current recordkeeper of the AT&T LESOP as initial recordkeeper of the Lucent LESOP. (iv) The parties intend that, as the result of the above-described transactions, after the Close of the Distribution Date, each of them will be the sponsor of an "employee stock ownership plan" as defined in Code Section 4975(e)(7), and that the AT&T Acquisition Loan and Lucent Acquisition Loan will be exempt from the prohibited transaction rules of the Code and ERISA pursuant to Code Section 4975(d)(3). (v) The parties acknowledge that, as a result of the transfer of assets described in Section 4.2(c)(iii) and the Distribution, both the AT&T LESOP and the Lucent LESOP will, after the Close of the Distribution Date, hold shares of both AT&T Common Stock and Lucent Common Stock. The parties further acknowledge that applicable law generally prohibits such plans from holding securities that are not "qualifying employer securities" within the meaning of Code Section 409 for more than a reasonable time after the Distribution Date unless the IRS grants an extension of time. Accordingly, AT&T and Lucent shall each request the IRS to grant an extension of such holding period as their financial advisors shall deem prudent to allow the AT&T LESOP to dispose of the shares of Lucent Common Stock received by it as a result of the Distribution and to allow the Lucent LESOP to dispose of the shares of AT&T Common Stock it holds as a result of the transfer of accounts pursuant to Section 4.2(c)(iii), and, in each case, to reinvest in qualifying employer securities, in a manner consistent with the best interests of the LESOP participants. In furtherance of such dispositions and reinvestments, AT&T and Lucent shall take all actions necessary or appropriate to permit the exchange of shares of Lucent Common Stock held by the AT&T LESOP Trust for shares of AT&T Common Stock held by the Lucent LESOP Trust, including the engagement of a fiduciary not affiliated with either AT&T or Lucent to advise the parties regarding the time and manner (including the exchange ratio) of such exchange. If the restructuring of the Existing Acquisition Loan results in any prepayment or "make whole" penalty, or if the interest rate payable pursuant to the Lucent Acquisition Loan exceeds the interest rate payable pursuant to the AT&T Acquisition Loan or vice versa, then Lucent and AT&T and their respective LESOPs shall bear the cost of such penalties and the excess interest expense so incurred in proportion to the relative initial principal amounts of the Lucent Acquisition Loan and the AT&T Acquisition Loan, taking into account any tax benefits realized or tax detriments suffered in connection therewith. (vi) Notwithstanding the foregoing, if it is determined by AT&T or Lucent before the Distribution Date that the restructuring of the Existing Acquisition Loan is not practicable on commercially reasonable terms and conditions, then, unless AT&T and Lucent agree otherwise, AT&T shall terminate the AT&T LESOP and its related trust before the Distribution Date, and shall direct the trustee of the AT&T LESOP trust to sell sufficient shares of AT&T Common Stock held under the AT&T LESOP trust to repay the Existing Acquisition Loan. Any remaining "Financed Shares" (as defined in the AT&T LESOP) that are released after repayment of the loan and not the subject of any subsequent refinancing shall be used by the Participating Companies to make matching contributions with respect to periods before the Close of the Distribution Date to the AT&T LTSSP in accordance with their obligations under the AT&T LTSSP. 4.3 ESOPS. (a) ESOP TRUST. Effective Immediately after the Distribution Date, Lucent shall establish, or cause to be established, a separate trust (the "Lucent ESOP Trust"), qualified in accordance with Code Section 401(a), exempt from taxation under Code Section 501(a), and forming part of the Lucent ESOP. (b) ASSUMPTION OF LIABILITIES AND TRANSFER OF ASSETS. (i) Effective Immediately after the Distribution Date, the Lucent ESOP shall assume and be solely responsible for all Liabilities to or relating to Transferred Individuals under the AT&T ESOP, and AT&T shall cause the accounts of the Transferred Individuals under the AT&T ESOP as of the Close of the Distribution Date to be transferred to the Lucent ESOP and the Lucent ESOP Trust, and Lucent shall cause such plan and trust to accept such assets. Effective no later than Immediately after the Distribution Date, Lucent shall use its reasonable best efforts to enter into agreements acceptable to Lucent to accomplish such assumptions and transfers, the maintenance of the necessary participant records, the appointment of Midlantic Bank as initial trustee of the Lucent ESOP Trust and the engagement of American Transtech Inc. as initial recordkeeper of the Lucent ESOP. (ii) The parties acknowledge that, as a result of the transfer of assets described in Section 4.3(b)(i) and the Distribution, both the AT&T ESOP and the Lucent ESOP will, after the Distribution Date, hold shares of both AT&T Common Stock and Lucent Common Stock and that, in order to continue to qualify as employee stock ownership plans, each such plan will be required to dispose of securities that are not qualifying employer securities and reinvest in qualifying employer securities. The parties further acknowledge that applicable law generally prohibits such plans from holding securities that are not "qualifying employer securities" within the meaning of Code Section 409 for more than a reasonable time after the Distribution Date unless the IRS grants an extension of time. Accordingly, AT&T and Lucent shall each request the IRS to grant an extension of such holding period as their financial advisors shall deem prudent to allow the AT&T ESOP to dispose of the shares of Lucent Common Stock received by it as a result of the Distribution and to allow the Lucent ESOP to dispose of the shares of AT&T Common Stock it holds as a result of the transfer of accounts pursuant to Section 4.3(b)(i), and, in each case, to reinvest in qualifying employer securities, in a manner consistent with the best interests of the ESOP participants. In furtherance of such dispositions and reinvestments, AT&T and Lucent shall take all actions necessary or appropriate to permit the exchange of shares of Lucent Common Stock held by the AT&T ESOP Trust for shares of AT&T Common Stock held by the Lucent ESOP Trust, including the engagement of a fiduciary not affiliated with either AT&T or Lucent to advise the parties regarding the time and manner (including the exchange ratio) of such exchange. ARTICLE V HEALTH AND WELFARE PLANS 5.1 ESTABLISHMENT OF MIRROR HEALTH AND WELFARE PLAN TRUSTS. On or before the Distribution Date, Lucent shall establish, or cause to be established: (a) the Lucent Health Plans Benefit Trust, for the purpose of funding claims, other than for post-retirement benefits, under the Lucent Health Plans; (b) the Lucent Management VEBA, for the purpose of funding claims for post-retirement benefits of employees not covered by any collective bargaining agreement under the Lucent Health Plans; (c) the Lucent Union VEBA, for the purpose of funding claims for post-retirement benefits under the Lucent Health Plans of employees covered by a collective bargaining agreement; and (d) the Lucent LTD VEBA, for the purpose of funding long-term disability and disability pension benefits under the Lucent Health and Welfare Plans. Such trusts shall meet the requirements of Code Sections 419, 419A, 501(a), and 501(c)(9). Lucent shall use its reasonable best efforts to enter into agreements satisfactory to Lucent for the appointment as initial trustee under each such trust of the trustee of the corresponding AT&T trust. 5.2 ASSUMPTION OF HEALTH AND WELFARE PLAN LIABILITIES. (a) Immediately after the Distribution Date, all Liabilities to or relating to Transferred Individuals under the AT&T Health and Welfare Plans shall cease to be Liabilities of the AT&T Health and Welfare Plans and shall be assumed by the corresponding Lucent Health and Welfare Plans. (b) Notwithstanding Section 5.2(a), all treatments which have been pre-certified for or are being provided to a Transferred Individual as of the Close of the Distribution Date shall be provided without interruption under the appropriate AT&T Health and Welfare Plan until such treatment is concluded or discontinued pursuant to applicable plan rules and limitations, but Lucent shall continue to be responsible for all Liabilities relating to, arising out of or resulting from such on-going treatments as of the Close of the Distribution Date. (c) Lucent shall assume, effective Immediately after the Distribution Date, all Liabilities relating to, arising out of or resulting from special commitments made by AT&T before the Close of the Distribution Date to provide benefits to or with respect to Transferred Individuals for custodial care or other services not covered by any AT&T Health and Welfare Plans (but only if such special commitments were made with the prior written consent of the Lucent Senior Vice President, Human Resources or his delegate, to Exhibit 5.2 April 1, 1996 Lucent Technologies Inc. 600 Mountain Avenue Murray Hill, N.J. 07974 Dear Sirs: With reference to the registration statement on Form S-1 (No. 333-00703; the "Registration Statement") filed by Lucent Technologies Inc. (the "Company") with the Securities and Exchange Commission under the Securities Act of 1933, as amended, relating to 127,650,000 shares of the Company's common stock, par value $0.01 per share (the "Common Stock"), we are of the opinion that: 1. the Company is a duly organized and validly existing corporation under the laws of the State of Delaware; 2. the issuance of the Common Stock has been duly authorized by appropriate corporate action; and 3. when the Common Stock has been issued, paid for and delivered pursuant to a sale in the manner described in the Registration Statement, such Common Stock will be validly issued, fully paid and non-assessable. We hereby consent to the filing of this opinion with the Securities and Exchange Commission in connection with the filing of the Registration Statement. We also consent to the making of the statement with respect to us in the related prospectus under the heading "Legal Opinions". Very truly yours, /s/ Wachtell, Lipton, Rosen & Katz the extent such commitments are made after the Participation Commencement Date). Before the Close of the Distribution Date, AT&T shall transfer to Lucent copies of all documentation, and a complete written description, of the terms of all such special commitments to Transferred Individuals. 5.3 VEBA ASSET TRANSFERS. This Section 5.3 shall govern the transfer of assets from the AT&T Health Trusts (other than the AT&T Health Plans Benefit Trust) to the corresponding Lucent Health Trusts and from the AT&T LTD VEBA to the Lucent LTD VEBA, except to the extent that Section 5.5 is applicable. As soon as practicable after the Close of the Distribution Date, AT&T shall determine the aggregate present value, as of the Close of the Distribution Date, of the future benefit obligations of each AT&T Plan funded by a VEBA ("VEBA Plans"), with respect to Transferred Individuals who are eligible to receive benefits under the applicable VEBA Plan as of the Close of the Distribution Date (and, in the case of any post-retirement health benefits, who have terminated employment as of the Close of the Distribution Date). As soon as practicable after such determination is made, there shall be transferred from each AT&T VEBA to the corresponding Lucent VEBA an amount of assets having a fair market value on the date of transfer equal to the amount determined by dividing such aggregate present value of future benefit obligations for the applicable VEBA Plans of Lucent by the aggregate of all such present values of all the applicable VEBA Plans of AT&T and all the applicable VEBA Plans of Lucent, multiplied by the fair market value of the assets of the AT&T VEBA on the date of transfer, adjusted to take into account the extent to which AT&T and/or Lucent has opted to forego reimbursement from the applicable VEBA of any benefit obligation that was paid by AT&T or Lucent, as applicable, on or after the Participation Commencement Date and before the Close of the Distribution Date. 5.4 TRANSFER OF RETIREMENT FUNDING ACCOUNT ASSETS. This Section 5.4 shall apply to AT&T Health and Welfare Plans with group term life insurance policies that have RFAs maintained for the purpose of accumulating, through employer contributions in advance of employee retirements, a fund to be used to pay all or a portion of the costs for continuing life insurance protection for employees after their retirement. As soon as practicable after the Close of the Distribution Date, there shall be transferred to the corresponding RFA of Lucent an amount of assets (determined by AT&T subject to audit by Coopers & Lybrand) having a fair market value as of the Close of the Distribution Date equal to the product of (a) the present value, as of the Close of the Distribution Date, of the future benefit obligation with respect to Transferred Individuals to be discharged from the RFA, divided by the present value of the future benefit obligations with respect to all individuals whose benefits are to be discharged from the RFA assets as of the Close of the Distribution Date times (b) the fair market value of all RFA assets as of the Close of the Distribution Date. AT&T and Lucent shall adopt, and shall use their reasonable best efforts to cause their insurers to adopt, procedures to implement such asset transfers in a reasonable and expeditious manner that is consistent with the underlying group life insurance contracts and applicable legal requirements. Nothing in this Agreement shall be interpreted to provide that any assets so transferred have reverted to AT&T or Lucent. 5.5 VEBAs FUNDED WITH TRUST-OWNED LIFE INSURANCE. This Section 5.5 shall govern transfers of assets of AT&T VEBAs that are funded, in whole or in part, with trust-owned life insurance policies. (a) GENERAL PROVISIONS. As soon as practicable after the Close of the Distribution Date, AT&T shall cause each such AT&T VEBA to transfer to the corresponding Lucent VEBA such assets as are attributable to Transferred Individuals who are eligible to receive post-retirement health benefits under the AT&T Health Plans with respect to such AT&T VEBA; provided, that AT&T shall not be required to cause such transfer to occur before AT&T has obtained appropriate rulings from regulatory agencies indicating that the transfers do not contravene any statute, regulation, or technical pronouncement. (b) AT&T MANAGEMENT VEBA: TRUST-OWNED LIFE INSURANCE (VEBA). To accomplish the transfers required by Section 5.5(a), all or a portion of the Trust-Owned Life Insurance (VEBA) policies and any residual assets in the AT&T Management VEBA shall be allocated between the trustee of the AT&T Management VEBA, and the trustee of the Lucent Management VEBA, in accordance with the following procedures. (i) AT&T shall determine the extent to which the assets of the AT&T Management VEBA are sufficient to satisfy all Liabilities to or relating to Transferred Individuals who have terminated employment and are eligible to receive post-retirement health benefits under the AT&T Health Plans with respect to the AT&T Management VEBA as of the Close of the Distribution Date. (ii) AT&T shall instruct the trustee of the AT&T Management VEBA to transfer one of the Trust-Owned Life Insurance (VEBA) policies to the Lucent Management VEBA. AT&T shall determine which policy shall be transferred based on the present values of relative post-retirement health liabilities (benefit obligations) retained by AT&T and assumed by Lucent pursuant to this Agreement, without regard to which entity employs the insured individuals, provided, that before such transfer, AT&T shall instruct the trustee of the AT&T Management VEBA to adjust and/or allocate the cash values under the Trust-Owned Life Insurance (VEBA) policies such that the policy to be transferred to the Lucent Management VEBA shall have a proportionate cash value consistent with the proportion of post-retirement health liabilities (benefit obligations) to be assumed by Lucent. Upon such assignment, the trustee of the Lucent Management VEBA shall assume and be solely responsible for all Liabilities relating to, arising out of or resulting from such policy, including the payment of any premiums and any loan repayments required, and shall be entitled to all benefits, under the policy. (c) OTHER ASSET TRANSFERS. To accomplish the transfers required by Section 5.5(a), a portion of the assets of the AT&T Management VEBA (other than Trust-Owned Life Insurance (VEBA) policies) shall be transferred to the Lucent Management VEBA to the extent necessary so that immediately after such transfer and the transfer pursuant to Section 5.5(b), the ratio of the assets of each such VEBA trust to the liabilities payable therefrom as described in Section 5.5(b)(i), is equal. (d) ADMINISTRATION. Lucent and AT&T shall share all information necessary to determine when and whether any individuals insured by the Trust-Owned Life Insurance (VEBA) policies owned by the trustees of the AT&T Management VEBA and Lucent Management VEBA, respectively, are deceased, and as otherwise necessary to administer their respective Management VEBAs. 5.6 CONTRIBUTIONS TO, INVESTMENTS OF AND DISTRIBUTIONS FROM VEBAS. Before the Close of the Distribution Date, AT&T shall have sole authority to direct the trustee of the AT&T Health Trusts and AT&T LTD VEBA as to the timing and manner of any contributions to the AT&T Health Trusts and AT&T LTD VEBA, the investment of any trust assets, and the distributions and/or transfers of trust assets to AT&T, Lucent, any Participating Company in the trusts, any paying agent, any successor trustee, or any other Person. 5.7 VENDOR CONTRACTS. (a) THIRD-PARTY ASO CONTRACTS. (i) AT&T shall use its reasonable best efforts to amend each administrative services only contract with a third-party administrator that relates to any of the AT&T Health and Welfare Plans (an "ASO Contract") in existence as of the date of this Agreement to permit Lucent to participate in the terms and conditions of such ASO Contract from Immediately after the Distribution Date until the expiration of the financial fee guarantees in effect under such ASO Contract as of the Close of the Distribution Date. AT&T shall use its reasonable best efforts to cause all ASO Contracts into which AT&T enters after the date of this Agreement but before the Close of the Distribution Date (including contracts with a subrogation vendor, a COBRA administration vendor and a Disability 2000 vendor) to allow Lucent to participate in the terms and conditions thereof effective Immediately after the Distribution Date on the same basis as AT&T. (ii) AT&T shall have the right to determine, and shall promptly notify Lucent of, the manner in which Lucent's participation in the terms and conditions of ASO Contracts as set forth above shall be effectuated. The permissible ways in which Lucent's participation may be effectuated include automatically making Lucent a party to the ASO Contracts or obligating the third party to enter into a separate ASO Contract with Lucent providing for the same terms and conditions as are contained in the ASO Contracts to which AT&T is a party. Such terms and conditions shall include the financial and termination provisions, performance standards, methodology, auditing policies, quality measures, reporting requirements and target claims. Lucent hereby authorizes AT&T to act on its behalf to extend to Lucent the terms and conditions of the ASO Contracts. Lucent shall fully cooperate with AT&T in such efforts, and Lucent shall not perform any act, including discussing any alternative arrangements with any third party, that would prejudice AT&T's efforts. (iii) If AT&T determines that it will not be successful in negotiating contract language that will permit compliance with Sections 5.7(a)(i) and 5.7(a)(ii), AT&T shall so notify Lucent promptly, but in no event later than July 20,1996, and after such notification, Lucent shall be released from the restriction contained in the last sentence of Section 5.7(a)(ii). In such case, AT&T shall offer a contingency plan for the administration of the portion of the Lucent Health and Welfare Plans affected by the unavailability of such ASO Contract, including, if possible, an offer by the third-party administrator under the relevant ASO Contract of its services under a separate contract with Lucent, with terms and conditions as similar as practicable to those of the ASO Contract with AT&T. Lucent shall, effective Immediately after the Distribution Date, either adopt its own contingency plan or the contingency plan established by AT&T for such arrangement. (b) GROUP INSURANCE POLICIES. (i) This Section 5.7(b) applies to group insurance policies not subject to allocation or transfer pursuant to the foregoing provisions of this Article V ("Group Insurance Policies"). (ii) AT&T shall use its reasonable best efforts to amend each Group Insurance Policy in existence as of the date of this Agreement for the provision or administration of benefits under the AT&T Health and Welfare Plans to permit Lucent to participate in the terms and conditions of such policy from Immediately after the Distribution Date until the expiration of the financial fee and rate guarantees in effect under such Group Insurance Policy as of the Close of the Distribution Date. AT&T shall use its reasonable best efforts to cause all Group Insurance Policies into which AT&T enters or which AT&T renews after the date of this Agreement but before the Close of the Distribution Date to allow Lucent to participate in the terms and conditions thereof effective Immediately after the Distribution Date on the same basis as AT&T. (iii) Lucent's participation in the terms and conditions of each such Group Insurance Policy shall be effectuated by obligating the insurance company that issued such insurance policy to AT&T to issue one or more separate policies to Lucent. Such terms and conditions shall include the financial and termination provisions, performance standards and target claims. Lucent hereby authorizes AT&T to act on its behalf to extend to Lucent the terms and conditions of such Group Insurance Policies. Lucent shall fully cooperate with AT&T in such efforts, and Lucent shall not perform any act, including discussing any alternative arrangements with third parties, that would prejudice AT&T's efforts. (iv) If AT&T determines that it will not be successful in negotiating policy provisions that will permit compliance with Sections 5.7(b)(ii) and 5.7(b)(iii), AT&T shall so notify Lucent promptly, but in no event later than July 20, 1996, and after such notification, Lucent shall be released from the restriction contained in the last sentence of Section 5.7(b)(iii). In such case, AT&T shall use its reasonable best efforts to either continue to cover Lucent under its Group Insurance Policies or procure a separate policy for Lucent until Lucent has procured such separate insurance policy or made other arrangements for replacement coverage, and Lucent shall bear all costs incurred by AT&T to continue such coverage. (c) HMO AGREEMENTS. (i) Before the Distribution Date, AT&T shall use its reasonable best efforts to amend all letter agreements with HMOs that provide medical services under the AT&T Medical Plans for 1996 ("HMO Agreements") in existence as of the date of this Agreement to permit Lucent to participate in the terms and conditions of such HMO Agreements, in each case, from Immediately after the Distribution Date until December 31, 1996. AT&T shall use its reasonable best efforts to cause all HMO Agreements into which AT&T enters after the date of this Agreement but before the Close of the Distribution Date to allow Lucent to participate in the terms and conditions of such HMO Agreements from Immediately after the Distribution Date until December 31, 1996 on the same basis as AT&T. (ii) AT&T shall have the right to determine, and shall promptly notify Lucent of, the manner in which Lucent's participation in the terms and conditions of all HMO Agreements as set forth above shall be effectuated. The permissible ways in which Lucent's participation may be effectuated include automatically making Lucent a party to the HMO Agreements or obligating the HMOs to enter into letter agreements with Lucent which are identical to the HMO Agreements. Such terms and conditions shall include the financial and termination provisions of the HMO Agreements. Lucent hereby authorizes AT&T to act on its behalf to extend to Lucent the terms and conditions of the HMO Agreements. Lucent shall fully cooperate with AT&T in such efforts, and Lucent shall not perform any act, including discussing any alternative arrangements with any third-party, that would prejudice AT&T's efforts. (iii) If AT&T determines that it will not be successful in negotiating arrangements that will permit compliance with Sections 5.7(c)(i) and 5.7(c)(ii), AT&T shall so notify Lucent promptly, but no event later than July 20, 1996, and after such notification, Lucent shall be released from the restriction contained in the last sentence of Section 5.7(c)(ii). In such case, Lucent shall enter into letter agreements with one or more HMOs to provide benefits under the Lucent Medical Plans, at least through December 31, 1996, in the geographic area serviced by the HMOs covered by AT&T's notice. AT&T shall, if requested by Lucent and permitted by the HMOs, arrange for the continued provision under its HMO Agreements of medical services to Lucent Medical Plan participants from Immediately after the Distribution Date through December 31, 1996, and Lucent shall bear all costs incurred by AT&T to continue such services. (iv) Notwithstanding anything in this Article V to the contrary, Lucent shall have the sole discretion to determine which HMOs to offer to the participants in the Lucent Medical Plans for 1997 and subsequent years, and all HMO Agreements in which Lucent participates pursuant to this Section 5.7(c) shall provide Lucent with the right to discontinue its participation effective January 1, 1997. (d) EFFECT OF CHANGE IN RATES. AT&T and Lucent shall use their reasonable best efforts to cause each of the insurance companies, HMOs, point-of-service vendors and third-party administrators providing services and benefits under the AT&T Health and Welfare Plans and the Lucent Health and Welfare Plans to maintain the premium and/or administrative rates based on the aggregate number of participants in both the AT&T Health and Welfare Plans and the Lucent Health and Welfare Plans through the expiration of the financial fee or rate guarantees in effect as of the Close of the Distribution Date under the respective ASO Contracts, Group Insurance Policies, and HMO Agreements. To the extent they are not successful in such efforts, AT&T and Lucent shall each bear the revised premium or administrative rates attributable to the individuals covered by their respective Health and Welfare Plans. 5.8 PROCEDURES FOR AMENDMENTS TO PLANS, PLAN DESIGNS, ADMINISTRATIVE PRACTICES, AND VENDOR CONTRACTS. (a) AMENDMENTS TO PLAN DOCUMENTS. From Immediately after the Distribution Date through December 31, 1998, no amendment to any AT&T Health and Welfare Plan or Lucent Health and Welfare Plan shall be effective unless the party intending to amend its Health and Welfare Plan has: (i) given the other party written notice of the intention to amend, accompanied by a copy of the proposed amendment, at least 30 days in advance of the earlier of (A) the proposed amendment effective date, or (B) the proposed amendment adoption date; (ii) agreed to bear all of the costs of implementing the amendment incurred by third-party administrators, insurance companies and other vendors and passed through to one or both of the parties; and (iii) certified to the other party, and provided to the other party the written concurrence of all third-party administrators, insurance companies and other vendors providing services in connection with such Plan, that (after taking into account the effect of clause (ii)) the proposed amendment to the Health and Welfare Plan will have no material adverse impact (financial, administrative or otherwise) on the corresponding Health and Welfare Plan sponsored by the other party. (b) CHANGES IN VENDOR CONTRACTS, GROUP INSURANCE POLICIES, PLAN DESIGN, AND ADMINISTRATION PRACTICES AND PROCEDURES. (i) From Immediately after the Distribution Date through the earlier of the expiration of the financial fee or rate guarantees in effect as of the Close of the Distribution Date under the applicable ASO Contract, Group Insurance Policy or HMO Agreement, and December 31, 1998, neither AT&T nor Lucent shall materially modify, or take other action which would have a material effect on, any of the following (each such modification, a "Change") without complying with Section 5.8(b)(ii): (A) the termination date, administration, or operation of (1) an ASO contract between AT&T or Lucent and a third-party administrator, (2) a Group Insurance Policy issued to AT&T or Lucent, or (3) an HMO Agreement with AT&T or Lucent, in each case, the material terms and conditions of which contracts and policies are extended to Lucent or to which Lucent becomes a party pursuant to Section 5.7; (B) the design of either an AT&T Health and Welfare Plan or a Lucent Health and Welfare Plan; or (C) the financing, operation, administration or delivery of benefits under either an AT&T Health and Welfare Plan or a Lucent Health and Welfare Plan. (ii) Neither AT&T nor Lucent shall make any Change unless the party intending to make the Change has: (A) given the other party written notice of the intention to make the Change, accompanied by a written description of the Change, at least 180 days in advance of the proposed effective date of the Change; (B) agreed to bear all of the costs of implementing the Change which are incurred by all third-party administrators, insurance companies, HMOs and other vendors and passed through to one or both of the parties; and (C) certified to the other party, and provided to the other party the written concurrence of each third-party administrator, insurance company, HMO or other vendor associated with or performing services in connection with the Health and Welfare Plan affected by the Change, that (after taking into account the effect of clause (B)) the proposed Change will have no material adverse impact (financial, administrative or otherwise) on the corresponding Health and Welfare Plan sponsored by the other party. (iii) SUBMISSION TO HEALTH, WELFARE AND LIFE INSURANCE COMMITTEE. If AT&T or Lucent desires to make a Change that requires compliance with, but cannot satisfy all of the conditions of, Section 5.8(b)(ii), the party desiring to make the Change may submit a written request for approval of the Change, accompanied by a written description of the Change, to the HWLI Committee. If such a request is made, the desired Change may be implemented only after the Change is approved in writing by the HWLI Committee. (c) EMPLOYEE CONTRIBUTIONS. Notwithstanding the provisions of Sections 5.8(a) and 5.8(b), as of the first January 1 after the Distribution Date, AT&T and Lucent shall each have the independent right, in its sole discretion and without compliance with Sections 5.8(a) and 5.8(b), to increase or decrease the amount of employee contributions under their respective Health and Welfare Plans. 5.9 HEALTH, WELFARE AND LIFE INSURANCE COMMITTEE. From the date of this Agreement through December 31, 1998, the management of the ASO Contracts, Group Insurance Policies, and HMO Agreements and other vendor contracts that are subject to Section 5.8 and the administration of the AT&T Health and Welfare Plans and the Lucent Health and Welfare Plans associated therewith shall be conducted under the supervision of the HWLI Committee. The HWLI Committee shall be comprised of an equal number of representatives from AT&T and Lucent at the District Manager or equivalent level, and shall provide strategic oversight and direction of the cohesive administration of the AT&T Health and Welfare Plans and the Lucent Health and Welfare Plans. Issues that cannot be resolved by the HWLI Committee shall be decided, at the request of either party, by the Executive Oversight Committee comprised of the Lucent Senior Vice President-Human Resources and the AT&T Senior Vice President-Benefits and Compensation. 5.10 AT&T SICKNESS AND ACCIDENT DISABILITY, LONG TERM DISABILITY AND PENSION DISABILITY BENEFITS. (a) ADMINISTRATION OF AT&T SADBP CLAIMS. AT&T shall administer claims incurred under the AT&T SADBP by Transferred Individuals, Lucent Individuals and other employees and former employees of Lucent and the Lucent Entities on or after the Participation Commencement Date but before the Close of the Distribution Date, to the extent such claims are not administered by Lucent pursuant to the terms of the AT&T SADBP as in effect on the date of this Agreement. Any determination made or settlements entered into by AT&T with respect to such claims shall be final and binding. If claims incurred before the Close of the Distribution Date under the AT&T SADBP by Transferred Individuals, Lucent Individuals and other employees and former employees of Lucent and the Lucent Entities were administered by Lucent before the Close of the Distribution Date, such claims shall continue to be administered by Lucent after the Close of the Distribution Date, unless outsourced pursuant to Section 5.10(b). AT&T shall transfer to Lucent, effective Immediately after the Distribution Date, responsibility for administering all claims incurred by Transferred Individuals, Lucent Individuals and other employees and former employees of Lucent and the Lucent Entities before the Close of the Distribution Date that are administered by AT&T as of the Close of the Distribution Date. Lucent shall administer such claims in the same manner, and using the same methods and procedures, as AT&T used in administering such claims. Lucent shall have sole discretionary authority to make any necessary determinations with respect to such claims, including entering into settlements with respect to such claims. (b) OUTSOURCING OF CLAIMS. AT&T, pursuant to its Disability 2000 project or otherwise, shall have the right to engage a third-party administrator or insurance company to administer ("outsource") claims incurred under the AT&T SADBP that are being administered by AT&T pursuant to Section 5.10(a), claims incurred under the AT&T LTD Plans, and claims incurred under the pension disability provisions of the AT&T Pension Plans, including claims incurred by Transferred Individuals, Lucent Individuals and other employees and former employees of Lucent and the Lucent Entities before the Close of the Distribution Date. AT&T may determine the manner and extent of such outsourcing, including the selection of one or more third-party administrators or insurance companies and the ability to transfer the liability for such claims to one or more independent insurance companies. AT&T shall promptly notify Lucent of its intent to outsource such claims, and the material terms and condition of the outsourcing, before the effective date thereof. Lucent shall have the right to notify AT&T, within a reasonable period of time after Lucent receives AT&T's notice of intent to outsource, of Lucent's desire to participate in the proposed outsourcing. If Lucent gives such notice, all claims incurred by Transferred Individuals, Lucent Individuals and other employees and former employees of Lucent and the Lucent Entities before the Close of the Distribution Date that are administered by Lucent pursuant to Section 5.10(a) shall be included in the proposed outsourcing. In the event Lucent elects to participate in such outsourcing, Lucent shall be bound by the terms and conditions thereof (including all consequences of any transfer of liability) and to any determinations and settlements entered into by the third-party administrator pursuant thereto. 5.11 POST-RETIREMENT HEALTH AND LIFE INSURANCE BENEFITS. (a) As soon as practicable after the Distribution Date, AT&T shall provide Lucent with a list of all Transferred Individuals who are, to the best knowledge of AT&T, eligible to receive retiree medical or dental coverage under the AT&T Health Plans as of the Distribution Date and/or post-retirement life insurance coverage under the AT&T Group Life Program, and the type of retiree medical or dental coverage and the level of life insurance coverage for which they are eligible, as applicable. (b) Effective Immediately after the Distribution Date, Lucent shall (i) assume and continue through December 31, 1998 the company-sponsored retiree care accounts provided under the AT&T Medical Expense Plan for Retired Employees pursuant to collective bargaining agreements for all Transferred Individuals under the Lucent Medical Expense Plan for Retired Employees and (ii) honor and maintain all other-covered-charges buy-up lifetime maximum elections made by Transferred Individuals under the AT&T Medical Expense Plan for Retired Employees. 5.12 GROUP LIFE PROGRAMS. Effective as of the Close of the Distribution Date, AT&T shall cause the insurance carrier that provides basic active life insurance coverage, supplemental life insurance coverage, dependent life insurance coverage, accidental life insurance coverage and the portion of the post-retirement life insurance benefit which exceeds $50,000 per participant under the AT&T Group Life Program to: (a) perform an experience rating; (b) allocate the applicable premium stabilization reserves between AT&T and Lucent on an actuarial basis; (c) allocate pending claim reserves based on actual claims data; and (d) allocate unreported claim reserves based on expected claims by coverage. 5.13 COBRA AND DIRECT PAY. Through the Close of the Distribution Date, AT&T shall be responsible for administering compliance with the health care continuation coverage requirements of COBRA and the AT&T Health and Welfare Plans with respect to Transferred Individuals, Lucent Individuals and other employees and former employees of Lucent and the Lucent Entities and beneficiaries and dependents thereof and Lucent and the Lucent Entities shall be responsible for filing all necessary employee change notices with respect to their respective employees in accordance with applicable AT&T policies and procedures. Effective Immediately after the Distribution Date, Lucent shall solely be responsible for administering compliance with the health care continuation coverage requirements of COBRA and the Lucent Health and Welfare plans, and, with respect to Transferred Individuals, the AT&T Health and Welfare Plans. 5.14 LEAVE OF ABSENCE PROGRAMS AND FMLA. (a) Through the Close of the Distribution Date, AT&T shall be responsible for administering compliance with the AT&T Leave of Absence Programs and FMLA with respect to Lucent Individuals and all other employees of Lucent and the Lucent Entities. Lucent and the Lucent Entities shall be responsible for determining whether their respective employees are eligible for leave under the AT&T Leave of Absence Programs and FMLA in accordance with such programs and FMLA, respectively. (b) Effective Immediately after the Distribution Date: (i) Lucent shall adopt, and shall cause each Lucent Entity to adopt, leave of absence programs which are substantially identical in all Material Features to the AT&T Leave of Absence Programs as in effect on the Distribution Date; (ii) Lucent shall honor, and shall cause each Lucent Entity to honor, all terms and conditions of leaves of absence which have been granted to any Transferred Individual under an AT&T Leave of Absence Program or FMLA before the Close of the Distribution Date by AT&T, Lucent, or a Lucent Entity, including such leaves that are to commence after the Distribution Date; (iii) Lucent and each Lucent Entity shall be solely responsible for administering leaves of absence and compliance with FMLA with respect to their employees; and (iv) Lucent and each Lucent Entity shall recognize all periods of service of Transferred Individuals with AT&T or an AT&T Entity, as applicable, to the extent such service is recognized by AT&T for the purpose of eligibility for leave entitlement under the AT&T Leave of Absence Programs and FMLA; provided, that no duplication of benefits shall be required by the foregoing. (c) As soon as administratively possible after the Close of the Distribution Date, AT&T shall provide to Lucent copies of all records pertaining to the AT&T Leave of Absence Programs and FMLA with respect to all Transferred Individuals to the extent such records have not been provided previously to Lucent or a Lucent Entity. 5.15 AT&T WORKERS' COMPENSATION PROGRAM. (a) ADMINISTRATION OF CLAIMS. (i) Through the Close of the Distribution Date or such earlier date as may be agreed by AT&T and Lucent, (A) AT&T shall continue to be responsible for the administration of all claims that (1) are, or have been, incurred under the AT&T WCP before the Close of the Distribution Date by Transferred Individuals, Lucent Individuals and other employees and former employees of Lucent and the Lucent Entities through the Close of the Distribution Date ("Lucent WCP Claims") and (2) have been historically administered by AT&T or its insurance company, and (B) Lucent shall continue to be responsible for the administration of all Lucent WCP Claims that have been historically administered by the Lucent Business. (ii) Effective immediately after the Distribution Date or such earlier date as may be agreed by AT&T and Lucent, (A) Lucent shall, to the extent Legally Permissible (as defined below), be responsible for the administration of all Lucent WCP Claims, whether those claims were previously administered by AT&T or Lucent, and (B) AT&T shall be responsible for the administration of all Lucent WCP Claims not administered by Lucent pursuant to clause (A), whether previously administered by AT&T or Lucent and whether under the self-insured or insured portion of the AT&T WCP. Any determination made, or settlement entered into, by either party or its insurance company with respect to Lucent WCP Claims for which it is administratively responsible shall be final and binding upon the other party. (iii) Each party shall fully cooperate with the other with respect to the administration and reporting of Lucent WCP Claims, the payment of Lucent WCP Claims determined to be payable, and the transfer of the administration of any Lucent WCP Claims to the other party as determined under Section 5.15(a)(ii). Either party shall have the right to "outsource" (i.e., transfer the administration of claims to a third party administrator or cause claims to be paid through insurance) any and all Lucent WCP Claims for which it is administratively responsible. (iv) For purposes of this Section 5.15(a), "Legally Permissible" shall be determined on a state-by-state basis, and shall mean that administration of Lucent WCP Claims by Lucent both (A) is permissible under the applicable state's workers' compensation laws (taking into account all relevant facts, including that Lucent may have a self-insurance certificate in that state) and (B) would not have a material adverse effect on AT&T's self-insurance certificate within that state. If it is determined that, in a particular state, it is Legally Permissible for Lucent to administer Lucent WCP Claims, then Lucent shall be responsible for the administration of all Lucent WCP Claims incurred in that state, whether previously administered by AT&T, Lucent, or an insurance company. If it is determined that, in a particular state, it is not Legally Permissible for Lucent to administer Lucent WCP Claims, then AT&T shall be responsible for the administration of all Lucent WCP Claims incurred in that state, whether previously administered by AT&T, Lucent, or an insurance company. (b) SELF-INSURANCE STATUS. (i) AT&T shall amend its certificates of self-insurance with respect to workers' compensation and any applicable group insurance policies to include Lucent until the Close of the Distribution Date, and Lucent shall fully cooperate with AT&T in obtaining such amendments. All costs incurred by AT&T in amending such certificates or group insurance policies, including filing fees, adjustments of security and excess loss policies and amendment of safety programs, shall be shared equally by AT&T and Lucent. AT&T shall use its reasonable best efforts to obtain self-insurance status for workers' compensation for Lucent effective Immediately after the Distribution Date in each jurisdiction in which Lucent conducts business and in which AT&T is self-insured, if AT&T determines that such status is beneficial to Lucent. Lucent hereby authorizes AT&T to take all actions necessary and appropriate on its behalf in order to obtain such self-insurance status. (ii) AT&T shall also arrange a contingent insured or other arrangement for payment of workers' compensation claims, into which Lucent shall enter if and to the extent that AT&T fails to obtain self-insured status for Lucent as provided in Section 5.15(b)(i), unless Lucent obtains another such arrangement that is effective Immediately after the Distribution Date, in which event Lucent shall reimburse AT&T for any expenses incurred by AT&T in procuring such contingent arrangement. (c) INSURANCE POLICY. (i) In the event the workers' compensation insurance policy that AT&T maintains under the AT&T WCP expires before the Distribution Date, AT&T shall use its reasonable best efforts to renew such policy and to cause the issuing insurance company to issue a separate policy to Lucent. If AT&T is not able to cause such insurance company to issue such separate insurance policy, Lucent shall use its reasonable best efforts to procure a separate policy from another insurance company or to obtain self-insurance status, and AT&T shall use its reasonable best efforts to continue to cover Lucent under its renewed policy until the earlier of (A) the date on which Lucent's application for such self-insurance status is approved or (B) the date on which a separate insurance policy is procured. Lucent shall compensate AT&T for all costs incurred by AT&T to continue such coverage. Any claims incurred by Transferred Individuals after the Close of the Distribution Date that will be covered under and during any such continuation of coverage shall be treated as being incurred before the Close of the Distribution Date for purposes of determining the party responsible for the administration of benefits. (ii) AT&T shall use its best effort to maintain the premium rates for all workers' compensation insurance policies for both AT&T and Lucent in effect for periods through the Close of the Distribution Date to be based on the aggregate number of employees covered under the workers' compensation insurance policies of both AT&T and Lucent. Any premiums due under the separate workers' compensation insurance issued to Lucent shall be payable by Lucent. 5.16 AMERICAN TRANSTECH INC. AND BENEFIT DIRECTIONS ENROLLMENT CENTER. AT&T shall cause American Transtech Inc. to enter into an agreement with Lucent for the provision of data and enrollment services and customer service for enrollment and eligibility matters through the 1996 fall open enrollment period using the Benefit Directions Enrollment Center (the "BDEC") and the Benefit Direction System (the "BDS") database. Such services shall be provided by American Transtech Inc. to Lucent on terms and conditions and at prices comparable to those on which American Transtech Inc. provides similar services to AT&T. 5.17 AT&T EMPLOYEE ASSISTANCE PROGRAM. Effective Immediately after the Distribution Date, Lucent shall either (a) provide a centralized Lucent Employee Assistance Program staff to provide case management services for chemical dependency/substance abuse treatments to Transferred Individuals or (b) contract with the mental health network vendor used by AT&T to provide such services. As of the Close of the Distribution Date, the AT&T Employee Assistance Program shall cease to have any responsibility to provide case management services for any Transferred Individuals' chemical dependency/substance abuse treatments. 5.18 AT&T WORK AND FAMILY PROGRAM. Before the Close of the Distribution Date, AT&T and Lucent shall use their reasonable best efforts to agree on the manner in which the Work and Family Program, including the Family Care Development Fund, will be jointly funded, operated and administered. Until an agreement is reached, AT&T will have sole responsibility for determining the 1996 grant payments to be made under the occupational and management Family Care Development Fund. After an agreement is reached, but no later than the Close of the Distribution Date, Lucent will have sole discretion to determine whether and at what rate to make payments for the Lucent Fund for Management Employees. In addition, Lucent will have sole discretion for administering the Lucent Family Development Fund Program, provided that it funds its proportionate share of the grants required by the National AT&T/CWA/IBEW Memorandum of Understanding executed by AT&T and the CWA and IBEW as of May 31, 1992 (the "1992 Collective Bargaining Agreement") and the Collective Bargaining Agreement. The share will be determined in accordance with a methodology agreed upon by AT&T and Lucent, and if they fail to agree upon a methodology, Lucent's allocable share shall be that portion of the total of such grants that bears the same relationship to such total grants as the number of Lucent Individuals who are occupational employees bears to total number of occupational employees of AT&T, the AT&T Entities, Lucent and the Lucent Entities as of the Participation Commencement Date. Until all of the foregoing obligations under the 1992 Collective Bargaining Agreement and the Collective Bargaining Agreement have been satisfied, Lucent will provide AT&T with quarterly reports of occupational grants funded. Before the Close of the Distribution Date, AT&T shall use its reasonable best efforts to cause its agreement with its Work and Family vendors to permit Lucent to participate in the terms and conditions of such agreements until the expiration of the agreements. These efforts shall substantially conform to the guidelines set forth in Section 5.7(a) as if such agreements were ASO Contracts. 5.19 WORLD WIDE WEB. Before the Close of the Distribution Date, AT&T and Lucent shall jointly continue to explore (including by participation in a testing program) the feasibility of offering participants in their Plans on-line computer access to the point-of-service provider directories, fee schedules, enrollment and other benefit communication materials through the AT&T customized Internet World Wide Web developed by AT&T Bell Laboratories and a third-party vendor. Lucent shall have the right to offer Lucent Plan participants these on-line computer services after the Distribution Date, provided that Lucent exercises this right by giving written notice of its intent to do so to AT&T on or before the Distribution Date. If the portion of AT&T Bell Laboratories responsible for developing and maintaining the AT&T customized Internet World Wide Web is transferred to Lucent pursuant to the Separation and Distribution Agreement, AT&T shall have the right to use, and Lucent agrees to maintain, this service pursuant to a contract entered into between AT&T and Lucent as soon as practicable after the Close of the Distribution Date. If the portion of AT&T Bell Laboratories responsible for developing and maintaining the AT&T customized Internet World Wide Web remains with AT&T pursuant to the Separation and Distribution Agreement, Lucent shall have the right to use, and AT&T agrees to maintain, this service pursuant to a contract entered into between AT&T and Lucent as soon as practicable after the Close of the Distribution Date. 5.20 UNEMPLOYMENT INSURANCE TAX MANAGEMENT PROGRAM. (a) AT&T shall cause Lucent to be covered under the AT&T Unemployment Insurance Tax Management Program from the Participation Commencement Date through the Close of the Distribution Date. Lucent shall reimburse AT&T for its allocable share of fees paid by AT&T to its unemployment insurance tax management vendor for services rendered during such period. Lucent shall cooperate with the unemployment insurance tax management vendor by providing information in its possession that is necessary for administration of the AT&T Unemployment Insurance Tax Management Program. (b) Before the Distribution Date, AT&T shall use its reasonable best efforts to cause its agreement with its unemployment insurance tax management vendor and any successor thereto to permit Lucent to participate in the terms and conditions of such agreements from Immediately after the Distribution Date through June 30, 1997. These efforts shall substantially conform to the guidelines set forth in Section 5.7(a) as if such agreements were ASO Contracts. AT&T shall use its reasonable best efforts to cause such agreements to provide that Lucent's participation shall include administration of all unemployment compensation claims of Transferred Individuals, Lucent Individuals and other employees and former employees of Lucent and the Lucent Entities, regardless of whether such claims were filed before, on, or after the Distribution Date. 5.21 POST-DISTRIBUTION TRANSITIONAL ARRANGEMENTS. (a) CONTINUANCE OF ELECTIONS, CO-PAYMENTS AND MAXIMUM BENEFITS. (i) Lucent shall cause the Lucent Health and Welfare Plans to recognize and maintain all coverage and contribution elections made by Transferred Individuals under the AT&T Health and Welfare Plans and apply such elections under the Lucent Health and Welfare Plans for the remainder of the period or periods for which such elections are by their terms applicable. The transfer or other movement of employment from AT&T to Lucent at any time before the Close of the Distribution Date shall neither constitute nor be treated as a "status change" under the AT&T Health and Welfare Plans or the Lucent Health and Welfare Plans. (ii) Lucent shall cause the Lucent Health and Welfare Plans to recognize and give credit for (A) all amounts applied to deductibles, out-of-pocket maximums, and other applicable benefit coverage limits with respect to which such expenses have been incurred by Transferred Individuals under the AT&T Health and Welfare Plans for the remainder of the year in which the Distribution occurs, and (B) all benefits paid to Transferred Individuals under the AT&T Health and Welfare Plans for purposes of determining when such persons have reached their lifetime maximum benefits under the Lucent Health and Welfare Plans. (iii) Lucent shall recognize and maintain through December 31, 1998 all eligible populations covered by the AT&T Health and Welfare Plans (as defined in the applicable AT&T Health and Welfare Plan documents), including Class I and Class II dependents, term and temporary employees, alternate benefit plan employees, and all categories of part-time employees (which are fully and non-fully eligible for company contributions). (iv) Lucent shall (A) provide coverage to Transferred Individuals under the Lucent Group Life Program without the need to undergo a physical examination or otherwise provide evidence of insurability, and (B) recognize and maintain all irrevocable assignments and accelerated benefit option elections made by Transferred Individuals under the AT&T Group Life Program. (b) ADMINISTRATION. (i) COORDINATION OF BENEFITS FOR SPOUSES AND DEPENDENTS. Effective as of the first January 1 that occurs on or after the Distribution Date, Lucent shall cause the Lucent Health and Welfare Plans to permit eligible Transferred Individuals to cover their lawful spouses as dependents if such lawful spouses are active or retired AT&T employees. As of the first January 1 that occurs on or after the Distribution Date, AT&T shall cause the AT&T Health and Welfare Plans to permit eligible AT&T and AT&T Entity employees to cover their lawful spouses as dependents if such lawful spouses are active or retired Lucent employees. All benefits provided under either the Lucent Health and Welfare Plans or the AT&T Health and Welfare Plans to a lawful spouse dependent of the other company's plans shall be coordinated pursuant to the terms and conditions of the applicable Health and Welfare Plans. Effective as of January 1, 1997, eligible dependents of AT&T and Lucent lawful spouse employees or lawful spouse retirees may be covered under both the Lucent Health and Welfare Plans and the AT&T Health and Welfare Plans, and the benefits provided under both plans shall be coordinated pursuant to the applicable terms and conditions of the respective Health and Welfare Plans in effect as of such date and thereafter as amended from time to time. (ii) HCFA DATA MATCH. Immediately after the Distribution Date, Lucent shall assume all Liabilities relating to, arising out of or resulting from claims verified by AT&T or Lucent under the HCFA data match reports that relate to Transferred Individuals. Lucent and AT&T shall share all information necessary to verify HCFA data match reports regarding Transferred Individuals. Lucent shall not change any employee identification numbers assigned by AT&T without notifying AT&T of the change and the new Employee Identification Number. To the extent that AT&T enters into any settlement negotiations between its health plan carriers or claims administrators and HCFA before the end of the Occupational Transition Period, Lucent shall have the right to participate in such negotiations. (c) OTHER POST-DISTRIBUTION TRANSITIONAL RULES. (i) AT&T HCRA PLAN. To the extent any Transferred Individual contributed to an account under the AT&T HCRA Plan during the calendar year that includes the Distribution Date, effective as of the Close of the Distribution Date, AT&T shall transfer to the Lucent HCRA Plan the account balances of Transferred Individuals for such calendar year under the AT&T HCRA Plan, regardless of whether the account balance is positive or negative. (ii) AT&T CHILD/ELDER CARE REIMBURSEMENT ACCOUNT PLAN. To the extent any Transferred Individual contributed to the AT&T CECRA Plan during the calendar year that includes the Distribution Date, AT&T shall transfer the account balances of Transferred Individuals for such calendar year in the AT&T CECRA Plan to the Lucent CECRA Plan. (iii) POST-RETIREMENT MEDICAL PLAN. Pursuant to Code SectionSection 401(h) and 420, Lucent shall comply with all cost maintenance period requirements and benefit maintenance period requirements that are applicable to post-retirement health benefits under the Lucent Health Plans for any pension asset transfers pursuant to Code Section 420 by or on behalf of AT&T for qualified current retiree health liabilities (as defined under Code Section 420). With respect to any pension asset transfers pursuant to Code Section 420, Lucent shall obtain AT&T's prior written approval before amending any Lucent Health Plan with respect to the provision of post-retirement health benefits during the cost maintenance or benefit maintenance periods to which the AT&T Health Plans are subject pursuant to Code Section 420. No pension asset transfer pursuant to Code Section 420 shall be made after the date hereof and before the Close of the Distribution Date unless Lucent and AT&T so agree. (iv) HEALTH AND WELFARE PLANS SUBROGATION RECOVERY. After the Close of the Distribution Date, AT&T shall pay to Lucent or the Lucent Health Trusts (as appropriate) any amounts AT&T recovers from time to time through subrogation or otherwise for claims incurred by or reimbursed to any Transferred Individual. If Lucent recovers any amounts through subrogation or otherwise for claims incurred by or reimbursed to employees and former employees of AT&T or an AT&T Entity and their respective beneficiaries and dependents (other than Transferred Individuals), Lucent shall pay such amounts to AT&T or the AT&T Health Trusts (as appropriate). (v) EXCHANGE OF HISTORICAL DATA. Both AT&T and Lucent shall have access to claims data configured on the Medical Information Data Analysis System database (or archived, if applicable) and to eligibility data configured on the eligibility database (or archived, if applicable) and to disability, medical and demographic data configured on the Health Planning Support System ("HPSS") database (or archived, if applicable) for all historical periods beginning January 1, 1989, up to and including eligibility, incurred claims and HPSS data for the calendar year that includes the Distribution Date, for all vendors administering the AT&T Medical Plans and Lucent Medical Plans. AT&T and Lucent shall cooperate in the collection of claims, eligibility and HPSS data during the period from the first January 1 that occurs after the Distribution Date through December 31, 1998, and share all such data. Both AT&T and Lucent shall have the right to access and use eligibility, incurred claims, and HPSS data for periods through December 31, 1998 for such purposes as each determines. 5.22 APPLICATION OF ARTICLE V TO LUCENT ENTITIES. Any reference in this Article V to "Lucent" shall include a reference to a Lucent Entity when and to the extent Lucent has caused the Lucent Entity to (a) become a party to a vendor contract, group insurance contract, or HMO letter agreement associated with a Lucent Health and Welfare Plan, (b) become a self-insured entity for the purposes of one or more Lucent Health and Welfare Plans, (c) assume all or a portion of the liabilities or administrative responsibilities for benefits which arose before the Close of the Distribution Date under an AT&T Health and Welfare Plan and which were expressly assumed by Lucent pursuant to the terms of this Agreement, or (d) take any other action, extend any coverage, assume any other liability or fulfill any other responsibility that Lucent would otherwise be required to take under the terms of this Article V, unless it is clear from the context that the particular reference is not intended to include a Lucent Entity. In all such instances in which a reference in this Article V to "Lucent" includes a reference to a Lucent Entity, Lucent shall be responsible to AT&T for ensuring that the Lucent Entity complies with the applicable terms of this Agreement and the Transferred Individuals allocated to such Lucent Entity shall have the same rights and entitlements to benefits under the applicable Lucent Health and Welfare Plans that the Transferred Individual would have had if he or she had instead been allocated to Lucent. ARTICLE VI EXECUTIVE BENEFITS AND NON-EMPLOYEE DIRECTOR BENEFITS 6.1 ASSUMPTION OF OBLIGATIONS. Effective Immediately after the Distribution Date, Lucent and the Lucent Entities shall assume and be solely responsible for all Liabilities to or relating to Transferred Individuals under all AT&T Executive Benefit Plans, other than any Liabilities to or relating to executives or former executives of NCR pursuant to separate agreements with such executives entered into in connection with AT&T's acquisition of NCR. 6.2 CONSENTS AND NOTIFICATIONS. AT&T and Lucent shall use their reasonable best efforts to obtain, or cause to be obtained, to the extent necessary, the written consent of each Transferred Individual who is a party to an Individual Agreement and/or a participant in any AT&T Executive Benefit Plan, and of each Lucent Non-Employee Director who is a participant in any AT&T Non-Employee Director Plan, to the treatment of such Individual Agreement, Executive Benefit Plan and/or AT&T Non-Employee Director Plan, as applicable, in accordance with this Article VI, including the assumption by Lucent and the Lucent Entities, of sole responsibility for, and the release of AT&T and the AT&T Entities from, all Liabilities thereunder; provided, that no failure to seek or to obtain any such consent shall have any effect upon the obligations of Lucent and the Lucent Entities with respect to such Liabilities. 6.3 AT&T SHORT TERM INCENTIVE PLAN. Lucent shall be responsible for determining, with respect to all Awards that would otherwise be payable under the AT&T Short Term Incentive Plan to Transferred Individuals for the 1996 performance year, (a) the extent to which established performance criteria (as interpreted by Lucent, in its sole discretion, after taking into account the effects of the IPO and the Distribution) have been met and (b) the payment level for each Transferred Individual. 6.4 AT&T LONG TERM INCENTIVE PLANS. AT&T and Lucent shall use their reasonable best efforts to take all actions necessary or appropriate so that each outstanding Award granted under any AT&T Long Term Incentive Plan held by any Transferred Individual shall be replaced as set forth in this Section 6.4 with an Award under the Lucent Long Term Incentive Plan. (a) TRANSFERRED INDIVIDUALS WHO ARE ACTIVE EMPLOYEES OF LUCENT. (i) STOCK OPTIONS. Lucent shall cause each Award consisting of an AT&T Option that is outstanding as of the Close of the Distribution Date (or, in the case of a Lucent Administrative Employee, such later date as he or she becomes a Transferred Individual) and is held by a Transferred Individual who, as of the Distribution Date (or, in the case of a Lucent Administrative Employee, such later date as he or she becomes a Transferred Individual), is an active employee of or on leave of absence from Lucent or a Lucent Entity to be replaced, effective Immediately after the Distribution Date, with a Lucent Option. Such Lucent Option shall provide for the purchase of a number of shares of Lucent 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, and then rounded down to the nearest whole share. Lucent shall pay to the holder of such replacement Award, at the time of such replacement, cash in lieu of any fractional share equal to the product of (A) the fraction represented by such fractional share times (B) (1) the excess of the Lucent Stock Value over (2) the per-share exercise price of such AT&T Option as of the Close of the Distribution Date divided by the Ratio. The per-share exercise price of such Lucent Option shall 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 Lucent Option shall otherwise have the same terms and conditions as were applicable to the corresponding AT&T Option as of the Close of the Distribution Date, except that references to AT&T and its Affiliates shall be amended to refer to Lucent and its Affiliates. (ii) PERFORMANCE SHARES AND STOCK UNITS. Lucent shall cause each Award consisting of AT&T performance shares or AT&T stock units that is outstanding as of the Close of the Distribution Date (or, in the case of a Lucent Administrative Employee, such later date as he or she becomes a Transferred Individual) and is held by a Transferred Individual who, as of the Distribution Date (or, in the case of a Lucent Administrative Employee, such later date as he or she becomes a Transferred Individual), is an active employee of or on leave of absence from Lucent or a Lucent Entity to 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 Lucent performance shares or Lucent 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 immediately before the Distribution Date, multiplied by the Ratio, and then rounded down to the nearest whole share. Lucent shall pay to the holder of such replacement Award, at the time of such replacement, cash in lieu of any fractional share based on the Lucent Stock Value. Each such replacement Award shall 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 shall be amended to refer to Lucent and its Affiliates and dividend equivalent payments, if any, shall be payable after the Close of the Distribution Date with reference to dividends on Lucent Common Stock. (iii) RESTRICTED STOCK AND RESTRICTED STOCK UNITS. Lucent shall cause 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 as of the Close of the Distribution Date (or, in the case of a Lucent Administrative Employee, such later date as he or she becomes a Transferred Individual) and is held by a Transferred Individual who, as of the Close of the Distribution Date (or, in the case of a Lucent Administrative Employee, such later date as he or she becomes a Transferred Individual), is an active employee of or on leave of absence from Lucent or a Lucent Entity to be replaced, effective Immediately after the Distribution Date, with a new Award consisting of a number of non-vested restricted shares of Lucent Common Stock and/or restricted stock units relating to shares of Lucent 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. Lucent shall pay to the holder of such replacement Award, at the time of such replacement, cash in lieu of any fractional share based on the Lucent Stock Value. Each such replacement Award shall 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 shall be amended to refer to Lucent and its Affiliates and dividend equivalent payments, if any, shall be payable after the Distribution Date with reference to dividends on Lucent Common Stock. (iv) SPECIAL PAYMENT. On the thirtieth day following the Distribution Date, AT&T shall pay to Lucent an amount in cash equal to the excess, if any, of (a) the Gross Value of the Assumed Stock Awards over (b) seven percent (7%) of the Aggregate Lucent Stock Value. (b) TRANSFERRED INDIVIDUALS WHO ARE NOT ACTIVE EMPLOYEES OF LUCENT. Each outstanding Award that is held by a Transferred Individual who, as of the Close of the Distribution Date (or, in the case of a Lucent Administrative Employee, such later date as he or she becomes a Transferred Individual), is not an active employee of or on leave of absence from Lucent or a Lucent Entity shall remain outstanding Immediately after the Distribution Date in accordance with its terms as applicable as of the Close of the Distribution Date, subject to such adjustments as may be applicable to outstanding Awards held by individuals who remain active employees of or on leave of absence from AT&T or an AT&T Entity after the Distribution Date. 6.5 AT&T SENIOR MANAGEMENT INCENTIVE AWARD DEFERRAL PLAN. Each Transferred Individual who has a deferred AT&T share unit account under the AT&T Deferral Plan shall be permitted an irrevocable election to have the share units in such account converted to their cash value and transferred to the cash account under the AT&T Deferral Plan, which election shall be made in accordance with procedures established by AT&T, in its sole discretion, before and effective as of the Close of the Distribution Date. Immediately after the Distribution Date, the balance of any Transferred Individual in either an AT&T share unit account or a cash account under the AT&T Deferral Plan as of the Close of the Distribution Date shall be transferred to a Lucent share unit account or cash account, respectively, under the Lucent Deferral Plan, with a number of Lucent share units equal to the number of AT&T share units under the AT&T Deferral Plan as of the Close of the Distribution Date multiplied by the Ratio. 6.6 NON-EMPLOYEE DIRECTOR BENEFITS. (a) NON-EMPLOYEE DIRECTOR PLANS. As of the Closing Date, Lucent shall assume and be solely responsible for all Liabilities under the AT&T Non-Employee Director Plans to or relating to Lucent Non-Employee Directors. (b) DEFERRED COMPENSATION PLAN FOR NON-EMPLOYEE DIRECTORS. Each Lucent Non-Employee Director who has a deferred AT&T share unit account under the AT&T Deferred Compensation Plan for Non-Employee Directors shall be permitted an irrevocable election to have the share units in such account converted to their cash value and transferred to the cash account under the AT&T Deferred Compensation Plan for Non-Employee Directors, which election shall be made in accordance with procedures established by AT&T, in its sole discretion, before and effective as of the Closing Date. As of the Closing Date, the balance of any Lucent Non-Employee Director in either an AT&T share unit account or a cash account under the AT&T Deferred Compensation Plan for Non-Employee Directors shall be transferred to a Lucent share unit account or cash account, respectively, under the Lucent Deferred Compensation Plan for Non-Employee Directors, with a number of Lucent share units equal to the number of AT&T share units under the AT&T Deferred Compensation Plan for Non-Employee Directors as of the Closing Date multiplied by the amount obtained by dividing (A) the average of the daily high and low per-share prices of the AT&T Common Stock as listed on the NYSE during each of the five trading days Immediately after the Closing Date, by (B) the average of the daily high and low per-share prices of the Lucent Common Stock as listed on the NYSE during each of the five trading days Immediately after the Closing Date. 6.7 NON-COMPETITION GUIDELINES. (a) AT&T NON-COMPETITION GUIDELINE. Effective as of the Close of the Distribution Date, AT&T shall cause the AT&T Non-Competition Guideline to be amended to provide that until the end of the eighteenth calendar month that ends after the Close of the Distribution Date, employment by Lucent or a Lucent Entity shall not be a violation of the guideline. (b) LUCENT NON-COMPETITION GUIDELINE. Effective Immediately after the Distribution Date, Lucent shall adopt a non-competition guideline, applicable to employees of Lucent and the Lucent Entities who are similarly situated to those employees of AT&T and the AT&T Entities who are subject to the AT&T Non-Competition Guideline, which guideline shall expressly provide that until the end of the eighteenth calendar month that ends after the Close of the Distribution Date, employment by AT&T shall not constitute a violation of the guideline. (c) CONFIDENTIALITY AND PROPRIETARY INFORMATION. No provision of the Separation and Distribution Agreement shall be deemed to release any individual for any violation of the AT&T Non-Competition Guideline or any agreement or policy pertaining to confidential or proprietary information of AT&T or any of its Affiliates, or otherwise relieve any individual of his or her obligations under such Guideline or any such agreement or policy. 6.8 RABBI TRUST AND CORPORATE-OWNED LIFE INSURANCE. (a) ESTABLISHMENT OF MIRROR RABBI TRUST. Effective no later than Immediately after the Distribution Date, Lucent shall establish, or cause to be established, the Lucent Rabbi Trust as a grantor trust subject to Code SectionSection 671 et seq., which shall be substantially identical in all Material Features to the AT&T Rabbi Trust, other than the definitions of the terms "potential change in control" and "change in control." Lucent shall appoint as trustee under the Lucent Rabbi Trust the then-current trustee of the AT&T Rabbi Trust. (b) FUNDING OF LUCENT RABBI TRUST. (i) As of the earlier of the Close of the Distribution Date and the date when assets are first transferred or contributed to the Lucent Rabbi Trust (the "Rabbi Trust Determination Date"), AT&T shall determine the amount of the liabilities under the AT&T Executive Benefits Plans (other than the AT&T Senior Management Incentive Award Deferral Plan) that are payable from the AT&T Rabbi Trust. AT&T shall then cause the trustee of the AT&T Rabbi Trust to transfer to the trustee of the Lucent Rabbi Trust (A) the most recently purchased trust-owned life insurance policy held by the AT&T Rabbi Trust if more than one such policy is then so held (regardless of which entity employs the insured individuals), and (B) if AT&T, in its sole discretion, so determines, all cash then held in the AT&T Rabbi Trust that is not invested in trust-owned life insurance. If AT&T determines (or projects) that immediately after such transfer the ratio of the value of the assets in the Lucent Rabbi Trust to the liabilities under the Lucent Executive Benefit Plans (other than the Lucent Senior Management Incentive Award Deferral Plan) that are payable from the Lucent Rabbi Trust will be less than the ratio of the value of the assets in the AT&T Rabbi Trust (before the allocation of assets to the Lucent Rabbi Trust) to the liabilities under the AT&T Executive Benefit Plans (other than the AT&T Senior Management Incentive Award Deferral Plan) (before the allocation of liabilities to the Lucent Rabbi Trust), then Lucent shall make an additional contribution to the Lucent Rabbi Trust from its general assets in cash, simultaneously with the transfer of assets from the AT&T Rabbi Trust to the Lucent Rabbi Trust, in an amount such that, immediately following the transfer of assets from the AT&T Rabbi Trust to the Lucent Rabbi Trust, the ratio of the value of the assets in the Lucent Rabbi Trust to the liabilities under the Lucent Executive Benefit Plans (other than the Lucent Senior Management Incentive Award Deferral Plan) will immediately thereafter be equal to the ratio of assets to liabilities under the AT&T Rabbi Trust (other than liabilities associated with the AT&T Senior Management Incentive Award Deferral Plan) immediately before the allocation of assets and liabilities to the Lucent Rabbi Trust. For purposes of this Section 6.8(b)(i), liabilities shall be determined based upon the "Full Funding Amount" as defined in Section 2.5 of the AT&T Rabbi Trust. (ii) As of the Rabbi Trust Determination Date, Lucent and AT&T shall identify the Transferred Individuals and other individuals insured by trust-owned life insurance polices held by the trustee of the AT&T Rabbi Trust and (after any transfers described in Section 6.8(b)(i)) the trustee of the Lucent Rabbi Trust, and shall share (and shall cause the trustees of their respective Rabbi Trusts to share) such information as may be necessary for each to determine when and whether such individuals are deceased. (c) CORPORATE-OWNED LIFE INSURANCE. Lucent and AT&T shall take all actions, including creating any trust arrangements necessary to replicate the manner in which AT&T has heretofore held such policies, and executing or accepting delivery of any assignments reasonably requested by either party or any insurance company insuring one or more lives under the Corporate-Owned Life Insurance, as may be necessary or appropriate in order to assign those policies insuring Transferred Individuals to Lucent, effective Immediately after the Distribution Date. If a Corporate-Owned Life Insurance Policy is so assigned to Lucent, Lucent shall assume and be solely responsible for all Liabilities, and shall be entitled to all benefits, thereunder, effective as of the earlier of (i) the Close of the Distribution Date and (ii) the date of such assignment. AT&T and Lucent shall continue, liquidate and/or administer such Corporate-Owned Life Insurance Policies on terms and conditions agreed to by AT&T and Lucent. Lucent and AT&T shall share all information that may be necessary to identify the individuals insured by the Corporate-Owned Life Insurance policies owned by AT&T and Lucent and to determine when and whether such individuals are deceased. 6.9 AT&T SPLIT DOLLAR LIFE INSURANCE. AT&T and Lucent shall take all actions necessary or appropriate to assign to Lucent, AT&T's rights and interests in the Split Dollar Life Insurance policies under the Senior Management Individual Life Insurance Program and the Senior Management Basic Life Insurance Program issued by Metropolitan Life Insurance Company, Hartford Life Insurance Company, and Confederation Life Insurance Company (or their successors in interest, including Pacific Mutual Life Insurance Company), and any additional split dollar life insurance program that may be implemented by AT&T before the Close of the Distribution Date, with respect to Transferred Individuals, effective Immediately after the Distribution Date, and under the AT&T Non-Employee Director Plans with respect to AT&T Non-Employee Directors who become Lucent Non-Employee Directors, effective as of the Closing Date (such policies, the "Assigned Split Dollar Policies"). Such actions shall include Lucent's acceptance of any collateral assignments, policy endorsements or such other documentation executed by or on behalf of Transferred Individuals and Lucent Non-Employee Directors, or any trustee of any trust to which such individual's policy rights or incidents of ownership under the Assigned Split Dollar Policies have been assigned, and Lucent's entering into such agreements as may be necessary to fulfill any obligations of AT&T to any insurance company or insurance agent or broker under the Assigned Split Dollar Policies. From and after the date of the assignment of any Assigned Split Dollar Policy to Lucent, Lucent shall assume and be solely responsible for all Liabilities, and shall be entitled to all benefits, of AT&T under such policy and under the Senior Management Life Insurance Program, the Senior Management Basic Life Insurance Program, the AT&T Non-Employee Director Plans and any additional split dollar life insurance program that may be implemented by AT&T before the Close of the Distribution Date, as the case may be, with respect to such policies, and any related agreements entered into by Transferred Individuals or Lucent Non-Employee Directors. ARTICLE VII MISCELLANEOUS BENEFITS 7.1 TRANSFER OF STOCK PURCHASE PLAN RECORDKEEPING ACCOUNTS. If the AT&T Stock Purchase Plan is in effect as of the Close of the Distribution Date, AT&T shall cause the recordkeeping accounts under the AT&T Stock Purchase Plan of all Transferred Individuals to be transferred, as of the Close of the Distribution Date or as soon as practicable thereafter, to, and Lucent shall cause the accounts to be accepted by, the recordkeeper for the Lucent Stock Purchase Plan. Lucent shall use its reasonable best efforts to enter into agreements satisfactory to Lucent with the recordkeeper of the AT&T Stock Purchase Plan to ensure the transfer and maintenance of the participant records. Through the end of the Occupational Transition Period, Lucent shall use a recordkeeper and an enrollment vendor under the Lucent Stock Purchase Plan compatible with the recordkeeper and enrollment vendor under the AT&T Stock Purchase Plan. 7.2 CONCESSION TELEPHONE SERVICE. Effective Immediately after the Distribution Date through June 30, 1998, Lucent shall continue to provide a concession telephone service program for Transferred Individuals who are then retired or who retire on or before June 30, 1998, which shall be substantially identical in all Material Features to the corresponding AT&T concession telephone service program (provided, that Lucent shall only reimburse or pay for long-distance services provided by AT&T to such Transferred Individuals). 7.3 SERVICE ANNIVERSARY AND RETIREMENT AWARD PROGRAM. (a) Before the Close of the Distribution Date, AT&T shall use its reasonable best efforts to amend the service anniversary merchandise vendor contract in existence as of the date of this Agreement and related to the AT&T Service Anniversary and Retirement Award Program to permit Lucent and the Lucent Entities to participate in the terms and conditions of such contract effective Immediately after the Distribution Date. These efforts shall substantially conform with the guidelines set forth in Section 5.7(a) as if the service anniversary merchandise vendor contract were an ASO Contract. (b) Lucent and the Lucent Entities may provide to their employees service anniversary merchandise bearing the name and/or logo of AT&T ordered by AT&T before the date of this Agreement and delivered under the Lucent Service Anniversary and Retirement Award Program to Transferred Individuals, Lucent Individuals and other employees and former employees of Lucent and the Lucent Entities whose service anniversary occurs on or before December 31, 1996, subject to the terms and conditions of any separate agreement between AT&T and Lucent regarding the use of the corporate names, logos, service marks and other intellectual property of AT&T and an AT&T Entity. No service anniversary merchandise bearing the corporate name and/or logo of AT&T shall be delivered to any Transferred Individuals, Lucent Individuals or other employees and former employees of Lucent and the Lucent Entities with respect to a service anniversary on or after January 1, 1997, without the express written consent of AT&T. 7.4 SHARES FOR GROWTH PROGRAM. Effective Immediately after the Distribution Date, Lucent shall assume and be solely responsible for all Liabilities relating to, arising out of or resulting from awards to Transferred Individuals under the Shares for Growth Program provided for in the Collective Bargaining Agreement. Awards to Transferred Individuals payable after the Close of the Distribution Date shall be made in shares of Lucent Common Stock rather than shares of AT&T Common Stock, and in determining the number of shares of Lucent Common Stock Transferred Individuals will receive for such awards, the August 1995 reference price for a share of Lucent Common Stock shall be calculated by dividing the August 1995 reference price for a share of AT&T Common Stock as set forth in the Collective Bargaining Agreement by the Ratio. 7.5 THEODORE N. VAIL AWARD TRUST ASSETS. Lucent shall have the option to continue to offer the Theodore N. Vail Memorial Fund Awards program to its employees after the Close of the Distribution Date, provided that it exercises this option by giving written notice of its intent to AT&T before the Close of the Distribution Date. If Lucent elects to offer the Theodore N. Vail Awards program, and it is determined by AT&T to be legally permissible to transfer assets from the AT&T Theodore N. Vail Awards trust to a trust established by Lucent for purposes of the Lucent Theodore N. Vail Awards program, AT&T shall transfer from the AT&T Theodore N. Vail Awards trust to such trust established by Lucent assets determined by AT&T to have a fair market value that bears the same relationship to the fair market value of the total assets in such AT&T trust as the number of Transferred Individuals bears to the total number of employees and former employees of AT&T, the AT&T Entities, Lucent and the Lucent Entities as of the Close of the Distribution Date. AT&T shall have the sole discretion to determine whether such assets will be transferred to the Lucent trust in the form of AT&T Stock or cash or a combination thereof. 7.6 1996 MANAGEMENT INCENTIVE COMPENSATION PAYMENTS. Effective Immediately after the Distribution Date, Lucent shall be responsible for determining, with respect to company performance awards, unit performance awards, and merit awards that would otherwise be payable under AT&T's management compensation program to Transferred Individuals for the 1996 performance year, (a) the extent to which established performance criteria (as interpreted by Lucent, in its sole discretion, after taking into account the effects of the IPO and the Distribution) have been met and (b) the payment level for each Transferred Individual. ARTICLE VIII GENERAL AND ADMINISTRATIVE 8.1 PAYMENT OF 1996 ADMINISTRATIVE COSTS AND EXPENSES. (a) SHARED COSTS. The estimated budget for 1996 for AT&T's Benefits and Compensation organization is set forth on Schedule VII. AT&T and Lucent shall each be responsible for their allocable share of such budgeted costs as set forth on Schedule VII. Lucent shall pay to AT&T one-twelfth of its allocable share of such budgeted costs each month during 1996. AT&T shall provide, as soon as practicable after the date of this Agreement, such information as may reasonably be requested by Lucent concerning the determination of such budgeted costs. (b) ADDITIONAL UNANTICIPATED EXPENSES. If there are additional expenses not anticipated in the 1996 budget for AT&T's Benefits and Compensation organization, then Lucent shall pay to AT&T one-half of such unanticipated expenses, but only to the extent that the additional expenses are (i) reasonable and necessary and (ii) incurred as a direct result of, and solely for the purpose of, the normal administration (as currently projected for 1996) of the AT&T Plans and the Lucent Plans during 1996. If any unanticipated expenses are incurred at the request of Lucent or a Lucent Entity, they shall be the sole responsibility of Lucent. Any other unanticipated expenses shall be the sole responsibility of AT&T. (c) ADMINISTRATIVE PERSONNEL. A schedule of the individuals employed in AT&T's Benefits and Compensation organization who have been designated to become employees of Lucent or a Lucent Entity (the "Lucent Administrative Employees") has been agreed to by Lucent and AT&T. The Lucent Administrative Employees shall remain on AT&T's payroll until December 31, 1996 unless AT&T and Lucent agree to a different date. If AT&T and Lucent elect that the Lucent Administrative Employees be placed on the Lucent payroll before January 1, 1997, then Lucent's direct cost with respect to the Lucent Administrative Employees (including salary and loading for benefit related charges) for each month after they leave AT&T's payroll shall be subtracted from the monthly amount payable by Lucent in accordance with Section 8.1(a). Such individuals shall become Transferred Individuals when they are placed on the payroll of Lucent or a Lucent Entity if such date is after the Close of the Distribution Date. Regardless of whether the Lucent Administrative Employees are on the payroll of AT&T or Lucent or a Lucent Entity, they shall be subject to the supervision of AT&T's Senior Vice President, Benefits and Compensation, or his delegates, through December 31, 1996. (d) POST-DISTRIBUTION ADMINISTRATION IN 1996. From the Distribution Date through December 31, 1996, AT&T's Senior Vice President, Benefits and Compensation, and his staff (including the Lucent Administrative Employees) shall have full authority and responsibility to administer the Lucent Plans to the same extent as if AT&T's Senior Vice President, Benefits and Compensation, and his staff were employees of Lucent or a Lucent Entity. Notwithstanding the foregoing, Lucent shall retain all fiduciary responsibility for the administration of the Lucent Plans and, subject to the need to conform the administration of the AT&T Plans and the Lucent Plans during 1996, Lucent shall have the right to direct AT&T's Senior Vice President, Benefits and Compensation, in the manner in which it intends the Lucent Plans to be administered. 8.2 PAYMENT OF LIABILITIES, PLAN EXPENSES AND RELATED MATTERS. (a) ACTUARIAL AND ACCOUNTING METHODOLOGIES AND ASSUMPTIONS. For purposes of this Agreement, unless specifically indicated otherwise: (i) all actuarial methodologies and assumptions used for a particular Plan shall (except to the extent otherwise determined by AT&T and Lucent to be reasonable or necessary) be substantially the same as those used in the actuarial valuation of that Plan used to determine minimum funding requirements under ERISA Section 302 and Code Section 412 for 1996, or, if such Plan is not subject to such minimum funding requirements, used to determine AT&T's deductible contributions under Code Section 419A or, if such Plan is not subject to Code Section 419A, the assumptions used to prepare AT&T's audited financial statements for 1996, as the case may be; and (ii) the value of plan assets shall be the value established for purposes of audited financial statements of the relevant plan or trust for the period ending on the date as of which the valuation is to be made. Lucent Liabilities relating to, arising out of or resulting from the status of Lucent and the Lucent Entities as Participating Companies in AT&T Plans, as provided for in Section 2.2 and all accruals relating thereto shall be determined by AT&T using actuarial assumptions and methodologies (including with respect to demographics, medical trends and other relevant factors) determined by AT&T in a manner consistent with AT&T's practice as in effect on the Participation Commencement Date and in conformance with the generally accepted actuarial principles promulgated by the American Academy of Actuaries, the Code, ERISA, and/or generally accepted accounting principles, as applicable, in each case as interpreted by AT&T consistent with past practice. Except as otherwise contemplated by this Agreement or as required by law, all determinations as to the amount or valuation of any assets of or relating to any AT&T Plan (whether or not such assets are being transferred to a Lucent Plan) shall be made pursuant to procedures to be established by the parties before the Closing Date. (b) PAYMENT OF LIABILITIES; DETERMINATION OF EMPLOYEE STATUS. Lucent shall pay directly, or reimburse AT&T promptly for, all Liabilities assumed by it pursuant to this Agreement, including all compensation payable to Lucent Individuals and Transferred Individuals for services rendered while in the employ of AT&T or an AT&T Entity before becoming a Lucent Individual or Transferred Individual, respectively (to the extent not charged for pursuant to Section 8.1 or another Ancillary Agreement). To the extent the amount of such Liabilities is not yet determinable because the status of individuals as Lucent Individuals or Transferred Individuals is not yet determined, except as otherwise specified herein or in another Ancillary Agreement with respect to particular Liabilities, Lucent shall make such payments or reimbursements based upon AT&T's reasonable estimates of the amounts thereof, and when such status is determined, Lucent shall make additional reimbursements or payments, or AT&T shall reimburse Lucent, to the extent necessary to reflect the actual amount of such Liabilities. In determining the number of individuals in any particular group of employees described in this Agreement (such as "Transferred Individuals and Lucent Individuals"), no individual shall be counted twice (even if, for example, he or she is both a Lucent Individual and a Transferred Individual). Determinations of what entity employs or employed a particular individual shall be made by reference to the applicable legal entity and/or other appropriate accounting code, to the extent possible. (c) CONTRIBUTIONS TO TRUSTS. Lucent shall pay its share of any contributions made to any trust maintained in connection with an AT&T Plan with respect to any period while Lucent or a Lucent Entity is a Participating Company in that AT&T Plan; provided, however, that Lucent shall not be required to contribute to the AT&T Rabbi Trust after the date of this Agreement. Lucent's share of any contributions to the AT&T Health Benefits Trust shall be determined based on AT&T's reasonable estimate of the claims under the AT&T Plans funded through such trust that are paid to or for the benefit of Lucent Individuals and other employees and former employees of Lucent and the Lucent Entities, Transferred Individuals and beneficiaries and dependents thereof, until a cash benefit payment procedure for daily check presentments separately to Lucent and the Lucent Entities for such claims is implemented, after which Lucent's share of such contributions shall be determined based upon such procedure. Lucent's share of any contributions to any other such trust shall be determined by AT&T by computing separate contribution amounts for AT&T and Lucent, as if Lucent and the Lucent Entities were not Affiliates of AT&T and the AT&T Entities, but followed the same funding policy and used the same funding assumptions as AT&T and the AT&T Entities with respect to such trust; provided, that if the sum of the amounts so determined is less than or exceeds the total contribution to be made to such trust in accordance with such funding policy as applied to AT&T, the AT&T Entities, Lucent and the Lucent Entities as a group, then Lucent's share of such contribution shall be determined by increasing or reducing both such amounts, as applicable, proportionately so as to eliminate such difference. (d) PARTICIPANT CONTRIBUTIONS; SETTLEMENTS, REFUNDS, AND SIMILAR PAYMENTS. Until such time as a cash benefit payment procedure is implemented pursuant to which the participant contributions made under any AT&T Health and Welfare Plan made by Lucent Individuals, Transferred Individuals and other employees and former employees of Lucent and the Lucent Entities and beneficiaries and dependents thereof can be specifically identified as such, for purposes of determining the Lucent Liabilities associated with such Plan, such individuals shall be deemed to have made such contributions in an amount that bears the same relationship to the total contributions by all participants to such Plan as the number of such individuals who are participants in such Plan bears to the total number of participants in such Plan. If AT&T or an AT&T Entity receives any amount that represents an offset to or reduction of any Liability relating to, arising out of or resulting from any AT&T Plan (including any amount received in settlement of a dispute regarding the amount of benefits payable under such Plan and any refund of premiums paid to an insurer of benefits under such Plan) with respect to a period before the Close of the Distribution Date, then except to the extent Section 5.21(c)(iv) is applicable, AT&T shall pay to Lucent a portion of such amount that bears the same relationship to the total of such amount as the number of Lucent Individuals, Transferred Individuals and other employees and former employees of Lucent and the Lucent Entities who were participants in such Plan during the period to which such amount relates bears to the total number of participants in such Plan. (e) ADMINISTRATIVE EXPENSES NOT CHARGEABLE TO A TRUST. To the extent not charged for pursuant to Section 8.1 or another Ancillary Agreement or the ASA Agreement and to the extent not chargeable to a trust established in connection with an AT&T Plan, Lucent shall be responsible, through either direct payment from its own cash or reimbursement of AT&T from its own cash, for the following expenses in the administration of the AT&T Plans while Lucent or a Lucent Entity is a Participating Company in such Plans (and except as expressly provided below, Lucent's allocable share of the following administrative expenses shall be that portion of the total such expenses that bears the same relationship to such total expenses as the number of Lucent Individuals, Transferred Individuals and other employees and former employees of Lucent and the Lucent Entities who are participants in the applicable Plan bears to total number of participants in such Plan): (i) the costs incurred in the administration of the AT&T Pension Plans and other Plans providing benefits to retired individuals, including the cost of managing any trust assets and performing actuarial calculations (which shall be shared equally between Lucent and AT&T); (ii) the recordkeeping costs (including expenses in development and operation of the daily valuation recordkeeping system for the AT&T LTSSP) and other costs incurred in the administration of the AT&T Savings Plans (including expenses in employee communications materials for the AT&T Savings Plans and consultant and other out-of-pocket fees and expenses generally related to the design or administration of the AT&T Savings Plans); (iii) the fees paid to benefit delivery vendors under AT&T Health and Welfare Plans; (iv) COBRA administrative costs (of which Lucent's allocable share shall be that portion of the total such costs that bears the same relationship to such total costs as the number of Lucent Individuals, Transferred Individuals and other employees and former employees of Lucent and the Lucent Entities and beneficiaries and dependents thereof who are participants in the applicable Plan bears to total number of participants in such Plan); (v) the cost of administrative services for the Family Care Development Fund and other Work and Family programs; (vi) the costs incurred in the administration of the AT&T Executive Benefits Plans, including payments made to insurance agents and brokers (such as the agents and brokers who administer corporate-owned life insurance and trust-owned life insurance programs), and payments made to vendors (such as the vendor(s) who administer the AT&T Senior Management Financial Counseling Program); (vii) the expenses incurred in establishing the AT&T Stock Purchase Plan and its recordkeeping system; (viii) the consultant and other out-of-pocket fees and expenses (including accounting, actuarial, consulting, and legal fees, and photocopying, printing, and similar expenses) generally related to the design or administration of the AT&T Plans (which shall be shared equally between Lucent and AT&T); (ix) the payments for administration of the AT&T Rabbi Trust and for actuarial and legal work in connection with the AT&T Rabbi Trust (which shall be shared equally between Lucent and AT&T); and (x) the payments for the management of the assets of the AT&T Rabbi Trust (which shall be prorated between Lucent and AT&T based on relative value of Lucent's and AT&T's share of the liabilities funded by AT&T Rabbi Trust assets with respect to AT&T and Lucent Executives as reflected in the IPO Registration Statement). (f) STOCK AWARD CHARGEBACKS. Lucent shall pay AT&T the following amounts: (i) with respect to each AT&T Option that is exercised by a Lucent Individual or another employee of Lucent or a Lucent Entity at any time after the Closing Date, the Spread on such Option; (ii) with respect to each purchase of AT&T Common Stock pursuant to the AT&T Stock Purchase Plan by a Lucent Individual or another employee of Lucent or a Lucent Entity at any time after the Closing Date, the Spread with respect to such purchase; (iii) with respect to the vesting or delivery at any time after the Closing Date of shares of AT&T Common Stock pursuant to an Award (other than an AT&T Option) held by a Lucent Individual or another employee of Lucent or a Lucent Entity, the Value of such AT&T Common Stock on the date of such vesting or delivery. AT&T shall bill Lucent for such amounts from time to time (but only after the exercise, purchase, vesting or delivery that gives rise to the obligation to make any such payment), and Lucent shall pay such amounts promptly after receipt of such bills. The "Spread" on an Option or with respect to a purchase pursuant to the AT&T Stock Purchase Plan means the excess, if any, of the Value of the purchased shares on the date of exercise of such Option or the date of such purchase, as applicable, over the price paid for such shares. 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. 8.3 1984 AT&T UNFUNDED DIVESTITURE REIMBURSEMENT AGREEMENTS. In order to permit AT&T to continue to honor any obligations it may have for on-going reimbursement costs payable periodically to the seven Regional Bell Holding Companies and Bell Communications Research, Inc. in accordance with the provisions of the Unfunded Cost Sharing Agreements, Lucent shall provide, on an annual basis and in accordance with the schedule provided to Lucent by AT&T, at no cost to AT&T, any information in its possession required to enable AT&T to determine, validate, and reconcile the AT&T offset amounts specified in the Unfunded Cost Sharing Agreements. Lucent shall also provide AT&T with information in its possession to the extent requested by a party to an Unfunded Cost Sharing Agreement pursuant to its rights thereunder to audit information provided by Lucent to AT&T. If Lucent or any Lucent Entity grants an "ad hoc pension increase" as defined in either of the Unfunded Cost Sharing Agreements, as a result of which AT&T or any AT&T Entity is required to pay pursuant to either or both of the Unfunded Cost Sharing Agreements any amounts in excess of the amounts it would have been required to pay absent such ad hoc pension increase, then Lucent shall reimburse AT&T for the amount of such excess, as and when it is paid by AT&T or such AT&T Entity. The parties agree that any such ad hoc increase made by Lucent or any Lucent Entity to the extent not in excess of a prior ad hoc increase by AT&T or any AT&T Entity made after the date hereof will not give rise to any reimbursement obligation pursuant to the foregoing sentence, but an ad hoc increase made by Lucent or any Lucent Entity prior to any ad hoc increase made by AT&T or any AT&T Entity will give rise to such reimbursement obligation (with no reduction in such reimbursement obligation due to the subsequent ad hoc increase by AT&T or any AT&T Entity). Except as specifically provided in the preceding two sentences, the foregoing shall not be deemed to give rise to any liability of Lucent under the Unfunded Cost Sharing Agreements. 8.4 SHARING OF PARTICIPANT INFORMATION. AT&T and Lucent shall share, AT&T shall cause each applicable AT&T Entity to share, and Lucent shall cause each applicable Lucent Entity to share, with each other and their respective agents and vendors (without obtaining releases) all participant information necessary for the efficient and accurate administration of each of the AT&T Plans and the Lucent Plans during the respective Transition Periods applicable to such Plans, and with respect to each of the AT&T Health and Welfare Plans and Lucent Health and Welfare Plans, any additional periods during which such Plan is subject to the restrictions of Section 5.8. AT&T and Lucent and their respective authorized agents shall, subject to applicable laws on confidentiality, be given reasonable and timely access to, and may make copies of, all information relating to the subjects of this Agreement in the custody of the other party, to the extent necessary for such administration. Until the Close of the Distribution Date, all participant information shall be provided in the manner and medium applicable to Participating Companies in the AT&T Plans generally, and thereafter until December 31, 1998, all participant information shall be provided in a manner and medium that is compatible with the data processing systems of AT&T as in effect of the Close of the Distribution Date, unless otherwise agreed to by AT&T and Lucent. 8.5 REPORTING AND DISCLOSURE AND COMMUNICATIONS TO PARTICIPANTS. While Lucent is a Participating Company in the AT&T Plans, Lucent shall take, and shall cause each other applicable Lucent Entity to take, all actions necessary or appropriate to facilitate the distribution of all AT&T Plan-related communications and materials to employees, participants and beneficiaries, including summary plan descriptions and related summaries of material modification, summary annual reports, investment information, prospectuses, notices and enrollment material for the Lucent Plans. Lucent shall pay AT&T the cost relating to the copies of all such documents provided to Lucent, except to the extent such costs are charged pursuant to Section 8.1 or pursuant to an Ancillary Agreement or the ASA Agreement. Lucent shall assist, and Lucent shall cause each other applicable Lucent Entity to assist, AT&T in complying with all reporting and disclosure requirements of ERISA, including the preparation of Form 5500 annual reports for the AT&T Plans, where applicable. 8.6 NON-TERMINATION OF EMPLOYMENT; NO THIRD-PARTY BENEFICIARIES. No provision of this Agreement or the Separation and Distribution Agreement shall be construed to create any right, or accelerate entitlement, to any compensation or benefit whatsoever on the part of any Lucent Individual, Transferred Individual or other future, present or former employee of AT&T, an AT&T Entity, Lucent, or a Lucent Entity under any AT&T Plan or Lucent Plan or otherwise. Without limiting the generality of the foregoing: (i) neither the Distribution nor the termination of the Participating Company status of Lucent or a Lucent Entity shall cause any employee to be deemed to have incurred a termination of employment which entitles such individual to the commencement of benefits under any of the AT&T Plans, any of the Lucent Plans, or any of the Individual Agreements; and (ii) except as expressly provided in this Agreement, nothing in this Agreement shall preclude Lucent, at any time after the Close of the Distribution Date, from amending, merging, modifying, terminating, eliminating, reducing, or otherwise altering in any respect any Lucent Plan, any benefit under any Plan or any trust, insurance policy or funding vehicle related to any Lucent Plan. 8.7 PLAN AUDITS. (a) AUDIT RIGHTS WITH RESPECT TO THE ALLOCATION OR TRANSFER OF PLAN ASSETS. The allocation of Pension Plan assets and liabilities pursuant to Section 3.2, the transfer of assets from AT&T VEBAs pursuant to Sections 5.3 and 5.5, the transfer of RFA assets pursuant to Section 5.4 and the transfer of assets from the AT&T Rabbi Trust pursuant to Section 6.8 shall be audited on behalf of both AT&T and Lucent by the consulting firm of Milliman & Robertson. The scope of such audit shall be limited to the accuracy of the data and the accuracy of the computation and adherence to the methodology specified in this Agreement and except as set forth in the last sentence of this Section 8.7(a), such audit shall not be binding on the parties. Milliman & Robertson shall provide its report to both AT&T and Lucent. No other audit shall be conducted with respect to the transfer or allocation of Plan assets. The costs of such audit shall be shared equally by AT&T and Lucent, or, at each company's discretion and to the extent allocable thereto, by their respective Pension Plans. To the extent such audit recommends a change to the value of assets allocated to a Lucent Plan of less than 0.25%, the original determination shall be binding on the parties and shall not be subject to the dispute resolution process provided under the Separation and Distribution Agreement. To the extent such audit recommends such a change of 0.25% or more, any unresolved dispute between the parties as to whether and how to make any change in response to such recommendation shall be subject to the dispute resolution process provided under the Separation and Distribution Agreement. (b) AUDIT RIGHTS WITH RESPECT TO INFORMATION PROVIDED. (i) Each of AT&T and Lucent, and their duly authorized representatives, shall have the right to conduct audits with respect to all information provided to it by the other party. The party conducting the audit (the "Auditing Party") shall have the sole discretion to determine the procedures and guidelines for conducting audits and the selection of audit representatives under this Section 8.7(b); provided, that audits with respect to the allocation or transfer of Plan assets and liabilities shall be subject only to Section 8.7(a). The Auditing Party shall have the right to make copies of any records at its expense, subject to the confidentiality provisions set forth in the Separation and Distribution Agreement, which are incorporated by reference herein. The party being audited shall provide the Auditing Party's representatives with reasonable access during normal business hours to its operations, computer systems and paper and electronic files, and -50- provide workspace to its representatives. After any audit is completed, the party being audited shall have the right to review a draft of the audit findings and to comment on those findings in writing within five business days after receiving such draft. (ii) The Auditing Party's audit rights under this Section 8.7(b) shall include the right to audit, or participate in an audit facilitated by the party being audited, of any Subsidiaries and Affiliates of the party being audited and of any benefit providers and third parties with whom the party being audited has a relationship, or agents of such party, to the extent any such persons are affected by or addressed in this Agreement (collectively, the "Non-parties"). The party being audited shall, upon written request from the Auditing Party, provide an individual (at the Auditing Party's expense) to supervise any audit of a Non-party. The Auditing Party shall be responsible for supplying, at the Auditing Party's expense, additional personnel sufficient to complete the audit in a reasonably timely manner. The responsibility of the party being audited shall be limited to providing, at the Auditing Party's expense, a single individual at each audited site for purposes of facilitating the audit. (c) AUDITS REGARDING VENDOR CONTRACTS. From Immediately after the Distribution Date through December 31, 1998, AT&T and Lucent and their duly authorized representatives shall have the right to conduct joint audits with respect to any vendor contracts that relate to both the AT&T Health and Welfare Plans and the Lucent Health and Welfare Plans. The scope of such audits shall encompass the review of all correspondence, account records, claim forms, canceled drafts (unless retained by the bank), provider bills, medical records submitted with claims, billing corrections, vendor's internal corrections of previous errors and any other documents or instruments relating to the services performed by the vendor under the applicable vendor contracts. AT&T and Lucent shall agree on the performance standards, audit methodology, auditing policy and quality measures and reporting requirements relating to the audits described in this Section 8.7 and the manner in which costs incurred in connection with such audits will be shared. 8.8 BENEFICIARY DESIGNATIONS. All beneficiary designations made by Transferred Individuals for AT&T Plans shall be transferred to and be in full force and effect under the corresponding Lucent Plans until such beneficiary designations are replaced or revoked by the Transferred Individual who made the beneficiary designation. 8.9 REQUESTS FOR IRS RULINGS AND DOL OPINIONS. (a) COOPERATION. Lucent shall cooperate fully with AT&T on any issue relating to the transactions contemplated by this Agreement for which AT&T elects to seek a determination letter or private letter ruling from the IRS or an advisory opinion from the DOL. AT&T shall cooperate fully with Lucent with respect to any request for a determination letter or private letter ruling from the IRS or advisory opinion from the DOL with respect to any of the Lucent Plans relating to the transactions contemplated by this Agreement. (b) APPLICATIONS. AT&T and Lucent shall make such applications to regulatory agencies, including the IRS and DOL, as may be necessary to ensure that any transfers of assets from the AT&T Health Trusts to the Lucent Health Trusts and from the AT&T LTD VEBA to the Lucent LTD VEBA will neither (i) result in any adverse tax, legal or fiduciary consequences to AT&T and Lucent, the AT&T Health Trusts and the AT&T LTD VEBA, the Lucent Health Trusts and the Lucent LTD VEBA, any participant therein or beneficiaries thereof, or any of AT&T Health Trusts and the AT&T LTD VEBA, any successor welfare benefit funds established by or on behalf of Lucent, or the trustees of such trusts, nor (ii) contravene any statute, regulation or technical pronouncement issued by any regulatory agency. Before the Close of the Distribution Date, Lucent shall prepare all forms required to obtain favorable tax-exempt determination letters from the IRS for the Lucent Health Trusts and the Lucent LTD VEBA, and, if applicable, the Lucent Union VEBA. Lucent and AT&T agree to cooperate with each other to fulfill any filing and/or regulatory reporting obligations with respect to such transfers. (c) LIFE INSURANCE. To the extent the transfer or allocation of all or a portion of any life insurance policies results in any adverse tax or legal consequences, including (i) any finding that such transfer results in the creation of a modified endowment contract within the meaning of Code Section 7702A, a transfer for value within the meaning of Code Section 101(a), or a lack of insurable interest for either AT&T or Lucent (or their respective trusts, if any), or (ii) multiple claims for insurance proceeds, AT&T and Lucent shall take such steps as may be necessary to contest any such finding and, to the extent of any final determination that such adverse tax or legal consequences will result, AT&T and Lucent shall make such further adjustments so as to place both parties in the proportionate financial position that they each would have been in relative to the other but for such adverse tax or legal consequences. 8.10 FIDUCIARY MATTERS. (a) FIDUCIARY STATUS. AT&T and Lucent each acknowledges that actions required to be taken pursuant to this Agreement may be subject to fiduciary duties or standards of conduct under ERISA or other applicable law, and no party shall be deemed to be in violation of this Agreement if it fails to comply with any provisions hereof based upon its good faith determination that to do so would violate such a fiduciary duty or standard. (b) INDEPENDENT FIDUCIARY. Lucent shall retain a fiduciary independent of AT&T to review and approve the types and value of the assets to be transferred to the Lucent Plans from the AT&T Plans as described in Articles III and IV of this Agreement to the extent that such Plans are subject to Part 4 of Title I of ERISA. The foregoing shall not prevent Lucent from engaging any fiduciaries for any other purposes. 8.11 AGREEMENT WITH ACTUARIAL SCIENCES ASSOCIATES, INC. Lucent shall enter into an agreement with Actuarial Sciences Associates, Inc. ("ASA"), in a form substantially similar to Exhibit A. Within 60 days after the Distribution Date, such agreement shall be presented for ratification by Lucent's Board of Directors or its authorized delegate. 8.12 COLLECTIVE BARGAINING. To the extent any provision of this Agreement is contrary to the provisions of the Collective Bargaining Agreement or any other collective bargaining agreement to which AT&T or any Affiliate of AT&T is a party, the terms of such collective bargaining agreement shall prevail. Should any provisions of this Agreement be deemed to relate to a topic determined by an appropriate authority to be a mandatory subject of collective bargaining, AT&T or Lucent may be obligated to bargain with the union representing affected employees concerning those subjects. Neither party will agree to a modification of the Collective Bargaining Agreement without the consent of the other. In the event a force surplus affecting members of a bargaining unit in both AT&T or any AT&T Entity (on the one hand) and Lucent or any Lucent Entity (on the other hand) directly results, due to the provisions of the Collective Bargaining Agreement, in an employee involuntarily leaving the payroll of the party not declaring the surplus, then the party declaring the surplus shall bear the cost of any severance payable to such employee. 8.13 CONSENT OF THIRD PARTIES. If any provision of this Agreement is dependent on the consent of any third party (such as a vendor or a union) and such consent is withheld, AT&T and Lucent shall use their reasonable best efforts to implement the applicable provisions of this Agreement to the full extent practicable. If any provision of this Agreement cannot be implemented due to the failure of such third party to consent, AT&T and Lucent shall negotiate in good faith to implement the provision in a mutually satisfactory manner. The phrase "reasonable best efforts" as used herein shall not be construed to require the incurrence of any non-routine or unreasonable expense or liability or the waiver of any right. 8.14 POST-DISTRIBUTION BENEFIT DELIVERY/ADMINISTRATION. Lucent shall continue to use the P2000 benefit administration system and a compatible pension payment system, to administer the Lucent Pension Plans through the end of the Management Transition Period. 8.15 QUIET PERIODS. Lucent shall take such action as is necessary to ensure that participants in the Lucent LTSSP, the Lucent LTSPME, and the Lucent RSPSP are notified that a quiet period will occur beginning on or about October 1, 1996, during which changes in investment direction with respect to participants' accounts generally will not be permitted. ARTICLE IX MISCELLANEOUS 9.1 FOREIGN PLANS. As soon as practicable after the date of this Agreement, AT&T and Lucent shall enter into an agreement regarding the treatment of Foreign Plans consistent with the principles set forth in Exhibit B hereto. 9.2 RESOURCE LINK EMPLOYEES. The following individuals who are employees of AT&T or an AT&T Entity as of the Close of the Distribution Date shall become employees of Lucent or a Lucent Entity Immediately after the Distribution Date, and shall be Transferred Individuals: (a) a maximum of 208 such individuals who, as of the Close of the Distribution Date, are on Resource Link assignments to Lucent or a Lucent Entity as of that time, or whose most recent Resource Link assignment before the Close of the Distribution Date was with Lucent or a Lucent Entity; (b) a maximum of 48 additional individuals who are, as of the Close of the Distribution Date, on Resource Link assignment to common support functions or whose most recent Resource Link assignment before the Close of the Distribution Date was to common support functions; and (c) term employees who are, as of the Close of the Distribution Date, on Resource Link assignments with Lucent or a Lucent Entity. 9.3 EFFECT IF DISTRIBUTION DOES NOT OCCUR. If the Distribution does not occur, then all actions and events that are, under this Agreement, to be taken or occur effective as of the Close of the Distribution Date, Immediately after the Distribution Date, or otherwise in connection with the Distribution, shall not be taken or occur except to the extent specifically agreed by Lucent and AT&T. 9.4 RELATIONSHIP OF PARTIES. Nothing in this Agreement shall be deemed or construed by the parties or any third party as creating the relationship of principal and agent, partnership or joint venture between the parties, it being understood and agreed that no provision contained herein, and no act of the parties, shall be deemed to create any relationship between the parties other than the relationship set forth herein. 9.5 AFFILIATES. Each of AT&T and Lucent shall cause to be performed, and hereby guarantees the performance of, all actions, agreements and obligations set forth in this Agreement to be performed by an AT&T Entity or a Lucent Entity, respectively. 9.6 INCORPORATION OF SEPARATION AND DISTRIBUTION AGREEMENT PROVISIONS. The following provisions of the Separation and Distribution Agreement are hereby incorporated herein by reference, and unless otherwise expressly specified herein, such provisions shall apply as if fully set forth herein (references in this Section 9.6 to an "Article" or "Section" shall mean Articles or Sections of the Separation and Distribution Agreement, and, except as expressly set forth below, references in the material incorporated herein by reference shall be references to the Separation and Distribution Agreement): Article V (relating to Mutual Releases and Indemnification); Article VIII (relating to Exchange of Information and Confidentiality); Article IX (relating to Arbitration and Dispute Resolution); Article X (relating to Further Assurances and Additional Covenants); Article XI (relating to Termination); and Article XII (relating to Miscellaneous) other than Section 12.2 (relating to Governing Law). 9.7 GOVERNING LAW. To the extent not preempted by applicable federal law, this Agreement shall be governed by, construed and interpreted in accordance with the laws of the State of New York, irrespective of the choice of laws principles of the State of New York, as to all matters, including matters of validity, construction, effect, performance and remedies. IN WITNESS WHEREOF, the parties have caused this Employee Benefits Agreement to be duly executed as of the day and year first above written. AT&T CORP. By: /s/ - ------------------------------ Name: Title: LUCENT TECHNOLOGIES INC. By: /s/ - ------------------------------ Name: Title: EX-10 7 EXHIBIT (10)(I)5 FORM OF EMPLOYEE BENEFITS AGREEMENT BETWEEN AT&T CORP. AND NCR CORPORATION DATED AS OF NOVEMBER 20, 1996 TABLE OF CONTENTS ARTICLE I DEFINITIONS ................................................ 1 1.1 Agreement ...................................................... 1 1.2 Assigned Split Dollar Policies ................................. 1 1.3 AT&T Controlled Person ......................................... 2 1.4 AT&T Executive Benefit Plans ................................... 2 1.5 AT&T Individual ................................................ 2 1.6 AT&T Individual Agreement ...................................... 2 1.7 AT&T Plan ...................................................... 2 1.8 AT&T Short Term Incentive Plans ................................ 2 1.9 AT&T Stock Value ............................................... 2 1.10 ATTIMCO ........................................................ 3 1.11 Award .......................................................... 3 1.12 Close of the NCR Distribution Date ............................. 3 1.13 Code ........................................................... 3 1.14 Distribution Agreement ......................................... 3 1.15 ERISA .......................................................... 3 1.16 First Transfer ................................................. 3 1.17 Immediately after the NCR Distribution Date..................... 3 1.18 Individual Agreement ........................................... 3 1.19 Long Term Incentive Plan ....................................... 3 1.20 LTIT ........................................................... 3 1.21 LTIT Agreement ................................................. 3 1.22 LTIT Redemption ................................................ 4 1.23 Lucent EBA ..................................................... 4 1.24 MPT ............................................................ 4 1.25 MPT Agreement .................................................. 4 1.26 MPT Withdrawal ................................................. 4 1.27 NCR Allocable Share ............................................ 4 1.28 NCR Controlled Person .......................................... 4 1.29 NCR Employee ................................................... 4 1.30 NCR Executive Benefit Plans .................................... 4 1.31 NCR Individual ................................................. 4 1.32 NCR Individual Agreement ....................................... 5 1.33 NCR Pension Plans .............................................. 5 1.34 NCR Plan ....................................................... 5 1.35 NCR Savings Plan ............................................... 5 1.36 NCR SERPs ...................................................... 5 1.37 NCR Short Term Incentive Plans ................................. 5 1.38 NCR Stock Value ................................................ 5 1.39 Option ......................................................... 5 1.40 Plan ........................................................... 5 1.41 Prior MPT ...................................................... 5 1.42 QDRO ........................................................... 5 1.43 QMCSO .......................................................... 6 1.44 Ratio ...................................................... 6 1.45 Second Transfer ............................................ 6 1.46 Segregated Assets .......................................... 6 1.47 Separation and Distribution Agreement ...................... 6 1.48 Split Dollar Life Insurance ................................ 6 1.49 Spread ..................................................... 6 1.50 Supplemental Pension Plan for Transfers .................... 6 1.51 U.S. ....................................................... 6 1.52 Value ...................................................... 6 ARTICLE II GENERAL PRINCIPLES ......................................... 6 2.1 Allocation of Liabilities .................................. 6 2.2 Transferred Executives ..................................... 7 ARTICLE III QUALIFIED PLANS ............................................ 7 3.1 NCR Pension Plans .......................................... 7 3.2 NCR Savings Plan ........................................... 10 ARTICLE IV EXECUTIVE BENEFITS ......................................... 10 4.1 General .................................................... 10 4.2 Nonqualified Plans ......................................... 10 4.3 AT&T Long Term Incentive Plans ............................. 11 4.4 AT&T Split Dollar Life Insurance ........................... 13 4.5 Individual Agreements ...................................... 13 ARTICLE V MISCELLANEOUS BENEFITS ..................................... 14 5.1 Employee Stock Purchase Plan ............................... 14 5.2 Short Term Incentive Plans ................................. 14 ARTICLE VI FOREIGN PLANS; INTERCHANGE ................................. 14 6.1 Foreign Plans .............................................. 14 6.2 Interchange Agreement ...................................... 14 ARTICLE VII MISCELLANEOUS .............................................. 14 7.1 Sharing of Participant Information ......................... 14 7.2 No Change of Control; No Rights Created; No ................. Restrictions .............................................. 14 7.3 Effect If NCR Distribution Does Not Occur .................. 15 7.4 Relationship of Parties .................................... 15 7.5 Affiliates ................................................. 15 7.6 Incorporation of Distribution Agreement Provisions ............................................... 15 7.7 Incorporation of Separation and Distribution Agreement Provisions ...................................... 15 7.8 Governing Law .............................................. 15 7.9 Tax Deductions ............................................. 16 7.10 Agreements with Third Parties .............................. 16 7.11 NCR to Honor Agreements .................................... 17 Signatures ............................................................. 18 Schedule I AT&T Executive Benefit Plans Schedule II Individual Agreements Schedule III NCR Executive Benefit Plans Schedule IV Individuals to be Transferred to NCR Schedule V Assets Referred to in Section 3.1(b) Schedule VI Selection of Assets to be Transferred to Trustee(s) of NCR Pension Plans Schedule VII AT&T Awards Not to Be Replaced with NCR Awards Schedule VIII AT&T Liabilities Under Individual Agreements Schedule IX Reimbursement of NCR Schedule X Reimbursement of AT&T Schedule XI Agreements Establishing Phantom Share Accounts Exhibit A Form of Receipt and Release for First Transfer Exhibit B Form of Receipt and Release for Second Transfer Exhibit C Form of Foreign Employee Benefits Agreement Exhibit D Form of Interchange Agreement EMPLOYEE BENEFITS AGREEMENT This EMPLOYEE BENEFITS AGREEMENT, dated as of November 20, 1996, is by and between AT&T and NCR. Capitalized terms used herein (other than the formal names of AT&T Plans and NCR Plans (as defined below) and related trusts) and not otherwise defined shall have the respective meanings assigned to them in Article I hereof or as assigned to them in the Distribution Agreement (as defined below). WHEREAS, the Board of Directors of AT&T has determined that it is in the best interests of AT&T and its shareholders to separate AT&T's existing businesses into three independent businesses; WHEREAS, in 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 (which was consummated on September 30, 1996); 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 in the Distribution Agreement; WHEREAS, in furtherance of the foregoing, AT&T and NCR have entered into a Distribution Agreement, dated as of November 20, 1996 (the "Distribution Agreement"), and certain other 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; and WHEREAS, AT&T and NCR wish to enter into this agreement allocating assets, liabilities and responsibilities with respect to certain employee compensation and benefit plans and programs between them. NOW, THEREFORE, the parties, intending to be legally bound, agree as follows: ARTICLE I DEFINITIONS For purposes of this Agreement the following terms shall have the following meanings: 1.1 AGREEMENT means this Employee Benefits Agreement, including all the Schedules and Exhibits hereto. 1.2 ASSIGNED SPLIT DOLLAR POLICIES is defined in Section 4.4. 1.3 AT&T CONTROLLED PERSON as of a specified time means any Person that is, at such time, a Subsidiary of AT&T or is otherwise controlled, directly or indirectly, by AT&T, other than NCR or any Person that is, at such time, an NCR Controlled Person. 1.4 AT&T EXECUTIVE BENEFIT PLANS means the executive benefit and nonqualified plans, programs, and arrangements established, maintained, agreed upon, or assumed, in each case before the Close of the NCR Distribution Date, by AT&T or a Person that is, Immediately after the NCR Distribution Date, an AT&T Controlled Person, for the benefit of AT&T Individuals and/or NCR Individuals who participated therein, including the plans listed in Schedule I. 1.5 AT&T INDIVIDUAL means any individual who is not an NCR Individual and is, as of the Close of the NCR Distribution Date: (a) actively employed by, or on a leave of absence from, either AT&T or a Person that is, as of the Close of the NCR Distribution Date, an AT&T Controlled Person; or (b) neither actively employed by, nor on a leave of absence from, AT&T or a Person that is, as of the Close of the NCR Distribution Date, an AT&T Controlled Person, but whose most recent active employment with AT&T or a past or present Affiliate of AT&T (including NCR and its Affiliates) was with either AT&T or a Person that was, at the time such active employment ended, an AT&T Controlled Person; provided, that an individual who is a Transferred Individual as defined in the Lucent EBA shall not be considered an AT&T Individual under this sentence. An alternate payee under a QDRO or alternate recipient under a QMCSO with respect to, or a beneficiary or covered dependent of, an employee or former employee described in the preceding sentence shall also be an AT&T Individual with respect to that employee's or former employee's benefit under the applicable Plans. Such an alternate payee, alternate recipient, beneficiary, or covered dependent shall not otherwise be considered an AT&T Individual with respect to his or her own benefits under any applicable Plans unless he or she is an AT&T Individual by virtue of the first sentence of this definition. In addition, AT&T and NCR may designate, by mutual agreement, any other individuals, or group of individuals, as AT&T Individuals. An individual may be an AT&T Individual pursuant to this definition regardless of whether such individual is, as of the NCR Distribution Date, alive, actively employed, on a temporary leave of absence from active employment, on layoff, terminated from employment, retired or on any other type of employment or post-employment status relative to any Plan, and regardless of whether, as of the Close of the NCR Distribution Date, such individual is then receiving any benefits from any AT&T Plan or NCR Plan. 1.6 AT&T INDIVIDUAL AGREEMENT means an Individual Agreement with an AT&T Individual. 1.7 AT&T PLAN means any Plan that is, Immediately after the NCR Distribution Date, sponsored by AT&T or a Person that is then an AT&T Controlled Person or, if such Plan is no longer in existence Immediately after the NCR Distribution Date, was, at the time it ceased to exist, sponsored by AT&T or a Person that is, Immediately after the NCR Distribution Date, an AT&T Controlled Person or a direct or indirect predecessor to such a Person. 1.8 AT&T SHORT TERM INCENTIVE PLANS means the AT&T Short Term Incentive Plan and the AT&T Management Incentive Compensation Program. 1.9 AT&T STOCK VALUE means the average of the daily high and low per-share prices of the AT&T Common Stock as traded regular way on the NYSE during each of the five trading days immediately preceding the NCR Distribution Date. 1.10 ATTIMCO means AT&T Investment Management Corporation, a Delaware corporation. 1.11 AWARD means an award under a Long Term Incentive Plan or a Short Term Incentive Plan. 1.12 CLOSE OF THE NCR DISTRIBUTION DATE means 11:59:59 P.M., Eastern Standard Time or Eastern Daylight Time (whichever shall then be in effect), on the NCR Distribution Date. 1.13 CODE means the Internal Revenue Code of 1986, as amended, or any successor federal income tax law. Reference to a specific Code provision also includes any proposed, temporary, or final regulation in force under that provision. 1.14 DISTRIBUTION AGREEMENT is defined in the sixth paragraph of the preamble of this Agreement. 1.15 ERISA means the Employee Retirement Income Security Act of 1974, as amended. Reference to a specific provision of ERISA also includes any proposed, temporary, or final regulation in force under that provision. 1.16 FIRST TRANSFER is defined in Section 3.1(c)(iii). 1.17 IMMEDIATELY AFTER THE NCR DISTRIBUTION DATE means 12:00 A.M., Eastern Standard Time or Eastern Daylight Time (whichever shall then be in effect), on the day after the NCR Distribution Date. 1.18 INDIVIDUAL AGREEMENT means an individual contract or agreement (including the agreements listed on Schedule II) entered into before the Close of the NCR Distribution Date between AT&T, or any of its past or present Affiliates (including NCR and its past or present Affiliates) and an NCR Individual or an AT&T Individual that establishes the right of such individual to special executive compensation or benefits, including a supplemental pension benefit, hiring bonus, loan, guaranteed payment, special allowance, tax equalization or disability benefit, or share units granted (and payable in the form of cash or otherwise) under an individual phantom share agreement, or that provides benefits similar to those identified in Schedule I. 1.19 LONG TERM INCENTIVE PLAN, when immediately preceded by "AT&T," means any of the AT&T 1984 Stock Option Plan, the AT&T 1987 Long Term Incentive Program, and such other stock-based incentive plans assumed by AT&T by reason of merger, acquisition, or otherwise, including incentive plans of NCR, Teradata Corporation, AT&T Wireless Services, Inc. (formerly McCaw Cellular Communications, Inc.), and LIN Broadcasting Corporation, and when immediately preceded by "NCR," means the long term incentive plan to be established by NCR pursuant to Section 4.3(a). 1.20 LTIT means the Long-Term Investment Trust established pursuant to the LTIT Agreement. 1.21 LTIT AGREEMENT means the Agreement of Trust Establishing the Long-Term Investment Trust and Constituting the Amendment and Restatement of the AT&T Master Pension Trust Agreement and Conversion Thereof, effective as of October 1, 1996, as amended from time to time. 1.22 LTIT REDEMPTION is defined in Section 3.1(c)(ii). 1.23 LUCENT EBA means the Employee Benefits Agreement between AT&T and Lucent dated as of February 1, 1996 and amended and restated as of March 29, 1996. 1.24 MPT means the AT&T Master Pension Trust established pursuant to the MPT Agreement. 1.25 MPT AGREEMENT means the AT&T Master Pension Trust Agreement dated as of October 1, 1996 between AT&T, Citibank, N.A., and certain other banks, trust companies or individuals identified therein, as amended from time to time. 1.26 MPT WITHDRAWAL is defined in Section 3.1(c)(iii). 1.27 NCR ALLOCABLE SHARE is defined in Section 3.1(c)(ii). 1.28 NCR CONTROLLED PERSON as of a specified time means any Person that is, at such time, a Subsidiary of NCR or is otherwise controlled, directly or indirectly, by NCR. 1.29 NCR EMPLOYEE means an NCR Individual who is described in clause (a) of the definition of NCR Individual, or, to the extent relevant, an alternate payee under a QDRO or alternate recipient under a QMCSO with respect to, or a beneficiary or covered dependent of, such an NCR Individual. 1.30 NCR EXECUTIVE BENEFIT PLANS means the executive benefit and nonqualified plans, programs, and arrangements established, maintained, agreed upon, or assumed, before the Close of the NCR Distribution Date, by NCR or any Person that is, Immediately after the NCR Distribution Date, an NCR Controlled Person, for the benefit of AT&T Individuals and/or NCR Individuals who participated therein, including the plans listed in Schedule III. 1.31 NCR INDIVIDUAL means any individual who, as of the Close of the NCR Distribution Date: (a) is actively employed by, or on a leave of absence from, NCR or a Person that is, as of the Close of the NCR Distribution Date, an NCR Controlled Person; or (b) is neither actively employed by, nor on a leave of absence from, NCR or a Person that is, as of the Close of the NCR Distribution Date, an NCR Controlled Person, but whose most recent active employment with AT&T or a past or present Affiliate of AT&T (including NCR and its Affiliates) was with either NCR or a Person that was, at the time such active employment ended, or is, as of the Close of the Distribution Date, an NCR Controlled Person. An alternate payee under a QDRO or alternate recipient under a QMCSO with respect to, or a beneficiary or covered dependent of, an employee or former employee described in the preceding sentence shall also be an NCR Individual with respect to that employee's or former employee's benefit under the applicable Plans. Such an alternate payee, alternate recipient, beneficiary, or covered dependent shall not otherwise be considered an NCR Individual with respect to his or her own benefits under any applicable Plans unless he or she is an NCR Individual by virtue of the first sentence of this definition. In addition, AT&T and NCR may designate, by mutual agreement, any other individuals, or group of individuals, as NCR Individuals. An individual may be an NCR Individual pursuant to this definition regardless of whether such individual is, as of the NCR Distribution Date, alive, actively employed, on a temporary leave of absence from active employment, on layoff, terminated from employment, retired or on any other type of employment or post-employment status relative to any Plan, and regardless of whether, as of the Close of the NCR Distribution Date, such individual is then receiving any benefits from any AT&T Plan or NCR Plan. 1.32 NCR INDIVIDUAL AGREEMENT means an Individual Agreement with an NCR Individual. 1.33 NCR PENSION PLANS means The NCR Pension Plan, The Retirement Plan for Employees of NCR Corporation at Dayton, Ohio Represented by the Independent Union of NCR Corporation Guards, and all predecessors to either of such Plans, including Plans that have been merged into either of such Plans. 1.34 NCR PLAN means any Plan that is, Immediately after the Distribution Date, sponsored by NCR or a Person that is then an NCR Controlled Person or, if such Plan is no longer in existence Immediately after the NCR Distribution Date, was, at the time it ceased to exist, sponsored by NCR or a Person that is, Immediately after the NCR Distribution Date, an NCR Controlled Person or a direct or indirect predecessor to such a Person. 1.35 NCR SAVINGS PLAN means the NCR Savings Plan. 1.36 NCR SERPS means all NCR Plans that are or were "employee pension benefit plans" within the meaning of Section 3(2) of ERISA that are not qualified under Section 401(a) of the Code, including the NCR Corporation Nonqualified Excess Plan, the NCR Corporation Executive Retirement, Death and Disability Plan, the NCR Mid-Career Hire Supplemental Pension Plan, the Supplemental Plan for Transfers Between AT&T and NCR, and the Retirement Plan for Officers of NCR. 1.37 NCR SHORT TERM INCENTIVE PLANS means the NCR Management Incentive Plan and the NCR Customer Delight Performance Award Program. 1.38 NCR STOCK VALUE means the average of the daily high and low per-share prices of the NCR Common Stock as traded on the NYSE, on a when-issued basis, during each of the five trading days immediately preceding the NCR Distribution Date. 1.39 OPTION, when immediately preceded by "AT&T," means an option to purchase AT&T Common Stock and when immediately preceded by "NCR," Option means an option to purchase NCR Common Stock, in each case pursuant to a Long Term Incentive Plan. 1.40 PLAN means any plan, policy, program, payroll practice, on-going arrangement, contract, trust, insurance policy or other agreement or funding vehicle providing benefits to employees or former employees of AT&T and its past or present Affiliates (including NCR and its Affiliates). 1.41 PRIOR MPT means the AT&T Master Pension Trust which was the predecessor to, and was converted into, the LTIT. 1.42 QDRO means a domestic relations order which qualifies under Code Section 414(p) and ERISA Section 206(d) and which creates or recognizes an alternate payee's right to, or assigns to an alternate payee, all or a portion of the benefits payable to a participant under any AT&T Plan or NCR Plan. 1.43 QMCSO means a medical child support order which qualifies under ERISA Section 609(a) and which creates or recognizes the existence of an alternate recipient's right to, or assigns to an alternate recipient the right to, receive benefits for which a participant or beneficiary is eligible under an AT&T Plan or NCR Plan. 1.44 RATIO means the amount obtained by dividing the AT&T Stock Value by the NCR Stock Value. 1.45 SECOND TRANSFER is defined in Section 3.1(c)(iii). 1.46 SEGREGATED ASSETS is defined in Section 3.1(c)(iii). 1.47 SEPARATION AND DISTRIBUTION AGREEMENT is defined in the third paragraph of the preamble of this Agreement. 1.48 SPLIT DOLLAR LIFE INSURANCE means the life insurance policies purchased by AT&T on behalf of certain individuals under the AT&T Senior Management Individual Life Insurance Program and the AT&T Senior Management Basic Life Insurance Program, with respect to which such individuals (or their assignees or delegates) have executed collateral assignments for the benefit of AT&T. 1.49 SPREAD is defined in Section 4.3(b)(iv). 1.50 SUPPLEMENTAL PENSION PLAN FOR TRANSFERS means the NCR Supplemental Pension Plan for Transfers between AT&T and NCR. 1.51 U.S. means the 50 United States and the District of Columbia. 1.52 VALUE is defined in Section 4.3(b)(iv). ARTICLE II GENERAL PRINCIPLES 2.1 ALLOCATION OF LIABILITIES. (a) NCR hereby assumes or retains, as applicable, and agrees to pay, perform, fulfill and discharge, in accordance with their respective terms, and to indemnify the AT&T Indemnitees from and against, pursuant to Section 4.2 of the Distribution Agreement, all of the following (regardless of when or where such Liabilities arose or arise or were or are incurred), except to the extent otherwise specified in Section 2.1(b) below and in the agreement entered into pursuant to Section 6.1 with respect to Foreign Plans: (i) all Liabilities to or relating to NCR Individuals relating to, arising out of or resulting from employment by AT&T or any Person that was, at the time of such employment, an AT&T Controlled Person, which employment occurred before the Close of the NCR Distribution Date; (ii) all Liabilities to or relating to NCR Individuals and other employees or former employees of NCR or any Person that was, at the time of such employment, an NCR Controlled Person, and their dependents and beneficiaries, relating to, arising out of or resulting from employment with NCR or an NCR Controlled Person before, at or after the Close of the NCR 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 any Person that was, at the time of such actual or alleged employment, an NCR Controlled Person; (iv) all other Liabilities relating to, arising out of or resulting from obligations, liabilities and responsibilities expressly assumed or retained by NCR, or an NCR Plan pursuant to this Agreement; and (v) all Liabilities relating to, arising out of or resulting from NCR Plans. (b) AT&T hereby assumes or retains, as applicable, and agrees to pay, perform, fulfill and discharge, in accordance with their respective terms, and to indemnify the NCR Indemnitees from and against, pursuant to Section 4.3 of the Distribution Agreement, all of the following (regardless of when or where such Liabilities arose or arise or were or are incurred) except to the extent otherwise specified in the agreement entered into pursuant to Section 6.1 with respect to Foreign Plans: (i) all Liabilities to or relating to AT&T Individuals relating to, arising out of or resulting from employment by AT&T, any Person that was, at the time of such employment, an AT&T Controlled Person, NCR or any Person that was, at the time of such employment, an NCR Controlled Person, which employment occurred before the Close of the NCR Distribution Date, other than Liabilities relating to, arising out of or resulting from NCR Plans; (ii) all Liabilities relating to, arising out of or resulting from written AT&T Plans in accordance with their terms, to the extent neither of NCR nor any NCR Plan is expressly made responsible for such Liabilities pursuant to this Agreement; and (iii) any other Liabilities relating to, arising out of or resulting from obligations, liabilities and responsibilities expressly assumed or retained by AT&T or an AT&T Plan pursuant to this Agreement. 2.2 TRANSFERRED EXECUTIVES. The individuals listed on Schedule IV shall become employees of, and shall be transferred to the payroll of, NCR or a Person that is, at the time of such transfer, an NCR Controlled Person, as soon as practicable after the date hereof, but in any event no later than the Close of the NCR Distribution Date, and shall therefore be considered "NCR Individuals" as of the Close of the NCR Distribution Date. ARTICLE III QUALIFIED PLANS 3.1 NCR PENSION PLANS. (a) NAMED FIDUCIARY FOR NCR PENSION PLANS. NCR hereby represents and warrants to AT&T that (i) the NCR Pension Plans as defined herein constitute, as of the date hereof, all of the defined benefit pension plans sponsored by NCR and the Persons that are, as of the date hereof, NCR Controlled Persons, all other such plans having been merged into the NCR Pension Plan on or before November 15, 1996, (ii) each NCR Pension Plan has been amended to provide that NCR is the named fiduciary of such NCR Pension Plan, and that AT&T is not the named fiduciary of such NCR Pension Plan, in each case for purposes of negotiating the terms and conditions of this Section 3.1 and entering into this Agreement, and (iii) that it has delivered to AT&T true, correct and complete copies of such amendments and the resolutions of its Board of Directors authorizing such amendments and providing for the delegation of the authority to act in such fiduciary capacity by NCR to individual employees of NCR. As soon as practicable after the Close of the NCR Distribution Date, and in any event before the Second Transfer, NCR shall seek to have its Board of Directors ratify such amendments and resolutions. (b) PRE-DISTRIBUTION ACTIONS BY NCR. NCR shall take all actions necessary or appropriate so that before the Close of the NCR Distribution Date: (i) one or more individuals or entities are appointed in place of AT&T as named fiduciary under the NCR Pension Plans; (ii) appropriate trustees, custodians, investment managers and other fiduciaries with respect to the NCR Pension Plans have been appointed, so as to permit the LTIT Redemption and the MPT Withdrawal to occur promptly in accordance with this Section 3.1; (iii) NCR shall have entered into an Investment Advisory Agreement with ATTIMCO providing for the management of the assets of the NCR Pension Plans by ATTIMCO during the period from Immediately after the NCR Distribution Date until the completion of the LTIT Redemption and the MPT Withdrawal in accordance with this Section 3.1; and (iv) NCR shall have taken all such actions with respect to the assets identified on Schedule V hereto as ATTIMCO shall reasonably require. (c) TRANSFER OF ASSETS OF NCR PENSION PLANS FROM LTIT AND MPT. (i) LTIT REDEMPTION AND MPT WITHDRAWAL. AT&T shall take all actions necessary or appropriate to accomplish the LTIT Redemption, and AT&T and NCR shall take all steps necessary or appropriate to accomplish the MPT Withdrawal, in each case in accordance with this Section 3.1(c) as promptly as practicable after the later of (A) the Close of the NCR Distribution Date and (B) the completion of the ratification referred to in the last sentence of Section 3.1(a) and all actions required to be taken pursuant to Section 3.1(b). (ii) VALUATION OF LTIT ASSETS; LTIT REDEMPTION. Under the terms of the LTIT Agreement, the Total Asset Value and Net Asset Value (as those terms are defined in the LTIT Agreement) of the assets of the LTIT will be determined by ATTIMCO, in its capacity as named fiduciary of the LTIT, as of December 31, 1996. As part of such determination process, ATTIMCO shall also determine the portion of such Net Asset Value that represents the share allocable to the NCR Pension Plans in the LTIT through their interests in the MPT (the "NCR Allocable Share") in accordance with the terms of the LTIT Agreement. Such determinations shall be audited by Coopers & Lybrand in accordance with the normal valuation procedures for the LTIT. AT&T, in its capacity as Authorized Fiduciary (within the meaning of the LTIT Agreement) for the MPT, shall then direct ATTIMCO, in its capacity as named fiduciary of the LTIT, to redeem, pursuant to Section 7.2 of the LTIT Agreement, a portion of the MPT's allocable share of the assets of the LTIT having a value, as of December 31, 1996, at least equal to the NCR Allocable Share (the "LTIT Redemption"). Such assets shall consist of a mix of assets satisfying the requirements of Schedule VI hereto (as such Schedule may be amended hereafter by written agreement between AT&T and NCR). AT&T and NCR acknowledge that the LTIT Redemption may be subject, in whole or in part, to the consent of Lucent, in its capacity as Authorized Fiduciary (within the meaning of the LTIT) of certain plans participating in the LTIT, and agree to use reasonable best efforts to obtain any such required consent, but failure to obtain such consent shall not be considered a violation hereof. (iii) WITHDRAWAL FROM MPT. AT&T (in its capacity as named fiduciary of the MPT) shall cause the assets received by the MPT pursuant to the LTIT Redemption to be segregated upon such receipt in anticipation of the MPT Withdrawal. Such assets, together with the proceeds of any sale of such assets, any other assets in which such proceeds may be reinvested, and any dividends, interest, distributions and other income realized from such assets, proceeds and other assets, in each case during the period from their receipt by the MPT until they are transferred to the trustee(s) of the NCR Pension Plans as hereinafter provided, are referred to collectively as the "Segregated Assets." AT&T and NCR shall then direct the withdrawal of the NCR Pension Plans from the MPT pursuant to Section 5(c) of MPT Agreement (the "MPT Withdrawal") in exchange for all or a portion of the Segregated Assets, as set forth below. The transfer of Segregated Assets from the trustee of the MPT to the trustee(s) of the NCR Pension Plans pursuant to the MPT Withdrawal shall occur in two steps. The first step (the "First Transfer") shall be a transfer of a portion of the Segregated Assets selected by ATTIMCO (in its capacity as a fiduciary of the MPT) that it determines to have a value, as of December 31, 1996, equal to approximately 90 percent of the NCR Allocable Share. The second step (the "Second Transfer") shall be a transfer of additional Segregated Assets selected by ATTIMCO (in its capacity as a fiduciary of the MPT), such that the Segregated Assets transferred to the trustee(s) of the NCR Pension Plans in the First Transfer and the Second Transfer (I) have a value, as of December 31, 1996, equal to the NCR Allocable Share, and (II) constitute a mix of assets satisfying the requirements of Schedule VI hereto. No adjustment shall be made to the assets so transferred as a result of any diminishment in the value of the Segregated Assets after December 31, 1996. (iv) ACCEPTANCE OF ASSET TRANSFER. The completion of the First Transfer and the Second Transfer shall be subject in each case to the receipt by ATTIMCO, from NCR and each of the recipient trustee(s) of the NCR Pension Plans, of a Receipt and Release substantially in the forms attached hereto as Exhibits A and B, respectively (with such modifications as may be agreed to by ATTIMCO). NCR hereby agrees to give Receipts and Releases substantially in such forms unless it determines in good faith that either (I) AT&T or ATTIMCO has failed to comply with the requirements of this Section 3.1(c) or (II) it is required by ERISA to withhold such Receipts and Releases. (d) RELEASE AND ASSUMPTION OF LIABILITIES. (i) RELEASES. Effective Immediately after 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 (as defined in the Separation and Distribution Agreement) 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), 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 relating to or arising out of the participation by any of the NCR Pension Plans in the MPT or the Prior MPT or the participation by the MPT in the LTIT; provided that the foregoing shall not release AT&T from the obligation to carry out the First Transfer and the Second Transfer in accordance with Section 3.1(c) above. (ii) ASSUMPTION OF LIABILITIES. Without limiting the generality of Section 2.1 above, NCR hereby assumes or retains, as applicable, and agrees to pay, perform, fulfill and discharge, in accordance with their respective terms: (A) all Liabilities relating to, arising out of or resulting from the administration, or investment of the assets of, any of the NCR Pension Plans; (B) all other Liabilities relating to, arising out of or resulting from any of the NCR Pension Plans; and (C) NCR's allocable share of any amounts which AT&T or any Affiliate of AT&T pays to any fiduciary of the MPT, the Prior MPT or the LTIT pursuant to any obligation to indemnify such fiduciary with respect to actions or omissions occurring while assets of any of the NCR Pension Plans were held in the MPT, the Prior MPT or the LTIT, as applicable; such allocable share to equal a percentage of such amounts paid by AT&T or such Affiliate equal to the average percentage of the total value of the assets of the MPT, the Prior MPT or the LTIT, as applicable, during the period of time when such actions or omissions occurred, that was allocable to the NCR Pension Plans. 3.2 NCR SAVINGS PLAN. (a) REPLACEMENT FIDUCIARIES. NCR shall take all steps necessary and appropriate, including the amendment of the plan document and related trust agreement, so that effective no later than Immediately after the NCR Distribution Date, one or more individuals or entities appointed by NCR shall (i) replace AT&T in all of its capacities under the NCR Savings Plan, including as named fiduciary with respect to investment, reinvestment and administration of assets and with respect to the power to remove and replace trustees and investment managers, and (ii) replace or be reappointed as the trustee, investment managers, custodians and other fiduciaries with respect to the NCR Savings Plan. (b) RELEASE. Effective Immediately after 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 (as defined in the Separation and Distribution Agreement)), 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), 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 relating to or arising out of the NCR Savings Plan. ARTICLE IV EXECUTIVE BENEFITS 4.1 GENERAL. Effective Immediately after the NCR Distribution Date, except as otherwise specified in this Article IV and in Section 5.2 hereof: (a) NCR shall be solely responsible for all Liabilities to or with respect to NCR Individuals under all AT&T Executive Benefit Plans; (b) AT&T shall be solely responsible for all Liabilities to or with respect to AT&T Individuals under all NCR Executive Benefit Plans; (c) no NCR Individuals shall continue to participate in or to accrue benefits under any AT&T Executive Benefit Plans; and (d) no AT&T Individuals shall continue to participate in or to accrue benefits under any NCR Executive Benefit Plans. 4.2 NONQUALIFIED PLANS. (a) NCR SERPS. NCR shall cause the Supplemental Pension Plan for Transfers to be amended, effective Immediately after the NCR Distribution Date, to provide that no individual will be eligible to participate therein as a result of or with respect to transfers of employment from AT&T or a Person that is, at the time of such transfer, an AT&T Controlled Person to NCR or a Person that is, at the time of such transfer, an NCR Controlled Person, or vice versa, occurring after the Close of the NCR Distribution Date. NCR shall remain solely responsible for all Liabilities to or relating to NCR Individuals under the Supplemental Pension Plan for Transfers, and for all Liabilities for benefits accrued by AT&T Individuals through the Close of the Distribution Date under the NCR SERPs. (b) AT&T SERPS. AT&T shall remain solely responsible for all Liabilities for benefits accrued by NCR Individuals through the close of the Distribution Date under the AT&T Mid-Career Pension Plan and the AT&T Non-Qualified Pension Plan. 4.3 AT&T LONG TERM INCENTIVE PLANS. (a) GENERAL. NCR shall use its reasonable best efforts to take all actions necessary or appropriate (including obtaining consents of affected individuals) so that each outstanding Award granted under any AT&T Long Term Incentive Plan held by any NCR Employee shall be replaced to the extent required by this Section 4.3 with an Award based on NCR Common Stock. Effective Immediately after the NCR Distribution Date, (i) NCR shall establish a Long Term Incentive Plan providing for awards to employees of NCR and its Affiliates based upon NCR Common Stock, (ii) NCR shall be solely responsible for all Liabilities under the AT&T Long Term Incentive Plan to NCR Employees, and (iii) AT&T shall remain solely responsible for all Liabilities under the AT&T Long Term Incentive Plan to NCR Individuals who are not NCR Employees. (b) NCR EMPLOYEES. (i) STOCK OPTIONS. NCR shall cause each Award consisting of an AT&T Option that is outstanding and held by an NCR Employee as the Close of the NCR Distribution Date to be replaced, effective Immediately after the NCR Distribution Date, with an NCR Option. Such NCR Option shall 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 NCR Distribution Date, multiplied by the Ratio, and then rounded down to the nearest whole share. NCR shall pay to the holder of such replacement Award, at the time of such replacement, cash in lieu of any fractional share equal to the product of (A) the fraction represented by such fractional share times (B)(1) the excess of the NCR Stock Value over (2) the per-share exercise price of such AT&T Option as the Close of the NCR Distribution Date divided by the Ratio. The per-share exercise price of such NCR Option shall equal the per-share exercise price of such AT&T Option as of the Close of the NCR Distribution Date divided by the Ratio. Each such NCR Option shall otherwise have the same terms and conditions as were applicable to the corresponding AT&T Option as of the Close of the NCR Distribution Date, except that references to AT&T and its Affiliates shall be amended to refer to NCR and its Affiliates. (ii) PERFORMANCE SHARES AND STOCK UNITS. NCR shall cause 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 NCR Distribution Date to be replaced, effective Immediately after the NCR 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 NCR Distribution Date, multiplied by the Ratio, and then rounded down to the nearest whole share. NCR shall pay to the holder of such replacement Award, at the time of such replacement, cash in lieu of any fractional share based on the NCR Stock Value. Each such replacement Award shall otherwise have the same terms and conditions as were applicable to the corresponding AT&T Award as of the Close of the NCR Distribution Date, except that references to AT&T and its Affiliates shall 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 after the Close of the NCR Distribution Date shall be paid with reference to dividends, if any, on NCR Common Stock. (iii) RESTRICTED STOCK AND RESTRICTED STOCK UNITS. NCR shall cause 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 NCR Distribution Date, other than the Awards described in Schedule VII, to be replaced, effective Immediately after the NCR Distribution Date, with either a replacement Award described below or such other form of compensation not based on NCR Common Stock as NCR shall determine. Any such replacement Award shall 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 NCR Distribution Date multiplied by the Ratio, and then rounded down to the nearest whole share. NCR shall pay to the holder of any such replacement Award, at the time of such replacement, cash in lieu of any fractional share based on the NCR Stock Value. Each such replacement Award shall otherwise have the same terms and conditions as were applicable to the corresponding AT&T Award as of the Close of the NCR Distribution Date, except that references to AT&T and its Affiliates shall 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 after the NCR Distribution Date shall be paid with reference to dividends, if any, on NCR Common Stock. (iv) CHARGEBACK. If, at any time after the Close of the NCR 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 pursuant to this Section 4.3 or an Award listed on Schedule VII, NCR shall pay AT&T the following amounts: (A) with respect to each such Award that is an AT&T Option, the Spread on such Option; (B) 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 (C) 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. In addition, NCR shall pay AT&T the amount of any payments made by AT&T with respect to fractional shares under any Award that NCR fails to replace pursuant to this Section 4.3 or an Award listed on Schedule VII. AT&T shall bill NCR for such amounts from time to time (but only after the exercise, purchase, vesting, delivery or payment that gives rise to the obligation to make any such payment), and NCR shall pay such amounts promptly after receipt of such bills. 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. (c) NCR INDIVIDUALS WHO ARE NOT NCR EMPLOYEES. Each Award that is outstanding and held by an NCR Individual other than an NCR Employee as of the Close of the NCR Distribution Date shall remain outstanding Immediately after the NCR Distribution Date in accordance with its terms as applicable as of the Close of the NCR Distribution Date, subject to such adjustments as may be applicable to outstanding Awards held by AT&T Individuals. 4.4 AT&T SPLIT DOLLAR LIFE INSURANCE. AT&T and NCR shall take all actions necessary or appropriate to assign to NCR, effective Immediately after the NCR Distribution Date, AT&T's rights and interests in the Split Dollar Life Insurance policies under the Senior Management Individual Life Insurance Program and the Senior Management Basic Life Insurance Program issued by Metropolitan Life Insurance Company, Hartford Life Insurance Company, and Confederation Life Insurance Company (or their successors in interest, including Pacific Mutual Life Insurance Company), and any additional split dollar life insurance program that may be implemented by AT&T before the Close of the NCR Distribution Date, with respect to NCR Individuals (such policies, the "Assigned Split Dollar Policies"). Such actions shall include NCR's acceptance of any collateral assignments, policy endorsements or such other documentation executed by or on behalf of NCR Individuals, or any trustee of any trust to which such individual's policy rights or incidents of ownership under the Assigned Split Dollar Policies have been assigned, and NCR's entering into such agreements as may be necessary to fulfill any obligations of AT&T to any insurance company or insurance agent or broker under the Assigned Split Dollar Policies. From and after the date of the assignment of any Assigned Split Dollar Policy to NCR, NCR shall assume and be solely responsible for all Liabilities, and shall be entitled to all benefits, of AT&T under such policy and under the Senior Management Life Insurance Program, the Senior Management Basic Life Insurance Program and any additional split dollar life insurance program that may be implemented by AT&T before the Close of the NCR Distribution Date, as the case may be, with respect to such policies, and any related agreements entered into by NCR Individuals. 4.5 INDIVIDUAL AGREEMENTS. (a) GENERAL. Except as specifically provided in the next two sentences, NCR shall assume or retain, as the case may be, and be solely responsible for all Liabilities relating to, arising out of or resulting from NCR Individual Agreements, and AT&T shall assume or retain, as the case may be, and be solely responsible for all Liabilities relating to, arising out of or resulting from AT&T Individual Agreements. AT&T shall retain the Liabilities under NCR Individual Agreements specified on Schedule VIII and shall reimburse NCR for the amounts described on Schedule IX when and as such amounts are paid by NCR. NCR shall reimburse AT&T for the amounts described on Schedule X as set forth thereon. For purposes of this Section 4.5, Liabilities relating to, arising out of or resulting from NCR Plans or AT&T Plans without reference to any Individual Agreement shall not be considered to relate to, arise out of or result from any Individual Agreement, even if such Liabilities or Plans are described in such Individual Agreements. (b) PHANTOM SHARE ACCOUNTS. The phantom AT&T Shares credited to each of the phantom share accounts established pursuant to the agreements listed on Schedule XI shall be converted, effective Immediately after the NCR Distribution Date, to a number of phantom NCR Shares equal to the number of such phantom AT&T Shares reflected in such account as of the Close of the NCR Distribution Date multiplied by the Ratio. If AT&T declares any dividend (other than the dividend that effects the NCR Distribution), the record date for which is before the NCR Distribution Date and the payment date for which is after the NCR Distribution Date, each such phantom share account shall be credited with such dividend in accordance with the terms of the relevant agreement listed on Schedule XI, except that such dividend shall be converted into NCR Common Stock rather than AT&T Common Stock. After the Close of the NCR Distribution Date, the dividends credited to such phantom share accounts shall be determined by reference to dividends on NCR Common Stock rather than AT&T Common Stock. ARTICLE V MISCELLANEOUS BENEFITS 5.1 EMPLOYEE STOCK PURCHASE PLAN. NCR shall cause the 1994 Employee Stock Purchase Plan for NCR, and any options that are then outstanding under such Plan, to be terminated no later than the record date for the NCR Distribution. 5.2 SHORT TERM INCENTIVE PLANS. AT&T shall be solely responsible for all Liabilities to NCR Individuals under the AT&T Short Term Incentive Plans for the 1996 performance year and (if the NCR Distribution Date occurs after December 31, 1996) subsequent performance years, to the extent they participated therein. NCR shall be solely responsible for all Liabilities to AT&T Individuals under the NCR Short Term Incentive Plans for the 1996 performance year and (if the NCR Distribution Date occurs after December 31, 1996) subsequent performance years, to the extent they participated therein. ARTICLE VI FOREIGN PLANS; INTERCHANGE 6.1 FOREIGN PLANS. AT&T and NCR shall use reasonable best efforts so that as soon as practicable after the date of this Agreement, AT&T, Lucent and NCR shall enter into an agreement regarding the treatment of employee benefit plans maintained for the benefit of employees outside the U.S. substantially in the form set forth in Exhibit C hereto. 6.2 INTERCHANGE AGREEMENT. AT&T and NCR shall use reasonable best efforts so that as soon as practicable after the date of this Agreement, AT&T, Lucent and NCR shall enter into an agreement regarding the treatment, for purposes of their respective Plans, of individuals whose employment is transferred between them, which agreement shall be substantially in the form set forth in Exhibit D hereto. ARTICLE VII MISCELLANEOUS 7.1 SHARING OF PARTICIPANT INFORMATION. AT&T and NCR shall share, and shall cause their respective Affiliates to share, with each other and their respective agents and vendors (without obtaining releases) all participant, plan design and other information necessary for the efficient and accurate administration of, compliance with laws and regulations applicable to, and response to inquiries by governmental authorities regarding, the AT&T Plans and the NCR Plans after the Close of the NCR Distribution Date. AT&T and NCR and their respective authorized agents shall, subject to applicable laws on confidentiality, be given reasonable and timely access to, and may make copies of, all information relating to the subjects of this Agreement in the custody of the other party, to the extent necessary for such administration. All participant information shall be provided in a manner and medium that is compatible with the data processing systems of AT&T as in effect as of the Close of the NCR Distribution Date, unless otherwise agreed to by AT&T and NCR. 7.2 NO CHANGE OF CONTROL; NO RIGHTS CREATED; NO RESTRICTIONS. The NCR Distribution shall not be considered to result in a "change of control" of NCR or any Person that is, as of the Close of the NCR Distribution Date, an NCR Controlled Person, or any similar event for purposes of any NCR Plan or NCR Individual Agreement, and NCR shall take all steps necessary or appropriate, including amending any NCR Plan or NCR Individual Agreement or obtaining any necessary approvals or consents, to ensure the foregoing result. No provision of this Agreement or of the Distribution Agreement shall be construed to create any right to any compensation or benefit whatsoever on the part of any NCR Individual, AT&T Individual or other future, present or former employee of AT&T, any of its Affiliates, NCR or any of its Affiliates under any AT&T Plan or NCR Plan or otherwise. Nothing in this Agreement shall preclude AT&T or NCR, at any time after the Close of the NCR Distribution Date, from amending, merging, modifying, terminating, eliminating, reducing, or otherwise altering in any respect any AT&T Plan or NCR Plan, as applicable, any benefit under any Plan or any trust, insurance policy or funding vehicle related to any AT&T Plan or NCR Plan, as applicable. 7.3 EFFECT IF NCR DISTRIBUTION DOES NOT OCCUR. If the NCR Distribution does not occur, then all actions and events that are, under this Agreement, to be taken or occur effective as of the Close of the NCR Distribution Date, Immediately after the NCR Distribution Date, or otherwise in connection with the NCR Distribution, shall not be taken or occur except to the extent specifically agreed by NCR and AT&T. 7.4 RELATIONSHIP OF PARTIES. Nothing in this Agreement shall be deemed or construed by the parties or any third party as creating the relationship of principal and agent, partnership or joint venture between the parties, it being understood and agreed that no provision contained herein, and no act of the parties, shall be deemed to create any relationship between the parties other than the relationship set forth herein. 7.5 AFFILIATES. Each of AT&T and NCR shall cause to be performed, and hereby guarantees the performance of, all actions, agreements and obligations set forth in this Agreement to be performed by a Person that is, at the time of such performance, an AT&T Controlled Person or an NCR Controlled Person, respectively. 7.6 INCORPORATION OF DISTRIBUTION AGREEMENT PROVISIONS. The following provisions of the Distribution Agreement are hereby incorporated herein by reference, and unless otherwise expressly specified herein, such provisions shall apply as if fully set forth herein (references in this Section 7.6 to an "Article" or "Section" shall mean Articles or Sections of the Distribution Agreement, and, except as expressly set forth below, references in the material incorporated herein by reference shall be references to the Distribution Agreement): Article IV (relating to Mutual Releases and Indemnification); Section 5.2 (relating to Exchange of Information and Archives); Article VI (relating to Further Assurances and Additional Covenants); Article VII (relating to Termination); and Article VIII (relating to Miscellaneous) other than Section 8.2 (relating to Governing Law). 7.7 INCORPORATION OF SEPARATION AND DISTRIBUTION AGREEMENT PROVISIONS. Article IX of the Separation and Distribution Agreement (relating to Arbitration and Dispute Resolution) is hereby incorporated herein by reference, and unless otherwise expressly specified herein, such provision shall apply as if fully set forth herein (references in the material incorporated herein by reference shall be references to the Separation and Distribution Agreement). 7.8 GOVERNING LAW. To the extent not preempted by applicable federal law, this Agreement shall be governed by, construed and interpreted in accordance with the laws of the State of New York, irrespective of the choice of laws principles of the State of New York, as to all matters, including matters of validity, construction, effect, performance and remedies. 7.9 TAX DEDUCTIONS. It is the intention of AT&T and NCR that the party that actually bears the cost (whether directly or indirectly) of making a payment with respect to, or (except as provided below) whose stock is used to satisfy, a Liability governed by this Agreement shall be entitled to any and all tax benefits associated therewith, including the benefit of taking a deduction with respect to such payment or satisfaction for income tax purposes, and shall be obligated to satisfy all tax withholding obligations with respect thereto, and AT&T and NCR agree to take no action inconsistent with such intention. Notwithstanding the foregoing, AT&T and NCR recognize that it is possible that the Internal Revenue Service or another taxing authority will take a different position. Therefore, AT&T and NCR agree that: (a) if either of them is notified by the Internal Revenue Service or another taxing authority that it is taking or proposes to take a different position, the party receiving such notice shall so notify the other; (b) if, when and to the extent that AT&T or a Person that is then an AT&T Controlled Person receives a tax benefit as a result of a payment made by NCR or a Person that is then an NCR Controlled Person with respect to, or the use of NCR Common Stock to satisfy, a Liability governed by this Agreement, AT&T shall pay to NCR, or shall cause such AT&T Controlled Person to pay to NCR, an amount equal to the net tax benefit realized by AT&T or such AT&T Controlled Person, as and when realized; and (c) if and to the extent that NCR or a Person that is then an NCR Controlled Person receives a tax benefit as a result of a payment made by AT&T or a Person that is then an AT&T Controlled Person with respect to, or (except as provided below) the use of AT&T stock to satisfy, a Liability governed by this Agreement, NCR shall pay to AT&T, or shall cause such NCR Controlled Person to pay to AT&T, an amount equal to the net tax benefit realized by NCR or such NCR Controlled Person, as and when realized. For purposes of this Section 7.9, NCR shall be entitled to any and all tax benefits with respect to Awards as to which NCR makes a payment to AT&T required by Section 4.3(b)(iv) hereof, and AT&T shall not be entitled to any such tax benefits, notwithstanding the fact that its stock is used to satisfy, or it pays cash to satisfy, the Liabilities with respect to such Awards; provided, that AT&T shall be obligated in the first instance to satisfy all tax withholding obligations with respect thereto, subject to reimbursement by NCR pursuant to Section 4.3(b)(iv) hereof. The net tax benefit to either party resulting from payment or satisfaction of a Liability shall be deemed to equal the excess of (i) the taxes that would have been paid by such party if such party had not paid or satisfied such Liability over (ii) the taxes that are actually paid by such party. 7.10 AGREEMENTS WITH THIRD PARTIES. The provisions of this Agreement regarding the allocation of Liabilities are intended only to provide for such allocation as between AT&T and NCR, and shall have no effect on any agreements with respect thereto among AT&T, any of its Affiliates and/or one or more third parties, or among NCR and any of its Affiliates and/or one or more third parties, including the Lucent EBA. To the extent that (i) any Liability assumed or retained by NCR hereunder, (ii) any other Liability accrued under any NCR Plan not specifically assumed by AT&T hereunder, or (iii) any other employee-related Liability primarily related to, arising out of or resulting from the operation of the NCR Business (as conducted at any time prior to, on or after the NCR Distribution Date) not specifically assumed by AT&T hereunder, is subject to the sharing arrangement for Contingent Liabilities under Section 6.3(b)(ii) of the Separation and Distribution Agreement, NCR shall be solely responsible for AT&T's share thereof (as determined pursuant to said Section 6.3(b)(ii)), but no provision of this Agreement shall be deemed to relieve or release Lucent from responsibility for its share thereof (as determined pursuant to said Section 6.3(b)(ii)). 7.11 NCR TO HONOR AGREEMENTS. NCR shall honor, and shall cause Persons who are, at any time hereafter, NCR Controlled Persons to honor, all obligations to their respective employees and former employees, except to the extent such obligations are expressly assumed by AT&T pursuant to this Agreement. To the extent the obligations referred to in the preceding sentence are obligations pursuant to agreements referred to in Schedule 6.12 to the Agreement and Plan of Merger, dated May 6, 1991, as amended as of July 17, 1991, among AT&T, Subsidiary Corporation and NCR, the individuals who are entitled to third-party beneficiary rights with respect thereto under said Schedule 6.12 shall be entitled to third-party beneficiary rights with respect to the preceding sentence. IN WITNESS WHEREOF, the parties have caused this Employee Benefits Agreement to be duly executed as of the day and year first above written. AT&T CORP. By:_______________________________ Name: Title: NCR CORPORATION By:_______________________________ Name: Title: EX-10 8 EXHIBIT (10)(II)(B)1 GENERAL PURCHASE AGREEMENT BETWEEN AT&T CORP. AND LUCENT TECHNOLOGIES INC. GENERAL PURCHASE AGREEMENT THIS GENERAL PURCHASE AGREEMENT (this "General Agreement" or "Agreement"), dated as of February 1, 1996, is by and between Lucent Technologies Inc. and AT&T on behalf of itself and Ordering Companies. Capitalized terms used herein and not otherwise defined shall have the respective meanings assigned to them in Article I hereof. WHEREAS, the Board of Directors of AT&T has determined that it is in the best interests of AT&T and its shareholders to separate AT&T's existing businesses into three independent businesses; and WHEREAS, AT&T desires to purchase and license telecommunications equipment, systems and services and Supplier is in the business of engineering, furnishing and installing telecommunications systems and equipment, constructing telecommunications networks, providing premises equipment, and providing consulting and other services; and WHEREAS, Lucent Technologies Inc. and AT&T wish to establish the fundamental terms and conditions pursuant to which AT&T shall order, and Lucent Technologies Inc. shall provide, such telecommunications equipment, systems and services. NOW, THEREFORE, the parties intending to be legally bound, agree as follows: PART 1 COMMON TERMS AND CONDITIONS ARTICLE I DEFINITIONS For the purposes of this Agreement, the following definitions shall apply: 1.1 ACCEPTANCE means Ordering Company's acknowledgment that Products and Services provided or installed by Supplier have met the Acceptance Test. It is agreed that both parties will respond to their obligations regarding completion of Acceptance in a prompt and expeditious manner. Unless Supplier receives written notification indicating otherwise from Ordering Company, Acceptance will be deemed to have occurred thirty (30) days after Supplier's notice of its completion, unless a longer Acceptance Test Period has been agreed to. Acceptance of a particular release of Software in the ITN or in the First Field Application shall constitute Acceptance of all copies of such Software to be provided Ordering Company, regardless of when each such copy of such Software is installed on its Designated Processor. 1.2 ACCEPTANCE DATE means the date on which Supplier's Product or Software successfully completes the applicable Acceptance Test, or, unless Supplier receives written notice indicating otherwise from Ordering Company, thirty (30) days after Supplier's notice of completion, whichever occurs sooner. 1.3 ACCEPTANCE TEST means the test upon Supplier's Product or Software agreed upon by the parties, which may be performed by or on behalf of Ordering Company during the Acceptance Test Period to determine whether the Product or Software meets the applicable Specifications. 1.4 ACCEPTANCE TEST PERIOD means the period of time in days, agreed upon by the parties and specified in the applicable Order or Supplemental Agreement, during which the Acceptance Test shall be completed. In the absence of such agreement, the Acceptance Test Period shall conclude thirty (30) days from delivery of the Product or Licensed Materials to Ordering Company. 1.5 ACTION as used in Section 5A.1(a), AGREEMENT TO ARBITRATE, means any demand, action, suit, countersuit, arbitration, inquiry, proceeding or investigation by or before any federal, state, local, foreign or international Governmental Authority or any arbitration or mediation tribunal. 1.6 ACTIVE LICENSED SOFTWARE PRODUCT means an Application Software Product that is actively embedded at Ordering Company sites and has been the subject of some Product sales activity with any Ordering Company in the previous three (3) years; 1.7 ADDITIONAL WORK means Work covered by a Change Order. 1.8 AFFILIATE of a party means a United States company or other entity which is under common control with, controls, or is controlled by, such party to this Agreement, as long as such control exists, where "control" is defined as ownership greater than fifty percent (50%) of the equity or beneficial interest of such entity or the right to elect or to appoint a majority of the board of directors or other governing body of such entity. 1.9 AGREEMENT means this Agreement and any Work Orders or Change Orders issued pursuant thereto. 1.10 AGREEMENT DOCUMENTS, as referred to in Article 11 means this Agreement, any Special Conditions, Drawings, Specifications, Supplementary Specifications which have been or will be mutually agreed upon. 1.11 APPLICATION FOR PAYMENT means a proforma completed work summary with supporting documentation from Supplier to Ordering Company. 1.12 APPLICABLE DEADLINE has the meaning set forth in Section 5A.3(b), DEMAND FOR ARBITRATION. 1.13 APPLICATION SOFTWARE means Software that operates on a generally available computer system and serves a function other than controlling the fundamental operation of the computer system on which it is loaded (i.e., does not serve as a computer operating system). Application Software excludes all Software that is utilized by the 5ESS(R) Switch. 1.14 AR means Assistance Request. Defect AR is an Ordering Company Assistance Request due to a failure of the Product to perform to Specifications and requires a design change to resolve. Service AR is an Ordering Company Assistance Request due to a non-defect system problem or to answer a technical question. 1.15 ARBITRATION ACT means the United States Arbitration Act, 9 U.S.C. Sections 1-14, as the same may be amended from time to time. 1.16 ARBITRATION DEMAND DATE has the meaning set forth in Section 5A.3(a), DEMAND FOR ARBITRATION. 1.17 ARBITRATION DEMAND NOTICE has the meaning set forth in Section 5A.3(a), DEMAND FOR ARBITRATION. 1.18 ARM means Assistance Request Management. 1.19 AT&T means AT&T Corp., a New York corporation. 1.20 AT&T EH&S PRACTICES as referenced in Article 11 means environmental, health and safety practices that AT&T promulgates for use in its own domestic operations and which it has provided to Supplier in the manner by which notices are provided. 1.21 BENEFICIAL OCCUPANCY means the utilization by Ordering Company of Work constructed by Supplier before Final Acceptance. 1.22 BILL OF MATERIALS means the list of major material items by quantity to be ordered for a Work Order, which is taken from the Drawings after the Work Order is engineered. 1.23 CALL RECEIPT means the process of ensuring that the Ordering Company Assistance Request is referred to the appropriate Supplier technical support group responsible for resolution. This task involves answering the telephone (or electronic inquiry), gathering pertinent Ordering Company and technical data, determining the destination of the request for analysis to ascertain if and how to bill Ordering Company for the Service being provided. 1.24 CHANGE ORDER as referred to in Article 11 means a written Order by Ordering Company on its Change Order Form requesting a change to the Work, as approved by Supplier, e.g., to approve variations in quantity or method of Work. 1.25 COMPLETION DATE means the date by which Supplier and Ordering Company agree in writing that the Work is to be completed. 1.26 COMPLETION SCHEDULE means the schedule for completion of the Work contained in a Work Order or another writing signed by the parties. 1.27 CONSULTATION SUPPORT means technical assistance delivered by telephone, electronic mail and/or telefax from Supplier's location via the Call Receipt function. 1.28 CONSTRUCTION DELAY is defined in Section 11.21, NOTICE OF LABOR DISPUTES, below. 1.29 CPR, as used in Article 5A, means the Center for Public Resources. 1.30 CUSTOM SOFTWARE as referred to in Article 9 means the Source Code, Object Code and Related Documentation developed by Supplier solely on behalf of Ordering Company and in which Ordering Company has an ownership interest (up to 100%) as specified in a Supplemental Agreement. 1.31 CUSTOMER CONNECTIVITY means the project in which Supplier, pursuant to a Supplemental Agreement, is building a Network for AT&T in various states of the United States to provide local telephone service. 1.32 DEMOBILIZATION as referred to in Article 11 means compensation to Supplier for labor, equipment and load associated with ceasing an operation due to Construction Delay and moving to another site. 1.33 DESIGNATED PROCESSOR means the Product for which licenses to Use Licensed Materials are initially granted. 1.34 DIFFERING SITE CONDITIONS means (1) subsurface or latent physical conditions at the Site differing materially from those indicated in the Agreement Documents, or (2) unknown physical conditions at the Site, differing materially from those ordinarily encountered and generally recognized as inherent in Work of the character provided for in Article 11 or (3) conditions differing materially from those indicated in the Agreement Documents and found to be archaeologically, historically or culturally sensitive. 1.35 DISCONTINUED AVAILABILITY (DA) means a Supplier issued Discontinued Availability announcement, which is written notice to Ordering Company that Supplier will cease production of a specific Product or technology. This notice will also specify the last date that Supplier will accept an equipment order (EO) from Ordering Company and a timeline for how long Supplier will continue maintenance support for the specific Product or technology. 1.36 DRAWINGS means the approved plans, profiles, working drawings, and supplemental drawings, or exact reproductions thereof, which show the location, character, dimensions, and details of the Work to be done, except for shop drawings provided by Supplier. 1.37 EFFECTIVE DATE means January 1, 1996. 1.38 ENGINEER as referred to in Article 10 means a designation reserved for a person or organization working for Ordering Company assigned and/or identified to perform engineering services, including but not limited to: development of project requirements; creation of product design; preparation of drawings, Specifications and bidding requirements; and provision of Services during the construction phase of the project. 1.39 ENHANCEMENTS as referred to in Article 9 means new releases of Software, Software improvements and Software upgrades. 1.40 EXPORT means, without limitation, physical shipment; transmittal by any means (including electronic); oral, written, or visual disclosure, either inside or outside the United States to a non-United States national. 1.41 FIELD ORDER as referred to in Article 11 means a verbal direction, confirmed by a Change Order, within the Scope of Work issued to Supplier which interprets the Agreement Documents, excluding Article 11, or authorizes minor variation in the Work from the requirements of the Agreement Documents which Supplier agrees does not increase the unit prices but may change the units that make up affected work. 1.42 FINAL ACCEPTANCE means a written Acceptance of the Work signed by an authorized Ordering Company representative issued when all the Work is acceptably completed and all items on the Punch List have been completed. Punch List means the list of deficiencies to be corrected or completed as a result of the final inspection of the Work. 1.43 FIRMWARE means a combination of (1) hardware and (2) Software represented by a pattern of bits contained in such hardware. 1.44 FIRST FIELD APPLICATION shall mean the first installation of Software in AT&T's live network. 1.45 FIT means physical size or mounting arrangement (e.g., electrical or mechanical connections). 1.46 FORCE MAJEURE means fires, strikes, riots, embargoes, explosions, earthquakes, floods, wars, water, the elements, labor disputes, shortages of or inability to secure materials and/or transportation facilities, non-regulatory acts or omissions of government carriers, suppliers or other third parties, or other causes beyond a party's control whether or not similar to the foregoing. 1.47 FORM means physical shape. 1.48 FUNCTION means product features. 1.49 GOVERNMENTAL AUTHORITY as used in Article 5A shall mean any federal, state, local, foreign or international court, government, department, commission, board, bureau, agency, official or other regulatory, administrative or governmental authority. 1.50 HARDWARE DEPLOYMENT means the hardware fix, as the result of a Product change notice, which is deployed pursuant to an Order or Supplemental Agreement. 1.51 INFORMATION means information, whether or not patentable or copyrightable, in written, oral, electronic or other tangible or intangible forms, stored in any medium, including studies, reports, records, books, contracts, instruments, surveys, discoveries, ideas, concepts, know-how, techniques, designs, Specifications, drawings, blueprints, diagrams, models, prototypes, samples, flow charts, data, computer data, disks, diskettes, tapes, computer programs or other software, marketing plans, customer names, communications by or to attorneys (including attorney-client privileged communications), memos and other materials prepared by attorneys or under their direction (including attorney work product), and other technical, financial, employee or business information or data. 1.52 INITIAL RESPONSE TIME means the time it takes for Ordering Company to reach a Subject Matter Expert once Ordering Company contacts Supplier Call Receipt group. 1.53 INSTALLATION COMPLETE DATE means the date on which a Product or Software or System is installed by Supplier at the desired location and, for Licensed Materials, is ready for Use by an Ordering Company. 1.54 INTELLECTUAL PROPERTY AGREEMENTS means the Patent License Agreement, Patent Assignments, Patent Defensive Protection Agreements, Patent Joint Ownership Agreement, Technology License Agreement, Technology Assignment and Joint Ownership Agreement, (in each case, as defined in the Separation and Distribution Agreement dated as of the date hereof by and among AT&T, NCR and Supplier (the "Separation and Distribution Agreement")). 1.55 LICENSED MATERIALS means the Object Code and Related Documentation wherein the parties may mutually agree to special terms and conditions, such as field use restrictions, restrictions on use by third parties and the like as specified in a Supplemental Agreement. In addition, Licensed Materials may include Source Code but only if so specified in a Supplemental Agreement. 1.56 LUCENT TECHNOLOGIES means Lucent Technologies Inc., a Delaware Corporation. 1.57 LUMP SUM PRICE means a price other than a Unit Price agreed upon in writing by the parties for a specific item of Work prior to scheduling of the item of Work. 1.58 MAJOR HOLIDAYS (or Company-designated day of observance) New Years Day President's Day (Massachusetts) Patriot's Day (Massachusetts) Memorial Day Independence Day Labor Day Columbus Day (Massachusetts) Thanksgiving Day Day Following Thanksgiving Christmas Eve (Massachusetts) Christmas Day 1.59 MAKE READY COORDINATION as referred to in Article 10 means additional assistance offered by Supplier for compensation at agreed upon rates. 1.60 MATURE SOFTWARE PRODUCT means an Application Software Product that has not been the subject of any Product sales activity with any Ordering Company within three (3) years. 1.61 MANAGEMENT NOTIFICATION means the internal Supplier process that sets the minimum standards by which Supplier management will become aware of a problem. The intent of escalating a problem is (a) to bring additional resources together to resolve it, (b) to apprise management of the situation, or (c) to acknowledge notification by contacting Ordering Company. 1.62 METHOD OF PROCEDURE (MOP) means a detailed, documented methodology, as referenced in AT&T Practice 790-100-421AC, developed by the OSWF (defined in 1.68), and its support departments, listing the Work to be performed and the procedures to be followed for any construction, Software Product Update, or maintenance activity near an AT&T plant. 1.63 MODIFICATIONS as referred to in Article 9 means Ordering Company additions to, deletions from or merges of Software with one or more programs owned or licensed by Ordering Company that results in an updated or otherwise modified software. 1.64 NCR means NCR Corporation (formerly named AT&T Global Information Solutions Company), a Maryland corporation. 1.65 NEW SOFTWARE PRODUCT as referred to in Article 10 means an Application Software Product initially licensed to Ordering Company after execution of this Agreement. 1.66 OBJECT CODE means the fully compiled or assembled series of instructions, written in machine language, ready to be loaded into the computer, that guides the operation of the computer. 1.67 ON-SITE ASSISTANCE means technical assistance provided by a Supplier's engineer at Ordering Company's site at Ordering Company's request, and as agreed to by Supplier. 1.68 ON-SITE WORK FORCE (OSWF) means local Ordering Company personnel responsible for the operation, maintenance, and protection of operating plant. 1.69 ORDER means any written or electronic request, other than a Supplemental Agreement, that is presented to Supplier by an Ordering Company in accordance with the terms of this Agreement to purchase Products or Services or to license Licensed Materials from Supplier. 1.70 ORDERING COMPANY means any one of (a) AT&T, (b) an Affiliate, of AT&T (c) a United States entity at least twenty-five percent (25%) of the ownership interest of which is owned directly or indirectly by AT&T; or (d) a non-United States entity at least twenty five percent (25%) of the ownership interest of which is owned directly or indirectly by AT&T and in which the other party (or parties) in the non-United States entity is not a telecommunications services provider(s). An Ordering Company must be designated in writing by AT&T. Orders or Supplemental Agreements will be contractual relationships between Ordering Company and Supplier and only Ordering Company and Supplier shall have the respective rights and duties of buyer and seller thereunder. 1.71 ORDERING COMPANY'S INFORMATION means certain material and technical and business information, owned or controlled by Ordering Company or any of its Affiliates, relating to the operation of Ordering Company's business operations. The term also means and includes any associated information developed prior to the effective date of this Agreement by the AT&T business units and other organizations which compose Ordering Company, regardless of whether such information was originally disclosed to Supplier in written or other tangible form. 1.72 ORDERING COMPANY NOTIFICATION BULLETINS mean the written notices transmitted to Ordering Company that alert Ordering Company of potential Product conditions or configurations which could have a negative affect on Ordering Company operations. 1.73 ORDERING COMPANY REPRESENTATIVE means the person representing Ordering Company responsible for overall coordination and management of the project activities as designated in the Agreement. The Ordering Company Representative is an employee of Ordering Company. 1.74 OTHERS means an entity other than Supplier that has been contracted by Ordering Company to perform a portion of Work on a project. 1.75 PERFORMANCE METRICS as referred to in Article 10 means Supplier's performance objectives regarding the manner in which it Responds, Restores, and Resolves Ordering Company's request for Ordering Company Technical Support called in through Supplier's Call Receipt function. Ordering Company requests that do not go through Supplier's Call Receipt function are excluded from the Performance Metrics. 1.76 PRICE means the price for the Work to be performed by Supplier as set forth in the Work Order, Change Order, Supplemental Agreement or other document(s) signed by the parties. 1.77 PROBLEM MANAGEMENT means the procedures and actions performed or required to be performed by Supplier upon written or oral request of Ordering Company to investigate and manage the resolution of a reported condition in a manner that provides Ordering Company with a single interface. 1.78 PROBLEM RESOLUTION means the analysis of the technical data to determine, at minimum, a short term resolution. Depending upon the analysis results, the response to Ordering Company may be in the form of technical advice, a procedure performed by Supplier support personnel, or a software product update. Technical questions or inquiries regarding the operation or use of the Product are also handled under this task. 1.79 PRODUCT means systems, equipment and parts thereof, but the term does not mean Software whether or not such Software is part of Firmware. 1.80 PROPOSAL means the proposal or bid prepared by Supplier, making reference to this Agreement. 1.81 RELATED DOCUMENTATION as referred to in Article 9 and in this Article 1 means materials useful in connection with Software, such as, but not limited to, flow charts, logic diagrams, program descriptions, and Specifications. No Source Code versions of Software are included in Related Documentation. 1.82 REMOBILIZATION as referred to in Article 11 means compensation to Supplier for labor, equipment and load associated with returning to an operation that was demobilized. See "Demobilization". 1.83 RESOLVE means that a permanent solution to the problem has been provided. For service ARs, Resolution means that the question has been answered to Ordering Company's satisfaction. For defect ARs, Resolution means either that a final correction to the defect has been released to Ordering Company or that Supplier has notified Ordering Company that the defect will not be repaired. 1.84 RESOLVE TIME means elapsed time between the time Ordering Company contacts Supplier through Supplier's Call Receipt function and the time Ordering Company is supplied a permanent solution. 1.85 RESPOND means an engineer has contacted Ordering Company regarding a particular Assistance Request. 1.86 RESTORE means that the Product or major feature of the Product is temporarily operative, but a permanent resolution has not yet been provided. Restore may mean that a software patch has been provided to temporarily correct the problem, or a workaround has been implemented. 1.87 SCOPE OF WORK means the agreed upon scope of work set forth in an executed Supplemental Agreement (e.g., for Customer Connectivity) or Work Order. The Scope of Work may include: field and building surveys, route planning, Make Ready Coordination, design engineering, material logistics, civil construction, placing, splicing, Acceptance Testing, work print, as built and OSP records generation, and project management. 1.88 SERVICE means the services provided by Supplier with respect to or independent from Supplier's Products and Software and the operation of Ordering Company's business including, but not limited to, any type of: (1) professional services including architecture planning or design, consulting, program management, system integration and testing/verification; (2) network engineering services including preparation of equipment Specifications, preparation and updating of office records, and data creation/data management services; (3) installation and equipment removal; (4) outside plant engineering/construction services and cable mining; (5) maintenance, repair, exchange/replacement, customer technical support, help desk, and diagnostic services; (6) software development; (7) initial site/new start, migration, trials, provisioning, retrofitting and update/upgrade services; (8) training in any form; (9) logistics (transportation, warehousing staging, etc.); and (10) such other services as Supplier may offer and Ordering Company may purchase from time to time. 1.89 SERVICE PERFORMANCE REPORTS (SPR) means reports that validate the agreed to Respond, Restore, and Resolve Ordering Company's request for Ordering Company Technical Support. 1.90 SERVICE RESTORATION TIME means the elapsed time between the time Ordering Company contacts Supplier through Supplier's Call Receipt function and the time the system is restored to service. 1.91 SEVERITY LEVEL means the condition of the system when Ordering Company makes an Assistance Request. 1.92 SEVERITY LEVEL ONE means the condition which exists when the system is inoperative and Ordering Company's inability to use the Product has a critical effect on Ordering Company's operations. The condition is generally characterized by complete system failure and requires immediate resolution or correction. 1.93 SEVERITY LEVEL TWO means the condition which exists when the system is partially inoperative, but the system is still usable by Ordering Company. The inoperative portion of the Product severely restricts Ordering Company's operations but has a less critical effect than a Severity Level One condition. 1.94 SEVERITY LEVEL THREE means the condition which exists when the system is usable by Ordering Company, but with limited functions. The condition is not critical to overall Ordering Company operations and does not severely restrict such operations. 1.95 SEVERITY LEVEL FOUR means the condition which exists when the system is usable and a means of circumventing the condition has been found. This condition does not materially affect Ordering Company's operations. 1.96 SITE means all Work areas where any Work is required to be performed as set forth in the Agreement Documents, excluding permanent locations of Supplier and its suppliers and subcontractors. 1.97 SOFTWARE means a computer program consisting of a set of logical instructions and tables of information which guide the functioning of a central processing unit; such program may be contained in any medium whatsoever, including hardware containing a pattern of bits representing such program, but the term "Software" does not mean or include such medium. 1.98 SOFTWARE PRODUCT means the Software that Ordering Company has been granted a license to use by Supplier. 1.99 SOFTWARE PRODUCT DEFECT means an error condition that causes the Software Product to fail to operate in compliance with Supplier's documented Specifications available at time of Licensed Software Product sale. 1.100 SOFTWARE PRODUCT UPDATES means changes to the original licensed Software Product and third party Software to correct defects or provide accommodations not originally included in Supplier's documented Specifications available at the time of the Software sale. Software Product Updates include both corrections and accommodations requested by customers as well as corrections and accommodations requested by other Ordering Companies. Software Product Updates may be distributed through point issue releases on magnetic media or Broadcast Warning Messages (BWM's), Software Updates (SU's), or other on-line delivery mechanism. 1.101 SOURCE CODE means any version of Software incorporating high-level or assembly language that generally is not directly executable by a processor. 1.102 SPECIAL CONDITIONS means detailed provisions in the Specifications referred to under Section 11.23, Application for Payment; Terms of Payment, pursuant to which Supplier can petition AT&T for additional compensation. 1.103 SPECIFICATIONS means the technical specifications for particular Products, Software and Services of Supplier or its vendor furnished hereunder. 1.104 SPECIFICATIONS OR STANDARDS as referred to in Article 11 means the Specifications for outside plant construction as agreed upon by the parties for each project, Work Order, or Supplemental Agreement. (For Customer Connectivity, the August 1992 Lightguide Cable Systems Outside Plant Standards Handbook and the Specifications set forth in AT&T's standard construction Specifications, each as amended and agreed by parties.) All projects, Work Orders and Supplemental Agreements are subject in addition to the work practices set forth in Section 11.18, ARCHAEOLOGICAL SITES; ENVIRONMENTAL PROTECTION. 1.105 START DATE means the date on which Supplier and AT&T agree in a Work Order or in some other writing that the Work is due to begin. 1.106 SUBCONTRACTOR means a person or organization who has a direct contract with Supplier. 1.107 SUPPLEMENTAL AGREEMENT means a contemporaneous or subsequent purchase agreement between an Ordering Company and Supplier which incorporates all of the terms of this Agreement. 1.108 SUPPLEMENTARY SPECIFICATIONS means mutually agreed upon Specifications which, by modifying or supplementing the Specifications, describe conditions unique to a particular project. 1.109 SUPPLIER means Lucent Technologies Inc. 1.110 SUPPLIER'S INFORMATION means certain material and technical or business information, owned or controlled by Supplier or any of its Affiliates, relating to the operation of Products or Software, materials used in the provision or manufacture of Products and Software, or relating to Supplier's Services. The term also means and includes any part, component and associated information developed prior to the effective date of this Agreement by the business units and other organizations which compose Supplier, regardless of whether such information was originally disclosed to AT&T or an Ordering Company in written or other tangible form. 1.111 SUPPLIER'S MANUFACTURED PRODUCT means a Product manufactured by Supplier or manufactured by an original equipment manufacturer to Supplier's Specifications. Supplier's Manufactured Product includes Vendor Items that are embedded in Products manufactured by Supplier. 1.112 SUPPORT SERVICES means Supplier's assistance at Supplier's location analyzing the applicable Software or Hardware/Firmware problem (as defined in the Order), remedying defects, and handling service calls reported by Ordering Company through the Call Receipt function. Support Services may be purchased by Ordering Company pursuant to the provisions set forth in this Agreement. 1.113 SYSTEM means the integrated Products and Software as described in associated Specifications. 1.114 UNIT ADJUSTING PRICE means a Price in the Work Order, Change Order or Supplemental Agreement that compensates Supplier on a unit basis for deviations from the defined scope of Work. The number of adjusting units will subsequently be determined from the engineered Drawings or actual occurrences as accepted by the Engineer. 1.115 UNIT PRICE means a Price in the Work Order or Supplemental Agreement for a defined scope of Work on a unit basis. The number of units will subsequently be determined from the engineered Drawings 1.116 UNITED STATES means the fifty (50) states, District of Columbia, Puerto Rico and the United States territories. 1.117 USE with respect to Licensed Materials means loading the Licensed Materials, or any portion thereof, into a processor for execution of the instructions and tables contained in such Licensed Materials. 1.118 VENDOR ITEM means a Product or partial assembly of products furnished by Supplier, but not manufactured by Supplier but supplied pursuant to its procurement specifications. An item ceases to be a Vendor Item when it becomes embedded in a Supplier's Manufactured Product. 1.119 WARRANTY PERIOD means the period of time listed in the respective Warranty clauses herein for Products, Licensed Materials or Services which, unless otherwise stated, commences for Products and Licensed Materials on the earlier of the date of shipment, or, if installed by Supplier, on the Acceptance Date, and for Services, commences on the Acceptance Date of the Service. 1.120 WORK is defined in Section 11.2, WORK; SUPPLIER; MATERIALS; PERMITS; RAILROADS; SECURITY, below. 1.121 WORK ORDER means the specific Outside Plant Services requested by Ordering Company pursuant to this Agreement. Work Order shall contain the information set forth in Section 11.5, WORK ORDERS; CHANGES, below. ARTICLE IA NATURE OF AGREEMENT 1A.1 PURPOSE AND SCOPE OF THIS AGREEMENT. The purpose of this Agreement is to permit Supplier to provide and Ordering Company to receive Supplier's Products, Licensed Materials, and Services. This Agreement shall govern all transactions pursuant to which Supplier provides Products, Licensed Materials and Services to AT&T and Ordering Companies. AT&T and Supplier will develop a template no later than June 30, 1996 for use when AT&T or Ordering Company is ordering Products, Licensed Materials and Services from Supplier pursuant to this Agreement for use outside the United States. This template will be used as the starting point for Supplemental Agreements to address such purchases and will address the additional country and customer-specific terms and requirements with the particular transaction. This Agreement shall govern Supplier's sale and licensing to Ordering Companies of Supplier's Products, Licensed Materials and Services for Ordering Companies' internal business uses only, and does not permit AT&T to resell or sublicense any Products, Licensed Materials or Services provided hereunder as a distributor of same. However, this Agreement, including any restrictions on use, resale and transfer is not intended to prohibit Ordering Company from reselling or transferring Products and Licensed Materials no longer needed for the operation of its business, provided, that, in the case of Software, such transfers are made in accordance with the provisions of Article 9. All terms and conditions governing resale or sublicensing of Supplier's Products, Licensed Materials and Services as a distributor shall be addressed in a separate agreement. This Agreement is organized in the following manner: Part 1 sets forth the common terms and conditions that apply to all sales and licenses executed pursuant to this Agreement, unless otherwise stated in Part 2. Part 2 sets forth the additional terms and conditions which govern Supplier's provision of network infrastructure Products, Licensed Materials and Services, other than such items currently provided by Supplier's Business Communications Systems business unit, previously known as "GBCS," ("BCS"). Part 3 sets forth the additional terms and conditions which govern Supplier's provision of Products, Licensed Materials and Services provided by BCS. 1A.2 STATEMENT OF ASPIRATIONS. In an effort to ensure that the parties remain fully focused upon their shared objectives and aspirations, the parties agree that the following principles shall govern their work together during the term of this Agreement: (a) Both parties want Lucent Technologies Inc. to provide AT&T with Products, Licensed Materials and Services that confer significant offer differentiation, premium value and operating cost reduction consistent with AT&T's brand equity, and shall work together so that Lucent Technologies Inc. may assist AT&T in this manner; (b) The parties recognize that Supplier's pricing of Products, Licensed Materials and Services must balance two fundamental requirements: AT&T's requirement for the lowest possible operating costs and Supplier's requirement for adequate return on and recovery of investment; (c) The parties shall at all times take care to conduct themselves with the highest integrity, to respect all individuals, and to obtain the maximum benefits of a shared end user customer focus, effective teamwork and the parties' innovativeness; and (d) The parties desire to maintain a relationship that is warm, open and mutually profitable. 1A.3 VOLUME COMMITMENT. (a) AT&T commits that the aggregate amount paid by Ordering Companies (including AT&T Wireless Services Inc.) to Supplier during the calendar years 1996, 1997, and 1998 for Products, Licensed Materials, and Services, pursuant to this Agreement, any Supplemental Agreement, any other agreement or otherwise, between an Ordering Company and Supplier for Supplier's provision of Products, Licensed Materials or Services to an Ordering Company, will total at least three billion dollars ($3,000,000,000). If that commitment is not fulfilled by December 31, 1998, Supplier shall, in January 1999, bill AT&T a carrying charge equal to the shortfall at December 31, 1998, multiplied by the Prime Rate (as defined in the Separation and Distribution Agreement) plus two percent (2%). Thereafter, Supplier shall, each month, bill AT&T a carrying charge equal to the shortfall, if any, at the end of the preceding month, multiplied by 1/12 multiplied by the Prime Rate plus two percent (2%). Such billing shall continue until the three billion dollar ($3,000,000,000) commitment is fulfilled. AT&T will pay these bills as set forth in Section 3.2, INVOICES AND TERMS OF PAYMENT. The remedy in this Section 1A.3, VOLUME COMMITMENT, is Supplier's exclusive remedy for AT&T's failure to fulfill the three billion dollar ($3,000,000,000) volume commitment. (b) AT&T expects, but does not commit, that Products, Licensed Materials and Services in the amount of one billion three hundred million dollars ($1,300,000,000), out of the three billion dollar($3,000,000) total volume commitment, will be ordered in 1996. Therefore, the shortfall billing and payment arrangement set forth in subparagraph (a) above does not apply to failure to meet this expectation by the end of 1996. (c) Prior to the Closing Date (as defined in the Separation and Distribution Agreement), AT&T shall deliver to Supplier as advance payment for purchases of Products, Services, Software, or Licensed Materials an amount equal to five hundred million dollars ($500,000,000). Commencing on January 1, 1997, Supplier shall apply a portion of such amount as a credit against any undisputed invoiced amounts due and payable to Supplier from AT&T or, if AT&T shall so specify at any time, from any other Ordering Company, on or after January 1, 1997, in full satisfaction of all obligations of AT&T or any such Ordering Company then due in connection therewith. Supplier shall continue to so apply such advance payment as a credit against such undisputed invoices until fully applied. 1A.4 GOVERNING TERMS. (a) Current Order Performance: On the Effective Date of this Agreement, Supplier shall be in the process of performing several Ordering Company orders, some of which have not been the subject of written Orders and purchase agreements. In addition, Supplier shall be following many existing engineering, installation and maintenance practices and procedures that have been developed mutually by Supplier and Ordering Company but have not been completely documented. The parties intend that Supplier shall continue to provide the same Products, Services and Licensed Materials which Supplier is providing or has agreed to provide each Ordering Company (hereinafter "Pending Orders") subject to the availability of third party components and provided that Ordering Company shall retroactively compensate Supplier for any Products, Licensed Materials and Services provided by Supplier without compensation at the prices and rates set forth in any mutual agreements entered into. Such retroactive compensation shall begin no earlier than the Effective Date and shall be capped at twenty million dollars ($20,000,000) per month. Supplier shall not be liable for any injury to Ordering Company that results from Supplier's employees and/or contractors failure to be aware of practices and procedures that had not, at the time of Supplier's actions, been reduced to writing. Supplier and Ordering Company recognize that the existing practices and procedures will need to be reevaluated in light of the restructure of AT&T. As part of this reevaluation, Supplier and Ordering Company may decide to continue existing practices and procedures or one party may notify the other that it wishes to change or eliminate certain practices or procedures. The parties agree to use their best efforts to identify any other Products, Licensed Materials and Services provided by Supplier to Ordering Company that require commercialization and to formalize such undocumented arrangements in a commercially reasonable manner that is consistent with the terms and conditions contained herein no later than March 31, 1996. The parties acknowledge that such formalization and modification of those arrangements may result in changes in the terms and conditions pursuant to which such items are provided. All agreements will be reduced to writing which will govern transactions between Supplier and all Ordering Companies, unless otherwise agreed to. If the parties are unable to negotiate a satisfactory resolution, the dispute resolution provisions of Article 5A herein shall apply. Services not currently performed by Supplier are not covered under this Section 1A.4, GOVERNING TERMS, and will be covered under separate Supplemental Agreements. With respect to Pending Orders, this Agreement is incorporated by reference, however, in the event of conflict between the terms and conditions of this Agreement and the terms and conditions of Pending Orders, the terms and conditions of Pending Orders shall prevail over the terms and conditions of this Agreement until such time that the Pending Orders are formalized, terminated or expired. (b) Future Procurements: All future Orders and Supplemental Agreements pursuant to which Supplier provides Products, Licensed Materials and Services to AT&T Company shall be deemed to incorporate and be subject to the terms and conditions of this Agreement, regardless of whether any such Order or Supplemental Agreement expressly incorporates this Agreement by reference, unless such Order or Supplemental Agreement expressly provides that it is not subject to this Agreement. To the extent that any exhibit to this Agreement or any document other than a Supplemental Agreement conflicts with the body of this Agreement, the body of this Agreement shall prevail over such exhibit or other document. To the extent that a Supplemental Agreement conflicts with this General Purchase Agreement, the Supplemental Agreement shall prevail over the body of this Agreement. To the extent that the Supplemental General Purchase Agreement, No. LC3757D, conflicts with either or both of this Agreement and a Supplemental Agreement, the Supplemental General Purchase Agreement shall prevail over those other agreements. 1A.5 TERM OF AGREEMENT. This Agreement shall become effective on the Effective Date and shall continue in effect for a period of five (5) years. The term of this Agreement shall thereafter be automatically extended for additional one (1) year periods unless either party provides the other party one (1) year's prior written notice of its desire to permit this Agreement to expire without further extension of its term, in which event this Agreement shall expire on the day before this Agreement would otherwise be automatically extended. The amendment or termination of this Agreement shall not affect the obligations of an Ordering Company or Supplier under any then existing Order or Supplemental Agreement issued under this Agreement. 1A.6 TRANSITION PERIOD. Although all terms of this Agreement are effective on the Effective Date, the parties recognize that complete implementation of certain terms depends upon the development and deployment of necessary practices and systems. Those terms include, but are not limited to: - Section 2.1 - Orders - Section 2.2 - Order Acceptance Section 2.6 - Order Cancellation and Holds - - Section 3.1 Pricing - Section 3.2 - Invoices and Terms of Payment Section 5.1 - Ordering Companies Remedies - Section 5.2 Supplier Performance - Section 6.21 - Record Retention - - Section 8.16 Planning Information for Orders for Commercially Available Products Both parties agree to use their reasonable best efforts to develop and deploy those practices and systems underlying these and other terms as promptly as possible, but not later than March 29, 1997. The inability of either party to comply with any of these terms as a result of not having developed and deployed such practices and systems prior to March 29, 1997, will not be construed a breach of contract, provided, however, that if such Supplier's delay in developing and deploying necessary practices and systems delays affording Ordering Company the benefits of the Pricing Agreement, Supplier shall afford those benefits to Ordering Company, as promptly as possible, retroactive to the Effective Date. 1A.7 PURCHASES BY AT&T'S AFFILIATES. This Agreement shall govern purchases from Supplier by AT&T, its Affiliates and Ordering Companies, but shall not govern purchases by other entities. 1A.8 ADDITIONAL TECHNOLOGY RIGHTS. Supplemental Agreements may provide, on a case-by-case basis, for Ordering Company's ownership (up to and including 100% ownership) of specified intellectual property rights in technology newly developed by Supplier solely on behalf of Ordering Company. In the event technology is licensed by Supplier to Ordering Company, Supplier may agree to grant Ordering Company (a) the right to make, have made, use, sell, modify, offer for sale or import specified Products and provide specified Services and (b) the title and intellectual property rights to certain modifications and resulting derivative works made by Ordering Company. ARTICLE II ORDERING AND DELIVERY 2.1 ORDERS. (a) All Orders, including electronic Orders, shall contain the information necessary for Supplier to fill the Order. Such information shall include, but not be limited to: (i) Ordering Company's requested ship date or requested complete date; (ii) The date of the Order; (iii) A reference to this Agreement, including its contract number and any applicable firm price quote, Supplemental Agreement, or other Supplier pricing information; (iv) The Price of the item being purchased or licensed or the means by which the Price is derived; (v) A complete list of the Products, Licensed Materials and Services requested, specifying, as applicable, quantity, Supplier's model number, the type and periods of any maintenance or consulting Service ordered (including Service Start Date, a description of the Services to be provided and, if applicable, the items to be maintained), Supplier's Specification number (by issue or generic number), Telephone Equipment Order ("TEO") or other agreed upon Specification or other Supplier identification; (vi) The address or location to which Products or Licensed Materials are to be delivered or the location where Services are to be performed including a description, the serial number (if available) and the location of any Designated Processor for which Licensed Materials are being furnished; and (vii) The address to which Supplier's invoice is to be sent electronically. (b) Unless otherwise agreed in writing, the planning intervals for engineering, delivery and installation for commercially available Products to be provided by Supplier shall be as set forth in Exhibit 2-1, which will be updated quarterly by mutual agreement of the parties. These intervals are for planning purposes only; Supplier's scheduled delivery and performance dates set forth in (i) an accepted Order for Products; or (ii) for Licensed Material, or an accepted Order or the appropriate Supplemental Agreement are firm commitments and shall govern the parties' performance. Unless agreed otherwise in writing, no provision, term or condition, or data on any Order or contained in any document attached to or referenced in any Order, Supplemental Agreement, or any other subordinate document (such as a shipping release) shall be binding, except data necessary for Supplier to fill the Order. Electronic Orders shall be binding on Ordering Company notwithstanding the absence of a signature. All schedules and requested dates are subject to Supplier's concurrence. (c) For construction Services, Ordering Company shall place Orders at an agreed upon time period prior to the applicable construction start date. In the event that Ordering Company is not ready to receive shipment on the scheduled delivery date, Ordering Company shall reimburse Supplier for any reasonable warehousing, handling, hoisting and idle time costs sustained during the delay period. 2.2 ORDER ACCEPTANCE. All Orders are subject to acceptance by Supplier. Supplier shall have twenty-one (21) business days in 1996 and thereafter ten (10) business days after the receipt of the Order in which to notify Ordering Company of those aspects of Ordering Company's Order which Supplier is unable to accept and to provide Ordering Company Supplier's firm schedule Completion Date for the Order. Failure to provide such notice within that period shall be deemed acceptance of Order. Ordering Company or Supplier may modify the terms or content of any Order if such changes are mutually agreed to and documented in writing. 2.3 CHANGES IN ORDERING COMPANY'S ORDERS. Should Ordering Company wish to obtain information sufficient to permit it to assess whether to submit an Order adding, deducting or deviating from a prior Order (hereinafter a "Change Information Request"), it shall request such information from Supplier in writing. As promptly as reasonably possible after its receipt of a Change Information Request, Supplier shall submit a proposal to Ordering Company which includes any increases or decreases in Supplier's Price or changes in the delivery or work schedule for the existing and new Orders necessitated by the change. Unless Supplier receives an Order to implement such change from Ordering Company within twenty-one (21) calendar days of Ordering Company's receipt of Supplier's proposal, Ordering Company shall be deemed not to have authorized the change and Supplier shall remain obligated to perform all previously ordered work in accordance with (a) the governing Order (for Products) or (b) for Licensed Material, the governing Order or appropriate Supplemental Agreement. Changes by Ordering Company to an accepted Order shall be treated as a separate Order only if such change materially affects Supplier's ability to meet its obligations under the original Order, in which case any Price (or discount, if applicable), shipment date or Services Completion Date provided by Supplier with respect to such original Order shall be subject to change. 2.4 CHANGES IN PRODUCTS BY SUPPLIER. Any change that Supplier proposes to the Product furnished hereunder and the documentation related thereto would be subject to the Change Notice Process attached hereto as Exhibit 2-2. 2.5 ORDER CANCELLATION AND HOLDS. (a) CANCELLATION FOR CONVENIENCE. (i) Ordering Company may, upon written notice to Supplier, cancel an Order, provided that Ordering Company shall pay the applicable fees, if any, set forth in Paragraphs (ii), (iii) and (iv) below. (ii) For those Products and Licensed Materials canceled prior to shipment that are considered stock items, Ordering Company agrees that it shall pay Supplier an Order cancellation fee equal to fifteen percent (15%) of the Price or license fee for such items. (iii) For those Products and Licensed Materials considered to be customized or non-stock items (1) not manufactured or (2) manufactured but not yet accepted, Ordering Company shall pay a fee based upon Supplier's incurred expenses (after adjustment for recoveries and/or salvage value, if any), including, but not limited to de-installation, transportation and associated general and administrative expenses, plus a reasonable profit in the event that the customized or non-stock items are not ultimately sold or licensed to another party within ninety (90) days of cancellation, provided that Supplier has made a reasonable attempt to sell or license such items. (iv) If an Order for Services is canceled in whole or in part after execution of such Order and prior to the scheduled completion of such Services, Ordering Company agrees to pay Supplier the fees due for Services provided (which fees, depending upon the specific terms of the agreement, may be based on the applicable periodic rates or equal to the percentage of the contracted project or period that Supplier has completed multiplied by the total fee, excluding expenses, for such project or period) and all expenses of any type incurred for performing the Services prior to the date of cancellation and any expenses Supplier may incur for terminating the Services, including but not limited to: (A) the cost of materials (less salvage value, if any) which have been delivered to the work site prior to the date of termination but which have not yet been incorporated into or been consumed in performing the Services; plus (B) the cost of undelivered materials (less salvage value, if any) planned for use in performance of this Agreement for which irrevocable Work Orders have been placed by Supplier prior to the effective date of cancellation; plus (C) the cost of any other capital expenditure that has been incurred in order to perform the terminated project and that cannot be re-applied by Supplier to provide other Services; plus (D) the cost to Supplier of terminating and settling any subcontracts. (v) For purposes of this subparagraph (a), "salvage value" shall include the proceeds of the sale of the material to another Ordering Company and the costs Supplier avoids as a result of its reapplying materials to meet other needs of Ordering Company, the needs of other customers or its own internal needs within ninety (90) days of Order cancellation. Supplier shall make reasonable efforts to maximize salvage value. Upon written request, Supplier will substantiate such avoided costs. (b) HOLDS. Ordering Company may issue "holds" on Orders or suspend performance under this Agreement, in whole or in part, upon written notice to Supplier and shall compensate Supplier for any incremental expense (including, but not limited to, warehousing, loss, damage and inventory carrying costs) incurred. A hold automatically converts to an Order cancellation after thirty (30) days. (c) CANCELLATION FOR CAUSE. In the event Supplier shall be in material breach or default of any of the terms, conditions, or covenants of any Order or Supplemental Agreement and if such breach or default shall continue for a period of forty-five (45) days in 1996 and thereafter thirty (30) days after Supplier's receipt of notice thereof by Ordering Company, then, in addition to the remedies specified in Section 5.1, ORDERING COMPANIES' REMEDIES, Ordering Company shall have the right to cancel such Order or Supplemental Agreement, except to the extent that Products, Licensed Materials or Services have previously been provided pursuant to such Order or Supplemental Agreement. (d) SURVIVAL. The obligations of this Section 2.5 shall survive termination of this Agreement. 2.6 SHIPPING, PACKING AND DELIVERY. (a) Supplier shall, at no additional charge, pack Products in accordance with its standard practices for shipments to Ordering Company's locations. Unless instructed otherwise by Ordering Company, Supplier shall (i) ship Orders as available, but not before the customer requested ship date, (ii) ship to the destination designated in the Order, (iii) mark all subordinate documents with the Order number, (iv) enclose a packing memorandum with each shipment, and when more than one package is shipped, identify the package containing the memorandum, and (v) mark Ordering Company's Order number on all packages and shipping papers. (b) Where, in order to meet Ordering Company's requests, Supplier packs Products in other than its normal manner, Ordering Company shall pay Supplier's additional charges for such packing. Absent written agreement otherwise, Supplier will deliver Products and Licensed Materials to Ordering Company FOB (free on board) the manufacturing, warehouse or Software distribution facility of Supplier or its vendor. (c) Unless otherwise directed by Ordering Company, Supplier shall (i) ship equipment from its nearest facility or that of its vendor capable of filling the Order, (ii) use the lowest available rate from Ordering Company's pre-selected designated carrier (rail, truck or freight forwarder), and (iii) prepay transportation charges at cost as a separate item on Ordering Company's invoice when the cost of transportation is to be borne by Ordering Company. Ordering Company shall promptly pay to Supplier any prepaid transportation charges. Supplier will provide to Ordering Company a transportation factor card to be used for estimating transportation rates. Shipping and routing instructions may be furnished or altered by Ordering Company in writing, subject to additional charges, if applicable. (d) Supplier agrees not to deliver Products prior to five (5) business days before the agreed upon delivery date without Ordering Company's prior written authorization. 2.7 TITLE AND RISK OF LOSS. Title to and risk of loss to Products and risk of loss of Licensed Materials shall pass to Ordering Company upon delivery to Ordering Company. For purposes of this clause, "delivery" shall mean the point at which Supplier or Supplier's supplier or agent turns over possession of the Product or Licensed Materials to Ordering Company, Ordering Company's employee, Ordering Company's pre-selected designated carrier, Ordering Company's warehouse, or other Ordering Company's agent and not necessarily the final destination shown on the Order. Ordering Company shall notify Supplier promptly of any claim with respect to loss which occurs while Supplier has the risk of loss and shall cooperate in every reasonable way to facilitate the settlement of any claim. ARTICLE III PRICES AND PAYMENT 3.1 PRICES. (a) To the extent Ordering Company's Order is subject to a firm price quotation made by Supplier, prices, fees, and charges ("Prices") shall be as set forth in Supplier's firm price quotation or as specified in the governing Supplemental Agreement. In all other cases, Prices shall be as set forth in the Product Information Catalog Extraction System ("PRICES") which provides toll free access to Supplier's complete Product listing or in ELIB (electronic library information bulletin) or its successor and will be provided in electronic media. For firm price quotations, Prices shall be valid for thirty (30) days from the date of the quotation. Prices shall be applied based upon the date Supplier receives Ordering Company's Order. Both parties will work together in the first quarter of 1996 to develop a plan for the migration to PRICES. (b) The database for pricing of all Standard Service Units ("SSU's") Products and Services is Service Unit Dictionary System ("SUDS"). (c) Where Supplier is not performing installation, all expenses after shipment from Supplier's manufacturing or software distribution facility shall be paid by Ordering Company. If Supplier pays any of such expenses, they shall be borne by Ordering Company plus a fifteen percent (15%) administration fee. Supplier will not incur such expenses unless it is requested to do so in writing by Ordering Company (which request shall constitute Ordering Company's agreement to pay Supplier for such expenses). (d) Notwithstanding the foregoing, if Supplier is delayed from completion of an Order due to any change requested by Ordering Company or as a result of delay by Ordering Company in furnishing information or in performing its obligations (including site preparation), Supplier's prices are subject to change to the extent that Supplier incurs costs for such delay. (e) Unless expressly stated in writing, Supplier's prices are exclusive of charges for transportation and other related Services, and any sales or other tax or duty which Supplier may be required to collect or pay upon the ordered transaction. Supplier shall include these items as separate items in its invoiced prices to Ordering Company. Ordering Company shall be responsible for prepaid transportation paid by Supplier. Billable premium transportation will be used only with Ordering Company's concurrence. (f) Supplier may amend its pricing schedules once every six (6) months by providing sixty (60) days' prior written notice. Unless the parties agree otherwise in writing, Supplier's unaccepted firm price quotations may be amended on ten (10) days' written notice. Such changes in Supplier's pricing shall apply only to Orders received on or after the effective date of such price changes. (g) In addition to the applicable Price, reasonable expenses for travel and living of Supplier's personnel while on travel assignments outside the local area, approved by Ordering Company, shall be reimbursable. Such approval may be written or oral and on an individual case basis or for a category of such assignments. If oral approval is given, it shall be followed with a written approval in ten (10) days. Supplier shall submit invoices for reimbursable travel and living expenses promptly upon completion of the travel events. Supplier shall list the travel and living charges as separate items on each invoice. Supplier shall retain all records in accordance with IRS standards of such charges for a period of not less than one (1) calendar year after the expiration of the travel assignment. Upon reasonable request in the event of a question, Supplier shall make such records available for inspection by Ordering Company. 3.2 INVOICES AND TERMS OF PAYMENT. (a) FOR CALENDAR YEAR 1996. Invoices and terms of payment shall be mutually agreed to by both parties no later than March 1, 1996. The intent is that both parties will plan a movement toward the terms of Section 3.2(b), INVOICES AND TERMS OF PAYMENT, and away from the current practice, NS/NSD Payment and Invoicing Policy dated January 30, 1995. The principles for 1996 which the parties will strive to meet will include (i) the provision of a single bill per order on last shipment; (ii) such bill shall not be submitted manually; (iii) billing upon shipment for Products, Licensed Materials (including transportation charges and taxes, if applicable) and Engineering, except engineering Services associated with outside plant construction; (iv) billing for Installation upon Installation Complete Date; and (v) implementation on or before April 1, 1996. (b) AFTER 1996. (i) Products, Licensed Materials (including transportation charges and taxes, if applicable), and Engineering Services, except engineering Services associated with outside plant construction, shall be billed by Supplier when last shipment on an Order is made, or as soon thereafter as practical; (ii) Installation shall be billed upon Acceptance; (iii) Engineering Services associated with outside plant construction shall be billed as performed or, at Supplier's discretion, on a monthly basis; (iv) Consulting, design, outside plant construction, system integration and program management Services shall be billed, as mutually agreed to by the parties (1) on a progress basis based on the percentage of job completed up to eighty-five percent of the charge or, (2) on a monthly basis. Final billing for such Services will be invoiced when such Service is completed; (v) Unless otherwise agreed to, Maintenance Services shall be billed monthly, in advance. Supplier will work with Ordering Company to minimize the number of bills Ordering Company receives each month for such Services. If Ordering Company requests quarterly or annual invoicing, such invoicing shall be rendered in advance of such Services; (vi) Payment for generally available Licensed Material is payable in full upon delivery to First Field Application; and (vii) Software and/or other technology development for small projects (i.e. less than or equal to fifteen million dollars ($15,000,000) and less than or equal to twelve (12) months) shall be billed as follows: ten percent (10%) at commitment (i.e., signing of contract), forty percent (40%) upon delivery of the Software to the Integrated Test Network (if the Software will not be tested in the ITN, this forty percent (40%) payment shall be due upon delivery to the First Field Application), and fifty percent (50%) when Software is ready for deployment, or thirty (30) days after Acceptance of the Software in the First Field Application, whichever occurs sooner. Billing for Software and/or other technology development for projects other than small projects as defined in the preceding sentence, shall be determined on a case by case basis. The parties will conform the Supplemental Agreements to this Section 3.4(b)(vii) by March 31, 1996. (c) Ordering Company shall pay such invoiced amounts, less any items known then to be disputed items, within thirty (30) days of the date of Supplier's invoice. Ordering Company shall notify Supplier of any disputed invoice within eighteen (18) months from the date of the invoice. Such notice of dispute shall not excuse Ordering Company from timely payment of the undisputed portion(s) of any invoice containing a disputed portion. Supplier may apply any credit which remains outstanding in favor of Ordering Company to the oldest undisputed invoice which remains in Ordering Company's account, unless directed otherwise by Ordering Company. (d) Unless otherwise agreed, payment of all amounts contained in this Agreement shall be made in United States dollars and invoices shall be rendered in the same currency. Unless otherwise agreed to by Supplier and Ordering Company, payments shall be made by electronic transfer to the account and address indicated by Supplier and shall reference the invoice(s) to which they relate. (e) AT&T guarantees payment in United States dollars of the obligations of Ordering Companies that are not Affiliates of AT&T on any Orders placed pursuant to this Agreement. Payment shall be made by AT&T within thirty (30) days after receipt of invoice of a guaranteed payment. Such invoice will only be issued to AT&T after Supplier has made reasonable efforts to obtain payment from Ordering Company. Ordering Companies that are Affiliates of AT&T shall bear sole responsibility for the performance of their obligations hereunder. 3.3 TAXES. (a) Ordering Company shall bear all taxes, levies, duties and other similar charges (and any related interest and penalties), however designated, (herein referred to as "Tax") imposed as a result of the existence or operation of this Agreement, Order or any Supplemental Agreement, including but not limited to any tax which Ordering Company is required to withhold, collect or deduct from payments to Supplier, except (i) any tax imposed upon Supplier in a jurisdiction outside the United States if such tax is allowable as a credit against the United States income taxes of Supplier; and (ii) any net income tax imposed upon Supplier by the United States or any governmental entity within the United States proper (the fifty (50) states and the District of Columbia including, but not limited to counties, municipalities and other localities). In order for the exception contained in (i) to apply, Ordering Company must furnish Supplier with such evidence as may be required by United States taxing authorities to establish that such Tax has been paid, if any, so Supplier may claim the credit. (b) If Ordering Company is required to bear a tax pursuant to paragraph (a) above, Ordering Company shall pay to Supplier or the appropriate government entity or taxing authority, such Tax and other charges and any additional amounts as are necessary to ensure that the net amounts received by Supplier after all such payments or withholdings equal the amounts to which Supplier is otherwise entitled under this Agreement as if such Tax or other charges did not exist. (c) If Ordering Company is exempt from any Tax, Ordering Company shall provide Supplier with all required documentation necessary to establish Ordering Company's exempt status. Ordering Company hereby agrees to indemnify Supplier from any Tax, including penalties and interest, resulting from Supplier's reliance on Ordering Company's claim of exempt status. (d) If Ordering Company disputes in good faith the applicability of any Tax imposed as a result of the existence or operation of this Agreement, Ordering Company, at its own expense and in its own name, may contest the taxing jurisdiction of the disputed Tax. In the event the applicable law requires that such contest must be taken in the name of Supplier only, Supplier shall in good faith and with due diligence at Ordering Company's sole expense contest the imposition of such Tax provided that (i) Supplier will not be required to pursue such contest if the action will result in a lien against Supplier for which Ordering Company has not adequately indemnified Supplier or (ii) will result in a penalty being assessed against Supplier for which Ordering Company has not adequately indemnified Supplier. ARTICLE IV INTELLECTUAL PROPERTY RIGHTS 4.1 USE OF INFORMATION. (a) All technical and business Information disclosed by one party to the other subsequent to the execution of this Agreement in whatever form recorded which is marked "proprietary" or "confidential" or bears a legend or notice restricting its use, copying, or dissemination or, if not in tangible form, is described as being proprietary or confidential at the time of disclosure and is subsequently summarized in a writing so marked and delivered to the receiving party within thirty (30) days of disclosure to the receiving party shall remain the property of the furnishing party. Similarly, all technical and business Information disclosed by one party to the other party prior to the execution of this Agreement and described at the time of disclosure by the furnishing party as being proprietary or confidential or known by the party receiving disclosure of such Information to be proprietary or confidential shall remain the property of the furnishing party (regardless of whether it is ever recorded in tangible form). (b) The furnishing party grants the receiving party the right to use such Information only as follows: Such Information (i) shall not be reproduced or copied, in whole or part, except for use as authorized in this Agreement; and (ii) shall, together with any full or partial copies thereof, be returned or destroyed when no longer needed. Supplier shall use Ordering Company's Information only for the purpose of performing under this Agreement, and Ordering Company shall use Supplier's Information only (i) to order Products, Licensed Materials or Services; (ii) to evaluate Supplier's Products, Licensed Materials or Services; or (iii) to install, operate and maintain the particular Products or Licensed Materials for which such Information was originally furnished. Unless the furnishing party consents in writing, such Information, except for that part, if any, which was previously known to the receiving party free of any confidential obligation, or which becomes generally known to the public through acts not attributable to the receiving party, or which a receiving party receives from a third party without restriction, or which is independently developed by the receiving party, shall be held in confidence by the receiving party. The receiving party may disclose such Information to other persons, upon the furnishing party's prior written authorization, but solely to perform acts which this clause expressly authorizes the receiving party to perform itself and further provided that such other person agrees in writing (a copy of which writing will be provided to the furnishing party at its request) to the same conditions respecting use of Information contained in this clause and to any other reasonable conditions requested by the furnishing party. The contents of this Agreement are confidential and shall not be disclosed by either party to third parties, without the prior written agreement of both parties hereto, except to the extent required by applicable law, a court or regulatory agency of competent jurisdiction. (c) Each party shall be liable to the other for damages resulting from violation of this Section 4.1. Those damages shall be unlimited as to nature and limited as to amount to thirty million dollars ($30,000,000) per occurrence. 4.2 INFRINGEMENT AND MISAPPROPRIATION. (a) In the event of any claim, action, proceeding or suit by a third party against Ordering Company alleging an infringement of any patent, copyright, trademark or misappropriation of a trade secret recognized in any jurisdiction where an Ordering Company may lawfully use or operate Products or Licensed Materials purchased hereunder, or if by reason of the use, in accordance with Supplier's Specifications, in any such jurisdiction of any Products or Licensed Materials furnished by Supplier to an Ordering Company under this Agreement, Supplier, at its expense, shall defend Ordering Company, subject to the conditions and exceptions stated in Paragraphs (b), (c), (d), and (e) below. Supplier shall reimburse Ordering Company for all costs, expenses or attorneys' fees incurred at Supplier's written request or authorization, and shall indemnify Ordering Company against any liability assessed against Ordering Company by final judgment on account of such infringement or violation arising out of such use. In no event shall Supplier be liable for Ordering Company's consequential damages. (b) If Ordering Company's use is enjoined or in Supplier's opinion is likely to be enjoined, Supplier shall, at its expense use its reasonable best efforts, to either (i) replace the enjoined Product or Licensed Materials furnished pursuant to this Agreement with a substitute free of any infringement; (ii) modify it so that it will be free of the infringement; or (iii) procure for Ordering Company a license or other right to use it. If none of the foregoing options is achievable through reasonable best efforts, Supplier shall remove the enjoined Product or Licensed Materials and refund or credit to Ordering Company any amounts paid to Supplier therefor less a reasonable charge for depreciation and any actual period of use by Ordering Company. In no event, however, shall Supplier's liability under this Section 4.2(b) exceed the amount(s) paid by Ordering Company to Supplier to purchase the Product or to obtain the right to use the Licensed Materials which are alleged to violate the rights described in Paragraph (a) above. (c) Ordering Company shall give Supplier prompt written notice of all such claims, actions, proceedings or suits alleging infringement or violation and Supplier shall have full and complete authority to assume the sole defense thereof, including appeals, and to settle same. Ordering Company shall, upon Supplier's request and at Supplier's expense, furnish all information and assistance available to Ordering Company and cooperate in every reasonable way to facilitate the defense and/or settlement of any such claim, action, proceeding or suit. (d) No undertaking of Supplier under this clause shall extend to any such alleged infringement or violation to the extent that it: (i) solely arises from adherence to design modifications, Specifications, drawings, or written instructions which Supplier is directed by Ordering Company to follow but only if such alleged infringement or misappropriation does not reside in material of Supplier's origin, design or selection; or (ii) arises from adherence to instructions to apply Ordering Company's trademark, trade name or other company identification; or (iii) resides in equipment or Software which is furnished by Ordering Company to Supplier for use under this Agreement; or (iv) arises from use of the Product or Licensed Materials provided by Supplier in combination with any item not furnished directly by Supplier; or (v) is based upon modification made by Ordering Company of any Product or Licensed Materials; or (vi) arises from use of any Product or Licensed Material in a manner for which it was not designed. In the foregoing cases numbered (i) through (vi), Ordering Company shall defend and save Supplier harmless, subject to the same terms and conditions and exceptions stated above, with respect to Supplier's rights and obligations under this clause. (e) The liability of Supplier, AT&T and Ordering Company with respect to any and all claims, actions, proceedings or suits by third parties alleging infringement of patents, trademarks or copyrights or violation of trade secrets or proprietary rights because of, or in connection with, any Products or Licensed Materials furnished pursuant to this Agreement shall be limited to the specific undertakings contained in this Section 4.2. 4.3 NO PATENT LICENSES. Nothing contained herein shall be construed as conferring by implication, estoppel or otherwise any license or right under any patent, except that which is essential to the use of the Products and/or Licensed Materials as provided by Supplier, and provided however that this Section 4.3 shall not limit or modify any of the rights and obligations of the Intellectual Property Agreements or the Supplemental General Purchase Agreement, No. LC3757D, both executed as of this date as Ancillary Agreements to the Separation and Distribution Agreement. Supplier shall retain all ownership rights in all intellectual property used or embodied in Supplier's Products, Licensed Materials and Service unless otherwise expressed herein, or in a Supplemental Agreement. 4.4 TRADEMARKS. (a) Subject to the provisions of the Brand License Agreement, executed as of this date as an Ancillary Agreement to the Separation and Distribution Agreement, each party shall have the right to use Products and Licensed Materials which bear the other party's trademarks, trade name, logos, trade devices, service marks, symbols, and codes, unless otherwise directed by that party to remove such indicia. (b) Except as provided in Section s 4.4 (a) above, each party (including in the case of AT&T, each Ordering Company) shall not use in advertising or otherwise, any of the other party's trade name, logo, trademark, trade device, service mark, symbol, code or Specification, or any abbreviation, contraction, or simulation thereof, without the prior written consent of such party. Neither party shall claim any ownership therein, and any such usage shall inure to the benefit of the party which owns such trade name, logo, trademark, trade device, service mark, symbol, code or Specification. 4.5 PROPRIETARY NOTICE. Ordering Company shall reproduce and include any Supplier copyright or proprietary notice on all authorized copies of Licensed Materials. Ordering Company shall also mark all media containing such copies with a warning that the Licensed Materials are subject to restrictions contained in an agreement between Supplier and AT&T and that such Licensed Material are the property of Supplier. ARTICLE V RISK MANAGEMENT 5.1 ORDERING COMPANIES' REMEDIES. (a) An Ordering Company's exclusive remedies and the entire liability of Supplier, Supplier's Affiliates and their employees and agents, and their vendors for any claim, loss, damage or expense of Ordering Company or any other entity arising out of this Agreement or any Supplemental Agreement, or the use or performance of any Product, Licensed Materials, or Services, whether in an action for or arising out of breach of contract, warranty, tort, including negligence, or strict liability, shall be as follows: (i) For infringement -- the remedy set forth above in Section 4.2, INFRINGEMENT AND MISAPPROPRIATION; (ii) For breach of Section 4.1, USE OF INFORMATION, the remedy set forth above in Section 4.1 (c) (iii) For the performance or nonperformance of Products, Software, and Services or claims that they do not conform to a warranty--the remedy shall include those set forth in the applicable "warranty" clause; (iv) For third party claims against Ordering Company for personal injury and property damage for which Supplier is held liable -- the remedy afforded by the governing law; (v) For tangible property damage to Ordering Company caused by Supplier's negligence -- the amount of the direct damages; and (vi) For Supplier's failure to deliver Products, Licensed Materials or Services on Supplier's scheduled delivery date, if Supplier fails to deliver such Products, Licensed Materials or Services (aa) in 1996 within forty-five (45) days from receipt of written notice from Ordering Company to Supplier of its failure to deliver such Products, Licensed Materials or Services on Supplier's scheduled delivery date and (ab) thereafter thirty (30) days from receipt of such notice, the following remedies shall apply: (A) Ordering Company may cancel the Order without incursion of cancellation fees; and, (B) Ordering Company may request and Supplier will reduce AT&T's volume purchase commitment by an amount equal to the value of the Order. In addition, if a worldwide supply shortage exists, Ordering Company may request and, upon such request, shall receive priority on allocation of such delivered Products, Licensed Materials or Services in a shortage condition based upon priority criteria agreed to between Supplier and its affected customers established for the particular shortage condition. (b) Notwithstanding any other provision of this Agreement and except as provided in Section 5.1(a)(ii) above, ORDERING COMPANIES' REMEDIES, Supplier, Supplier's Affiliates and their employees and agents, and their vendors shall not be liable for any consequential damages in the nature of lost profits, revenues or savings arising out of this Agreement, or the use or performance of any Product, Licensed Materials, or Services, whether in an action for or arising out of breach of contract, warranty, tort, including negligence, or strict liability. (c) Other than damages pursuant to Section 5.1(a)(ii) above, ORDERING COMPANIES' REMEDIES, Supplier's total liability for incidental and/or consequential damages and damages resulting from network outages which must be reported by Ordering Company to the Federal Communications Commission in accordance with its rules ("Network Outage(s)") shall not exceed ten million dollars ($10,000,000) per occurrence with a total not to exceed of thirty million dollars ($30,000,000) in any one year. This Section 5.1(c) shall survive failure of an exclusive or limited remedy. (d) Ordering Company shall give Supplier prompt written notice of any claim. Any action or proceeding against Supplier must be brought within thirty-six (36) months after the cause of action accrues. (e) Supplier acknowledges that a Network Outage will cause damage to AT&T in an amount impossible to ascertain. Supplier agrees to pay AT&T, as liquidated damages and not as a penalty, the sum of one million dollars ($1,000,000) per occurrence in the event of a Network Outage caused solely by Supplier in connection with network infrastructure equipment and one hundred thousand dollars ($100,000) per occurrence in the event of a Network Outage caused solely by Supplier in connection with BCS Products, whether or not by breach of warranty and whether before, during or after any Warranty Period. With respect to a Network Outage caused solely by Supplier in connection with network infrastructure equipment, Supplier's total liability for damages for Network Outages, including the liquidated damages described herein shall be one million dollars ($1,000,000) per occurrence not to exceed the amount of three million dollars ($3,000,000) for any calendar year, and Supplier's total liability for damages for Network Outages for any three (3) year period of this Agreement, including the liquidated damages described herein, shall be five million dollars ($5,000,000); provided that AT&T is meeting its obligations specified in Section 1A.3, VOLUME COMMITMENT, and the Pricing Agreement. With respect to Network Outages caused solely by Supplier in connection with BCS Products, Supplier's total liability under this section shall be one hundred thousand dollars ($100,000) per occurrence not to exceed the amount of three hundred thousand dollars ($300,000) for any calendar year ,and Supplier's total liability for damages for Network Outages for any three (3) year period of this Agreement, including the liquidated damages described herein, shall be five hundred thousand dollars ($500,000); provided that AT&T is meeting its obligations specified in Section 1A.3, VOLUME COMMITMENT, and the Pricing Agreement. If, at any time during the term of this Agreement, AT&T fails to meet its obligations specified in Section 1A.3, VOLUME COMMITMENT, and the Pricing Agreement, it shall not be entitled to the remedy in this Section 5.1(e). Any damages paid by Supplier pursuant to this Subparagraph shall be considered incidental and consequential damages subject to the limitations on AT&T's right to recover same that are set forth in Section 5.1(c), ORDERING COMPANIES' REMEDIES. At AT&T's option, AT&T may take all or part of the payment as a credit against any invoice due or to become due to Supplier. The remedies available to AT&T under Section 5.1, ORDERING COMPANIES' REMEDIES, and the foregoing liquidated damages shall constitute AT&T's sole and exclusive remedy for Network Outages caused to any extent by Supplier during the term of this Agreement. 5.2 SUPPLIER PERFORMANCE. AT&T and Supplier will jointly develop requirements for an annual Supplier Merit Award by December 1st of each year for the following year. For 1996, the requirements are listed in Exhibit 5-1. The award program will provide that if Supplier meets or exceeds either award performance criteria for receipt of a Supplier Merit Award, AT&T shall: (a) increase its minimum volume purchase commitment for the following year (if the volume purchase commitment in Section 1A.3, VOLUME COMMITMENT, is in effect), by twenty million dollars ($20,000,000) for achieving the on-time delivery criteria and ten million dollars ($10,000,000) for achieving the FCC reportable incidents criteria or (b) if a volume purchase commitment is not in effect, increase its purchase or license of Supplier's Products, Licensed Materials and Services for the following year by twenty million dollars ($20,000,000) for achieving the on-time delivery criteria and ten million dollars ($10,000,000) for achieving the FCC reportable incidents criteria. A public relations program will be jointly developed and executed in support of this award program. 5.3 INSURANCE. Supplier shall maintain and cause Supplier's subcontractors to maintain during the term of this Agreement: (a) Workers' Compensation insurance as prescribed by the law of the state or nation in which the work is performed, (b) employer's liability insurance with limits of at least three hundred thousand dollars ($300,000) for each occurrence; (c) comprehensive automobile liability insurance if the use of motor vehicles is required, with limits of at least one million dollars ($1,000,000) combined single limit for bodily injury and property damage for each occurrence, (d) Comprehensive General Liability ("CGL") insurance, including Blanket Contractual Liability and Broad Form Property damage, with limits of at least one million dollars ($1,000,000) combined single limit for personal injury and property damage for each occurrence; and (e) if the furnishing to Ordering Company (by sale or otherwise) of Products or material is involved, CGL insurance endorsed to include products liability and completed operations coverage in the amount of five million dollars ($5,000,000) for each occurrence. If specifically requested by Ordering Company, Supplier's subcontractors shall furnish, prior to the start of work, certificates or adequate proof of the foregoing insurance, including copies of the endorsements and insurance policies. Supplier's obligations to maintain insurance may be satisfied by providing proof of self-insurance in a form satisfactory to Company. ARTICLE VA ARBITRATION; DISPUTE RESOLUTION 5A.1 AGREEMENT TO ARBITRATE. The procedures for discussion, negotiation and arbitration set forth in this Article 5A shall apply to all disputes, controversies or claims (whether sounding in contract, tort or otherwise) that may arise out of or related to, or arise under or in connection with this Agreement or any Supplemental Agreement, or the transactions contemplated hereby or thereby (including all actions taken in furtherance of the transactions contemplated hereby or thereby on or prior to the date hereof), or the commercial or economic relationship of the parties relating hereto, between the parties. Each party agrees that the procedures set forth in this Article 5A shall be the sole and exclusive remedy in connection with any dispute, controversy or claim relating to any of the foregoing matters and irrevocably waives any right to commence any Action in or before any Governmental Authority except as expressly provided in Section 5A.7(b), CERTAIN ADDITIONAL MATTERS, and 5A.8, LIMITED COURT ACTIONS, below and except to the extent provided under the Arbitration Act in the case of judicial review of arbitration results or awards. Each party on behalf of itself irrevocably waives any right to any trial by jury with respect to any such claim, controversy, or dispute. 5A.2 ESCALATION. (a) It is the intent of the parties to use their respective reasonable best efforts to resolve expeditiously any dispute, controversy or claim between or among them with respect to the matters covered hereby that may arise from time to time on a mutually acceptable negotiated basis. In furtherance of the foregoing, any party involved in a dispute, controversy or claim may deliver a notice (an "Escalation Notice") demanding an in person meeting involving representatives of the parties at a senior level of management of the parties (or if the parties agree, of the appropriate strategic business unit or division within such entity). A copy of any such Escalation Notice shall be given to the General Counsel, or like officer or official, of each party involved in the dispute, controversy or claim (which copy shall state that it is an Escalation Notice pursuant to this Agreement). Any agenda, location or procedures for such discussions or negotiations between the parties may be established by the parties from time to time; provided, however, that the parties shall use their reasonable best efforts to meet within thirty (30) days of the Escalation Notice. (b) The parties may, by mutual consent, retain a mediator to aid the parties in their discussions and negotiations by informally providing advice to the parties. Any opinion expressed by the mediator shall be strictly advisory and shall not be binding on the parties, nor shall any opinion expressed by the mediator be admissible in any arbitration proceedings. The mediator may be chosen from a list of mediators previously selected by the parties or by other agreement of the parties. Costs of the mediation shall be borne equally by the parties involved in the matter, except that each party shall be responsible for its own expenses. Mediation is not a prerequisite to a demand for arbitration under Section 5A.3, DEMAND FOR ARBITRATION. 5A.3. DEMAND FOR ARBITRATION. (a) At any time after the first to occur of (i) the date of the meeting actually held pursuant to the applicable Escalation Notice or (ii) forty five (45) days after the delivery of an Escalation Notice (as applicable, the "Arbitration Demand Date"), any party involved in the dispute, controversy or claim (regardless of whether such party delivered the Escalation Notice) may, unless the applicable deadline has occurred, make a written demand (the "Arbitration Demand Notice") that the dispute be resolved by binding arbitration, which Arbitration Demand Notice shall be given in the manner set forth in Section 6.3, NOTICES. In the event that any party shall deliver an Arbitration Demand Notice to another party, such other party may itself deliver an Arbitration Demand Notice to such first party with respect to any related dispute, controversy or claim with respect to which the applicable deadline has not passed without the requirement of delivering an Escalation Notice. No party may assert that the failure to resolve any matter during any discussions or negotiation, the course of conduct during the discussions or negotiations or the failure to agree on a mutually acceptable time, agenda, location or procedures for the meeting, in each case, as contemplated by Section 5A.2, ESCALATION, is prerequisite to a demand for arbitration under this Section 5A.3. In the event that any party delivers an Arbitration Demand Notice with respect to any dispute, controversy or claim that is the subject of any then pending arbitration proceeding or of a previously delivered Arbitration Demand Notice, all such disputes, controversies and claims shall be resolved in the arbitration proceeding for which an Arbitration Demand Notice was first delivered unless the arbitrator in his or her sole discretion determines that it is impracticable or otherwise inadvisable to do so. (b) Any Arbitration Demand Notice may be given until one year and forty five (45) days after the later of the occurrence of the act or event in the exercise of reasonable due diligence giving rise to the underlying claim or the date on which such act or event was, or should have been, discovered by the party asserting the claim (as applicable, and as it may in a particular case be specifically extended by the parties in writing, the "Applicable Deadline"). Any discussions, negotiations or mediations between the parties pursuant to this Agreement or otherwise will not toll the Applicable Deadline unless expressly agreed in writing by the parties. Each of the parties agrees that if an Arbitration Demand Notice with respect to a dispute, controversy or claim is not given prior to the expiration of the Applicable Deadline, as between or among the parties, such dispute, controversy or claim will be barred. Subject to Section 5A.7 (d), CERTAIN ADDITIONAL MATTERS, and 5A.8, LIMITED COURT ACTIONS, upon delivery of an Arbitration Demand Notice pursuant to Section 5A.3 (b) , DEMAND FOR ARBITRATION, prior to the Applicable Deadline, the dispute, controversy or claim shall be decided by a sole arbitrator in accordance with the rules set forth in this Article 5A. 5A.4. ARBITRATORS. (a) Within fifteen (15) days after a valid Arbitration Demand Notice is given, the parties involved in the dispute, controversy or claim referenced therein shall attempt to select a sole arbitrator satisfactory to all such parties. (b) In the event that such parties are not able to jointly select a sole arbitrator within such fifteen (15) day period, such parties shall each appoint an arbitrator (who need not be disinterested as to the parties or the matter) within thirty (30) days after delivery of the Arbitration Demand Notice. If one party appoints an arbitrator within such time period and the other party or parties fail to appoint an arbitrator within such time period, the arbitrator appointed by the one party shall be the sole arbitrator of the matter. (c) In the event that a sole arbitrator is not selected pursuant to paragraph (a) or (b) above and, instead, two (2) or three (3) arbitrators are selected pursuant to paragraph (b) above, the two or three arbitrators will, within thirty (30) days after the appointment of the later of them to be appointed, select an additional arbitrator who shall act as the sole arbitrator of the dispute. After selection of such sole arbitrator, the initial arbitrators shall have no further role with respect to the dispute. In the event that the arbitrators so appointed do not, within thirty (30) days after the appointment of the later of them to be appointed, agree on the selection of the sole arbitrator, any party involved in such dispute may apply to CPR, New York, New York, to select the sole arbitrator, which selection shall be made by such organization within thirty (30) days after such application. Any arbitrator selected pursuant to this paragraph (c) shall be disinterested with respect to any of the parties and the matter and shall be reasonably competent in the applicable subject matter. (d) The sole arbitrator selected pursuant to paragraph (a), (b) or (c) above will set a time for the hearing of the matter which will commence no later than ninety (90) days after the date of appointment of the sole arbitrator pursuant to paragraph (a), (b) or (c) above, and which hearing will be no longer than thirty (30) days (unless in the judgment of the arbitrator the matter is unusually complex and sophisticated and thereby requires a longer time, in which event such hearing shall be no longer than ninety (90) days). The final decision of such arbitrator will be rendered in writing to the parties not later than sixty (60) days after the last hearing date, unless otherwise agreed by the parties in writing. (e) The place of any arbitration hereunder will be New Jersey, unless otherwise agreed by the parties. 5A.5 HEARINGS. Within the time period specified in Section 5A.4 (d), ARBITRATORS, the matter shall be presented to the arbitrator at a hearing by means of written submissions of memoranda and verified witness statements, filed simultaneously, and responses, if necessary in the judgment of the arbitrator or both parties. If the arbitrator deems it to be essential to a fair resolution of the dispute, live cross-examination or direct examination may be permitted, but is not generally contemplated to be necessary. The arbitrator shall actively manage the arbitration with a view to achieving a just, speedy and cost-effective resolution of the dispute, claim or controversy. The arbitrator may, in his discretion, set time and other limits on the presentation of each party's case, its memoranda or other submissions, and refuse to receive any proffered evidence, which the arbitrator, in his discretion, finds to be cumulative, unnecessary, irrelevant or of low probative nature. Except as otherwise set forth herein, any arbitration hereunder will be conducted in accordance with the CPR Rules for Non-Administered Arbitration of Business Disputes (except that the fee schedule of the CPR will not apply). Except as expressly set forth in Section 5A.8(b), LIMITED COURT ACTIONS, the decision of the arbitrator will be final and binding on the parties, and judgment therein may be had and will be enforceable in any court having jurisdiction over the parties. Arbitration awards will bear interest at an annual rate of the Prime Rate Plus two percent (2%) per annum. To the extent that the provisions of this Agreement and the prevailing rules of the CPR conflict, the provisions of this Agreement shall govern. 5A.6 DISCOVERY AND CERTAIN OTHER MATTERS. (a) Any party involved in the applicable dispute may request limited document production from the other party or parties of specific and expressly relevant documents, with the reasonable expenses of the producing party incurred in such production paid by the requesting party. Any such discovery (which rights to documents shall be substantially less than document discovery rights prevailing under the Federal Rules of Civil Procedure) shall be conducted expeditiously and shall not cause the hearing provided for in Section 5A.5, HEARINGS, to be adjourned except upon consent of all parties involved in the applicable dispute or upon an extraordinary showing of cause demonstrating that such adjournment is necessary to permit discovery essential to a party to the proceeding. Depositions, interrogatories or other forms of discovery (other than the document production set forth above) shall not occur except with the consent of the parties involved in the applicable dispute. Disputes concerning the scope of document production and enforcement of the document production requests will be determined by written agreement of the parties involved in the applicable dispute or, failing such agreement, will be referred to the arbitrator for resolution. All discovery requests will be subject to the parties' rights to claim any applicable privilege. The arbitrator will adopt procedures to protect such rights and to maintain the confidential treatment of the arbitration proceedings (except as may be required by law). Subject to the foregoing, the arbitrator shall have the power to issue subpoenas to compel the production of documents relevant to the dispute, controversy or claim. (b) Except where contrary to the provisions set forth in this Agreement or any Supplemental Agreement, the rules of the CPR for commercial arbitration will be applied to all matters of procedure, including discovery. The arbitrator shall have full power and authority to determine issues of arbitrability but shall otherwise be limited to interpreting or continuing the applicable provisions of this Agreement and will have no authority or power to limit, expand, alter, amend, modify, revoke or suspend any condition or provision of the Agreement; it being understood, however, the arbitrator will have full authority to implement the provisions of this Agreement, and to fashion appropriate remedies for breaches of this Agreement (including, other than in the case of disputes, controversies or claims relating to, arising out of or resulting from Patents (as such term is defined in the Patent License Agreement), interim or permanent injunctive relief); provided that the arbitrator shall not have (i) any authority in excess of the authority a court having jurisdiction over the parties and the controversy or dispute would have absent these arbitration provisions or (ii) any right or power to award punitive damages. It is the intention of the parties that in rendering a decision, the arbitrator give effect to the applicable provisions of this agreement and follow applicable law (it being understood and agreed that this sentence shall not give rise to a right of judicial review of the arbitrator's award). (c) If a party fails or refuses to appear at and participate in an arbitration hearing after due notice, the arbitrator may hear and determine the controversy upon evidence produced by the appearing party. (d) Arbitration costs will be borne equally by each party involved in the matter, except that each party will be responsible for its own attorneys fees and other costs, expenses, including the costs of witnesses selected by such party. 5A.7. CERTAIN ADDITIONAL MATTERS. (a) Any arbitration award shall be a bare award limited to a holding for or against a party and shall be without findings as to facts, issues or conclusions of law (including with respect to any matters relating to the validity or infringement of Patents) and shall be without a statement of the reasoning on which the award rests, but must be in adequate form so that a judgment of a court may be entered thereupon. Judgment upon any arbitration award hereunder may be entered in any court having jurisdiction thereof. (b) Prior to the time at which an arbitrator is appointed pursuant to Section 5A.4(c), ARBITRATORS, any party may seek one or more temporary restraining orders in a court of competent jurisdiction if necessary in order to preserve and protect the status quo. Neither the request for, nor grant or denial of, any such temporary restraining order shall be deemed a waiver of the obligation to arbitrate as set forth herein and the arbitrator may dissolve, continue or modify any such order. Any such temporary restraining order shall remain in effect until the first to occur of the expiration of the order in accordance with its terms or the dissolution thereof by the arbitrator. (c) Except as required by law, the parties shall hold, and shall cause their respective officers, directors, employees, agents and other representatives to hold, the existence, content and result of mediation or arbitration in confidence in accordance with the provisions of Section 6.2 and except as may be required in order to enforce any award. Each of the parties shall request that any mediator or arbitrator comply with such confidentiality requirement. (d) In the event that at any time the sole arbitrator shall fail to serve as an arbitrator for any reason, the parties shall select a new arbitrator who shall be disinterested as to the parties and the matter in accordance with the procedures set forth herein for the selection of the initial arbitrator. The extent, if any, to which testimony previously given shall be repeated or as to which the replacement arbitrator elects to rely on the stenographic record (if there is one) of such testimony shall be determined by the replacement arbitrator. 5A.8 LIMITED COURT ACTIONS. (a) Notwithstanding anything herein to the contrary, in the event that any party reasonably determines the amount of controversy in any dispute, controversy or claim (or any series of related disputes, controversies or claims) under this Agreement is, or is reasonably likely to be, in excess of one hundred million dollars ($100,000,000) and if such party desires to commence an Action in lieu of complying with the arbitration provisions of this Article, such party shall so state in its Arbitration Demand Notice or by notice given to the other parties within twenty (20) days after receipt of an Arbitration Demand Notice with respect thereto. If the other parties to the arbitration do not agree that the amount in controversy in such dispute, controversy or claim (or such series of related disputes, controversies or claims) is, or is reasonably likely to be, in excess of one hundred million dollars ($100,000,000), the arbitrator selected pursuant to Section 5A.4, ARBITRATORS, hereof shall decide whether the amount in controversies or claims) is, or is reasonably likely to be, in excess of one hundred million dollars ($100,000,000). The arbitrator shall set a date that is no later than ten (10) days after the date of his appointment for submissions by the parties with respect to such issue. There shall not be any discovery in connection with such issue. The arbitrator shall render his decision on such issue within five (5) days of such date so set by the arbitrator. In the event that the arbitrator determines that the amount in controversy in such dispute, controversy or claim (or such series of related disputes, controversies or claims) is, or is reasonably likely to be, in excess of one hundred million dollars ($100,000,000), the provisions of Sections 5A.4(d), and (e), ARBITRATORS, 5A.5, HEARINGS, 5A.6, DISCOVERY AND CERTAIN OTHER MATTERS, 5A.7, CERTAIN ADDITIONAL MATTERS, and 5A.10, LAW GOVERNING ARBITRATION PROCEDURES, hereof shall not apply and on or before (but, except as expressly set forth in Section 5A.8(b), not after) the tenth (10th) business day after the date of such decision, any party to the arbitration may commence an Action with respect to such dispute, controversy or claim (or such series of related disputes, controversies or claims) in any court of competent jurisdiction. If the arbitrator does not so determine, the provisions of this Article (including with respect to time periods) shall apply as if no determinations were sought or made pursuant to this Section 5A.8. (b) In the event that an arbitration award in excess of one hundred million dollars ($100,000,000.) is issued in any arbitration proceeding commenced hereunder, any party may, within sixty (60) days after the date of such award, submit the dispute, controversy or claim (or series of related disputes, controversies or claims) giving rise thereto a court of competent jurisdiction, regardless of whether such party or any other party sought to commence an action in lieu of proceeding with arbitration in accordance with Section 5A.8(a). In such event, the applicable court may, if it determines that it would be advisable in connection with the matter, allow the parties to seek additional discovery or to present additional evidence. Each party shall be entitled to present arguments to the court with respect to whether any such additional discovery or evidence shall be permitted and with respect to all other matters relating to the applicable dispute, controversy or claim (or series of related disputes, controversies or claims). (c) No party shall raise as a defense the statute of limitations if the applicable Arbitration Demand Notice was delivered on or prior to the Applicable Deadline and, if applicable, the matter is submitted to a court of competent jurisdiction within the sixty (60) day period specified in Section 5A.8(b). 5A.9. CONTINUITY OF SERVICE AND PERFORMANCE. Unless otherwise agreed in writing, the parties will continue to provide service and honor all other commitments under this Agreement during the course of dispute resolution pursuant to the provisions of this Article 5A with respect to all matters not subject to such dispute, controversy or claim. 5A.10. LAW GOVERNING ARBITRATION PROCEDURES. The interpretation of the provisions of this Article 5A, only insofar as they relate to the agreement to arbitrate and any procedures pursuant thereto shall be governed by the Arbitration Act and other applicable federal law. In all other respects, the interpretation of this Agreement shall be governed as set forth in Section 6.19, GOVERNING LAW. ARTICLE VI MISCELLANEOUS 6.1 EXPORT CONTROL. The parties acknowledge that Products, Licensed Materials and Information (including, but not limited to, Services and training) provided under this Agreement are subject to U.S. export laws and regulations, and any use or transfer of such Products and Information must be authorized under those regulations. AT&T agrees that it will not use, distribute, transfer, or transmit the Products, Licensed Materials or Information (even if incorporated into other products) in violation of U.S. export regulations. If requested by Supplier, AT&T shall sign written assurances and other export-related documents as may be required for Supplier to comply with U.S. export regulations. This Section does not grant AT&T any contractual right to Export Supplier's Products and Licensed Materials. Such right shall only be granted expressly in an applicable Supplemental Agreement. 6.2 PUBLICATION OF AGREEMENT. The parties shall treat the provisions of this Agreement and any Supplemental Agreement or any Order submitted hereunder as Information subject to the restrictions on use and disclosure set forth in Section 4.1, USE OF INFORMATION, except as reasonably necessary for performance hereunder (including enforcement of Supplier's obligations under the Pricing Agreement and AT&T's obligations under Exhibit 1 thereto) and except to the extent disclosure may be required by applicable laws or regulations, in which latter case, the party required to make such disclosure shall promptly inform the other prior to such disclosure in sufficient time to enable such other party to make known any objections it may have to such disclosure. The party required to disclose information concerning this Agreement, a Supplemental Agreement or Order to a third party in accordance with the previous sentence shall take all reasonable steps to secure a protective order or otherwise assure that the Agreement, Supplemental Agreement or Order will be withheld from the public record. 6.3 NOTICES. All notices under this Agreement shall be in writing (except where otherwise stated) by confirmed, facsimile, electronic mail or similar communication, or by certified or registered mail. Within ten (10) days following the Effective Date, the parties will exchange the names and addresses to whom the notices should be sent. A notice shall be deemed to have been given, if by electronic mail, facsimile or similar communication, on the date it is sent, and, if by certified or registered mail, on the date it is deposited postage prepaid. Communications may be made orally between the parties when the nature of the communication does not require written notice. In the event of a change of address, written notice of such change shall be given promptly to the other party. 6.4 ORDERING COMPANY'S RESPONSIBILITY. (a) Ordering Company shall, at no charge to Supplier, provide Supplier with notice of site conditions known to Ordering Company and such electrical and environmental conditions, technical information, data, technical support or assistance as may reasonably be required by Supplier to fulfill its obligations under this Agreement, any Supplemental Agreement or Order. If Ordering Company fails to provide the required conditions, technical information, data, support or assistance, Supplier shall be discharged from its obligations to perform hereunder for that Order. Where Services are to be performed by Supplier in buildings owned or controlled by Ordering Company, Ordering Company shall be responsible for ensuring that the premises where the work is to be performed by Supplier are accessible to Supplier and ready and suitable for the Services to be performed in accordance with Supplier's reasonable site-preparation conditions communicated in advance to Ordering Company. Such conditions include, but are not limited to, (a) site readiness and (b) access to adequate storage space for tools and other small items necessary for the work, working space, personal facilities, heat, light, ventilation, telephone, electrical current, and outlets, all provided within a reasonable distance of the area where the work is to be performed, if available. (b) Supplier's representative shall have the right to inspect the site prior to Service Start Date. If Ordering Company or its other vendors or contractors fail to timely complete site readiness or if the work of Ordering Company or its other vendors or contractors interferes with Supplier's performance, the applicable Completion Date shall be extended as necessary to compensate for such delay or interference and additional charges shall be invoiced to recover the additional expenses incurred by Supplier as a result of such failure or interference. Moreover, should Ordering Company fail to comply with the reasonable site-preparation conditions after Supplier provides Ordering Company notice, Supplier may perform such work or furnish such items and charge Ordering Company for them in addition to the prices otherwise charged by Supplier for such Services. 6.5 SUPPLIER'S RESPONSIBILITY. (a) Supplier shall become acquainted with conditions governing the delivery, receipt and storage of materials at the site of the work so that Supplier will not interfere with Ordering Company's operations. For items other than those identified in Section 6.4, ORDERING COMPANY'S RESPONSIBILITY, above, storage space will not necessarily be provided adjacent to the site of the work. Therefore, Supplier shall be expected to select, uncrate, remove and transport materials from the storage areas provided. Except to the extent that Supplier's property located on Ordering Company's property is damaged or misappropriated by employees, contractors or representatives of Ordering Company, Ordering Company is not responsible for the safekeeping of such property. When Supplier's property located on Ordering Company's property is damaged or misappropriated by employees, contractors, or representatives of Ordering Company, Ordering Company shall be liable to Supplier for such damage or misappropriation. Supplier shall not stop, delay or interfere with Ordering Company's work schedule without the prior approval of Ordering Company. Supplier shall provide and maintain sufficient covering and take any other precautions necessary to protect Ordering Company's stock, equipment and other property from damage due to Supplier's performance of the work. (b) Supplier recognizes that the continuity of Ordering Company's telecommunications services is of paramount importance to Ordering Company, and Supplier shall at all times exercise reasonable care to prevent damage to Company's plant and shall not use any equipment or methods which Ordering Company has informed Supplier, either in writing or through oral directives at the work site, might endanger or interfere with its service. 6.6 EACH PARTY'S RESPONSIBILITY. Each party shall be entirely responsible for all persons that it furnishes working in harmony with all others when working on the other party's premises or those of Ordering Company's customers. Services performed by either party or its other vendors or contractors shall not interfere with the other party's performance of services. 6.7 ASSURANCE OF SUPPLY. (a) AT&T and Supplier will jointly conduct regularly scheduled Life Cycle Management reviews for the purpose of sharing information concerning current and future Product and support requirements in order to permit both parties to make informed decisions concerning such matters. AT&T's priority is to assure the ongoing growth and service capabilities of the network are satisfied. In order to ensure the long term viability of the network, AT&T will have the option to request sustained manufacturing service for all Products and components that are used in the network. (b) Supplier must provide written notification to AT&T eighteen (18) months in advance of Supplier's intended date of DA of any Product used in Ordering Company's network, or to substitute or replace such Product if Form, Fit or Function is affected. Supplier will provide nine (9) months written notice with regard to BCS Products not used in Order Company's network. If Supplier's vendor terminates production of a Product and/or component of a Product, Supplier will use reasonable efforts to provide the Products or components or secure sources for such Products or components; provided however, that Supplier reserves the right to provide a shorter notice in the event suppliers of a Product or critical component terminates production or maintenance of such items and no other sources for such items can be secured. Within six (6) months of notification of DA, AT&T will provide written notification to Supplier that it concurs with Supplier's decision or that it intends to negotiate the terms, conditions and prices under which availability shall be extended, provided that such Product and/or its components are available to Supplier. Unless otherwise agreed to, the framework for that agreement is that Supplier will be entitled to recover its costs of providing continued availability, plus a reasonable profit. Software DA is governed by Section 9.20, NOTIFICATION OF DISCONTINUED AVAILABILITY OF SOFTWARE. 6.8 PUBLICITY. Each party shall submit to the other a proposed copy of all advertising wherein the name, trademark, code, Specification or service mark of the other party or its Affiliates is mentioned. Neither party shall publish or use such advertising without the other's prior written approval, which consent shall not be unreasonably withheld or delayed. 6.9 RIGHT OF ACCESS/PERMITS AND APPROVALS. Each party shall have the right to enter the premises of the other party during normal business hours with respect to the performance of this Agreement, subject to all plant rules and regulations, security regulations and procedures and U.S. Government clearance requirements if applicable. No charge shall be made for such access. Reasonable prior notification shall be given when access is required. Ordering Company shall have the responsibility for obtaining all state, local and federal approvals and permits prior to the commencement of the work. Any limitation of or delay in providing timely access may result in a change of Supplier's schedule for performing its obligations hereunder and additional charges to recover additional expenses incurred by Supplier as a result of such limitations or delays. 6.10 FORCE MAJEURE. Neither party shall be held responsible for any delay or failure in performance to the extent that such delay or failure is caused by a Force Majeure; provided, however, that Ordering Company shall not be relieved by reason of such cause of its obligation to make payments to Supplier. If any Force Majeure condition occurs, the party delayed or unable to perform shall give prompt notice to the other party, stating the nature of the Force Majeure condition and any action being taken to avoid or minimize its effect. The party affected by the other's delay or inability to perform (hereinafter the "Affected Party") may elect to: (a) suspend the applicable Supplemental Agreement or Order for the duration of the Force Majeure condition and (i) only to the extent reasonably necessary to maintain the normal operation of the Affected Party's business, buy, sell, obtain or furnish elsewhere the Product, Licensed Material or Services to be bought, sold, obtained or furnished thereunder (unless such sale or furnishing is prohibited under this Agreement, a Supplemental Agreement or an Order, in which event an Ordering Company experiencing a Force Majeure condition shall bear Supplier's reasonable costs (including inventory costs) incurred awaiting cessation of the Force Majeure condition) and, at the option of the Affected Party, deduct from any commitment the quantity bought, sold, obtained or furnished or for which commitments have been made elsewhere and (ii) once the Force Majeure condition ceases, resume performance under the applicable Supplemental Agreement or Order with an option in the Affected Party to extend the period of such Supplemental Agreement or Order up to the length of time the Force Majeure condition endured and/or (b) when the delay or nonperformance continues for a period of at least thirty (30) days, terminate, at no charge and without any liability, the applicable Supplemental Agreement or Order or the part of it relating to Products or Licensed Material not already shipped, or Services not already performed. Unless written notice is given within forty-five (45) days after the Affected Party is notified of the Force Majeure condition, option (a) shall be deemed selected. Nothing contained herein or elsewhere shall impose any obligation on either party to settle any labor difficulty. 6.11 INDEPENDENT CONTRACTOR. All work performed by Supplier, AT&T or an Ordering Company under this Agreement shall be performed as an independent contractor and not as an agent of the other, and no persons furnished by the performing party shall be considered the employees or agents of the other. Each party is wholly responsible for withholding and payment of all federal, state, and local income and other payroll taxes with respect to its employees, including contributions from them as required by law. 6.12 RELEASES VOID. Neither party shall require releases or waivers of any personal rights from representatives or employees of the other in connection with visits to its premises, nor shall such parties plead such releases or waivers in any action or proceeding. 6.13 SURVIVAL OF OBLIGATIONS. The rights and obligations of the parties which by their nature would continue beyond the termination, cancellation, or expiration of this Agreement, including, but not limited to COMPLIANCE WITH LAW, TRADEMARKS, INFRINGEMENT AND MISAPPROPRIATION, INSURANCE, RELEASES VOID, USE OF INFORMATION, CONTINUING PRODUCT SUPPORT - PARTS AND SERVICE, PRODUCT WARRANTY, SOFTWARE WARRANTY, WARRANTY FOR SERVICES OTHER THAN MAINTENANCE, MAINTENANCE SERVICE WARRANTY and WARRANTY, shall survive such termination, cancellation or expiration. 6.14 GOVERNMENT CONTRACT PROVISIONS. Ordering Company shall identify in a request for proposed Supplemental Agreement if a Product, Licensed Material or Service to be provided by Supplier is intended for use under a government contract and if government contract flowdown provisions shall apply to such procurement, with identification of such flowdown provisions. In such a case, Supplier will advise AT&T if it will submit a proposal, bid or accept an Order on such basis and, if so, it will address its acceptance or compliance with the flowdown terms and conditions in its proposal, bid or Supplemental Agreement. Orders placed in accordance with such proposal, bid or Supplemental Agreement will be subject to the identified government contract provisions as negotiated. If an Order or Supplemental Agreement fails to specify the inclusion of government flowdown clauses or is issued by AT&T without the prior identification of government contract use or flowdown clauses as provided above, Supplier shall have the right to terminate such Order or Supplemental Agreement and collect from Ordering Company charges for expenses incurred until the effective date of such termination. 6.15 QUALITY SYSTEM AUDIT. (a) Supplier shall maintain a compliant quality system that is subject to third party quality system audit that shall include the following elements: (i) Management Responsibility (ii) Quality System Principles (iii) Quality in Marketing (iv) Quality in Specification/Design (v) Quality in Procurement (vi) Quality in Production (vii) Control of Production (viii) Product Verification (ix) Control of Measuring and Test Equipment (x) Non-conformity (xi) Corrective Action (xii) Handling and Post-production (xiii) Quality Documentation and Records (xiv) Use of Statistical Methods (b) Such an audit shall assess the effectiveness and documentation of the various elements that comprise a functioning quality system. Supplier agrees that any deficiencies discovered in Supplier's quality system as a result of the audit(s) shall be remedied by Supplier at Supplier's expense. 6.16 ISO 9000. Supplier will undertake all reasonable actions to become ISO 9000 registered. Certain vintage Products are exempt from this Section. Such registration must be made by a third party registrar(s) accredited in the following countries: United States or such other country as may be designated in writing by AT&T or an Ordering Company. 6.17 UTILIZATION OF MINORITY AND WOMEN-OWNED BUSINESS ENTERPRISES. It is AT&T's policy that minority and women-owned business enterprises ("MWBE's) as defined in Exhibit 6-1 shall have the maximum practicable opportunity to participate in the performance of contracts. Supplier agrees to use its good faith efforts to utilize MWBE's to carry out this policy to the fullest extent consistent with the efficient performance of its business and this Agreement. In addition to these general conditions for MWBE support, provided that Ordering Company will work with Supplier to seek out MWBE's and works with Supplier in the development of opportunities for the use of MWBE's, Supplier agrees to (a) work with Ordering Company to develop opportunities for the utilization of MWBE's for first tier procurement of Supplier's Products, Licensed Materials and Services by Ordering Company, (b) use its good faith efforts to utilize MWBE's in support of this Agreement and strive to achieve the portion of total expenditures for all Products, Licensed Materials and Services purchased from Supplier equal to 5% of the value of Ordering Companies' purchases of Products, Licensed Materials and Services from Supplier in 1996, and strive to increase such percentage by 10% each of the following years of this Agreement and (c) support Ordering Companies' state and regional goals for MWBE and service-disabled veterans spending in California and other states/regions as may be defined in the future. Supplier agrees to conduct a program which will enable MWBE's to be considered fairly as subcontractors and suppliers under this Agreement. Supplier shall submit to AT&T periodic reports of work with known MWBE's in the form of Exhibit 6-1 in such manner and at such time (not more than quarterly) as AT&T's representative may prescribe. Such periodic reports shall state separately for MBE's and WBE's the subcontracted work which is attributable to Ordering Companies. In instances where direct correlation cannot be determined, such MWBE payments may be established by Supplier comparing Ordering Company's payments to Supplier, in that period, to total payments to Supplier from all of its customers, in that period, and then arriving at Ordering Company's apportionment of such MWBE payments. Nothing in this clause shall affect or diminish Supplier's obligations as set forth in the assignment and subcontracting provisions. 6.18 ASSIGNABILITY. Except as provided in this clause, neither party shall assign this Agreement or any right or interest under this Agreement, nor delegate any work or obligation to be performed under this Agreement (an "assignment") without the other party's prior written consent. Any attempted assignment in contravention of this clause shall be void and ineffective. Nothing shall preclude a party from employing a subcontractor in carrying out its obligations under this Agreement; provided, however, that if Supplier uses a subcontractor to perform a material service or obligation under this Agreement, such use will be subject to AT&T's written consent. Supplier's use of such subcontractor shall not release Supplier from its obligations under this Agreement. Notwithstanding the foregoing, Supplier shall have the right to assign this Agreement and to assign its rights under this Agreement, in whole or in part, to any present or future Affiliate or to any entity which purchases from Supplier the operating asset(s) utilized by Supplier to fulfill its obligations hereunder, subject to AT&T's written consent, which consent shall not be unreasonably withheld; provided, however, that in any such event Supplier shall not be released from its obligations hereunder and shall indemnify, defend and hold harmless each Ordering Company for all losses or damages arising in connection therewith, including from any breach of this Agreement by such assignee. The notice of assignment shall state the effective date thereof. Following the effective date and to the extent of the assignment, Supplier shall not be released from obligations. For purposes of this clause, the "Agreement" includes this Agreement, each Supplemental Agreement, each Order and any other subordinate agreement placed under this Agreement. 6.19 GOVERNING LAW. Except as set forth in Section 5A.10, LAW GOVERNING ARBITRATION PROCEDURES, this Agreement and, unless expressly provided therein, each Supplemental Agreement, shall be governed by and construed and interpreted in accordance with the laws of the State of New Jersey, irrespective of the choice of laws principles of the State of New Jersey, as to all matter, including matters of validity, construction, effect, performance and remedies. 6.20 COMPLIANCE WITH LAW. Each party shall comply at its own expense with applicable laws, ordinances, regulations, codes, rules, guidelines, orders, permits and approvals of any governmental body, including, but not limited to, those relating to the environment, health, and safety. Each Party agrees to indemnify, defend (at the other party's request) and save harmless the other party, its Affiliates, its and their customers and each of their officers, directors and employees from and against any losses, damages, claims, demands, suits, liabilities, fines, penalties and expenses (including reasonable attorney's fees) that arise out of or result from (i) failure to do so or (ii) activity, duty or status of such party that triggers any obligation to investigate or remediate environmental contamination. 6.21 RECORD RETENTION. Ordering Company agrees to keep true and accurate records with regard to its use of Supplier's Licensed Material. Supplier shall have the right to inspect such records at any reasonable time, not more often than once each calendar year, upon reasonable notice in writing to Ordering Company. Supplier shall bear the cost of such auditing. 6.22 NON-WAIVERS. The failure of either party at any time to enforce any right or remedy available to it under this Agreement or otherwise with respect to any breach or failure by the other party shall not be construed to be a waiver of such right or remedy with respect to any other breach or failure by the other party. 6.23 THIRD PARTY BENEFICIARIES. Except as otherwise provided in Section 1A.7, PURCHASES BY AT&T'S AFFILIATES, of this Agreement or as expressly provided in any Supplemental Agreement, the provisions of this Agreement and each Supplemental Agreement are solely for the benefit of the parties and are not intended to confer upon any person except the parties any rights or remedies hereunder. There are no third party beneficiaries of this Agreement or any Supplemental Agreement and neither this Agreement nor any Supplemental Agreement shall provide any third person with any remedy, claim, liability, reimbursement, claim of action or other right in excess of those existing without reference to this Agreement or any Supplemental Agreement. 6.24 SEVERABILITY. If any provision of this Agreement or any Supplemental Agreement or the application thereof to any person or circumstance is determined by a court of competent jurisdiction to be invalid, void or unenforceable, the remaining provisions hereof or thereof, or the application of such provision to persons or circumstances or in jurisdiction other than those as to which it has been held invalid or unenforceable, shall remain in full force and effect and shall in no way be affected, impaired or invalidated thereby, so long as the economic or legal substance of the transactions contemplated hereby or thereby, as the case may be, is not affected in any manner adverse to any party. Upon such determination, the parties shall negotiate in good faith in an effort to agree upon such a suitable and equitable provision to effect the original intent of the parties. 6.25 HEADINGS. The article, section and paragraph headings contained in this Agreement and in the Supplemental Agreements are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement or any Supplemental Agreement. 6.26 COUNTERPARTS. This Agreement and each Supplemental Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other party. 6.27 AMENDMENTS. No provisions of this Agreement or any Supplemental Agreement shall be deemed waived, amended, supplemented or modified by any party, unless such waiver, amendment, supplement or modification is in writing and signed by the authorized representative of the party against whom it is sought to enforce such waiver, amendment, supplement or modification. 6.28 INTERPRETATION. Words in the singular shall be held to include the plural and vice versa and words of one gender shall be held to include the other genders as the context requires. The terms "hereof," "herein" and "herewith" and words of similar import shall, unless otherwise stated, be construed to refer to this Agreement (or the applicable Supplemental Agreement) as a whole (including all of the Schedules, Exhibits and Appendices hereto and thereto) and not to any particular provision of this Agreement (or such Supplemental Agreement). Article, Section, Exhibit, Schedule and Appendix references are to the Articles, Sections, Exhibits, Schedules and Appendices to this Agreement (or the applicable Supplemental Agreement) unless otherwise specified. The word "including" and words of similar import when used in this Agreement (or the applicable Supplemental Agreement) shall mean "including, without limitation," unless the context otherwise requires or unless otherwise specified. The word "or" shall not be exclusive. 6.29 ENTIRE AGREEMENT. The terms and conditions contained in this General Purchase Agreement supersede all contemporaneous oral and all prior oral or written quotations, communications, agreements and understandings between the parties with respect to the subject matter hereof and constitute the entire agreement between the parties with respect to such subject matter. The preprinted terms and conditions on Ordering Company's purchase Orders and Supplier's sales forms are deleted. The statements of Supplier's employees and descriptions of Supplier's Products, Licensed Materials and Services do not constitute warranties or other contractual obligations and shall not be relied upon by any Ordering Company as such. Terms shall not be modified or amended except by a writing signed by authorized representative of both parties. ARTICLE VII PURPOSE AND ORGANIZATION OF PART II 7.1 PURPOSE AND SCOPE OF PART II. Part II sets forth the specific additional terms and conditions pursuant to which Supplier shall provide, and Ordering Company shall purchase or license, Supplier's Products, Licensed Materials and Services that relate to the operation of telecommunications network infrastructure. The terms and conditions of Ordering Company's purchase and licensing of Products, Licensed Materials and Services provided by Supplier's Global Business Communications Systems business unit are set forth in Part III. A non-exclusive list of the specific Products, Licensed Materials and Services is set forth in the Product Information Catalog Extraction System ("PRICES") database. Supplier may at any time, and without consent of Ordering Company, revise or otherwise amend that database solely to add to it additional items offered by Supplier under Part II. Supplier shall remove items from that database only in accordance with Section 6.7, ASSURANCE OF SUPPLY. Failure of Supplier to list a Product or Service in that database shall not preclude Supplier from providing such item pursuant to Part II. 7.2 ORGANIZATION OF PART II. Part II is organized as follows: (a) Article 8 sets forth the additional terms and conditions governing Supplier's provision of Products; (b) Article 9 sets forth the additional terms and conditions governing Supplier's licensing of Licensed Materials; (c) Article 10 sets forth the additional terms and conditions governing Supplier's provision of Engineering, Installation, Maintenance, and other Miscellaneous Services; (d) Article 11 sets forth the additional terms and conditions governing Supplier's provision of Outside Plant Construction Services; and (e) Article 12 sets forth the additional terms and conditions governing Supplier's provision of Consulting Services. ARTICLE VIII PURCHASE OF PRODUCTS 8.1 GENERAL. The provisions of this Article 8 shall be applicable to the purchase of Products from Supplier. If Software is also to be licensed for use on a purchased Product, or if a Product is also to be engineered or installed by Supplier, the provisions of Articles 9 and 10 shall also be applicable. 8.2 PRODUCT WARRANTY. (a) Supplier warrants to Ordering Company only, that: (i) As of the date title passes, Supplier will have the right to sell, transfer, and assign such Products and the title conveyed by Supplier shall be good and Products shall be delivered free from any security interests or any other liens or encumbrances ; (ii) Upon shipment or, if installed by Supplier upon Acceptance, Supplier's Manufactured Products will be new (except if manufactured discontinued, or with Ordering Company's approval), free from defects in material, workmanship, and design (except to the extent (A) designed, in whole or in part, by Ordering Company or persons furnished by Ordering Company; or (B) such design defects are caused by the presence in Supplier's Manufactured Product of substitute components of Ordering Company's selection and not recommended by Supplier), and will conform to Supplier's Specifications or any other agreed-upon Specifications referenced in the Order for such Products; and (iii) With respect to Vendor Items, Supplier, to the extent permitted, does hereby assign to Ordering Company the warranties given to Supplier by its vendor of such Vendor Items. Such assignment will be effective on the date of shipment of such Vendor Items. With respect to Vendor Items recommended by Supplier in its Specifications for which the Vendor's warranty cannot be assigned to Ordering Company, or if assigned, less than sixty (60) days remain of the Vendor's warranty at the time of assignment, Supplier warrants for sixty (60) days from date of shipment or if installed by Supplier from Acceptance that such Vendor's Items will be free from defects in material and workmanship and will conform to Supplier's Specifications or any other agreed-upon Specification referenced in the Order for such Products. (iv) Neither inspection, Acceptance, nor payment shall affect or reduce the term of any warranty. (b) The Warranty Period for a Product is set forth in Exhibit 8-1. The Warranty Period for a Product or part thereof repaired under this Warranty is the period indicated in Exhibit 8-1. (c) If, under normal and proper use during the applicable Warranty Period, a defect or nonconformity is identified in a Product furnished by Supplier, Ordering Company shall notify Supplier in writing of such defect or nonconformity promptly after Ordering Company discovers such defect or nonconformity and follow Supplier's instructions regarding the return of defective or nonconforming Product. With respect to a defect or nonconformity of Products to Supplier's Specifications or any other agreed upon Specification referenced in the Order for such Products, Supplier shall take the following action promptly: (i) Within the first sixty (60) days after (aa) installation completion of a Product, if Supplier has installed the Product or (ab) delivery, if Supplier is not installing the Product, if Ordering Company notifies Supplier of a defect or nonconformity of Products to the Specifications, that does not appear to be curable through repair or replacement within a reasonable time period, Ordering Company will be entitled, at its option, to a refund of the Product's purchase price and installation charges and the associated Licensed Materials charges. Should Ordering Company seek such a refund, it will provide Supplier such cooperation as necessary to enable Supplier to remove the Product from Ordering Company's premises, if necessary. In the event of such refund, Ordering Company may also return for credit any other Products intended for use with the defective Product that cannot be applied to another use by Ordering Company and may cancel, without liability for cancellation charges, any pending Orders for such Product. (ii) After sixty (60) days from (aa) installation completion of a Product, if Supplier has installed the Product or (ab) delivery, if Supplier is not installing the Product, with respect to a defect or nonconformity of Products to Supplier's Specifications, Supplier shall take the following action promptly: (A) Supplier, at its option, shall attempt first to repair or replace such Product without charge or, if not feasible, provide a refund or credit based on the original purchase price, installation charges paid by Ordering Company if installed by Supplier, and the associated Licensed Materials charges. Ordering Company must return Product to Supplier for repair and replacement, except as noted in Sections 8.2 (c) (ii) (B) and (C). In the event of such refund, Ordering Company may also return for credit any other Products intended for use with the defective Product that cannot be applied to another use by Ordering Company and may cancel, without liability for cancellation charges, any pending Orders for such Product. (B) Supplier, in the case of any service affecting defect, shall either (1) repair such defect in the field using best reasonable efforts to avoid any service interruption; or (2) immediately replace the defective Product, Licensed Material, or Service with a working replacement, at Supplier's expense, for the time that it takes the original Product, Licensed Material, or Service to be repaired. At Ordering Company's option, Ordering Company may elect to retain the replacement Product, Licensed Material, or Service if substitution of the original after repair could cause a further service interruption. Where Supplier has elected to repair or replace a Product (other than Cable and Wire Products) which has not been installed by Supplier and Supplier ascertains that the Product is not readily returnable by Ordering Company, Supplier will repair or replace the Product at Ordering Company's site. For the purposes of Sections 8.2 (c) (ii) (B) and (C) and Section 8.2 (d), Cable and Wire Products shall mean fiber optics and associated products and copper cable and associated products, including, but not limited to, interbay cable, closures, arrays, and mounts. (C) With respect to Cable and Wire Products which Supplier has ascertained are not readily returnable for repair, whether or not installed by Supplier, Supplier may elect to repair the Cable and Wire Products at Ordering Company's site. (d) If Supplier has elected to repair or replace a defective Product, Ordering Company is responsible for removing and reinstalling the Product and, in addition, for on-site repair or replacement of cable and wire products, Ordering Company must make the Product accessible for repair or replacement, and is responsible to restore the site. (e) Products returned for repair or replacement will be accepted by Supplier only in accordance with its instructions and procedures for such returns. The transportation expense associated with returning such Product to Supplier shall be borne by Ordering Company. Supplier shall pay the cost of transportation of the repaired or replacing Product to the destination designated by Ordering Company. The same Product or part shall not be returned by Supplier to Ordering Company with the notation no-trouble-found (NTF) on more than two (2) occasions. On the third occasion that a Product or part has been classified by Supplier as NTF, the Product or part shall be returned to Supplier and shall become Supplier's property. Supplier shall ship a new, refurbished, or reconditioned replacement to Ordering Company for the returned Product or part at no charge for that Product under warranty. For out of warranty Product, Supplier shall ship a new, refurbished, or reconditioned replacement to Ordering Company for the returned Product or part at Supplier's current negotiated price for the production equipment element/component. (f) The defective or nonconforming Products or parts which are replaced shall become Supplier's property. Supplier may use either new, remanufactured, reconditioned, refurbished, or functionally equivalent Products or parts in the furnishing of repairs or replacements under this Agreement. Unless otherwise agreed or unless unavailable, Supplier shall use new components in the repair of Products. (g) If a Product for which warranty Service is claimed is not defective or is in conformance, Ordering Company shall pay Supplier's costs of handling, inspecting, testing, and transporting, and, if applicable, reasonable traveling and related expenses as referenced in Section 3.1 (g), PRICES. (h) Supplier makes no warranty with respect to defective conditions or nonconformities resulting from the following: Ordering Company modifications, misuse, neglect, accident or abuse, improper wiring, repairing, splicing, alteration, installation, storage or maintenance other than by Supplier, use in a manner not in accordance with Supplier's or vendor's Specifications or operating instructions or failure of Ordering Company to apply previously applicable Supplier modifications and corrections which were available without extra charges and which Ordering Company had had reasonable opportunity to apply. In addition, Supplier makes no warranty with respect to Products which have had their serial numbers or month and year of manufacture removed or altered and with respect to expendable items, including, without limitation, fuses, light bulbs, motor brushes, and the like. (i) THE FOREGOING PRODUCT WARRANTIES ARE EXCLUSIVE AND ARE IN LIEU OF ALL OTHER EXPRESS AND IMPLIED WARRANTIES, INCLUDING BUT NOT LIMITED TO WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, EXCEPT FOR (a) TANGIBLE PROPERTY DAMAGE AND PERSONAL INJURY FOR WHICH SUPPLIER IS HELD LIABLE AND (b) THE REMEDY PROVIDED IN SECTION 5.1(e), ORDERING COMPANIES' REMEDIES, ORDERING COMPANY'S SOLE AND EXCLUSIVE REMEDY SHALL BE SUPPLIER'S OBLIGATION TO REPAIR, REPLACE, CREDIT, OR REFUND AS SET FORTH ABOVE IN THIS WARRANTY. 8.3 CONTINUING PRODUCT SUPPORT - PARTS AND SERVICES. (a) In addition to repairs provided for under Product Warranty, Supplier offers repair services and repair parts in accordance with Supplier's repair and repair parts practices and mutually agreed upon terms and conditions then in effect for Supplier's Manufactured Products furnished pursuant to this Agreement. Such repair Services and repair parts shall be available while Supplier is manufacturing or stocking such Products or repair parts, and in any event for ten (10) years from Supplier's last shipment of a host system to Ordering Company for Supplier's 5ESS Switch System, and five (5) years or the duration of the period of the host system, whichever is longer, for other 5ESS Switch Products sold to Ordering Company as an addition to an existing 5ESS Switch System. The period for all other Supplier's Manufactured Products is five (5) years after such Product's discontinued availability effective date unless modified by Supplemental Agreements. Supplier may use either new, remanufactured, reconditioned, refurbished, or functionally equivalent Products or parts in the furnishing of repairs or replacements under this Agreement. (b) If after the agreed to support period Supplier is unable to provide repair part(s) and/or repair service (s) and a functionally equivalent replacement has not been designated, Supplier shall advise Ordering Company, by written notice prior to such discontinuance to allow Ordering Company to plan appropriately, and if Supplier is unable to identify another source of supply for such repair part(s) and/or repair service(s), Supplier shall provide Ordering Company, upon request, with nonexclusive licenses for manufacturing drawings and Specifications of raw materials and components to the extent Supplier can grant such licenses, so that Ordering Company will have sufficient information to have manufactured, or obtain such Service or parts from other sources. License terms for the foregoing manufacturing drawings, Specifications, and related documentation, such as manufacturing shop instructions, test programs and test instructions, including charges mutually agreed to, will be in accordance with Supplier's licensing procedures then in effect. In addition to the above licenses, if requested by Ordering Company, Supplier shall provide, at mutually agreeable prices, all dedicated tools and test beds necessary for Ordering Company to test such Products. (c) With respect to Vendor Items, and subject to Section 1.118, VENDOR ITEMS, if during the agreed to support period, Supplier's vendor terminates production of repair parts or repair services, Supplier will use reasonable efforts to provide the repair parts or repair services or secure sources for such parts or services. However, if no other sources or functionally equivalent replacement can be secured, Supplier shall advise Ordering Company, by written notice prior to such discontinuance to allow Ordering Company to plan appropriately. Supplier shall provide Ordering Company, upon request, a detailed list of all commercially available parts and components purchased by Supplier disclosing the part number, name and location of supplier, and prices of the purchased items. (d) With respect to Vendor Items and subject to Section 1.120 if after the agreed to support period, Supplier is unable to provide repair part(s) and/or repair service(s) and a functionally equivalent replacement has not been designated, Supplier shall advise Ordering Company, by written notice prior to such discontinuance to allow Ordering Company to plan appropriately, and if Supplier is unable to identify another source of supply for such repair part(s) and/or repair service(s), Supplier shall provide Ordering Company, upon request, a detailed list of all commercially available parts and components purchased by Supplier disclosing the part number, name and location of supplier, and prices of the purchased items. 8.4 TECHNICAL SUPPORT OF PRODUCTS. Supplier shall, in addition to its obligations under Product Warranty, make available, at mutually agreeable rates, ongoing technical support including, but not limited to the expertise to identify, isolate, and resolve problems, that Supplier customarily provides to its customers, including telephone assistance, field Service, and technical consultation Service for Products provided under this Agreement for a period of ten (10) years after Supplier's last shipment of a host system to Ordering Company for Supplier's 5ESS Switch System, and five (5) years or the duration of the period of the host system, whichever is longer, for other 5ESS Switch Products sold to Ordering Company as an addition to an existing 5ESS Switch System. The period for all other Supplier's Manufactured Products is five (5) years after such Product's discontinued availability effective date unless modified by Supplemental Agreements. 8.5 DOCUMENTATION. Supplier shall furnish to Ordering Company at no additional charge and grant Ordering Company the right to use one copy of the documentation for the Products provided hereunder for the purpose of operating and maintaining such Products. Such documentation will be that customarily provided by Supplier to its customers at no additional charge. Supplier shall also furnish to Ordering Company the Application and Planning Guide or a document similar to it. If Ordering Company wishes to perform its own installation, Supplier, at an additional charge, if applicable, shall furnish to Ordering Company and grant Ordering Company the right to use one copy of the documentation for the Products provided hereunder for its evaluation and installation purposes. The foregoing grant is subject to Section 4.1, USE OF INFORMATION, and does not include the right to disclose the content of such documents to persons other than employees of Ordering Company, its Affiliates, representatives, or contractors who will be involved in the Work, provided, however, that upon written agreement of Ordering Company to pay any applicable licensing fee in accordance with ordinary commercial practices, persons with a need to know in connection with installation of the specific Product shall be allowed to use such documentation. Such documentation shall be provided prior to, included with, or shortly after the shipment of the Products from Supplier to Ordering Company. Additional copies of the documentation are available at mutually agreeable prices. 8.6 SPECIFICATIONS. Upon request, Supplier shall provide to Ordering Company, at no charge, and grant Ordering Company the right to use a copy of Supplier's available commercial Specifications applicable to Products orderable hereunder for the purpose of operating and maintaining Products. Additional copies are available at mutually agreeable prices. Supplier shall also furnish to Ordering Company the Application and Planning Guide or a document similar to it. If Ordering Company wishes to perform its own installation, Supplier, at an additional charge if applicable, shall furnish to Ordering Company and grant Ordering Company the right to use one copy of the documentation for the Products provided hereunder for its evaluation and installation purposes. The foregoing grant is subject to Section 4.1, USE OF INFORMATION, and does not include the right to disclose the content of such documents to persons other than employees of Ordering Company, its Affiliates, representatives, or contractors who will be involved in the Work provided, however, that upon written agreement of Ordering Company to pay any applicable licensing fee in accordance with ordinary commercial practices, persons with a need to know in connection with installation of the specific Product shall be allowed to use such documentation. 8.7 EQUIPMENT TESTING. (a) Supplier is responsible for the performance of standard factory production tests in the absence of any other testing mutually agreed to by the parties. Such tests shall be performed in accordance with Supplier's normal testing and quality control procedures in order to insure that the equipment provided hereunder meets all applicable Specifications. At the option of Ordering Company, Supplier shall furnish a copy of its high level test and quality control process descriptions to Ordering Company prior to initiating any such testing and Ordering Company, at its expense and with Supplier's agreement, may request in advance to witness any of the testing by giving prior notice to Supplier. Such request must be received with sufficient advance notice that the observation would not delay the completion of a test. Supplier also agrees to maintain detailed records of all such tests and to provide Ordering Company, at no charge, and if requested, with written results of these tests. Supplier reserves the right to make changes to its test and quality control process descriptions without prior notification to Ordering Company. (b) In the event that the equipment fails to meet the applicable Specifications and test requirements, Supplier shall make the necessary adjustments or repairs and repeat the applicable tests. If, in the opinion of Supplier, the failure rates experienced during these tests become unsatisfactory, all shipments of like equipment to Ordering Company shall be suspended unless otherwise authorized by Ordering Company in writing. (c) If Supplier is unable or unwilling to correct, at Supplier's expense, any failure to meet the applicable Specification and test requirements found during testing provided hereunder within thirty (30) days of such discovery or such longer period as may be mutually agreed upon, Ordering Company, at its option, shall be relieved of all responsibilities under this Agreement with respect to such equipment or the portion thereof which was not corrected. 8.8 ENVIRONMENTAL/RELIABILITY TESTING. Upon reasonable request by Ordering Company and at a mutually agreeable charge, Supplier shall perform environmental testing of the production equipment in accordance with Ordering Company's Technical Reference-PUB 51001 entitled NETWORK EQUIPMENT-BUILDING SYSTEM (NEBS) GENERAL EQUIPMENT REQUIREMENTS, Sections 3, 4, and 5 and Bellcore's Technical Reference-TR-NWT-000063 entitled NETWORK EQUIPMENT-BUILDING SYSTEM (NEBS) GENERIC EQUIPMENT REQUIREMENTS. Supplier agrees to report the test results to Ordering Company. If such test results already exist, Supplier will furnish test results to Ordering Company at no additional charge. 8.9 FAILURE MODE ANALYSIS OF FAILED COMPONENTS. Supplier shall perform failure mode analysis on components of Products purchased by Ordering Company with a persistent history of failure to determine the specific cause of the component failure. The results of this analysis and planned corrective action shall be provided to Ordering Company within fourteen (14) calendar days of the completion of the analysis. 8.10 FLOOR PLAN DATA SHEETS. Supplier shall, at Ordering Company's request, at a mutually agreeable price, and within a reasonable timeframe after product design completion, deliver to Ordering Company a completed Floor Plan Data (FPD) sheet, for equipment sold hereunder. Such FPD sheets shall be prepared in accordance with the requirements of Technical Reference 51005, dated December 1984, as amended from time to time. 8.11 MONTHLY ORDER AND SHIPMENT REPORTS. Supplier agrees to render monthly Order and shipment reports at a mutually agreeable charge, if applicable, on or before the fifteenth (15th) working day of the succeeding month: (a) Monthly Order and shipment reports containing the information required in a mutually agreeable format; (b) at the request of Ordering Company, monthly summaries of actual shipping intervals achieved on material Ordered under this Agreement; (c) at the request of Ordering Company, monthly repair summaries on material including (i) number of units received for repair, (ii) a breakdown of in-warranty repairs versus out-of-warranty repairs, (iii) summary of all repairs for no trouble found, and (iv) number of units repaired within same day, 24 hours, and one to seven days, and (d) at the request of Ordering Company, monthly report identifying the number of units returned and repaired by Supplier (RS&R Open Order Report). 8.12 RADIATION ASSISTANCE. If Product provided to Ordering Company in compliance with applicable FCC rules are thought to provide interference to others, Supplier shall provide to Ordering Company information relating to methods of suppressing such interference at a mutually agreeable price and Ordering Company shall pay the cost of suppressing such interference. 8.13 MARKING. All material furnished under this Agreement shall be marked for identification purposes in accordance with mutually agreed upon marking specifications set forth in any Supplemental Agreement or Order referencing this Agreement and as follows: (a) with Supplier's model/serial number; and (b) with month and year of manufacture. In addition, Supplier agrees to add any other reasonable identification which might be requested by Ordering Company such as, but not limited to, distinctive marks conforming to Ordering Company's Serialization Plan. Charges, if any, for such additional identification marking shall be as agreed upon by Supplier and Ordering Company. This clause does not reduce or modify Supplier's obligations under Section 4.4, TRADEMARKS, included in this Agreement. 8.14 PERIODIC PRODUCT QUALIFICATION REVIEWS. Supplier shall conduct periodic product qualification ("PPQ") reviews to ensure that the Product continues to meet its design intent. The PPQ reviews are a Bellcore requirement and results are reported to Bellcore. If requested, Supplier shall provide to Ordering Company the results of such reviews. 8.15 MAINTENANCE/POST WARRANTY. Supplier may offer various programs which provide services beyond the warranty repairs above. At Ordering Company's option, Ordering Company may purchase these Repair Service and Return ("R/SAR"), Spares Exchange Service ("SES"), and other offerings at prices, terms and conditions to be mutually agreed upon. 8.16 PLANNING INFORMATION FOR ORDERS FOR COMMERCIALLY AVAILABLE PRODUCTS. (a) This planning information addresses the process for all Orders of Supplier's commercially available Products. It is not applicable to custom Products or special arrangements on such things as inventory or manufacturing (i.e. any custom or legacy products requiring unique procedures, such as NGLN, DDM1000, FT-Series G and projects such as Customer Connectivity). Special Product or unique arrangements will require a Supplemental Agreement to document the agreements made specifically for that Product or project only. (b) Supplier and Ordering Company shall identify Products or technologies that will require special arrangements and for which Supplemental Agreements must be negotiated. (c) Ordering Company will provide to Supplier on a monthly basis via the Customer Demand Planning (CDP) mechanized system, a forecast of Product requirements consisting of funded, unfunded, and a projection of unforecasted demand. This forecast is considered unconstrained and will be provided for a rolling twelve (12) months as well as an aggregate forecast for the subsequent year. It will represent forecasted demand by fiscal month. (d) A current listing of Products that are presently forecasted by Network Services Division/Inventory Management ("NSD/IM") will be mutually agreed upon and updated periodically as the scope of the forecasting process changes. Forecasts furnished by Ordering Company will eventually encompass all of the network Product requirements for Ordering Companies. (e) Orders will be placed within Supplier's planning interval documented in Exhibit 2-1, Planning Intervals, to the extent possible, and will constitute a commitment to buy. Ordering Company will compare the monthly forecast with the semi-annual planning forecast being provided in April and September, and will reconcile the two accordingly. In the future, if the frequency of these forecasts changes, a similar reconciliation will be performed on all Product elements that are provided in the planning forecasts. Ordering Company and Supplier will review Ordering Company's forecasting accuracy quarterly with the goal of obtaining 80% forecasting accuracy. Ordering Company will work with Supplier to provide Product level requirements on a monthly basis especially for those forecasts within the six (6) month window as part of the rolling forecast. (f) CUSTOMER DEMAND PLANNING (CDP). Should Ordering Company request a programming change to the CDP system that would benefit external users of the CDP system, Supplier shall make such modification at no cost to Ordering Company. If Ordering Company has a request for a modification to the CDP system that is specific to Ordering Company's needs, such modification to the system shall be made at a cost mutually agreed upon by Ordering Company and Supplier. Supplier shall provide Ordering Company with CDP system support via the 1-800-CDP-8845 Hotline at no cost to Ordering Company. (g) METRICS. Ordering Company and Supplier agree to monitor forecast accuracy on a monthly basis. Forecast accuracy measurements shall be based upon a two month lead time for each forecasted item. CDP shall be the vehicle for gathering data on forecast accuracy and shipping performance. Ordering Company will monitor its forecasts and seek to achieve improvements in accuracy as described in Exhibit 8-3. Supplier will monitor and seek to achieve improvements on performance to customer requested completion date (CRCD), and performance to published order intervals. This is an informal process and does not imply penalty for non-performance. The 1996 metric goals are set forth in Exhibit 8-3. Joint goals and metrics for future years will be mutually negotiated for continuous improvement. (h) FORECASTING PROCESS MONITORING. Forecasting Process Performance Goals will be monitored on an ongoing basis by the Inventory Management Process Management Team and the Forecasting Quality Improvement Team. Additional meetings to review forecasting specifics may be scheduled as needed by either Ordering Company or Supplier. ARTICLE IX SOFTWARE 9.1 GENERAL. (a) The provisions of this Article 9 apply to the furnishing of Software by Supplier to Ordering Company pursuant to this Agreement. Supplier's use of certain Licensed Materials may be restricted by mutual agreement of the parties as specified in a Supplemental Agreement. The ownership interests and rights of the parties in Custom Software, in addition to the applicable rights set forth in this Article, shall be established on a case-by-case basis in subsequent Supplemental Agreements. (b) To the extent that any provision set forth in this Article conflicts with any provision set forth elsewhere in this Agreement, this Article shall control. (c) Software in this Article means both Custom Software and Licensed Materials. 9.2 LICENSE. (a) Unless otherwise specified in a Supplemental Agreement, upon delivery of Licensed Materials, Supplier grants to Ordering Company a personal, nontransferable, and nonexclusive license pursuant to this Agreement to use Licensed Materials at a site(s) or, in the case of a Designated Processor, with either the Designated Processor or temporarily on any comparable replacement if the Designated Processor becomes inoperative, until the Designated Processor is restored to operational status. Ordering Company shall use Licensed Materials only for its own internal business operations. (b) Ordering Company shall not sublicense such Licensed Materials, nor modify, decompile, or disassemble Licensed Material furnished solely as object code to generate corresponding Source Code, provided, however, that Ordering Company shall be authorized to sublicense Software in connection with its rights in Section 1A.1, PURPOSE AND SCOPE OF THIS AGREEMENT, to dispose of Products and Licensed Materials. 9.3 SOFTWARE. On the delivery date, Supplier shall furnish to Ordering Company, at the fee specified in the Order or Supplemental Agreement, at least the following basic items: (a) Object Code stored in a medium compatible with the equipment described in Supplier's Specifications or the applicable Supplemental Agreement, and identified in the Order; (b) user documentation which Supplier normally furnishes to customers with the Licensed Materials at no additional charge, and any user documentation specified in the applicable Supplemental Agreement; (c) if not previously provided, the required machine configuration; and (d) Source Code if licensed or furnished by Supplier as part of the Software ordered hereunder. 9.4 ACCESS TO SOURCE CODE. (a) With respect to Software which has not been the subject of a notice of discontinued availability pursuant to Section 9.20, NOTIFICATION OF DISCONTINUED AVAILABILITY OF SOFTWARE, if Supplier is declared bankrupt or refuses to perform maintenance of the Software, or fails to provide for the performance of maintenance of the Software to the extent that Ordering Company is unable to use the Software for its intended purpose and perform maintenance, then Supplier, or others acting on behalf of Supplier, shall furnish to Ordering Company (under a suitable license agreement, if applicable), Supplier's then existing Software Source Code, Software development programs, and associated documentation for such standard version to the extent necessary for Ordering Company to maintain and enhance for its own use the standard version of that Software for which it has a perpetual, non-exclusive right to use. (b) If Ordering Company's use of the Software Source Code provided pursuant to Section 9.4(a) involves use or copying of copyrighted material or the practice of any invention covered by a patent, Supplier shall not assert the copyright or patent against Ordering Company for use of the Software Source Code as originally provided by Supplier. 9.5 RESTRICTIONS AND CONFIDENTIALITY. (a) Except for any part of such Licensed Materials which is or becomes generally known to the public through acts not attributable to Ordering Company, Ordering Company shall hold such Licensed Materials in confidence, and shall not, without Supplier's prior written consent, disclose, provide, or otherwise make available, in whole or in part, any Licensed Materials to anyone, except to its employees having a need-to-know . Ordering Company shall not copy Licensed Materials embodied in Firmware. Ordering Company shall not make any copies of any other Licensed Materials except as necessary in connection with the rights granted hereunder. Ordering Company shall comply fully with the proprietary notice requirements set forth in Section 4.1, USE OF INFORMATION, and the record keeping obligation of Section 6.21, RECORD RETENTION. (b) Ordering Company shall take appropriate action, by instruction, by agreement, or otherwise, with all persons permitted access to the Licensed Materials so as to enable Ordering Company to satisfy its obligations under this Agreement. (c) When the Licensed Materials are no longer needed by Ordering Company, or if Ordering Company's license is canceled or terminated, Ordering Company shall return all copies of such Licensed Materials to Supplier or follow written disposition instructions provided by Supplier. (d) Custom Software and Related Documentation shall be treated as proprietary information of a party or parties in accordance with Section 4.1, USE OF INFORMATION. 9.6 INSTALLATION OF SOFTWARE. (a) Where Ordering Company is responsible for installation of Software, Supplier's sole responsibility is to deliver the Software to Ordering Company on or before the scheduled Delivery Date specified in the Order or Supplemental Agreement. However, if Supplier is expressly responsible for such installation, Supplier shall deliver the Software to Ordering Company in sufficient time for it to be installed on or before the scheduled Installation Complete Date specified in the Order or Supplemental Agreement, and Supplier shall complete its installation and associated testing on or before such date. (b) Where Ordering Company has assumed responsibility for the installation of newly licensed Software, Supplier will, at Ordering Company's request and without charge provide for the first such installation a reasonable level of technical assistance, which may include on-site assistance, when Ordering Company encounters installation difficulties. For all subsequent installations of such Software by Ordering Company, unless otherwise stipulated under conditions of an Order or Supplement Agreement, Supplier reserves the right to charge Ordering Company for any Ordering Company-requested assistance. 9.7 OPTIONAL SOFTWARE FEATURES. Licensed Materials provided to Ordering Company under this Agreement may contain optional features which are separately licensed and priced. Ordering Company agrees that such optional features will not be activated without written authorization from Supplier and Ordering Company's payment of the appropriate license fees. If, in spite of Ordering Company's best effort to comply with this restriction, such features are activated and used by Ordering Company, Ordering Company agrees to so notify Supplier promptly and to pay Supplier the license fees for the activated features, as well as the reasonable cost of money for the period in which such features were activated. 9.8 CENTRALIZED MAINTENANCE. (a) Ordering Company may specify in an Order or Supplemental Agreement that, for centralized maintenance purposes, all Software changes, including Enhancements, provided by Supplier shall be provided only to Ordering Company's Centralized Support Organization. Supplier will, in that event, be responsive to maintenance requests which Ordering Company's Centralized Support Organization issues. This Organization will be responsible for Software application, initial Acceptance testing and distribution of the Software to all licensed installations. (b) Subject to payment of all applicable fees, Supplier grants Ordering Company the right to transmit the Software by means of data links to each licensed installation. (c) Supplier grants to Ordering Company, at a fee to be negotiated in a Supplemental Agreement, a license to use a copy of the Software for centralized maintenance purposes only. Supplier shall provide this maintenance copy of the Software in response to an Order requesting same. The maintenance copy provided to Ordering Company's Centralized Support Organization will be used only to perform systems or application support functions for Ordering Company's application programmers. 9.9 ENHANCEMENTS. Supplier shall offer to Ordering Company during the term of an Order or Supplemental Agreement, at an agreed upon charge, if any, all Software Enhancements and Related Documentation, generally made available by Supplier. All Enhancements provided to Ordering Company shall be considered Software subject to the provisions of an Order or Supplemental Agreement. 9.10 INTELLECTUAL PROPERTY RIGHTS. (a) Title to the Licensed Material and to Intellectual property rights herein shall remain in Supplier or Supplier's licenser, as applicable. Ordering Company shall have the right to make the number of copies of the Licensed Materials solely for use as authorized in an Order or Supplemental Agreement, and archival copies as appropriate. Ordering Company however, shall not reproduce copies of the Licensed Materials for the purpose of supplying it to others except individuals authorized herein. (b) All Licensed Material (whether or not part of Firmware) furnished by Supplier, and all copies thereof made by Ordering Company, including translations, compilations, and partial copies thereof, are, as between Ordering Company and Supplier, solely the property of Supplier. (c) Title to Custom Software shall be specified in the applicable Supplemental Agreement. 9.11 TRAINING AND TECHNICAL SERVICE. Supplier shall provide: (a) assistance and advice, as may be specifically requested by Ordering Company necessary to assist in the testing and use of the Software under the terms and conditions specified in the Order or Supplemental Agreement, and (b) at no additional charge, any training as it normally provides without charge to other customers. 9.12 MODIFICATIONS. In those instances where Source Code is provided, Ordering Company may make Modifications to the Software as permitted in a Supplemental Agreement. Ordering Company shall have all rights, title and interest to any Modifications and resulting derivative works and the Intellectual Property Rights in such Modifications or works. Moreover, unless otherwise agreed by the parties, nothing shall limit Ordering Company's right to reproduce and use the modified Software, provided however, any portion or aspect of the modified Software which is licensed from Supplier shall continue to be subject to all the provisions of the license, and nothing contained herein grants to Ordering Company any rights to use the Software other than as recited in the license. 9.13 REDESIGNATION OR TRANSFER OF DESIGNATED SITE OR COMPUTER. (a) If Ordering Company's use of the Software is limited to a designated site or a Designated Processor, the provisions of this clause shall apply. A redesignation shall refer to the movement of Software to upgraded equipment. A transfer shall refer to a temporary change of site of the Software. (b) Without an additional charge or fee or any requirement for any additional license, except where feature or size sensitive units are a factor, Ordering Company may: (i) Redesignate the site or Designated Processor at which the Software will be used and shall notify Supplier of the new site or Designated Processor and the effective date of the redesignation; and (ii) Concurrently operate the Software at another site or Designated Processor for a period not to exceed three (3) months for the purpose of redesignating the assigned using site. (c) The license granted for a designated site or Designated Processor may be transferred with notice to Supplier (within a reasonable time after such transfer) and at no additional charge or fee to Ordering Company to a backup computer if the designated site or Designated Processor is inoperative due to malfunction, due to performance of preventive or remedial maintenance, due to engineering changes or due to changes in features or model, until the designated site or Designated Processor is restored to operative status and processing of the data already entered in the backup computer has been completed. Supplier may charge Ordering Company for services requested by Ordering Company in support of such relocation. 9.14 SOFTWARE ACCEPTANCE. (a) Upon installation completion of the Software in the Integrated Test Network (ITN) or the First Field Application, Ordering Company has the right to conduct an Acceptance Test. Unless otherwise agreed by the parties, Ordering Company shall have an Acceptance Test Period of thirty (30) consecutive calendar days to conduct this test. The Software shall be deemed accepted by Ordering Company unless Ordering Company notifies Supplier in writing to the contrary within the Acceptance Test Period described above. If the Software fails the Acceptance Test during the Acceptance Test Period, Supplier shall use its reasonable efforts to correct each error to minimize the Acceptance delay, and the Acceptance Date shall be extended on a day-to-day basis until the Software, as modified, is accepted. Acceptance of a particular release of Software in the ITN or in the First Field Application shall constitute Acceptance of all copies of such Software to be provided Ordering Company, regardless of when each such copy of such Software is installed on its Designated Processor. (b) If Ordering Company elects in the Order not to perform Acceptance Tests for any Software, the Acceptance Date for such Software shall be the Delivery Date if not installed by Supplier or the Installation Complete Date if installed by Supplier, as applicable. (c) For an Acceptance Test conducted by Ordering Company on newly licensed Software, Supplier will, at Ordering Company's request and without charge, provide a reasonable level of technical assistance to Ordering Company when difficulties are encountered by Ordering Company. (d) In the event that Software has not passed the Acceptance Test within six (6) months after the Delivery Date, at Ordering Company's option, (i) Ordering Company shall return all copies of the Software to Supplier and Supplier shall reimburse Ordering Company for any fees (e.g., license, R&D, etc.) paid for such Software or (ii) if mutually agreed to by the parties, Ordering Company may retain the Software at an equitable adjustment in the fees as may be agreed to by the parties, in which case the Software shall be deemed accepted. 9.15 SOFTWARE WARRANTY. (a) Supplier warrants to Ordering Company all of the following: (i) The Software will be free from significant errors, will conform to and perform in accordance with the Specifications. The media containing the Software will be free from defects in material and workmanship. The Software will be compatible with and may be used in conjunction with other Software and the hardware as described in the Specifications. (ii) Work will be performed in accordance with industry standards. (iii) There are no copy protection or similar mechanisms within the Software which will, either now or in the future, interfere with the rights granted to Ordering Company. (iv) Supplier has the right to grant the licenses as granted herein, and has not done anything to interfere with the exercise of Ordering Company's rights. (v) At the time of delivery, to Supplier's knowledge, the Software does not contain any malicious code, program, or other internal component (e.g. computer virus, computer worm, computer time bomb, or similar component), which could damage, destroy, or alter Software, Firmware, or hardware or which could, in any manner, reveal, damage, destroy, or alter any data or other information accessed through or processed by the Software in any manner. Supplier shall immediately advise Ordering Company, in writing, upon reasonable suspicion or actual knowledge that the Software provided may result in the harm described above. (b) All warranties shall survive inspection, Acceptance and payment. (c) If, under normal and proper use during the applicable Warranty Period specified in Exhibit 8-1 Software proves to have a defect which materially affects its performance in accordance with the applicable Specifications and Ordering Company notifies Supplier in writing of such defect promptly after Ordering Company discovers such defect and follows Supplier's instructions, if any, regarding return of defective Software, Supplier shall, attempt first to either correct or replace such Software without charge, or if correction or replacement is not feasible, provide a refund or credit based on the original license fee. In addition, should a defect in Software prevent in whole or in part the use of any Product(s) that cannot be applied to another use by Ordering Company, Ordering Company may, at its election, also return such Product(s) for a full refund. (d) Software returned for correction or replacement will be accepted by Supplier only in accordance with its instructions and procedures for such returns. The transportation expense associated with returning such Software to Supplier shall be borne by Ordering Company. Supplier shall pay the costs of transportation of the corrected or replacing Software to the destination designated by Ordering Company. (e) If Software for which warranty Service is claimed is not defective or nonconforming, Ordering Company shall pay Supplier's costs of handling, inspecting, testing, and transporting and, if applicable, traveling and related expenses. (f) Supplier makes no warranty with respect to defective conditions or nonconformities resulting from the following: modifications, misuse, neglect, or accident; events outside Supplier's control; installation, use of Software or Software maintenance in a manner not in accordance with Supplier's Specifications, operating instructions, or license-to-use; or failure of Ordering Company to apply previously applicable Supplier modifications and corrections. In addition, Supplier makes no warranty with respect to defects related to Ordering Company's data base errors. Moreover, no warranty is made that Software will run uninterrupted or error free. (g) If any Software is lost or damaged during the Warranty Period or such other time as Supplier maintains the Software as a generally available product offering, while in the possession of Ordering Company, Supplier will promptly replace the Software at the established charge for providing the associated media unless such is provided by Ordering Company. (h) If an Order specifies that Ordering Company's use of the Software is limited to a designated site or a Designated Processor, the provisions of this clause shall apply. If Ordering Company performs installation and elects to perform applicable tests for any Software, the warranty for such Software shall commence on the Delivery Date. If Supplier performs installation of any Software, the Warranty for such Software shall commence upon installation completion. (i) If Software is purchased with a license for multiple sites (e.g., unlimited replication rights, or limited multiple replication rights), the warranty for such Software shall commence upon Acceptance by Ordering Company in the ITN or in the First Field Application, as appropriate. (j) Supplier warrants that installation of any new Software will not shorten or lessen the warranty of existing Software. (k) THE FOREGOING SOFTWARE WARRANTIES ARE EXCLUSIVE AND ARE IN LIEU OF ALL OTHER EXPRESS AND IMPLIED WARRANTIES, INCLUDING BUT NOT LIMITED TO WARRANTIES OF MERCHANTABILITY AND FITNESS FOR PARTICULAR PURPOSE. EXCEPT FOR (a) TANGIBLE PROPERTY DAMAGE AND PERSONAL INJURY FOR WHICH SUPPLIER IS HELD LIABLE AND (b) THE REMEDY PROVIDED IN SECTION 5.1(e), ORDERING COMPANIES' REMEDIES, ORDERING COMPANY'S SOLE AND EXCLUSIVE REMEDY SHALL BE SUPPLIER'S OBLIGATION TO CORRECT, REPLACE, CREDIT, OR REFUND AS SET FORTH ABOVE IN THIS WARRANTY. 9.16 CANCELLATION OF LICENSE. If Ordering Company fails to comply with any of the material terms and conditions of this Agreement, Order or Supplemental Agreement and such failure continues beyond ten (10) days after receipt of written notice thereof by Ordering Company, the conditions of Article 5A, ARBITRATION; DISPUTE RESOLUTION shall apply. Supplier's cancellation of the license at issue shall be tolled pending the outcome of the Dispute Resolution process. Simultaneous with initial invocation of such process, Ordering Company shall deposit and have held in escrow, until such dispute is resolved, an amount equal to the current market price of the license in question. 9.17 RELATED DOCUMENTATION. Supplier shall furnish to Ordering Company, at no additional charge and grant Ordering Company the right to use one copy of the Related Documentation for Software furnished by Supplier pursuant to this Agreement for the sole purpose of operating and maintaining such Software. Such Related Documentation will be that customarily provided by Supplier to its customers for such Software, consistent with the vintage, options and feature of the system on which it operates. Such Related Documentation shall be provided prior to, included with, or shortly after provision of Software by Supplier to Ordering Company. Additional copies of the Related Documentation are available at prices set forth in Supplier's Price List. 9.18 ADDITIONAL RIGHTS IN LICENSED MATERIAL. (a) The additional rights granted by Supplier to Ordering Company herein apply to 4ESS Switch, 5ESS Switch, 2NCP, SLC2000, FT2000, DDM, and DACS Product families. Both parties agree that these same rights may be extended to other Products by mutual agreement and documented within a Supplemental Agreement. (b) Ordering Company may transfer its right to use Licensed Materials furnished under this Agreement without the payment of an additional right-to-use fee by transferee, except where feature or size sensitive units are a factor, but only under the following conditions: (i) Such Licensed Materials shall be used only within the country in which it is currently deployed, however, Supplier will not unreasonably withhold its consent to use outside such country provided the proprietary information associated with the use of the Software can be adequately protected; (ii) Except as otherwise provided in the Agreement, the right to use such Licensed Material may be transferred, only together with the Product with which Ordering Company has a right to use such Licensed Material, and such right to use the Licensed Material shall continue to be limited to use with such Product; (iii) Before any such Licensed Material shall be transferred, Ordering Company shall notify Supplier of such transfer and the transferee shall have agreed in writing (a copy of which will be provided to Supplier at its request) to keep such Licensed Material in confidence and to corresponding conditions respecting use of Licensed Materials as those imposed on Ordering Company; and (iv) Within the country in which the Licensed Material was originally deployed, the transferee shall have the same right to Licensed Material warranty or Licensed Material maintenance for such Software as the transferor, provided the transferee continues to pay the fees, if any, associated with such Software or Software maintenance. 9.19 SOFTWARE MAINTENANCE SERVICE. Unless otherwise agreed by Supplier in writing, maintenance Service for Software shall only be available for (a) the version/generic that is current at the time that such Service is ordered, (b) the immediately preceding version/generic, and (c) a version/generic for which the term of warranty is still in effect. Ordering Company will be notified in writing six (6) months in advance of maintenance Service discontinuance for version/generics prior to the preceding version/generic. 9.20 NOTIFICATION OF DISCONTINUED AVAILABILITY OF SOFTWARE. Supplier shall notify Ordering Company at least one (1) year in advance of discontinued availability of the last standard Software generic. For a minimum of two (2) years after discontinued availability, Supplier will make available to Ordering Company, Software Support Service or other mutually agreed upon arrangements which afford Ordering Company reasonable continued use of the Software. If Supplier refuses to provide Software Support Service beyond the minimum two (2) year period, Supplier shall grant to Ordering Company a license to use the Software Source Code under terms and conditions to be negotiated at that time. ARTICLE X ENGINEERING, INSTALLATION, MAINTENANCE AND OTHER MISCELLANEOUS SERVICES 10.1 GENERAL. The provisions of this Article X shall be applicable to the furnishing by Supplier of Services other than Services furnished pursuant to any other Article of this Agreement. Such services include, but are not limited to (a) Engineering Services such as preparation of equipment Specifications, preparation and updating of office records, and preparation of a summary of material not specifically itemized in the Order (b) Installation Services such as installation, equipment removal, and cable mining (c) Maintenance Services, and (d) other Miscellaneous Services. 10.2 WARRANTY FOR SERVICES OTHER THAN MAINTENANCE SERVICES. (a) Supplier warrants to Ordering Company that Services will be performed in a professional manner and in accordance with Supplier's Specifications or those referenced in the Order and with accepted practices in the community in which such Services are performed, using material free from defects except where such material is provided by Ordering Company. If the Services prove to be not so performed and if Ordering Company notifies Supplier, with respect to Engineering, Installation, or other Miscellaneous Services, within a six (6) month period commencing on the date of completion of the Service, as identified in writing by Supplier, Supplier, at its option, either will correct the defect or nonconforming Service for which Supplier is responsible or render a full or prorated refund or credit based on the original charge for the Services. After the corrective action, Ordering Company shall have the right to inspect and accept the corrective work done.. (b) Where Supplier performs Engineering or Installation Services as part of a combined engineering, furnishing, and installation Order, the six (6) month period referenced above shall commence on the date of Ordering Company's Acceptance of Installation Service. (c) THE FOREGOING SERVICES WARRANTIES ARE EXCLUSIVE AND ARE IN LIEU OF ALL OTHER EXPRESS AND IMPLIED WARRANTIES INCLUDING, BUT NOT LIMITED TO, WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. EXCEPT FOR (a) TANGIBLE PROPERTY DAMAGE AND PERSONAL INJURY FOR WHICH SUPPLIER IS HELD LIABLE AND (b) THE REMEDY PROVIDED IN SECTION 5.1(e), ORDERING COMPANIES' REMEDIES, ORDERING COMPANY'S SOLE AND EXCLUSIVE REMEDY SHALL BE SUPPLIER'S OBLIGATION TO MAKE CORRECTIONS OR GIVE A CREDIT OR REFUND AS SET FORTH ABOVE IN THIS WARRANTY. A. ENGINEERING SERVICES 10.3 ORDERING. Engineering Services may be ordered separately or in combination with Installation Services. 10.4 STANDARDS FOR ENGINEERING SERVICES. Supplier agrees to perform Engineering Services in accordance with the engineering Standards provided by and/or approved by Ordering Company. 10.5 STANDARDS FOR CENTRAL OFFICE RECORD SERVICES. (a) Supplier agrees to perform central office records services in accordance with central office records standards provided and/or approved by Ordering Company. (b) Ordering Company will provide Computer Aided Drafting (CAD) specifications, CAD drafting tools, standard drawing files and other conventions, in order that all completed CAD drawings will comply with Ordering Company's standards. Title to CAD specifications, tools, drawing files, and other data supplied to Supplier by Ordering Company shall remain in Ordering Company at all times both before and after the Work is done. (c) Supplier shall be responsible for loss or damage to CAD tools, drawing files, models, blueprints, and other materials in Supplier's possession under this Agreement belonging to Ordering Company, and shall, if requested, furnish Ordering Company with acceptable certificates of insurance covering this risk. (d) All project and/or Order specific CAD drawings, specifications and engineering calculations shall be forwarded to Ordering Company and become Ordering Company's exclusive property prior to final payment by Ordering Company on this Agreement or an Order, unless otherwise agreed in writing by Ordering Company's representative. 10.6 ENGINEERING INTELLECTUAL PROPERTY. All engineering service outputs and final products, including but not limited to equipment Specifications, office records, and material summaries, shall be the sole property of Ordering Company. All tools, reference material, and proprietary information used by Engineering Services to create or produce these outputs or documents shall remain the sole property of Supplier. B. INSTALLATION SERVICES 10.7 CONDITIONS OF INSTALLATION AND OTHER SERVICES PERFORMED ON ORDERING COMPANY'S SITE. (a) ITEMS PROVIDED BY ORDERING COMPANY. Ordering Company will be responsible for furnishing the following items (as required by the conditions of the particular installation or other on-site Service, hereinafter collectively referred to as the "Service") at no charge to Supplier and these items will not be included in Supplier's price for the Services. Should Supplier incur expense, subject to Ordering Company's preapproval, as a result of Ordering Company's failure to provide any of these items, billing in addition to the contract price will be rendered to and paid by Ordering Company. In addition, if Ordering Company's failure to provide any of these items results in delaying Supplier's performance, the affected Completion Date may be extended. (i) ACCESS TO BUILDING AND WORK SITE - Allow employees of Supplier and its subcontractors controlled access to premises and facilities at prearranged hours during the scheduled Service or at such other times as are reasonably requested by Supplier. The parties shall endeavor, to the extent practical, to agree on a building and work site access schedule prior to the start of work. Ordering Company shall obtain for Supplier's and its subcontractors' employees any necessary identification and clearance credentials to enable Supplier and its subcontractors to have access to the work site. (ii) GENERAL BUILDING CONDITIONS - Take such action as may be necessary to insure that the premises will be dry and free from dust and Hazardous Materials, including but not limited to asbestos, and in such condition as not to be injurious to Supplier's or its subcontractors' employees or to the Products to be installed. Prior to commencement of the Services and during the performance of the Services, Ordering Company shall, if requested by Supplier, provide Supplier with sufficient data to assist Supplier in evaluating the environmental conditions at the work site (including the presence of Hazardous Materials). Ordering Company is responsible for removing and disposing of the Hazardous Materials, including but not limited to asbestos, prior to commencement of the Services. (iii) REPAIRS TO BUILDINGS - Prior to Service start date, to the extent practical, make such alterations and repairs as are necessary for proper installation of Products. (iv) OPENINGS IN BUILDINGS - Prior to Service start date, furnish suitable openings in buildings to allow Products to be placed in position, and provide necessary openings and ducts for cable and conductors in floors and walls as designated on engineering drawings furnished by Supplier with input provided by Ordering Company. Supplier shall provide such drawings to Ordering Company in sufficient time to meet project service dates. Ordering Company shall fireproof (with steel covers) all paths throughout the building. (v) ELECTRICAL CURRENT, HEAT, LIGHT, AND WATER Provide electrical current for charging storage batteries and for any other necessary purposes with suitable terminals where work is to be performed; provide temperature control and general illumination (regular and emergency) in rooms in which work is to be performed or Products stored, equivalent to that ordinarily furnished for similar purposes in a working office; provide exit lights; provide water and other necessary utilities for the proper execution of the Services. At new locations without existing utilities Supplier may be requested in writing, prior to start date, to provide utilities, subject to negotiations with Ordering Company. (vi) BUILDING EVACUATION - Prior to Services start date, provide building evacuation plans in case of a fire or other emergency. (vii) CEILING INSERTS - Provide ceiling inserts as required using Supplier's standard spacing arrangement for ceiling support equipment. (viii) MATERIAL FURNISHED BY ORDERING COMPANY - New or used third party material furnished by Ordering Company shall be in such condition that it requires no repair and no adjustment or test effort in excess of that normal for new equipment. Ordering Company assumes all responsibility for the proper functioning of such material. Ordering Company shall also provide the necessary third party Product information and, where possible and permitted, access to special third party test equipment and tools, for Supplier to properly install such material. (ix) TOILET FACILITIES AND EYEWASH STATION - Provide proper and easily accessible toilet facilities and supplies, such as towels and soap, in buildings in which Services are in progress. Where temporary facilities are required, Ordering Company will provide suitable, portable facilities including supplies and custodial Services. Provide emergency eyewash station in power room near battery stands. (x) FLOOR SPACE AND STORAGE FACILITIES - Supplier will identify to Ordering Company its need for space to store materials and tools necessary for the work. If adequate space in the building is available, Ordering Company will license Supplier to use such space reasonably adjacent to the work site for storage of material and tools for near-term use. If such space is not available, the parties will negotiate other arrangements, such as trailers or off-site warehouses, to achieve the maximum practical economies. To the extent feasible, Ordering Company will permit Supplier's personnel to use luncheon facilities in the building and will license Supplier to use administrative space solely for the purpose of the Work. (xi) EASEMENTS, PERMITS, AND RIGHTS-OF-WAY - Prior to Services start date, provide all rights-of-way, easements, licenses to come upon land to perform the Services, permits and authority for installation of Products and other material; permits for opening sidewalks, streets, alleys, and highways; and construction and building permits. (xii) WATCH SERVICE - Provide normal security necessary to prevent admission of unauthorized persons to building and other areas where Installation Services are performed and to prevent unauthorized removal of the Products and other materials. Supplier will inform Ordering Company as to which storage facilities at the work site Supplier will keep locked. (xiii) USE OF AVAILABLE TESTING EQUIPMENT - Ordering Company shall make available to Supplier the maintenance test facilities which are imbedded in equipment to which the Product being installed will be connected or added, and, if available, meters, test sets, and other portable apparatus that is unique to the Product being installed. Supplier's use of such test equipment shall not interfere with Ordering Company's normal equipment maintenance functions. (xiv) ACCESS TO EXISTING PLANT - Ordering Company shall permit Supplier reasonable use of such portions of the existing plant or equipment as are necessary for the proper completion of such tests as require coordination with existing facilities. Such use shall not interfere with Ordering Company's normal maintenance of equipment. (xv) GROUNDS - Ordering Company shall provide access to suitable and isolated building ground as required for Supplier's standard grounding of equipment. Where installation is outside or in a building under construction, Ordering Company shall also furnish lightning protection ground. (xvi) REQUIREMENTS FOR ORDERING COMPANY DESIGNED CIRCUITS Ordering Company shall furnish information covering the proper test and readjust requirements for apparatus and requirements for circuit performance associated with circuits designed by Ordering Company or standard circuits modified by Ordering Company's drawings. (xvii) CLEARING EQUIPMENT FOR MODIFICATIONS Ordering Company shall remove, or transfer telecommunications traffic on trunks and sundry working equipment, and make other arrangements required to permit Supplier to modify existing equipment. (xviii) BATTERY ROOM VENTILATION - Ordering Company shall provide the required ventilation for battery rooms or areas. (xix) HOUSE SERVICE PANEL - Ordering Company shall provide electric power from Ordering Company's Service panel to Supplier's power board and shall run all leads between said Service panel and power board. (xx) THROUGH TESTS AND TRUNK TESTS - Ordering Company shall make required through tests and trunk tests to other offices after Supplier provides its notice of completion or notice of advanced turnover. (b) ITEMS TO BE FURNISHED BY SUPPLIER. The following items will be furnished by Supplier (if required by the conditions of the particular Service) and the price thereof is included in Supplier's price for Services: (i) PROTECTION OF EQUIPMENT AND BUILDINGS - Supplier shall provide protection for Ordering Company's equipment, network integrity and buildings during the performance of the Services and in accordance with Supplier's standard practices. Supplier shall make every effort possible to prevent interruptions to network integrity. (ii) METHOD OF PROCEDURE - Supplier shall prepare detailed (MOP), as defined by Ordering Company before starting work. Ordering Company shall review the MOP and any requested changes shall be negotiated. Ordering Company shall give Supplier written acceptance of the MOP prior to start of the work. (iii) POWER CONDUIT - Supplier shall install power conduit and wire as specified in Ordering Company's specifications. (iv) FRAME AND AISLE LIGHTING - Supplier shall install conduit, wire, fixtures, and other necessary material for frame and aisle lighting as specified in Ordering Company's specification. (v) TEMPORARY DAILY CLOSING & FIREPROOFING - Supplier shall provide temporary daily closing for all occupied buildings, and fireproof all openings that Supplier makes in any occupied building in the course of providing the Services. (vi) RESTORATION - Where it is necessary in the performance of the Services to open sidewalks, driveways, curbing, alleys, streets, or other property, Supplier shall restore said property to at least its former condition. (vii) TOOLS AND EQUIPMENT - Unless otherwise specifically provided in this Agreement, Supplier shall provide all labor, tools and equipment (the "tools") for performance of this Agreement. Should Supplier actually use any tools provided by Ordering Company, Supplier acknowledges that Supplier accepts the tools "as is, where is". Supplier shall not, however, be responsible for consequential damages in the nature of lost revenues, profits, or savings arising from Supplier's non-negligent use of a defective tool. Supplier acknowledges that Ordering Company has no responsibility for the condition or state of repair of the tools and Supplier shall have risk of loss and damage to such tools. Supplier agrees not to remove the tools from the work site and to return the tools to Ordering Company upon completion of use, or at such earlier time as Ordering Company may request, in the same condition as when received by Supplier, reasonable wear and tear excepted. (viii) CLEAN UP - Supplier at all times, and at its expense, shall keep the premise free from accumulation of waste materials or rubbish caused by Supplier's operation. Upon completion of the Work, Supplier shall, at its expense, as promptly as practical, remove from the premises all of Supplier's implements, equipment, tools, machines, surplus, and waste materials and debris. If Supplier fails to clean up as provided herein, Ordering Company may do so and charge the cost thereof to Supplier or deduct same from Ordering Company's payment to Supplier. (ix) SENSITIVE EQUIPMENT - Supplier will consider and treat all Ordering Company equipment as sensitive equipment at the work site (e.g., equipment sensitive to static electricity or light). (x) HAZARDOUS MATERIALS CLEANUP - At the conclusion of the Services, Supplier shall be responsible for the cleanup, removal, and proper disposal of all Hazardous Materials introduced by Supplier or its subcontractors to Ordering Company's premises. (xi) The following items may be furnished by Supplier if requested by Ordering Company. Prices associated with these activities will be subject to negotiations and no such activities will be furnished without prior written consent of Ordering Company: (A) READJUSTING APPARATUS - Supplier may provide readjustment (in excess of that normally required on new apparatus) of apparatus associated with relocated or rewired circuits. (B) RERUNNING CROSS-CONNECTIONS - Supplier may rerun permanent cross-connections in accordance with revised cross-connection lists furnished by Ordering Company's cross-connection list. (C) HANDLING, PACKING, TRANSPORTATION, AND DISPOSITION OF REMOVED AND SURPLUS ORDERING COMPANY EQUIPMENT Supplier may pack, transport, and dispose of surplus and removed Ordering Company equipment as agreed by the parties. (D) PREMIUM TIME ALLOWANCES AND NIGHT SHIFT BONUSES - Supplier may have its Services personnel work premium time and night shifts to the extent that Supplier may deem such to be necessary to effect the required coordination of installing and testing operations or other Services because of Ordering Company's requirements. (E) EMERGENCY LIGHTING SYSTEM - - Supplier may provide new emergency lighting system (other than the original ceiling mounted stumble lighting) to satisfy illumination and safety needs of Products of certain height. 10.8 ACCEPTANCE OF INSTALLATION. (a) At reasonable times during the course of Supplier's installation, Ordering Company, at its request may, or upon Supplier's request shall, inspect completed portions of such installation. Upon Supplier's further request, and upon sufficient notice to Ordering Company, Ordering Company shall observe Supplier's testing of the Product being installed to determine that such testing and the test results are in accordance with Supplier's Acceptance standards or Acceptance procedures. The job shall be considered complete and ready for Acceptance by Ordering Company when the Product has been installed and tested by Supplier in accordance with its standard procedures, and Supplier represents such Product to be in working order. Upon completion of the installation, Supplier will submit to Ordering Company a written notice of completion or, if Ordering Company has elected advance-turnover of subsystems, a written notice of completion of advance-turnover. (b) Ordering Company shall promptly make its final inspection of substantial conformance with Supplier's specifications and do everything necessary to expedite Acceptance of the job. Supplier will promptly correct any defects for which it is responsible. The job will be considered as fully accepted unless Supplier receives written notification to the contrary within thirty (30) days after submitting the notice of completion. (c) Acceptance shall be effective if executed in writing only by an individual designated by Ordering Company in writing prior to installation start date. C. MAINTENANCE SERVICES 10.9 GENERAL SERVICE DESCRIPTION. Maintenance Services for Products and Software include, but are not limited to, fixed-term Service and time-and-material Service. (a) Fixed-term Maintenance Service consists of procedures, as determined by Supplier for particular Products and Software and for fixed periods, to keep Products and Software operating materially in accordance with their specifications. Such Service includes diagnostic Service using on-site or remote techniques, as appropriate, to analyze a problem and prescribe remedial action, and a mandatory escalation procedure to provide successively higher levels of expertise. Fixed-term Maintenance Service will be rendered during the Service hours selected by Ordering Company in accordance with the Level of Service Specified in an Order from options offered by Supplier. At the time a Maintenance Service agreement is established, Service Level Options will be mutually agreed to by parties. (b) Each Order shall be for a minimum of one (1) year and shall commence on the date set forth in the Order. Supplier will provide written notification to Ordering Company ninety (90) days prior to Order expiration, and Ordering Company shall notify Supplier sixty (60) days prior to expiration date of their intention to renew an Order for a period of time at prices to be negotiated. (c) Time-and-material Service includes, on a call-by-call basis and on the basis of Supplier service personnel availability, technical assistance using on-site or remote techniques, as appropriate, to analyze a problem, prescribe remedial action and, if ordered, make necessary repairs. (i) TYPES OF SUPPORT SERVICES. The following Support Services may be supplied to Ordering Company in accordance with the Maintenance Level of Service ordered. (A) CALL RECEIPT AND ROUTING - Supplier will provide a call receipt and routing function for use by Ordering Company. Ordering Company may access twenty-four (24) hour a day, seven (7) day a week telephone support for all Severity Level problems with the dial-in number being specified in the Maintenance Service Agreement. Requests may be made by electronic means as specified in the Maintenance Service Agreement, and with the mutual acceptance of Ordering Company and Supplier. Supplier will maintain an entitlement database to determine Ordering Company entitlements (i.e., Service Level) and how the call should be routed. Supplier will work problems outside the ARM coverage period only at Ordering Company's expressed request and Ordering Company will be billed at Supplier's time and material rates. (B) ASSISTANCE REQUEST DATABASE ACCESS - Pursuant to a fixed-term Maintenance Order and subject to availability, Ordering Company will be given access to automated trouble reporting tools. Customized trouble reporting features are fee-based. (C) CONSULTATIVE SUPPORT - Remote telephone services include delivering technical assistance and advice for service ARs reported by Ordering Company. (D) THIRD PARTY SOFTWARE SUPPORT - If a condition is caused by the Third Party Software covered in the Order, Supplier shall be responsible for diagnosing and resolving Third Party Software defects. (E) DIAGNOSTIC SUPPORT - Supplier shall support Ordering Company in analyzing Ordering Company problems, including isolation of defects to one of the following areas: (1) Problems arising as a result of Products or their associated materials or documentation; and (2) Other problems not directly related to Products, such as Ordering Company operations problems, data base problems, as well as any other interfacing system problems. (F) WORKING LOCATION - Supplier's working location is remote from Product site. At Ordering Company's request, and as agreed to by Supplier, Supplier will provide on-site assistance in resolving a problem. Such assistance will be billed at a minimum of eight (8) hours a day at the then current Supplier Time and Material (T&M) rate. Reasonable travel and living expenses incurred by Supplier will also be billed. (G) SEVERITY LEVEL AND PRIORITIZATION - Supplier shall perform Problem Resolution Management in accordance with the Severity Level condition identified by Ordering Company. Severity Level Definitions are further defined in Exhibit 10-1. The priority for problem resolution will be based on the Severity Level of outstanding reported conditions. Severity Level One (1) conditions will receive top priority support. In the event that Ordering Company's notification of a Severity Level One causes Supplier to redirect its efforts being expended on a lower Severity Level condition, Supplier shall notify Ordering Company that there will be a delay in correcting the lower Severity Level condition. (H) PROBLEM MANAGEMENT - Supplier shall perform procedures and actions upon written or oral request of Ordering Company to investigate and develop the resolution of a reported condition in a manner that provides Ordering Company a single interface. This service is performed only for Products covered under the Maintenance Service Order. (I) MANAGEMENT NOTIFICATION - Supplier will observe the following escalation procedures: (1) SEVERITY LEVEL ONE - In the event of a Severity Level One condition that is still unrestored four (4) hours after the condition is reported, Supplier will notify Supplier's supervisory management or next level of expertise of the unrestored condition. If the condition is still unrestored within eight (8) hours after the condition is reported, the next higher level of Supplier supervisory management or level of expertise will be notified of the unresolved condition. Once the highest level of expertise is reached, no further escalation will occur. (2) SEVERITY LEVEL TWO - In the event of a Severity Level Two condition that is still unrestored twelve (12) hours after the condition is reported, Supplier will notify Supplier's supervisory management of the unrestored condition. (J) SERVICE PERFORMANCE REPORTS (SPR) - Supplier will provide quarterly reports of Supplier's performance against the objectives stated in this Article 10. (K) ORDERING COMPANY NOTIFICATION BULLETINS Supplier will provide Ordering Company Notification Bulletins to Ordering Company on an as needed basis. (L) ON-SITE ASSISTANCE - At Ordering Company's request and as agreed to by Supplier, a Supplier's engineer may be dispatched to Ordering Company's site for resolution of a problem. If the problem is not caused by a Designated Processor covered by this Agreement, On-Site Assistance will be billed at minimum of eight (8) hours a day at the then current Supplier time and material (T&M) rate. Reasonable travel and living expenses incurred by Supplier as referenced in Section 3.1(g), PRICES, will also be billed. (ii) PERFORMANCE METRICS & OBJECTIVES. (A) The Performance Metrics described in this Section shall apply to Products and Licensed Software covered under the Preferred and Standard Service Levels as described in Section 10.9(c)(ii)(E) below. The problem must be reproducible at either Supplier's location or on Ordering Company's system verifiable by Supplier. The Severity Level of any problem shall be determined by Ordering Company; however, if during resolution Supplier determines that the Severity Level of the problem claimed by Ordering Company to be inaccurate, the Severity Level may be changed by Supplier upon mutual agreement with Ordering Company. Ordering Company requests which do not go through Supplier's Call Receipt function will be excluded from the Performance Metrics. (B) Initial Response. During the term of a fixed-term Maintenance Service Agreement, and upon expiration of any product warranty, Supplier agrees to respond to Ordering Company's request for Support Service called in through Supplier's Call Receipt function as described in the table in Section 10.9 (c) (ii) (E), GENERAL SERVICE DESCRIPTION, within sixty (60) minutes, twenty-four (24) hours a day, seven (7) days a week, for all Severity Levels as reported in the assistance request database. Response time will be validated through the use of the Service Performance Report (SPR). Ordering Company requests which do not go through Supplier's Call Receipt function will be excluded from the Performance Metrics. (C) Service Restoration for Service Levels One and Two shall be mutually agreed to by Ordering Company and Supplier, and documented in the Maintenance Service Agreement. Restoral time will be validated through the use of the Service Performance Report (SPR). (D) Resolution of Defect and Service Severity Levels One through Four shall be mutually agreed to by Ordering Company and Supplier, and documented in the Maintenance Service Agreement. Resolution times will be validated through the use of the Service Performance Report (SPR). (E) The following table represents the Performance Objectives for the Metrics listed in (B), (C), (D) above.
- ------------------------------------------------------------------------------------------------- COMMITMENTS METRIC OBJECTIVE PREFERRED STANDARD - ------------------------------------------------------------------------------------------------- Initial Response % 100% 95% 75% - ------------------------------------------------------------------------------------------------- Restore Severity Level 1 AR 100% 95% 75% - ------------------------------------------------------------------------------------------------- Restore Severity Level 2 AR 100% 95% 75% - ------------------------------------------------------------------------------------------------- Resolve Service AR 100% 95% 75% - ------------------------------------------------------------------------------------------------- Resolve Defect AR 100% 95% 75% - -------------------------------------------------------------------------------------------------
In addition, for 4ESS switch and 5ESS switch, the Switching Software Support Plan (SSP), defines how the level of support changes with time upon the introduction of new base releases. Exhibit 10-2 further explains the support service that will be offered during each of the life cycle phases. 10.10 ELIGIBILITY FOR MAINTENANCE SERVICE. (a) Products and Software furnished and installed by Supplier are eligible for Maintenance Service without initial evaluation by Supplier provided the Service commences not later than the end of the Warranty Period. Unless otherwise agreed by Supplier in writing, Maintenance Service for Software shall only be available for the generic that is current at the time that such Service is ordered and the immediately preceding generic, as well as a generic where the term of warranty is still in effect. (b) In all other situations, the Products and Software shall not be eligible for Maintenance Service until Supplier, at its option, has made an initial evaluation to determine whether modifications are required to make the Product or Software eligible. If, in Supplier's judgment, modifications are required for this purpose, Supplier will provide a written estimate based on standard rates to Ordering Company for making such modifications. Upon Ordering Company's written Acceptance, Ordering Company will be billed at Supplier's then standard rate for such evaluation and any such modifications furnished by Supplier. Software will not be eligible for Maintenance Service unless Supplier determines that the Software is in good working order in accordance with its Specifications and can be maintained in such condition. 10.11 ORDERS FOR MAINTENANCE SERVICES. Ordering Company shall place Orders for Maintenance Services, indicating the Level of Service to be provided for each Product upon commencement of the Order. The Level of Service chosen shall remain in effect without change for the contract period covered by the Order. All installations of each Product and each release of Software must be served at the same Level of Service. 10.12 PRICES. Sixty (60) days prior to the expiration of any fixed-term Service Order, Supplier will, at Ordering Company's request, submit a price for the renewal of the Service. Charges for time-and-material Maintenance Service shall be determined at Supplier's applicable time and material rates in effect at the time an Order for such Service is accepted and will be based on the total work-hours (which includes travel time) expended on the job, and actual travel expense. Such charges shall be based on a minimum number of hours. 10.13 PERIODS OF MAINTENANCE SERVICE. Maintenance Service will be provided in accordance with the Level of Service specified in an Order. 10.14 MAINTENANCE SERVICE EXCLUSIONS. (a) Unless expressly agreed by Supplier, Maintenance Services to be provided under this Article do not include: (i) Performing preventive maintenance; (ii) Making corrections to user-defined reports; (iii) Making Specification changes or performing Services connected with relocation of the Product; (iv) Service which is impractical for Supplier to render because of changes not authorized by Supplier in the Designated Product processor, hardware configuration, Supplier's Product or the Product environment in which Supplier's Product operates; and (v) Modification or replacement of Product, repair of damage, or increase in Service time caused by: (A) Failure to continually provide a suitable operational environment with all facilities prescribed by the applicable document including, but not limited to, the failure to provide, or the failure of, adequate electrical power, air conditioning, or humidity control; (B) The use of the Product in a manner not in accordance with its Specifications, operating instruction or license-to-use; (C) Accident; disaster, which shall include, but not be limited to, fire, flood, earthquake, water, wind and lightning; transportation; neglect or misuse; pest damage; or power failures or surges from sources external to the Product; (D) Modifications, maintenance, or repair performed by a party other than Supplier; (E) The conversion from one Supplier Software release to Supplier's subsequent Software Release, or the failure of Ordering Company to apply previously applicable modifications and corrections offered by Supplier; (F) Attachment of unspecified or non-approved products to the Product, including updates from manufacturers of third party Software and Software not licensed by Supplier, or Designated Processors that have not been certified by Supplier, or failure of a processor or other equipment or software not maintained by Supplier, or failure of removable or rotating storage media. (vi) Problem Management, as follows: (A) Database Problems - If the condition is mutually determined to be the result of corruption of the Software Product data base, and such corruption is not the direct result of the Product, the condition will be referred back to Ordering Company for resolution. At Ordering Company's request, and at Supplier's option, Supplier may prepare a proposal for billable corrective action to correct Ordering Company's data base. However, if corruption is the result of, or caused by another of Supplier's Products or Services, Supplier shall initiate Problem Management regardless of whether such Software Product is covered under an Order. (B) Hardware/Firmware Problems - - When a condition has been isolated to a problem in hardware or Firmware not covered under this Agreement, the condition will be referred back to Ordering Company for disposition under whatever arrangements Ordering Company may have for such hardware or Firmware. (C) Other/Interfacing Problems - - If the condition is determined mutually to be caused by systems other than the Products covered under the existing Order, including, but not limited to, systems which interface with the Product, the condition will be referred to Ordering Company for corrective action unless such other system has been furnished by Supplier, in which case, Supplier shall initiate Problem Management. However, if a defect is identified with Software or Products covered by the Order which is documented or advertised to interface or work with other systems, hardware, Products or Software, Supplier shall conduct restoral and correction procedures as required for a defect and not as Problem Resolution Management. (D) Additional Services - Additional services, including but not limited to custom feature development, training, planning sessions, and other value-added services, are not included in the fees paid under this Agreement. Such services may be available through a Firm Price Quote (FPQ). (b) At the request of Ordering Company, Supplier, at its option, may perform Maintenance Services in the excluded conditions listed above, at Supplier's rates and terms in effect at the time of such request. 10.15 ORDERING COMPANY RESPONSIBILITIES. In addition to the responsibilities specified in Section 6.4, ORDERING COMPANY'S RESPONSIBILITIES, Ordering Company shall be responsible for: (a) PROVIDING INFORMATION TO CALL RECEIPT. (i) Identification of the condition and its isolation to a particular component of the system believed to be Supplier's responsibility. (ii) Collection of sufficient supporting documentation from the Product or Software for inclusion in the AR database. (iii) Determination that there are no outstanding conforming Software Product Updates that correct the condition. (iv) The calling Ordering Company personnel shall provide the following information, if applicable: (A) Caller's name, Location, and Company; (B) Call-back Telephone Number; (C) Remote Dial Access to Ordering Company System; (D) System name and Location; (E) Processor Location, Type, and Serial Number, if available; (F) Nature of the Question or Situation; (G) The Calling Party's Alternate Contact; (H) Description and History of Problem and Efforts to Solve it by Ordering Company; (I) Contract number or other proof of coverage as requested by Supplier. (b) PROVIDING PROBLEM DIAGNOSTIC MATERIALS. If Ordering Company reports a condition, Ordering Company will be responsible for providing adequate support material to enable the diagnosis of the condition. Such support materials may include, but not be limited to, a description of the circumstances, a dump of system logs or buffers, a listing of data base contents, and console printouts as required by Supplier. (c) MAINTAINING THE PRODUCT OR SOFTWARE. (i) Make no modifications other than those approved by Supplier. This includes updates from manufacturers of third party Software or Designated Processors that have not been validated by Supplier. (ii) Install all Software Product Updates licensed by Ordering Company under this Agreement within a reasonable time, unless Ordering Company has previously notified Supplier of defects discovered in the Software Product Update that make installation unfeasible. (iii) Follow all Supplier's and relevant third party Software or Designated Processor manufacturer's applicable installation, operation, administration, and maintenance instructions. (iv) Provide the proper environment and electrical and telecommunications connections as specified by Supplier or the relevant Designated Processor manufacturer. (v) Maintain a back-up procedure external to the Designated Processors sufficient to reconstruct lost or altered files, data, or programs. (vi) Install the appropriate Class A Change Notices in a timely fashion as mutually agreed to by the parties. (d) ASSISTING SUPPLIER PERSONNEL PROVIDING ON-SITE ASSISTANCE. (i) Have an Ordering Company representative at the equipment location during any on-site Supplier service activity. Ordering Company may be subject to additional incurred time and material charges if Ordering Company fails to have a representative at the equipment location at the agreed time. (ii) Provide adequate communication facilities and work space for Supplier. (iii) Provide the maintenance test facilities which are embedded in equipment to which the product being installed will be connected or added, and maintenance documentation sufficient for maintenance of Products and Software not covered by this Agreement that interface with the Products and Software covered under this Agreement. (iv) Ensure that work done at the site by Ordering Company does not interfere with Supplier's performance of On-Site Assistance. 10.16 MAINTENANCE OF RELOCATED SOFTWARE. Software serviced under this Agreement which is moved to another Designated Processor of Ordering Company shall continue to be covered under this Agreement provided that Supplier has received forty-five (45) days prior written notice of such relocation and, if requested by Supplier, the parties have renegotiated the objective response time (the time within which Supplier shall use reasonable efforts to respond to Ordering Company maintenance requests) selected by Ordering Company in an Order. If Ordering Company requests Supplier to relocate Software, Ordering Company shall be charged for all such work performed by Supplier at the negotiated rates. 10.17 SOFTWARE PRODUCT UPDATE SERVICES. Pursuant to a fixed-term Software Maintenance Service Order, Supplier agrees to provide the Software Product Update Services in accordance with the following terms and conditions: (a) DEFECT REPORTING - Any defects found in the Software Product may be reported by calling Supplier's Call Receipt function. A tracking report will be entered into the AR tracking database and referred to Supplier's technical support. (b) SOFTWARE PRODUCT UPDATES - Supplier will correct defects in the Software Product and third party Software in accordance with the support Services as described in Exhibit 10-1. Supplier will correct defects as follows: (i) Supplier may periodically provide Software Product Updates to the Software to correct defect conditions. If requested by Ordering Company, Supplier shall provide documentation to enable Ordering Company to train Ordering Company's personnel in the operation of the Software modified by such release. Supplier shall make modifications to the documentation to clarify issues or items not clear to Ordering Company, as required. (ii) Fees paid in accordance with a Software Maintenance Service Order cover only Product Updates made generally available during the term covered by an Order. After expiration of the term covered by an Order, Ordering Company is entitled to the next scheduled Product Update, which may contain corrections for defects reported during the term of an Order. (iii) Due to the nature of Software, Software Product Updates require all previous Software Product Updates for the particular generic/software release as prerequisites. It may not be possible to install any Software Product Updates unless all previous Software Product Updates have been installed. These previous Software Product Updates are available for an additional fee. (iv) If the condition is isolated to the related documentation for the Product or Software, the fix will be given to Ordering Company as part of the defect correction or Product Update procedure. Within two (2) years, a permanent fix will be published in the following release of the related documentation. (c) NOTIFICATION OF CORRECTIONS - Supplier agrees to notify Ordering Company of the availability of a resolution or work-around to a defect reported by Ordering Company. (d) ORDERING COMPANY CORRECTIVE MAINTENANCE RESPONSIBILITY Ordering Company agrees to install the corrections or replacements provided under this Agreement within a reasonable period of time. Ordering Company's failure to install emergency fixes, work-arounds, patches or releases will cause the Software Product to be considered non-standard until all such fixes are installed, unless Ordering Company has previously notified Supplier of problems with such emergency fixes, work- arounds, patches or releases. 10.18 MAINTENANCE SERVICES WARRANTY. Supplier warrants to Ordering Company that Maintenance Services will be performed in a professional manner and in accordance with Supplier's specifications or those referenced in an Order and with accepted practices in the community in which such Services are performed, using material free from defects except where such material is provided by Ordering Company. If the Services prove to be not so performed and if Ordering Company notifies Supplier, within the period of time equal to the repaired Product warranty period (Exhibit 8-1), of the Product being repaired, or six (6) months, whichever is less, commencing on the date of Acceptance of the Service, as identified in writing by Supplier, Supplier, at it's option, either will correct the defect or nonconforming Service for which Supplier is responsible or render a full or prorated refund or credit based on the original charge for the Services. After the corrective action, Ordering Company shall have the right to Acceptance of the corrective work done. D. MISCELLANEOUS SERVICES 10.19 TRAINING. If requested by Ordering Company, Supplier will, at mutually agreed to prices: (a) provide instructors and the necessary instructional material of Supplier's standard format to train Ordering Company's personnel in the installation, planning and practices, operation, maintenance, and repair of material furnished under this Agreement with such classes to be conducted at intervals and locations agreed upon by Supplier and Ordering Company; or, (b) license Ordering Company to reproduce Supplier's copyrighted training modules or manuals, covering those areas of interest outlined in (a) of this clause, sufficient in detail and format, to allow Ordering Company to develop and conduct its own training program. 10.20 INSTALLATION/CUTOVER ASSISTANCE. In the event Supplier is not installing the material, and if requested by Ordering Company, Supplier agrees to make available at the installation site, at a negotiated price plus travel and living expenses, a field engineer to render installation and cutover assistance as required by Ordering Company. ARTICLE XI OUTSIDE PLANT SERVICES 11.1 PURPOSE AND SCOPE OF THIS ARTICLE. The purpose of this Article 11 is to set forth certain additional terms and conditions relating to the provision of Outside Plant Services ("Services"). With respect to such Services, to the extent that any provision set forth in this Article 11 conflicts with any provision set forth elsewhere in this Agreement or in any project, Work Order or Field Order, this Article 11 shall control. In the event of any conflict between this Article 11 and the Specifications, this Article 11 shall control. This Agreement shall not affect or modify any agreements between the parties regarding Services currently in the course of performance at the time of execution hereof; however, to the extent that there are ambiguities or subject matters not addressed in such agreements, this General Purchase Agreement shall apply. 11.2 WORK; SUPPLIER MATERIALS; PERMITS; RAILROADS; SECURITY. (a) Supplier will provide, construct or install or arrange to have provided, constructed or installed those Products and Services as specified in the Work Order or Supplemental Agreement (such Products and Services hereinafter referred to as "Work"). Work shall not consist of the tasks and responsibilities, including supply of materials or performance of services to be provided or performed by Ordering Company , as set forth in Section 11.4, ORDERING COMPANY OBLIGATIONS, below. (b) For materials to be furnished by Supplier, Supplier shall assume full responsibility for furnishing materials of the quality and quantity specified, and shall be responsible for the timely delivery of all materials subject to the reasonable availability of such materials. Such materials shall conform to the respective Specifications and shall be subject to the warranty limitations set forth in Section 11.12, PRODUCT RELOCATION OR MODIFICATION, below. Prior to purchasing a substitute product, Supplier shall submit a formal written request to the Engineer for Acceptance. If requested by Engineer, Supplier shall furnish manufacturer's shop drawings and specifications. (c) Supplier shall obtain all permits, licenses and approvals at its own expense other than Ordering Company Permits (as defined in Section 11.4, ORDERING COMPANY OBLIGATIONS, below) that are required for Supplier's construction operations, including waste disposal. Supplier shall comply with the requirements of all permits, licenses and approvals and shall, at all times, keep a copy of the permits, licenses and approvals at the Site. (d) If Sunday, holiday, or night Work is specifically called for as a permit requirement, Supplier shall provide adequate personnel, equipment, and supervision for the proper performance and control of the Work in accordance with such requirement. For such Work, Supplier shall be entitled to extra payment, unless such Work was specifically contemplated in the applicable Work Order and included in the Price. (e) Where Work is to be performed on railroad property, Supplier shall cooperate with the railroad personnel in performance of the Work and shall satisfy railroad requirements. (f) Supplier shall be responsible for all security affecting the performance of its Work. 11.3 ORDERING COMPANY FURNISHED MATERIALS. (a) All material furnished by Ordering Company shall be delivered to Supplier at storeyards or other locations to be mutually agreed upon; and, Supplier shall have charge of, and be responsible for, all the material upon and after its delivery to Supplier and shall return to Ordering Company all the material not required for the completion of the Work, excluding waste. (b) Supplier shall replace all Ordering Company furnished materials which are lost or damaged while in the custody of Supplier. Replacement materials shall be of a type and quality substantially equal to the original materials, acceptable to the Engineer, and shall be obtained promptly to prevent delay of the Work. (c) Supplier shall rehandle and reload, if required, all Ordering Company furnished materials and equipment which have been rejected by Supplier. (d) Ordering Company shall reimburse Supplier for all its material shipping and handling expenses associated with: (i) The return and/or replacement of defective Ordering Company provided materials. (ii) The return of excess materials resulting from the termination of an Order or a decrease in the quantities of materials required to complete a Work Order for reasons other than breach of contract or material non-performance by Supplier. (iii) The return of materials provided by Ordering Company in excess of those requested by Supplier in the Bill of Materials. (e) Unless expressly stated to the contrary, the Price does not include costs for any Ordering Company furnished material nor does it include any Supplier charges for re-engineering, reinstallation, modification, or repair Services to Ordering Company furnished material. New or used material (if any) furnished by Ordering Company shall be in such condition that it requires no repair and no adjustment or test effort in excess of that normal for new material. Ordering Company assumes all responsibility for the proper functioning of such material under normal conditions of use and/or when properly installed. Ordering Company shall also provide the necessary information for Supplier to properly install such material. 11.4 ORDERING COMPANY OBLIGATIONS. (a) On or before the start date, at its own expense, Ordering Company will complete or provide, or arrange for the completion or provision, of all of the following "Ordering Company Obligations" set forth or referred to in this Section 11.4, ORDERING COMPANY OBLIGATIONS. Ordering Company shall fulfill all obligations applicable to Ordering Company-owned or -controlled buildings set forth in Section 10.7, CONDITIONS OF INSTALLATION AND OTHER SERVICES PERFORMED ON ORDERING COMPANY'S SITE, above, including but not limited to provision of adequate Access to Building and Site, General Building Conditions, Repairs to Buildings, Openings in Buildings, Floor Space and Storage Facilities and Building Grounds. In addition to Ordering Company's obligations in the Specifications, Ordering Company shall comply with the following: (i) CONSULTANTS FOR SPECIAL SITES - - Except as otherwise provided in Section 11.18, ARCHAEOLOGICAL SITES; ENVIRONMENTAL PROTECTION, Ordering Company shall provide, or, at Ordering Company's option, shall authorize Supplier to provide, any consultants for special considerations, including, but not limited to, biologists to evaluate endangered species impacts or archaeologists to evaluate historically sensitive sites and qualified experts to evaluate environmentally hazardous conditions. In the event that Supplier provides such consultants, Ordering Company shall reimburse Supplier for such consultant costs on a Lump Sum Price basis; and (ii) EASEMENTS, PERMITS, AND RIGHTS OF WAY - Unless otherwise required by applicable ordinances, codes or statutes, any necessary highway permits, construction permits, easements, joint-use or right of way grants shall be obtained and paid for by Ordering Company and Ordering Company shall file, or have filed, the necessary papers (collectively, the "Ordering Company Permits"). Ordering Company Permits and corresponding permit applications, if necessary, are included in the Agreement Documents. If a permit is unavailable at the time of issue of the Agreement Documents, the permit application only will appear. Permits which are not available at the time of issue of the Agreement Documents will be provided to Supplier prior to the Start Date specified in each Work Order. When permits not listed in the Agreement Documents are obtained by Ordering Company, a copy will be provided to Supplier. (iii) Railroad flagmen and/or inspectors required to be on the Site as a condition of an easement permit or right of way or other railroad requirement, will be provided by Ordering Company at no cost to Supplier. 11.5 WORK ORDERS; CHANGES. (a) Ordering Company shall submit Work Orders to Supplier utilizing Ordering Company's form. Each Work Order and Field Order shall contain or refer to a document containing the information necessary for Supplier to fulfill the Work Order, including, but not limited to, the information called for by Section 2.1, ORDERS, above, a reference to this Agreement, Special Conditions, a Start Date, Completion Date and a Completion Schedule. If such work items have been mutually agreed upon in a writing signed by the parties (e.g., a Supplemental Agreement or a previously issued Work Order), then Supplier shall proceed to fulfill the Work Order (i.e., the Work Order shall function as a notice by Ordering Company for Supplier to proceed with the Work). If such items have not been agreed upon, Supplier may reject the Work Order or propose changes to the Work Order. If the parties are unable to agree, the Work Order shall be deemed abandoned. (b) Each Work Order and Field Order shall be subject to the terms and conditions of this Agreement which shall control over any conflicting provisions in such Work Order. (c) Changes by Ordering Company to an accepted Work Order shall be treated as a separate Work Order unless the parties expressly agree otherwise. In addition, subject to Section 11.18, ARCHAEOLOGICAL SITES; ENVIRONMENTAL PROTECTION, Supplier may identify additional changes to the Work which must be performed due to certain conditions, as set forth in Section 11.8, LOCAL CONDITIONS; DIFFERING SITE CONDITIONS below. If any such change affects Supplier's ability to meet its obligations under the original Work Order, any Price or Completion Date quoted by Supplier with respect to such original Work Order is subject to change. All such changes must be approved in writing by authorized representatives of both parties using Ordering Company's Form. (d) Minor changes may be made by means of a Field Order. 11.6 PLANT PROTECTION; UNDERGROUND FACILITIES. (a) Supplier shall adhere to the applicable MOP with respect to Ordering Company's underground facilities. (b) Ordering Company has made minimal efforts to identify existing utilities by field surveys and utility records research. Existing underground and aerial utilities within the construction limits of the Work are indicated on the Drawings only to the extent information on such utilities has been made available to, or discovered by, the Engineer in the performance of the design work. Except to the extent that the information contains a material misrepresentation of fact, the Engineer and Ordering Company expressly disclaim all responsibility for the accuracy and completeness of the information indicated. Supplier shall conduct its operations on the basis that underground and aerial utilities may exist which are not indicated on the Drawings. (c) Supplier shall be responsible for locating and identifying, except for Ordering Company's facilities or structures, all existing utilities or structures within the construction limits of Work and elsewhere where Supplier's construction operations may subject the utilities or structures to damage. This shall be done prior to the performance of the Work. All information relative to the above shall be recorded and incorporated into the records in a manner reasonably acceptable by the Engineer. (d) For Ordering Company facilities or structures, Supplier shall adhere to the "One Call" procedure, as set forth in the Specifications. 11.7 PROTECTION OF PUBLIC AND PUBLIC PROPERTY. Subject to any more stringent requirements of Section 11.18, ARCHAEOLOGICAL SITES; ENVIRONMENTAL PROTECTION, and Section 6.20, COMPLIANCE WITH LAW: (a) Supplier shall in the performance of the Work exercise reasonable measures to minimize inconvenience to the public and shall use its reasonable efforts to preserve and protect all trees, shrubs, grass, or other vegetation on or adjacent to the right of way or Site which do not unreasonably interfere with the Work. Unless otherwise required by Ordering Company's Representative, Supplier shall restore all such property which may be disturbed in the execution of its Work to its former visible condition. (b) In accordance with Supplier's standard procedures, all pavement, surfacing, driveways, curbs, walks, buildings, utility poles, guy wires, fences, and other surface structures affected by Supplier's Work, together with all sod and shrubs in yards and parking areas, shall be substantially restored to their original visible condition, whether within or outside the easement. Supplier shall be responsible for (i) making reasonably satisfactory and acceptable arrangements with the owner of, or the agency or authority having jurisdiction over, the damaged property concerning its repair or (ii) replacement, or payment of reasonable costs incurred in connection with such damage caused by Supplier or its Subcontractors. 11.8 LOCAL CONDITIONS; DIFFERING SITE CONDITIONS. (a) Upon execution of a Work Order, Supplier admits to being reasonably informed as to the nature and locations of the Work set forth therein; provided, however, that in all cases, except as otherwise provided in Section 11.18, ARCHAEOLOGICAL SITES; ENVIRONMENTAL PROTECTION, Differing Site Conditions shall be the basis for a Change Order and additional compensation as set forth below in this Section 11.8. (b) Delays, Additional Work, or extra costs may result from Differing Site Conditions of which neither Ordering Company nor Supplier should reasonably have had knowledge at the time of the effective date of the earlier of the Supplemental Agreement, the Work Order and the Change Order. In such case: (i) Supplier shall, promptly and before Differing Site Conditions are disturbed, notify the Engineer in writing by means of the Ordering Company Change Order Form of such conditions; (ii) After receiving notice from Supplier, the Engineer shall promptly investigate the Differing Site Conditions, and, if in his reasonable judgment, such conditions exist, the Ordering Company Representative shall by means of a Change Order make an equitable adjustment to the Price and the Completion Schedule, as agreed by Supplier; and (iii) No claim of Supplier for an equitable adjustment because of Differing Site Conditions shall be allowed unless written notice has been given as required. 11.9 OUTSIDE PLANT SERVICES SCHEDULING. Prior to the pre-construction meeting, Supplier shall submit a detailed Outside Plant Services Scheduling schedule as set forth in the Specifications. The Engineer, Supplier and Ordering Company Representative shall hold weekly status meetings at mutually agreed upon times and places. Additional coordination between the parties will be held on an as needed basis as set forth in the Specifications. 11.10 INSPECTION AND CORRECTION OF DEFECTS; ACCEPTANCE. (a) Ordering Company's Representative shall have free access to the Work performed and materials furnished by Supplier under this Agreement for the purpose of inspection thereof. Prior to the commencement of the Warranty Period (as defined in Section 11.12, WARRANTY, below), Supplier shall upon receipt of written request from Ordering Company's Representative, furnish sufficient labor and facilities at Supplier's expense, to make an inspection of Work already completed by uncovering and exposing the Work for inspection. (b) If the inspection discloses that the Work reasonably conforms to the applicable Specifications in all material respects, the cost to Supplier of (i) uncovering and exposing the Work, and (ii) examining and restoring of the Work shall be considered a Change Order and shall be paid for by Ordering Company. In addition, if completion of the Work has been delayed thereby, Supplier shall be granted a suitable extension of time and/or delay and disruption compensation, as mutually determined by Ordering Company and Supplier. (c) If the inspection discloses that the Work does not conform to the applicable Specifications in all material respects, Supplier shall not have a basis for a Change Order and shall correct the Work at its own expense. The Completion Date shall not be extended because of any delay caused by such non-conforming Work. (d) If Ordering Company notifies Supplier of a defect or non-conformance during the progress of the Work or prior to Final Acceptance or Beneficial Occupancy, Supplier will schedule the repair or replacement of such Work within two (2) work days after receipt of written notice. (e) Supplier may submit to Ordering Company a notice of completion, placing Ordering Company on notice that the Work is complete and ready for inspection. Ordering Company shall inspect the Work promptly and in no event later than seven (7) business days after receipt of such notice. In the event that Ordering Company does not inspect the Work within such time period, Final Acceptance shall be deemed to have occurred with respect to such Work. If the inspection results in a Punch List, Final Acceptance shall occur when the Punch List is complete to Ordering Company's reasonable satisfaction. Again, Supplier may submit a notice of completion regarding the Punch List and the same procedure set forth above shall apply (i.e., Ordering Company shall inspect the Work no later than seven (7) business days after receipt of such notice and Final Acceptance shall be deemed if Ordering Company fails to inspect within that time). 11.11 SUPERVISION; CONTROL OF WORK. (a) Supplier shall keep on the Work site a competent Superintendent and any necessary assistants and all of them shall be reasonably satisfactory to Ordering Company's Representative. (b) Supplier shall have full control and direction (i) over the mode and manner of doing the Work, subject to Sections 6.20, COMPLIANCE WITH LAWS, and 11.18, ARCHAEOLOGICAL SITES; ENVIRONMENTAL PROTECTION, and MOPS and (ii) of its personnel employed on or about the Work. 11.12 WARRANTY. (a) FOR PRODUCTS. The Warranty for Products is set forth in Section 8.2, WARRANTY; the Warranty Period is set forth in Exhibit 8-1, provided , however, that the Warranty Period begins on the earlier of Final Acceptance of a completed Work Order or Beneficial Occupancy. (b) FOR SERVICES. The warranty shall begin on the earlier of Final Acceptance of a completed Work Order or Beneficial Occupancy and shall extend for one (1) year (the "Warranty Period"). Supplier agrees to perform Work in a professional manner; using competent and responsible personnel trained as required by the most stringent of accepted industry practice, Supplier practice, Section 6.20 COMPLIANCE WITH LAWS, and Applicable EH&S Requirements (Section 11.18 (c)); and in accordance with the Specifications or other agreed upon specifications and in accordance with accepted practices in the community in which the Work is performed using material free from defects except where such material is provided by Ordering Company. If Work provided by Supplier proves not to have been so performed, and if Ordering Company notifies Supplier in writing to that effect within the Warranty Period, then Supplier shall, at its option, correct any defects or render a full pro-rated refund or credit based on the original charges for the Work. (c) If the refund or option is not chosen and if, during the Warranty Period, Ordering Company notifies Supplier of a defect covered under paragraphs (a) and (b) above, then Supplier shall commence to repair or replace such Work within seven (7) days after receipt of written notice. Notwithstanding the above, if the refund or credit option is not chosen and if Ordering Company notifies Supplier that the defective or non-conforming Work is of a critical nature for network protection or for safety reasons, Supplier shall commence to repair or replace the Work within twenty-four (24) hours after receipt of written notice. (d) The warranties provided in this Section 11.12 do not cover repair for damages, malfunctions or service failures caused by: (i) actions of any personnel not employed, directly or indirectly, by Supplier; (ii) Ordering Company's failure to follow Supplier's installation, maintenance or operation instructions; or (iii) a condition of Force Majeure. (e) THE WARRANTIES STATED IN THIS SECTION 11.12 ARE EXCLUSIVE AND ARE IN LIEU OF ALL OTHER EXPRESSED OR IMPLIED WARRANTIES, INCLUDING BUT NOT LIMITED TO WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. EXCEPT FOR (a) TANGIBLE PROPERTY DAMAGE AND PERSONAL INJURY FOR WHICH SUPPLIER IS HELD LIABLE AND (b) THE REMEDY PROVIDED IN SECTION 5.1(e), ORDERING COMPANIES' REMEDIES, ORDERING COMPANY'S SOLE AND EXCLUSIVE REMEDY SHALL BE SUPPLIER'S OBLIGATION TO REPAIR, REPLACE, MAKE CORRECTIONS OR REFUND AS SET FORTH ABOVE IN THIS WARRANTY. (f) PRODUCT RELOCATION OR MODIFICATION. Ordering Company shall advise Supplier promptly of any change in location or modification to any Product covered by warranty service under this Agreement. If such change, in Supplier's opinion, creates a safety hazard or is likely to cause a malfunction, Supplier may at Ordering Company's expense, correct the condition. If the condition cannot be corrected to Supplier's reasonable satisfaction, Supplier reserves the right to terminate without liability warranty service under this Agreement for the products relocated and/or modified. 11.13 SAFETY; EMERGENCY. (a) Supplier shall be responsible for the safety of the Work it performs; provided, however, that Supplier shall not be responsible for any unsafe circumstance caused by Ordering Company or Others. (b) Whenever, in the reasonable opinion of Ordering Company or the Engineer, Supplier has not taken sufficient precautions for the safety of the public or the protection of the Work or adjacent structures or property, and whenever, in the reasonable opinion of Ordering Company or the Engineer, an emergency has arisen and immediate action is considered necessary, then Ordering Company, with prior notice to Supplier, may provide suitable protection by causing Work to be done and material to be furnished and placed. To the extent that Supplier is responsible for such emergency, the reasonable out-of-pocket cost of such Work and material shall be borne by Supplier, and if the same is not paid on presentation of the bills therefor, such costs may be deducted from amounts due or to become due Supplier. The performance of such emergency Work shall not relieve Supplier to the extent of its responsibility for damage which may occur. Ordering Company shall make a good faith effort to contact and utilize the services of Supplier to correct the emergency protection problem prior to retaining the services of another contractor. 11.14 ENGINEER'S DRAWINGS AND SPECIFICATIONS. (a) Supplier will be furnished a sufficient number of sets of Drawings including revisions thereto and sufficient copies of the Specifications without charge. All Drawings and Specifications shall be returned to the Engineer upon completion of the Work. Supplier may retain sufficient copies to perform its Warranty administration. (b) The Drawings shall be signed by Ordering Company's Representative and by Supplier. (c) Supplier shall conduct a normal and customary check of all dimensions, elevations, and quantities indicated on the Drawings and lists furnished by the Engineer. If Suppliers discovers in the course of its work, major discrepancies between the Drawings and the conditions at the site, errors or omissions in the Drawings, and in the layout as given by stakes, points, or instructions, Supplier shall notify the Engineer. Supplier will not be allowed to take advantage of errors or omissions in the Drawings or other Agreement Documents. Full instructions will be furnished by the Engineer should such error or omission be discovered, and Supplier shall carry out such instructions as if originally specified; provided, however, that in the event that such instructions result in an increase in Supplier's costs or in a Construction Delay (as defined in Section 11.20, CONSTRUCTION DELAY, below) in the Completion Schedule, Supplier shall be entitled to reasonable compensation and, if necessary, an extension in the Completion Schedule. 11.15 REFERENCE STANDARDS. Reference to the standards of any technical society, organization, or association, or to codes of local or state authorities, or AT&T EH&S Practices shall mean the latest standard, code, Specification, or tentative standard adopted and published, unless specifically stated otherwise. Since the Agreement will likely cover multiple years, except as otherwise required by Section 6.20, COMPLIANCE WITH LAW, Supplier will be given sufficient time to assess and comply with new standards, and to request additional time and/or compensation for compliance. 11.16 RECORDS. Supplier shall maintain complete records including, but not limited to all labor and equipment hours, material purchased, and Work subcontracted to other parties. The records shall be maintained in accordance with recognized commercial accounting practices and in such manner that they may be readily audited. The records, including all supporting documents, shall be available at all reasonable times for audit by Ordering Company both during the contract period and for one year following the date of final payment or until all disputes, if any, between Supplier and Ordering Company have been finally resolved, whichever is later. Supplier shall also maintain weekly sheets, showing all labor and equipment employed and material received. (a) Supplier shall maintain at the site where Work is being performed or Supplier's local construction office a file of current copies of all Drawings, Specifications, and other Agreement Documents and supplementary data. (b) Supplier shall create a timed and dated pictorial record of the Site, including paths of ingress and egress, before and after Work is performed for the purpose of precluding or settling claims. 11.17 UNFAVORABLE CONSTRUCTION CONDITIONS. (a) During periods of unfavorable weather, wet or frozen grounds, or other unsuitable construction conditions, Supplier shall confine its operations to Work which will not be affected adversely thereby. No portion of the Work shall be constructed under conditions which would adversely affect the quality or efficiency thereof, unless special means or precautions are taken by Supplier to perform the Work in a proper and satisfactory manner. (b) If adverse weather conditions are encountered by Supplier or its subcontractor(s) which are abnormal for the location and time of year for which such claim is made, the construction schedule shall be extended by an amount of time equal to the effect of such adverse weather. If adverse weather is the basis of a claim by Supplier for additional time, such claim shall be documented by Supplier and include data substantiating that weather conditions were abnormal for the period of time in question and Supplier could not have been reasonably anticipated such adverse weather and that such weather conditions had an adverse effect on the construction schedule. 11.18 ARCHAEOLOGICAL SITES; ENVIRONMENTAL PROTECTION. (a) Known archaeological, historical or cultural sites along the route will be indicated on the Drawings by the Engineer. (b) If archaeological, historical or cultural artifacts are encountered during construction anywhere along the route, construction at that location shall stop and the Engineer shall be promptly notified. Supplier shall not harm or disturb such artifacts until instructed by Ordering Company or Engineer as to how to proceed. If an extended delay is anticipated, Supplier may elect to move to another location of Work. Notwithstanding anything to the contrary herein, Demobilization and Remobilization or construction delay due to unanticipated archaeological findings shall be a basis for extra payment. Ordering Company shall be responsible for obtaining any necessary permits in order to continue Work in the affected area. (c) Ordering Company shall provide Supplier with AT&T EH&S Practices, including updates. At the end of each calendar year, Ordering Company shall provide Supplier a list of all AT&T EH&S Practices still in effect. AT&T EH&S Practices shall be deemed applicable to the Work under a Work Order only when provided to Supplier at or prior to the date of the Work Order. Supplier shall at its own expense comply with the most stringent of: applicable governmental laws, regulations, ordinances, rules, codes, orders, guidances, permits, approvals; applicable easement or license conditions; applicable Supplier EH&S practices; and applicable AT&T EH&S Practices (collectively "Applicable EH&S Requirements"). (d) Supplier shall be deemed the generator of all waste associated with the Work and shall dispose of that waste at its own expense as set forth in Section 11.18(c), ARCHAELOGICAL SITES; ENVIRONMENTAL PROTECTION, above. "Waste" shall include without limitation all hazardous and non-hazardous substances and materials associated with the Work which are intended to be discarded, scrapped, or recycled. It shall be presumed that all substances and materials associated with the Work that are not incorporated into the Work (including without limitation damaged components or tools, leftovers, containers, garbage, scrap, residues or byproducts), except for substances and materials that Supplier or Ordering Company intend to use in their original form in connection with similar work, are waste. (e) In the event conditions are discovered or created at or near the site of the Work which may require (i) investigation or remediation or (ii) unforeseen measures to protect the environment, health or safety (collectively "Adverse EH&S Conditions"), the party discovering the condition shall immediately notify the other party. The party in the best position to do so (or, if the parties are equally situated, Supplier) will then immediately take reasonable measures temporarily to contain or otherwise avoid exacerbation of or exposure to the conditions. Unless Ordering Company affirmatively notifies Supplier otherwise, Supplier shall also take such other actions as Applicable EH&S Requirements prescribe. (f) In the event Supplier's failure to comply with Section 11.18(c), ARCHAELOGICAL SITES; ENVIRONMENTAL PROTECTION, above or Supplier's negligence or willful misconduct was a not insignificant cause of (i) the Adverse EH&S Conditions or (ii) exacerbation of the Adverse EH&S Conditions, Supplier shall indemnify and hold harmless Ordering Company and be responsible for all costs associated with curing the Adverse EH&S Conditions. In all other events Ordering Company shall indemnify and hold harmless Supplier from and be responsible for all costs associated with curing the Adverse EH&S Conditions. 11.19 REPORTING DEFECTS. (a) If any part of Supplier's Work depends, for its proper execution or results, upon the Work of any Others, excepting Subcontractors, Supplier shall inspect and promptly report to Ordering Company's Representative any defects in the Work that render it unsuitable for the proper execution or results, and Supplier shall not proceed with that phase of the Work until so authorized by Ordering Company's Representative. Ordering Company may request and Supplier shall provide such reports in writing. (b) Supplier shall be made aware of the delivery status of Ordering Company furnished materials and of the progress of construction Work being performed under separate contracts, in each case as informed by Ordering Company pursuant to (c) below. (c) Ordering Company will furnish information to Supplier which may be available to it regarding the status of Ordering Company furnished materials or construction Work being performed under separate contracts. 11.20 CONSTRUCTION DELAY. (a) Supplier will complete all Work on or before the Completion Date unless either Ordering Company agrees to extend that Date or Supplier is entitled to an extension pursuant to this Agreement. (b) Ordering Company will perform all of its obligations, including provision of labor and materials to be furnished by it in such a manner so as not to delay the progress of the Work (such being a "Construction Delay"), and in event of its failure to do so, thereby causing loss to Supplier or as a result of one or more of the circumstances set forth in paragraph (c) immediately below, Ordering Company agrees that it will compensate Supplier for such loss and, if necessary, reschedule the Completion Date to a mutually agreed upon date. Supplier agrees that if Supplier shall delay the progress of the Work in breach of its obligations hereunder and such delay causes Ordering Company to sustain a loss, then Supplier will reimburse Ordering Company for such loss, subject to the limitation of Supplier's liability set forth in Article 5 of this Agreement. (c) Notwithstanding anything to the contrary in this Agreement, among the causes of "Construction Delay" for which Supplier shall be compensated and the Completion Date shall be rescheduled pursuant to paragraph (b) immediately above, are the following: (i) Lack of Ordering Company Permits; (ii) Lack of Ordering Company furnished material; (iii) Work stoppage by landowner; (iv) Work stoppage by permitting agency even though Supplier has met the requirements of the relevant permits; (v) Railroad company denying access to the right-of-way or rail due to railroad's operations which regulate the Work conditions; (vi) Work stoppage by Ordering Company to implement new requirements, including changes to the Completion Date or Completion Schedule; (vii) Waiting for the presence of the Ordering Company Representative; (viii) Defective or damaged Ordering Company furnished material; (ix) Special Service Precautions per the Specifications; and (x) Waiting for Engineer's written approval to proceed due to the interference of other contractors. (d) Delay time is payable by Ordering Company for Construction Delay for the reasons set forth above, when Supplier is prevented from or delayed in working on any contracted item that is available to Supplier. Construction Delay time will begin after Supplier has been denied access to the Work or Ordering Company has delayed the Work for an accumulated time in excess of one (1) hour during a given normal working day. (e) The term "accumulated time" shall include discontinuous amounts of time and shall be applied to an entire crew. For example, a four-person crew that incurred a forty five (45) minute Construction Delay due to a permit problem and then later in the same working day incurred an additional Construction Delay for another reason, would begin Construction Delay time for the crew after fifteen (15) minutes of the second delay. If a crew is into Construction Delay time at the end of a Work day and is prevented from working on any contracted item available the next Work day and the condition that caused the Construction Delay still exists, then Construction Delay time shall continue without the requirement that it be in excess of one hour for the second day. (f) If Supplier is forced to cease all or a portion of its operations due to lack of right-of-way, by reason of injunction against Ordering Company or other legal obstacles, or delay in Ordering Company-furnished material deliveries, Ordering Company may request that Supplier move to another site or to move off the project. At Ordering Company's request, Supplier shall move from the portion of the project upon which he was previously engaged to another point in the project designated by Ordering Company or to an Ordering Company location completely off the project. Supplier shall at a later date complete the Work left behind, when requested to do so by Ordering Company, and such Work shall be done at prices specified in the Proposal plus Demobilization and Remobilization. 11.21 NOTICE OF LABOR DISPUTES. Whenever Supplier has knowledge that any labor dispute is delaying or threatens to delay the timely performance of the Work, Supplier shall promptly give notice thereof to Ordering Company. Supplier shall confirm the notice in writing within three (3) Work days. 11.22 PERFORMANCE AND PAYMENT BOND. Ordering Company shall have the right to require Supplier to furnish a bond for the full and faithful performance of the Work and for the payment of all bills, debts and obligations related to the Work. The bond shall be in such form, principal amount and with such sureties as may be required by Ordering Company. Ordering Company shall reimburse Supplier for the net premium on the bond upon receipt of the sureties' bills to Supplier. Supplier agrees and represents that no amount for bond premium is included in the contract price. 11.23 APPLICATION FOR PAYMENT; TERMS OF PAYMENT. (a) Supplier shall render to Ordering Company Applications for Payment for an amount based upon the quantities of Work in a Work Order which have been completed by Supplier during the monthly invoicing period, unless billing is rendered sooner pursuant to a written modification of this Section or for delay and disruption compensation or Special Conditions accrued as provided for elsewhere in the Agreement. Ordering Company shall promptly approve the Application for Payment within ten (10) business days or notify Supplier of any disputed items in an Application for Payment. If at the expiration of such ten business day period, Supplier does not receive written approval or rejection from Ordering Company, the Application for Payment shall be deemed approved. (b) The method of measurement, basis of payment and conditions under which payments for Special Conditions are made can be found in the Specifications. (c) For material furnished by Supplier, the same terms of payment shall apply as the terms which apply for Services billed by Supplier. For Material supplied by Ordering Company and ordered from Supplier pursuant to another Article of this General Purchase Agreement (e.g., an Order for cable), the terms of payment are set forth in such Article or elsewhere in this Agreement. 11.24 LIENS. If as a result of any act or omission of Supplier, any lien is filed by a Subcontractor against Ordering Company, Supplier shall cause the same to be discharged of record within forty-five (45) days after receipt of written notice thereof from Ordering Company. ARTICLE XII CONSULTING SERVICES 12.1 GENERAL. The provisions of this Article 12 shall be applicable to the furnishing by Supplier to Ordering Company of Consulting Services. Software development is not a Consulting Service governed by this Article; it is governed by Article 9 of this Agreement. 12.2 STATEMENT OF WORK. (a) From time to time hereafter, Ordering Company may authorize Supplier to render to Ordering Company Consulting Services and related work (hereinafter "Work") by submitting an Order to Supplier or by entering into a Supplemental Agreement with Supplier. All Work conducted by Supplier in response to such an Order or Supplemental Agreement shall be considered Work under this Article, and the terms and conditions hereof shall govern. Supplier shall render all the Services specified in the request within the time allowed therein and shall meet all interim deadlines set by the parties. (b) Supplier agrees that all information provided to Ordering Company pursuant to this Agreement will be collected, compiled and provided to Ordering Company in a lawful and ethical manner. Supplier shall not provide to Ordering Company any information which has been provided to Supplier under the terms of a written or oral non-disclosure confidentiality agreement. Such Information includes, but is not limited to, proprietary, confidential, or trade secret Information of a party that was obtained by Supplier during Supplier's prior employment by such party. In the performance of this Agreement, Supplier shall not at any time: (i) misrepresent itself or its status to any third party; (ii) provide a false or deliberately misleading reason for inquiries or the collection of Information; (iii) misstate the nature of its relationship with Ordering Company; or (iv) use any element of fraud, dishonesty or criminal conduct in connection with its performance under this Agreement and the provisions of this Section 12.2. 12.3 OWNERSHIP OF INFORMATION. (a) Ordering Company acknowledges that Supplier expressly reserves and retains sole ownership in its trademarks and all intellectual property, including its copyrighted materials (report formats, creative materials, etc.) and unique inventing and research systems and methodologies as utilized in performing work. None of the above may be kept, copied or utilized by Ordering Company in any manner. (b) Except as expressly set forth herein, nothing contained herein shall be construed as conferring to either party by implication, estoppel or otherwise any license or right under any patent, trademark, service mark, trade dress, indicia of origin, copyright, mask work protection right, or any other intellectual property right which is owned, controlled by or licensed to either party. (c) The parties' respective ownership interests, up to and including one hundred percent (100%), in and rights to use information used or produced by Supplier to perform Consulting Services hereunder, other than those specified above, shall be determined on a case by case basis in each Order or Supplemental Agreement pursuant to which Ordering Company purchases Consulting Services from Supplier. 12.4 EQUIPMENT SUPPLIER. Ordering Company warrants that no current corporate policy, would give rise to Supplier or any of its Affiliated Companies being disqualified, as a result of this Agreement or the work performed under it, from bidding upon or being awarded a contract to supply telecommunications or computer equipment, Software, or related Services to Ordering Company. 12.5 ORDERING COMPANY'S RESPONSIBILITY. In addition to Ordering Company's responsibilities specified in Section 6.4, ORDERING COMPANY'S RESPONSIBILITY, Ordering Company shall, at no charge to Supplier, provide Supplier with financial, operational and technical information, data, technical support, personnel or assistance as may reasonably be required by Supplier to fulfill its obligations under this Article. 12.6 WARRANTY. Supplier warrants to Ordering Company that Services will be performed in a professional manner and in accordance with Ordering Company's specifications or those referenced in the Order and shall be in accordance with such requirements or restrictions as may be lawfully imposed by governmental authority. If the Services prove to be not so performed and if Ordering Company notifies Supplier within a thirty (30) day period, commencing on the date of completion of the Service, at Ordering Company's option, Supplier either will correct the nonconforming Service for which Supplier is responsible or render a full or prorated refund or credit based on the original charge for the Services. ARTICLE XIII PURPOSE AND ORGANIZATION OF PART III 13.1 PURPOSE AND SCOPE OF PART III. Part III sets forth the specific additional terms and conditions pursuant to which the Business Communications Systems unit of Supplier ("BCS") shall provide, and Ordering Companies shall purchase or license, BCS Products, Licensed Materials (including Software) and Services. The terms and conditions that shall govern BCS sales to Ordering Companies shall be Part I and Part III of this Agreement, any applicable Supplemental Agreement, the Pricing Agreement (LC3775D) or any other governing agreement covering pricing, except that Sections 1.3 and 1.4 of the Pricing Agreement shall govern in any event. With respect to BCS Products used in conjunction with AT&T's Network, additional provisions may be negotiated on a case-by-case basis and set forth in Supplemental Agreements or Orders. 13.2 ORGANIZATION OF PART III. Part III is organized as follows: (a) Article 14 sets forth the additional terms and conditions governing BCS's provision of Products; (b) Article 15 sets forth the additional terms and conditions governing BCS's licensing of Licensed Materials; and (c) Article 16 sets forth the additional terms and conditions governing BCS's provision of Maintenance, Installation and other Miscellaneous Services. 13.3 ORDERS (a) The term "Order" shall be defined as any Ordering Company request to purchase Products, to receive a license to use Licensed Material or to obtain Services. Such requests will be done on a BCS order form (e.g., Product Agreement, Service Agreement, Purchase/Service Agreement, Equipment Supplement, Maintenance Supplement, or Change Order Form), Ordering Company's Purchase Order Form or other mutually agreeable order form. (b) Subject to Section 2.2, subsequent Orders for modifications, additions or changes will become an integral part of this Agreement when accepted by BCS. (c) The Customer Contract Return Date is the date BCS must receive from Ordering Company an executed Order. If this date is not met, BCS may reschedule the Delivery Date and/or In-Service Date and BCS may, subject to Ordering Company's consent, change the prices specified on the Order or confirmation of such Order. (d) When applicable for an Order, BCS and Ordering Company will agree upon all dates and activities required to meet the scheduled Delivery Date for Customer-installed Products, or the scheduled In-Service Date for BCS-installed Products, and complete the Project Milestone and Responsibilities document (a sample of which has been provided as Exhibit 13-1 of this Agreement, which document shall be incorporated by reference into such Order under this Agreement). The installation responsibilities of each party with respect to an Order under this Agreement are described in Exhibit 13-2 of this Agreement, which is incorporated into this Agreement. (e) Subject to Section 2.2, Orders for modifications or additions to the Products acquired hereunder placed after the Delivery Date or In-Service Date (as applicable for said Product) will be governed by the terms and conditions of this Agreement when the Order is accepted by BCS. 13.4 PRICE AND DISCOUNTS. Prices and discounts for BCS's Products, Licensed Materials and Services shall be as shown in the AT&T-BCS Pricing Agreement. 13.5 BILLING AND PAYMENT (a) This section overrides any inconsistent provisions in Part 1 and covers how BCS will invoice Ordering Company. (b) For Products that BCS installs, BCS will bill Ordering Company for the Product and installation charges on the In-Service Date, except as provided in Section 14.4(b). (c) For Ordering Company-installed Products, BCS will invoice Ordering Company upon delivery. (d) BCS will invoice recurring charges in advance. (e) Payment of invoices is due within thirty (30) days of the invoice date. Restrictive endorsements or other statements on checks will not apply. (f) If Ordering Company does not generally pay in a timely fashion, the parties agree to review the billing and payment processes to improve such processes. 13.6 HAZARDOUS MATERIAL. Ordering Company is responsible for removal of any hazardous material (e.g., asbestos) or correction of any hazardous condition that affects BCS's performance of Services. Services will be delayed until Ordering Company removes or corrects any such hazardous condition with no penalty to BCS. 13.7 IDENTIFICATION CREDENTIALS. Ordering Company may, at its discretion, require BCS's employees and subcontractors to exhibit identification credentials, which Ordering Company may issue, in order to gain access to Ordering Company's premises for the performance of the work. If for any reason, any of BCS's employees or subcontractors are no longer performing work, BCS shall immediately inform Ordering Company's Representative in the speediest manner possible. Notification shall be followed by the prompt delivery to Ordering Company's Representative of the identification credentials involved or a written statement of the reasons why the identification credentials cannot be returned. Subject to Section 5.1 of this Agreement, BCS shall be liable for any damage or loss sustained by Ordering Company if the identification credentials are not returned to Ordering Company. ARTICLE XIV PURCHASE OF PRODUCTS 14.1 GENERAL. The provisions of this Article 14 shall be applicable to the purchase of Products from BCS. If Software is also to be licensed for use on a purchased Product, or if a Product is also to be engineered or installed by BCS, the provisions of Articles 15 and 16 shall also be applicable. 14.2 CHANGE CONTROL DATE. The Change Control Date ("CCD") for Orders, is a date shown on the Order or confirmation of the Order, and is the last date BCS will be required to accept changes to the Products ordered for delivery on the Delivery Date for Customer-installed Products or for installation on the In-Service Date for BCS-installed Products. The CCD is the date BCS accepts the Order or is deemed to have accepted it pursuant to Section 2.2, unless a different date is shown on the Order or confirmation of the Order. Changes to the original Order received by BCS prior to the CCD must be approved in writing by authorized representatives of both parties. Changes to an Order received and accepted by BCS after the CCD will be treated as separate Orders and may be delivered after the Delivery Date for Customer-installed Products or may be installed after the In-Service Date for BCS-installed Products. The CCD for Orders for modifications or additions addressed in this Section will be the date BCS accepts the Order or is deemed to have accepted it pursuant to Section 2.2. 14.3 ORDERING COMPANY-INSTALLED PRODUCTS. (a) The "Delivery Date" is the date BCS delivers the Products to the Ordering Company's facility as specified in an Order or confirmation of Order. (b) BCS will make reasonable accommodations if Ordering Company requests a delay in the originally scheduled Delivery Date if Ordering Company gives BCS written notice prior to the CCD. If Ordering Company gives notice of a request for a delay in the originally scheduled delivery date after the CCD, requests more than one delay in the Delivery Date prior to the CCD, or causes a delay in the Delivery Date as a result of Ordering Company's failure to meet obligations under this Agreement, BCS may cancel the Order and bill Ordering Company for cancellation charges as set forth in Part 1 of this GPA; provided however, that BCS shall give Ordering Company fifteen (15) days written notice of its intention to cancel the Order and to bill cancellation charges pursuant to this Section and shall not cancel the Order if Ordering Company accepts delivery prior to the expiration of such period. In addition, BCS's notice shall include a reasonable estimate of the anticipated cancellation charges. Notwithstanding the foregoing provisions of this Section 14.3(b), Ordering Company may delay delivery one time for up to thirty (30) days, provided Ordering Company has given BCS seven (7) business days' notice prior to the scheduled ship date. (c) Shipping charges may be adjusted if Ordering Company changes the location for delivery. 14.4 BCS-INSTALLED PRODUCTS. (a) This Section 14.4 overrides any inconsistent terms in Part 1 of this Agreement. For all BCS Products, if BCS installs such Products, BCS will notify Ordering Company that the Product is installed in good working order and complies with BCS's standard specifications and any other specifications agreed to by the parties (the "In-Service Date"). For BCS's DEFINITYPBX and Multimedia Messaging and Response ("MM&R") Products, such notice will be in writing and Ordering Company shall have ten (10) days following the In-Service Date (the "Acceptance Period") to test the DEFINITY and/or MM&R Product and to determine whether Ordering Company agrees with BCS that such Product complies with the applicable specifications and warranties for that Product. If Ordering Company does not notify BCS in writing during such Acceptance Period of any non-conformities to the applicable product specifications and warranties, the Product will be deemed accepted as of the In-Service Date. During the Acceptance Period, Ordering Company may conduct appropriate tests and then shall either: (a) accept the Product -- by providing written notice to BCS of that fact, in which case the Product will be deemed accepted as of the In-Service Date; or (b) if non-conformities to the specifications or warranties exist, so advise BCS in writing, specifying such non-conformities. BCS shall promptly correct such non-conformities and notify Ordering Company that they were corrected. The Product will be deemed accepted by Ordering Company upon correction of the non-conformities specified in Ordering Company's notice. If BCS is unable to correct all of the significant non-conformities described in Ordering Company's notice within thirty (30) days of receipt of Ordering Company's notice, Ordering Company shall either: (a) accept the Product, in which case BCS will be required to continue to correct any outstanding non-conformity; or (b) Ordering Company may reject the Product without any liability and BCS will refund all amounts paid to BCS for the returned Product plus transportation charges from BCS' plant and return; or (c) have the Product replaced by BCS as promptly as possible by giving Ordering Company priority over other customers at no additional charge. If Ordering Company elects to reject the Product, it must do so in writing and within a reasonable time frame. (b) BCS will make reasonable accommodations if Ordering Company requests a delay in the originally scheduled In-Service Date if Ordering Company gives BCS written notice prior to the CCD. If Ordering Company gives notice of a request for delay in the originally scheduled In-Service Date after the CCD, requests more than one delay in the In-Service Date prior to the CCD, or causes a delay in the In-Service Date as a result of Ordering Company's failure to meet its obligations (e.g., its obligations under Section 13.6) under this Agreement, Ordering Company and BCS will mutually agree to either: (i) deliver the Products and commence billing as of the originally scheduled In-Service Date, in which case installation will be rescheduled at a mutually agreeable time and additional installation charges may apply; or (ii) cancel the Order and bill Ordering Company for cancellation charges as set forth in Part 1 of this GPA. Notwithstanding the foregoing provisions of this Section 14.4(b), Ordering Company may delay delivery one time for up to thirty (30) days, provided Ordering Company has given BCS seven (7) business days' notice prior to the scheduled ship date. (c) For BCS-installed Products, BCS will perform a site survey to identify Ordering Company's specific installation requirements. If the site survey cannot be performed prior to the execution of an Order, it will be scheduled and conducted as soon as Ordering Company's facilities are available. Upon completion of the site survey, BCS will identify and communicate to Ordering Company any additional charges that may apply. If there were additional charges identified during the site survey, Ordering Company may cancel the Order without incurring cancellation charges if Ordering Company notifies BCS in writing within ten (10) days of Ordering Company's receipt of the notice from BCS of the additional charges. (d) Installation and shipping charges may be adjusted if Ordering Company changes the installation location. 14.5 PRODUCT WARRANTY. (a) BCS warrants that as of the date title passes, BCS will have the right to sell, transfer and assign Products and the title conveyed shall be good and Products shall be delivered free from any security interests or any other liens or encumbrances. (b) For purposes of Sections 14.5(b) through 14.5(g) only, the term "Product" also includes the Product's associated Software. During the warranty period, BCS warrants to Ordering Company that the Products furnished shall conform to and perform in accordance with BCS's standard specifications or documentation and any other mutually agreed specifications. In addition, BCS warrants to Ordering Company that the Products shall be merchantable and free from defects in design (except to the extent (i) designed by Ordering Company or (ii) design defects are caused by the presence in BCS's Product of substitute components of Ordering Company's selection not recommended by BCS), material and workmanship. BCS also warrants that the Products will be new, remanufactured, or refurbished, and that installation and other services will be performed in a first-class workmanlike manner. (c) The warranty period shall be specified on an Order or confirmation of the Order and shall begin on the Delivery Date for Ordering Company-installed Products or on the In-Service Date for BCS-installed Products. However, for DEFINITY and/or MM&R Products, if in the course of acceptance tests significant problems occur such that acceptance is delayed for more than ten (10) days following Ordering Company's notice concerning such significant problems, the warranty period shall commence upon acceptance. The warranty period shall be one year if none is specified on the Order or confirmation of the Order. (d) (i) Replacement material shall be warranted as set forth above in Section 14.5(b). Repaired material shall be warranted as set forth above in Section 14.5(b) for the remainder of the original warranty period. (ii) When BCS performs services under a time-and-materials Order, replacement and repaired material, as well as associated services, will be warranted for ninety (90) days from the date the work is completed. (e) If a Product (including any associated Installation Services) does not meet the above warranties during the warranty period, Ordering Company shall promptly notify BCS. BCS shall take the following action promptly: (i) Within the first sixty (60) days of the warranty period, if Ordering Company notifies BCS of a defect or non-conformity that does not appear to be curable through repair or replacement within a reasonable time period, Ordering Company will be entitled, at its option, to a refund of the Product's purchase price and installation charges upon return of the Product. Should Ordering Company seek such a refund, it will provide BCS such cooperation as necessary to enable BCS to remove the Product from Ordering Company's premises, if necessary. Transportation costs and risk of loss or damage in transit shall be borne by BCS. In the event of such a refund, Ordering Company may also return for credit any other BCS Products intended for use with the defective Product that cannot be applied to another use by Ordering Company and may cancel, without liability for cancellation charges, any pending Orders for such Products. (ii) After sixty (60) days, BCS, at its option, shall attempt first to repair or replace such Product without charge or, if not feasible, refund the original purchase price and installation charges. In the event of such refund, Ordering Company shall provide BCS such cooperation as necessary to enable BCS to remove the Product from Ordering Company's premises, if necessary. Transportation costs and risk of loss or damage in transit shall be borne by BCS. In addition, in the event of such refund, Ordering Company may also return for credit any other BCS Products intended for use with the defective Product that cannot be applied to another use by Ordering Company and may cancel, without liability for cancellation charges, any pending Orders for such Product. (f) All warranties shall continue in full force and effect notwithstanding transfer of title (except for title to their associated Software) to the Products by Ordering Company, so long as Ordering Company or its Affiliates shall remain the user of the Product. All warranties shall also survive inspection, acceptance and payment. (g) THE FOREGOING PRODUCT WARRANTIES ARE EXCLUSIVE AND ARE IN LIEU OF ALL OTHER EXPRESS AND IMPLIED WARRANTIES, INCLUDING BUT NOT LIMITED TO WARRANTIES OF FITNESS FOR A PARTICULAR PURPOSE. EXCEPT FOR (1) TANGIBLE PROPERTY DAMAGE AND PERSONAL INJURY FOR WHICH BCS IS HELD LIABLE AND (2) THE REMEDY PROVIDED IN SECTION 5.1(E), ORDERING COMPANY'S SOLE AND EXCLUSIVE REMEDY SHALL BE BCS'S OBLIGATION TO REPAIR, REPLACE, CREDIT, OR REFUND AS SET FORTH ABOVE IN THIS WARRANTY. (h) Certain additional warranties with respect to Software are set forth in Section 15.8. 14.6 WARRANTY/POST-WARRANTY SERVICE EXCLUSIONS. (a) EXCEPT AS STATED IN SECTION 14.5, BCS, ITS SUBSIDIARIES AND THEIR AFFILIATES, SUBCONTRACTORS AND SUPPLIERS, MAKE NO WARRANTIES, EXPRESS OR IMPLIED, AND SPECIFICALLY DISCLAIM ANY WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE. (b) The warranty provided in Section 14.5 and post-warranty service do not cover repair for damages or malfunctions caused by: (1) actions of non-BCS personnel or the attachment to the Products of non-BCS furnished equipment or Software; (2) Ordering Company's failure to follow BCS's installation, operation or maintenance instructions, including Ordering Company's failure to permit BCS timely remote access to Ordering Company's Products; (3) failure of products not serviced by BCS; (4) abuse, misuse or negligent acts of non-BCS personnel; or (5) Force Majeure conditions following delivery. In addition, BCS is not obligated to provide warranty or post-warranty service if Ordering Company modifies the Software. If Ordering Company requests, BCS will perform repair or other services not covered by this Agreement to Ordering Company's BCS Products at the mutually agreed to rates for such service. (c) Additional charges may apply if BCS incurs additional costs in providing warranty or post-warranty services as a result of a modification of Products. Unless otherwise agreed, BCS shall not be responsible to provide warranty or post-warranty Maintenance Services, if Ordering Company has moved a Product without notifying BCS. (d) BCS DOES NOT WARRANT UNINTERRUPTED OR ERROR-FREE OPERATION OF THE PRODUCTS AND BCS DOES NOT WARRANT THAT THE PRODUCTS WILL PREVENT, AND BCS WILL NOT BE RESPONSIBLE FOR, UNAUTHORIZED USE (OR CHARGES FOR SUCH USE) OF COMMON CARRIER TELECOMMUNICATION SERVICES OR FACILITIES ACCESSED THROUGH OR CONNECTED TO PRODUCTS. ORDERING COMPANY MAY PURCHASE BCS'S TOLL FRAUD PROTECTION PRODUCTS OR OFFERINGS (E.G., DEFINITY TOLL FRAUD INDEMNITY OFFER) IF IT CHOOSES TO DO SO, PROVIDED BCS CONTINUES SUCH OFFERING. 14.7 DOCUMENTATION. BCS shall furnish to Ordering Company at no additional charge and grant Ordering Company the right to use one copy of the documentation for each unit of the Products provided hereunder. Such documentation will be that customarily provided by BCS to its customers, for that Product, at no additional charge. BCS shall also furnish to Ordering Company the standard application and/or planning guide or a similar document, to the extent BCS provides such a document for the Product. Such documentation shall be provided prior to or included with the shipment of the Products from BCS to Ordering Company. Additional copies of the documentation are available at mutually agreeable prices. 14.8 SPECIFICATIONS. Upon request, BCS shall provide to Ordering Company, at no charge, and grant Ordering Company the right to use and reproduce a copy of BCS's available commercial Specifications applicable to Products ordered hereunder. In addition, a copy of BCS's Specifications shall be provided with each unit. Additional copies are available at mutually agreeable prices. 14.9 REGISTRATION AND RADIATION STANDARDS. When a Product furnished under this Part III is subject to Part 68, Part 15 or any other part of the Federal Communications Commission's Rules and Regulations, as they may be amended from time to time, (hereinafter "FCC Rules"), BCS warrants that such Product complies with the registration, certification, type-acceptance and/or verification standards of FCC Rules including, but not limited to, all labeling, customer instruction requirements, and the suppression of radiation to specified levels. BCS shall also establish periodic ongoing compliance re-testing and follow a Quality Control program, to assure that Product shipped complies with the applicable FCC Rules. BCS agrees to indemnify and save Ordering Company harmless from any liability, claims, or demands (including costs, expenses and reasonable attorney's fees on account thereof) that may be made because of BCS's noncompliance with the applicable FCC Rules. BCS agrees to defend Ordering Company, at Ordering Company's request, against such liability, claim or demand. In addition, should Product which is subject to Part 15 of the FCC Rules, during use generate harmful interference to radio communications, BCS shall provide to Ordering Company information relating to methods of suppressing such interference and pay the cost of suppressing such interference or, at the option of Ordering Company, accept return of the Product and refund to Ordering Company the price paid for the Product less a reasonable amount for depreciation, if applicable. Nothing in this Section 14.9 shall be deemed to diminish or otherwise limit BCS's obligations under any other Section of this Agreement. 14.10 MARKING. All BCS Product furnished under this Agreement shall be marked for identification purposes in accordance with mutually agreed upon marking specifications. Such specifications shall be set forth in a Supplemental Agreement or Order. All such Product shall also be marked with BCS's model/serial number. This Section 14.10 does not reduce or modify BCS's obligations under Section 4.4, TRADEMARKS, of this Agreement. ARTICLE XV SOFTWARE 15.1 GENERAL. (a) The provisions of this Article 15 apply to the furnishing of Software by BCS to Ordering Company pursuant to this Agreement. The ownership interests and rights of the parties in Custom Software, in addition to the applicable rights set forth in this Article, shall be established on a case-by-case basis in subsequent Supplemental Agreements. (b) To the extent that any provision set forth in this Article conflicts with any provision set forth elsewhere in this Agreement, this Article shall control. (c) Software in this Article means both Custom Software and Licensed Materials. 15.2 SOFTWARE LICENSE. (a) BCS grants Ordering Company a personal, non-transferable (except to the extent allowed in Section 15.2(d) below) and non-exclusive right to use, in object code form, all Licensed Materials and related documentation furnished under this Agreement. Title to and ownership of all Licensed Materials shall remain with BCS or its suppliers. This grant shall be limited to use with the equipment for which the Licensed Materials was obtained or, on a temporary basis, on back-up equipment when the original equipment is inoperable. Use of Licensed Materials on multiple processors is prohibited unless otherwise agreed to in writing by BCS. Ordering Company will not reverse assemble, reverse compile, disassemble or decompile the Licensed Materials to derive a source code equivalent of the Licensed Materials. Ordering Company will take appropriate action to instruct Ordering Company's employees and users of all Licensed Materials of Ordering Company's obligations under this Section. (b) Ordering Company may make a reasonable number of copies of Licensed Materials, solely for the purpose of back-up or archival use. Any such copy must contain the same copyright and other notices and markings that the original Licensed Materials contains. Use of Licensed Materials on any equipment other than that for which it was obtained or removal of Licensed Materials from the United States or other country in which the Licensed Materials was originally deployed (without written consent of BCS, which will not be unreasonably withheld), or reverse assembly, reverse compilation, disassembly or decompilation of the Licensed Materials to derive a source code equivalent shall immediately and automatically terminate the license with respect to the particular unit of the Licensed Materials. If Ordering Company commits any other material breach of the Licensed Materials license, the conditions of Article 5A, ARBITRATION; DISPUTE RESOLUTION shall apply. BCS's cancellation of the license at issue shall be tolled pending the outcome of the Dispute Resolution process. Simultaneous with initial invocation of such process, Ordering Company shall deposit and have held in escrow, until such dispute is resolved, an amount equal to the current market price of the license in question. (c) BCS may provide Ordering Company with Software that bears the logo or copyright of another company. If BCS provides such Software with a "shrinkwrap" or other license from the other company, those terms apply rather than the license terms in this Agreement. If Ordering Company requests, BCS will give Ordering Company a copy of such other license terms before Ordering Company orders the Software. (d) If the equipment purchased hereunder is sold or assigned to another party, BCS requires that the new owner or assignee execute a new Licensed Materials license and pay the then current Licensed Materials license fee, if any. Upon written request, BCS will grant the new owner or assignee of the equipment the right to use any related Licensed Materials, provided the new owner or assignee agrees, in writing, to BCS's terms and conditions and pays BCS's then current Licensed Materials license fee. BCS shall seek to enforce its rights in the first instance against the new owner or assignee. If the new owner or assignee of the equipment refuses to execute a new Licensed Materials license agreement or pay the applicable Licensed Materials license fee, or if the equipment is no longer to be used by Ordering Company, Ordering Company shall either return the Licensed Materials, together with any copies, or destroy the Licensed Materials and all copies, and provide BCS with prompt written notice of such destruction. Notwithstanding the preceding provisions of this Section 15.2(d), Ordering Company may transfer the Licensed Materials to another Ordering Company in connection with a transfer of the associated equipment, and BCS will not charge the new Ordering Company a Licensed Materials license fee therefor. 15.3 SOFTWARE. On the delivery date, BCS shall furnish to Ordering Company, at the fee specified in the Order or Supplemental Agreement, at least the following basic items: (a) Object Code stored in a medium compatible with the equipment, as described in BCS's Specifications, the applicable Supplemental Agreement or the Order; (b) User documentation which BCS normally furnishes to customers with the Licensed Materials at no additional charge, and any user documentation specified in the applicable Supplemental Agreement; and (c) If appropriate and if not previously provided, the required machine configuration. 15.4 INSTALLATION OF SOFTWARE. Where Ordering Company is responsible for installation of Software, BCS's sole responsibility is to deliver the Software to Ordering Company on or before the scheduled Delivery Date specified in the Order or Supplemental Agreement. However, if BCS is responsible for such installation, BCS shall deliver the Software to Ordering Company in sufficient time for it to be installed on or before the scheduled In- Service Date specified in the Order or Supplemental Agreement, and BCS shall complete its installation and associated testing on or before such date. 15.5 CENTRALIZED MAINTENANCE. Ordering Company may specify in an Order that, for centralized maintenance purposes, all Software changes, including Enhancements, provided by BCS shall be provided only to the Ordering Company's Centralized Support Organization. BCS will, in that event, be responsive to maintenance requests which the Ordering Company's Centralized Support Organization issues. This Organization will be responsible for Software application, initial acceptance testing and distribution of the Software to all licensed installations. BCS grants Ordering Company the right to transmit the Software by means of data links from Ordering Company's Centralized Support Organization to each licensed installation. BCS grants to Ordering Company, at no additional fee, a license to use a copy of the Software for centralized maintenance purposes only. BCS shall provide this maintenance copy of the Software in response to an Order requesting same. The maintenance copy provided to the Ordering Company's Centralized Support Organization will be used only to perform systems or application support functions for the Ordering Company's application programmers, except as provided hereinafter. If the maintenance copy of the Software provided pursuant to this Section 15.5 or a copy thereof is later incorporated by the Ordering Company's Centralized Support Organization into a Ordering Company system or application support Software, Ordering Company shall notify BCS and shall pay BCS the current applicable rate paid by Ordering Company for use of the Software. 15.6 ENHANCEMENTS. BCS shall promptly furnish to Ordering Company during the duration of the Order, at an agreed upon charge, if any, all Software Enhancements and telephone technical assistance made available by BCS to commercial customers and shall promptly provide to Ordering Company any revisions to the basic Software items defined in Section 15.3 to reflect the Enhancements. All Enhancements shall be considered Software subject to the provisions of the Order. Ordering Company may incorporate the Enhancements into the Software or continue using previous versions of the Software, at Ordering Company's option. Ordering Company may, at any time and at its discretion, discontinue maintenance of the Software. BCS shall not charge Ordering Company for Quality Protection Plan Change Notices (QPPCNs) during the warranty period or during any contracted-for post-warranty maintenance period. If the QPPCN is required for warranty or post-warranty service, and Ordering Company elects not to obtain the QPPCN, continuation of warranty or post-warranty service may be subject to additional charges. 15.7 TRAINING AND TECHNICAL SERVICE. BCS shall provide such assistance, advice and training at no additional charge, as it normally provides without charge to other customers. 15.8 SOFTWARE WARRANTY. BCS warrants to Ordering Company all of the following: (a) The Software will be free from significant errors, will conform to and perform in accordance with the Specifications and will function properly. The Media conveying the Software will be free from defects in material and workmanship. The Software will be compatible with and may be used in conjunction with other Software as described in the Specifications. If an Order states that the Software is to be used in conjunction with certain BCS equipment, the Software shall be compatible with that equipment. The foregoing warranties extend to the future performance of the Software and shall continue for one year except as otherwise specified in a Supplemental Agreement or Order. (b) Software-related Work will be performed in a first-class, workmanlike manner. (c) With respect to BCS-developed Software, there are no copy protection or similar mechanisms within the Software which will, either now or in the future, interfere with the grants made in this Agreement or an Order . With respect to non-BCS developed Software, BCS will use reasonable efforts to insure that there are no copy protection or similar mechanisms within the Software which will, either now or in the future, interfere with the grants made in this Agreement or an Order. (d) Ordering Company shall have quiet enjoyment of the Software. (e) As to Software for which BCS does not solely own all intellectual property rights, BCS has full right, power and authority to license the Software to Ordering Company as provided in this Agreement or an Order. (f) If the Software, or any portion thereof, is or becomes unusable, totally, or in any respect during the applicable warranty period, or if the work fails to meet the warranties, BCS will reperform work, correct errors, defects and nonconformities and restore the Software to conforming condition free of significant errors at no cost to Ordering Company. Corrected Software shall be warranted as set forth in this clause. (g) The Software does not contain any malicious code, program, or other internal component (e.g. computer virus, computer worm, computer time bomb, or similar component), which could damage, destroy, or alter Software, firmware, or hardware or which could, in any manner, reveal, damage, destroy, or alter any data or other information accessed through or processed by the Software in any manner. BCS shall immediately advise Ordering Company, in writing, upon reasonable suspicion or actual knowledge that the Software provided under this Agreement or an Order may result in the harm described above. (h) All warranties shall survive inspection, acceptance and payment. 15.9 RELATED DOCUMENTATION. BCS shall furnish to Ordering Company, at no additional charge, and grant Ordering Company the right to use one copy of the related documentation for each unit of the Software furnished by BCS pursuant to this Agreement for the sole purpose of operating and maintaining such Software. Such related documentation will be that customarily provided by BCS to its customers for such Software, consistent with the vintage, options and feature of the system on which it operates. Such related documentation shall be provided prior to or included with provision of Software by BCS to Ordering Company. Additional copies of the related documentation are available at prices set forth in BCS's Price List. 15.10 NOTIFICATION OF DISCONTINUED AVAILABILITY OF SOFTWARE. BCS shall notify Ordering Company at least one (1) year in advance of discontinued availability of the last standard Software generic. For a minimum of two (2) years after discontinued availability, BCS will make available to Ordering Company, Software support service which affords Ordering Company reasonable continued use of the Software. 15.11 RISK OF LOSS. If any Software fixed in Media is lost, damaged or made invalid during shipment, BCS will promptly replace the Software and Media therefor at no additional charge to Ordering Company. If any Software is lost or damaged while in the possession of Ordering Company, BCS will promptly replace the Software at mutually agreed charges. 15.12 ACCESS TO SOURCE CODE (a) If Supplier is declared bankrupt, and as a result of such bankruptcy, BCS is unable to maintain Software so that Ordering Company is unable to use the Software, then BCS shall furnish to Ordering Company (under a suitable license agreement, if applicable) BCS's then existing Software Source Code and associated documentation for the affected Product(s) for such standard version only to the extent to allow Ordering Company to use solely for its internal purposes such Software for which Ordering Company has a perpetual, non-exclusive right to use. (b) If Ordering Company's use of the Software Source Code provided pursuant to Section 15.12(a) involves use or copying of copyrighted material or the practice of any invention covered by a patent, Supplier shall not assert the copyright or patent against Ordering Company for use of the Software Source Code as originally provided by Supplier within the scope of the rights granted in Section 15.12(a). (c) The parties may negotiate additional rights for Ordering Company to access particular Software Source Code on a case-by-case basis, as set forth in a Supplemental Agreement or Order. ARTICLE XVI MAINTENANCE, INSTALLATION AND OTHER MISCELLANEOUS SERVICES 16.1 GENERAL. The provisions of this Article 16 shall be applicable to the furnishing by BCS of Services other than Services furnished pursuant to any other Article of this Agreement. Such services include, but are not limited to Maintenance Services and other Miscellaneous Services. 16.2 POST-WARRANTY MAINTENANCE PERIOD. If Ordering Company orders post-warranty service, it will commence on the expiration of the applicable warranty period and will be provided for an initial term as specified on the relevant Supplemental Agreement or Order. BCS shall provide Ordering Company with written notice of pending expiration of applicable Maintenance period, ninety (90) days prior to expiration. 16.3 MAINTENANCE SERVICES TERMINATION. BCS shall provide all Maintenance Services required by this Agreement upon the provisions set forth in this Agreement and in Orders placed by Ordering Company pursuant to this Article. At any time, Ordering Company may terminate individual Orders for Maintenance Services, provided Ordering Company gives at least sixty (60) days prior written notice to BCS. If the charges for a terminated Order were paid annually in advance, BCS shall promptly refund to Ordering Company the unused prorate portion of the charges. Ordering Company and BCS agree to separately address in Orders or Supplemental Agreements the appropriate notice provisions and/or early termination charges for multi-year maintenance service periods. 16.4 POST-WARRANTY SERVICE. (a). Post-warranty service includes preventive maintenance as deemed appropriate by BCS and remedial maintenance, including replacement parts required for Products used under normal operating conditions. BCS shall maintain such Maintenance records, including records with respect to On-site Response Time and Time to Repair, as it keeps in its normal course of business. Upon request of Ordering Company, BCS shall provide a copy of such records to Ordering Company. (b) If Ordering Company subsequently obtains additional Products similar to the Products covered under any Order issued pursuant to this Part III of the GPA, or requests certification or connection of equipment similar to the Products covered under any Order issued pursuant to this Part III of the GPA, and co-locate those Products or equipment (the "Added Products") with the existing ones, upon warranty expiration the Added Products will also be covered for post-warranty service under this Part III of the GPA and Ordering Company agrees to pay any applicable post-warranty service charges. Such charges will be at the then current monthly rate and coverage will be the same as and coterminous with the coverage for the existing Products. 16.5 WARRANTY AND POST-WARRANTY COVERAGE AND SUPPORT. (a) PURCHASED OR REPLACEMENT PARTS MAY BE NEW, REMANUFACTURED OR REFURBISHED and will be functionally equivalent to a new Product. Any removed parts and/or Products will become the property of BCS. (b) Warranty and post-warranty service coverage will be in accordance with the option(s) Ordering Company has selected as identified on the Order or confirmation of the Order. BCS's standard warranty and post-warranty coverage will apply if none is specified. BCS's warranty and post-warranty service coverage options, and Ordering Company's responsibilities, are described in Exhibit 16-1 to this Part III of the GPA. (c) Under BCS's warranty and post-warranty service, BCS is responsible for damage to the Products (excluding loss or corruption of data records) from power surges as long as Ordering Company has installed BCS provided or approved electrical protection to the Products and the electrical protection complies with the National Electrical Code and any applicable federal, state and local laws. (d) Warranty and post-warranty service exclusions are set forth in Section 14.6(b) above. 16.6 CONTENTS OF MAINTENANCE ORDER. A Maintenance Order shall contain the following: (a) The incorporation by reference of this Agreement; (b) A complete list of Equipment to be maintained specifying quantity and type, description of Maintenance Services, duration of Order, monthly or annual maintenance charges for each item of Equipment, total monthly maintenance charges payable by Ordering Company and invoice address; (c) The location at which the Equipment is to be maintained, including floor, street, city and state; and (d) Any other special terms agreed upon by both parties. 16.7 AUDIT. With the exception of any fixed basic monthly or annual maintenance charge set forth in this Agreement or an Order, BCS shall maintain complete, clear and accurate records of: (a) all hours of direct labor employees engaged in work for which payment under this Agreement is to be computed on the basis of actual hours worked, at a fixed rate per hour or other unit of time specified in this Agreement; and (b) billable costs payable by Ordering Company under this Agreement including a physical inventory, if applicable. These records shall be maintained in accordance with generally accepted accounting principles so they may be readily audited and shall be held until costs have been finally determined under this Agreement and payment or final adjustment of payment, as the case may be, has been made. BCS shall permit Ordering Company or Ordering Company's representative to examine and audit these records and all supporting records at all reasonable times. Audits shall be made not later than one calendar year after the expiration or termination of an Order, and the correctness of BCS's billing hereunder shall be determined from the results of that audit. In making arrangements with a vendor for the furnishing of labor, material or other items for which Ordering Company will be charged separately from the fixed basic monthly maintenance charges as set forth in this Agreement or the applicable Supplemental Agreement or Order, BCS shall require its vendor to keep separate records, and make separate invoices, covering only what is so supplied, so that no part of the records or invoices shall apply to jobs not covered by this Agreement. In making payments to a vendor for labor, material or other items for which Ordering Company will be charged separately from the fixed basic monthly maintenance charges as set forth in this Agreement or the applicable Supplemental Agreement or Order, BCS shall show its vendor's invoice number and date on BCS 's payment advice, and no part of that payment shall apply to other jobs not covered by this Agreement. 16.8 BREAKAGE, DISAPPEARANCE AND CONDITION. BCS shall take whatever precautions BCS deems necessary or desirable (which do not violate Ordering Company's plant rules or cause inconvenience or delay to Ordering Company) regarding tools, equipment, and materials, whether or not owned by BCS, which BCS causes to be brought to Ordering Company's premises. Ordering Company shall have no responsibility for their care, safekeeping or operating condition. Ordering Company shall not bear any cost or expense associated with their breakage or disappearance unless resulting from Ordering Company's negligence. 16.9 CONTINGENCY. If BCS fails to perform the Maintenance Services, Ordering Company may arrange for the performance of the Maintenance Services by another party. 16.10 ELIGIBILITY FOR MAINTENANCE SERVICES. Equipment shall automatically be eligible for Maintenance Services provided it shall have been under Maintenance Service or warranty by BCS on the date of commencement of Maintenance Services. Any other Equipment shall be inspected by BCS at mutually agreed to charges to determine whether it is in good working order and can be maintained in that condition. BCS shall notify Ordering Company in writing about the eligibility of the Equipment. If the Equipment is not eligible, but can be made eligible, Ordering Company may, at its expense, make or have made those changes required to upgrade the Equipment to eligibility status. 16.11 MAINTENANCE FACILITIES. Ordering Company shall provide BCS with adequate storage space for spare parts and adequate working space, including heat, light, ventilation, electric current and outlets for use by BCS's maintenance personnel. These facilities shall be within a reasonable distance of the Products to be serviced and shall be provided at no charge to BCS. Ordering Company shall not be responsible for any damage to BCS's equipment or materials stored on Ordering Company's premises unless the damage results from Ordering Company's negligence. 16.12 PRECAUTIONS. BCS shall take care in all operations to safeguard people as well as property and will strive to minimize interference with or curtailment of Ordering Company or customer operations at the work site. 16.13 TECHNICAL INFORMATION, SOFTWARE AND PROGRAMMING AIDS. BCS shall furnish to Ordering Company on the agreed-upon delivery date without additional charge any technical information, programs, routines, subroutines, documentation, or related material it has or may develop or modify, necessary for the general use or maintenance of Products under post-warranty maintenance service, which are normally so furnished to maintenance customers. 16.14 TITLE. Except as maybe set forth in an applicable Supplemental Agreement or Order, title to replacement and repair parts and components shall vest in Ordering Company upon installation on equipment owned by Ordering Company. Any parts replaced shall become the property of BCS. Title to enhancements and modifications and to intellectual property rights therein shall remain in BCS. 16.15 TRAINING AND TECHNICAL SERVICE. BCS shall provide, without additional charge to Ordering Company, the training and assistance as it normally provides without charge to maintenance customers. 16.16 MAINTENANCE SERVICES WARRANTY. BCS warrants to Ordering Company that the Maintenance Services shall be performed with promptness and diligence, in a first-class, workmanlike manner in accordance with applicable specifications and using material free from defects, and that the Product shall function in good operating condition during the duration of the Maintenance Order. All warranties shall survive inspection, acceptance and payment. Maintenance Services (including replacement parts) not meeting the above warranties will be corrected by BCS at no cost to Ordering Company or if BCS is unable to do so within a reasonable period of time, then Ordering Company may terminate the applicable maintenance Order with respect to that Product without liability for cancellation charges. Whenever equipment, repair parts or components under warranty are shipped for repair or replacement purposes, BCS shall bear all costs, including but not limited to, costs of packing, rigging, transportation and insurance. BCS shall also bear all risk of loss or damage from the time the equipment, repair parts or components are removed from Ordering Company's site until the equipment, repair parts or components are returned to that site and installed by BCS. 16.17 TECHNICAL SUPPORT OF PRODUCTS. With respect to the DEFINITY Product Line, BCS shall, in addition to its obligations under Product Warranty, make available, at mutually agreeable rates, ongoing technical support including, but not limited to the expertise to identify, isolate, and resolve problems, that BCS customarily provides, including telephone assistance, field Service, and technical consultation Service for DEFINITY Products provided under this Agreement for a period of the longer of (A) ten (10) years after installation of the particular DEFINITY Product; or (B) five (5) years after last shipment of such type of Product to Ordering Company. The period for BCS's Multi-media Messaging and Response Product Line is five (5) years after such Product's discontinued availability effective date unless modified by Supplemental Agreements. 16.18 REPORTS. At Ordering Company's request, and subject to mutually agreed charges, BCS will provide periodic or other reports in a mutually agreeable format concerning such matters as billings for Products and Services, time to repair and time for Order completion. 16.19 WARRANTY FOR SERVICES OTHER THAN MAINTENANCE SERVICES. BCS warrants to Ordering Company that Services will be performed in a professional manner and in accordance with BCS's Specifications or those referenced in the Order and with accepted practices in the community in which such Services are performed, using material free from defects except where such material is provided by Ordering Company. If the Services prove to be not so performed and if Ordering Company notifies BCS, with respect to other Miscellaneous Services (e.g., Move, Change and Rearrangements), within a mutually agreed to period commencing on the date of acceptance of the Service, BCS, at its option, either will correct the defect or nonconforming Service for which BCS is responsible or render a full or prorated refund or credit based on the original charge for the Services. After the corrective action, Ordering Company shall have the right to inspect and accept the corrective work done. 16.20 CONDITIONS OF INSTALLATION AND OTHER SERVICES PERFORMED ON ORDERING COMPANY'S SITE. (a) ITEMS PROVIDED BY ORDERING COMPANY. Ordering Company will be responsible for furnishing the following items as required: (i) OPENINGS IN BUILDINGS - Prior to Service start date, furnish suitable openings in buildings to allow Products to be placed in position, and provide necessary openings and ducts for cable and conductors in floors and walls as designated on engineering drawings furnished by BCS with input provided by Ordering Company. BCS shall provide such drawings to Ordering Company in sufficient time to meet project service dates. Ordering Company shall fireproof (with steel covers) all paths throughout the building. (ii) BUILDING EVACUATION - Prior to Services start date, provide building evacuation plans in case of a fire or other emergency. (iii) CEILING INSERTS - Provide ceiling inserts as required using BCS's standard spacing arrangement for ceiling support equipment. (iv) MATERIAL FURNISHED BY ORDERING COMPANY - - New or used third party material furnished by Ordering Company shall be in such condition that it requires no repair and no adjustment or test effort in excess of that normal for new equipment. Ordering Company assumes all responsibility for the proper functioning of such material. Ordering Company shall also provide the necessary third party Product information and, where possible and permitted, access to special third party test equipment and tools, for BCS to properly install such material. (v) PERMITS - Prior to Services start date, Ordering Company shall provide all licenses, permits, easements, right of ways and authority for installation of Products and other material; and construction and building permits. (vi) USE OF AVAILABLE TESTING EQUIPMENT - Ordering Company shall make available to BCS the maintenance test facilities which are imbedded in equipment to which the Product being installed will be connected or added, and, if available, meters, test sets, and other portable apparatus that is unique to the Product being installed. BCS's use of such test equipment shall not interfere with the Ordering Company's normal equipment maintenance functions. (vii) GROUNDS - Ordering Company shall provide access to suitable and isolated building ground as required for BCS's standard grounding of equipment. Where installation is outside or in a building under construction, Ordering Company shall also furnish lightning protection ground. (viii) CLEARING EQUIPMENT FOR MODIFICATIONS - Ordering Company shall remove, or transfer telecommunications traffic on trunks and sundry working equipment, and make other arrangements required to permit BCS to modify existing equipment. (ix) BATTERY ROOM VENTILATION - Ordering Company shall provide the required ventilation for battery rooms or areas. (xvii) HOUSE SERVICE PANEL - Ordering Company shall provide electric power from the Ordering Company's Service panel to BCS's power board and shall run all leads between said Service panel and power board. (b) ITEMS TO BE FURNISHED BY BCS. The following items will be furnished by BCS (if required by the conditions of the particular Service) and the price thereof is included in BCS's price for Services: (i) PROTECTION OF EQUIPMENT AND BUILDINGS - BCS shall follow its standard practices in providing protection for Ordering Company's equipment and buildings during the performance of the Services. (ii) WIRE CONDUIT - BCS shall install wire conduit as specified in the Ordering Company's specifications. (iii) WIRE FRAMING - BCS shall install wire conduit, fixtures, and other necessary material for wire framing distribution as specified in Ordering Company's specification. (iv) TEMPORARY DAILY CLOSING AND FIREPROOFING - BCS shall provide temporary daily closing for all occupied buildings, and fireproof all openings that BCS makes in any occupied building in the course of providing the Services. (v) TOOLS AND EQUIPMENT - Unless otherwise specifically provided in this Agreement, BCS shall provide all labor, tools and equipment (the "tools") for performance of this Agreement. Should BCS actually use any tools provided by Ordering Company, BCS acknowledges that BCS accepts the tools "as is, where is". BCS acknowledges that Ordering Company has no responsibility for the condition or state of repair of the tools and BCS shall have risk of loss and damage to such tools. BCS agrees not to remove the tools from the work site and to return the tools to Ordering Company upon completion of use, or at such earlier time as Ordering Company may request, in the same condition as when received by BCS, reasonable wear and tear excepted. (vi) CLEAN UP - BCS at all times, and at its expense, shall keep the premise free from accumulation of waste materials or rubbish caused by BCS's operation. Upon completion of the work, BCS shall, at its expense, as promptly as practical, remove from the premises all of BCS's implements, equipment, tools, machines and surplus. In addition, BCS shall clean up its waste materials and debris and dispose of same in containers to be provided by Ordering Company. If BCS fails to clean up as provided herein, Ordering Company may do so and charge the cost thereof to BCS or deduct same from the Ordering Company's payment to BCS, provided Ordering Company has given prior notice to BCS and BCS has not commenced to cure within twenty-four (24) hours. (vii) HAZARDOUS MATERIALS CLEANUP - At the conclusion of the Services, BCS shall be responsible for the cleanup, removal, and proper disposal of all Hazardous Materials introduced by BCS or its sub-contractors to Ordering Company's premises. (viii) Subject to an additional charge, the following items may be furnished by BCS if mutually agreed to: (1) RERUNNING CROSS-CONNECTIONS - BCS may rerun permanent cross-connections in accordance with revised cross-connection lists furnished by the Ordering Company's cross-connection list. (2) HANDLING, PACKING, TRANSPORTATION, AND DISPOSITION OF REMOVED AND SURPLUS ORDERING COMPANY EQUIPMENT - BCS may pack, transport, and dispose of surplus and removed Ordering Company equipment as agreed by the parties. (3) PREMIUM TIME ALLOWANCES AND NIGHT SHIFT BONUSES - BCS may have its Services personnel work premium time and night shifts to the extent that BCS may deem such to be necessary to effect the required coordination of installing and testing operations or other Services because of Ordering Company's requirements. 16.21 TRAINING. If requested by Ordering Company, BCS will, at mutually agreed prices: (a) provide instructors and the necessary instructional material of BCS's standard format to train Ordering Company's personnel in the installation, planning and practices, operation, maintenance, and repair of material furnished under this Agreement with such classes to be conducted at intervals and locations agreed upon by BCS and Ordering Company; or, (b) if agreed to by BCS, license Ordering Company to reproduce BCS's copyrighted training modules or manuals, covering those areas of interest outlined above in this Section 16.21, sufficient in detail and format, to allow Ordering Company to develop and conduct its own training program. 16.22 INSTALLATION/CUTOVER ASSISTANCE. In the event BCS is not installing the material, and if requested by Ordering Company, BCS agrees to make available at the installation site, at a negotiated price plus travel and living expenses, a field engineer to render installation and cutover assistance as required by Ordering Company. ARTICLE XVII EXHIBITS 17.1 LIST OF EXHIBITS. The following exhibits are incorporated by reference and are part of this Part III of this Agreement: Exhibit 13-1 - Sample Project Milestones and Responsibilities Exhibit 13-2 - Implementation Roles and Responsibilities for an Order Exhibit 16-1 - Basic Service Description of Warranty Or Post Warranty Service Coverage Offerings and Support Options For Equipment And Licensed Material Exhibit 16-2 - Dedicated Technician Service IN WITNESS WHEREOF, the parties have caused this General Purchase Agreement to be executed by their duly authorized representatives on the date(s) indicated. AT&T CORP. LUCENT TECHNOLOGIES INC. By /s/ By /s/ ------------------------------ - --------------------------- ame Name ----------------------------- - -------------------------- Title Title ---------------------------- - ------------------------- Date Date ----------------------------- - -------------------------- EX-10 9 EXHIBIT (10)(II)(B)2 Form of VOLUME PURCHASE AGREEMENT THIS Volume Purchase Agreement ("Agreement") dated as of November 20, 1996 is between AT&T Corp., a New York corporation ("AT&T"), and NCR Corporation, a Maryland corporation ("NCR"). 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 and NCR will, on or before January 1, 1997, execute and deliver a Distribution Agreement, by and between AT&T and NCR (the "Distribution Agreement"). WHEREAS, this Agreement is one of the NCE Ancillary Agreements (as such term is defined in the Distribution Agreement) contemplated by the Distribution Agreement; and WHEREAS, in anticipation of NCR's spin-off, AT&T and NCR desire to memorialize and formalize the volume, prices, and other terms and conditions under which AT&T will buy products and services from NCR in 1997 and thereafter. NOW THEREFORE, AT&T and NCR agree as follows: 1. TERM OF AGREEMENT. (a) Except as otherwise expressly provided herein or in a subsequent agreement between the parties, the terms and conditions of this Agreement and the General Agreement between the parties of even date herewith shall govern all of AT&T's purchases of products and services from NCR fro the five-year period beginning as of January 1, 1997 and ending December 31, 2001, unless this Agreement is terminated sooner as permitted by Section 1(b). (b) Upon at least 90 days' prior written notice, either party may terminate this Agreement for its convenience, without requirement of cause, provided that the effective date of such termination is after expiration of the Purchasing Period described in Section 2. 2. COMMITMENT (a) Under the terms and conditions of this Agreement, during the period beginning January 1, 1997 and ending December 31, 1999 ("Purchasing Period") AT&T contractually commits to purchase not less than $350 million of products and services from NCR or any present or future subsidiaries or affiliates of NCR (collectively "NCR Entities") ("Commitment"), unless the Commitment is reduced or terminated as provided in Section 7. AT&T may satisfy this Commitment by purchasing the entire Commitment amount of products or services in any of the three years or cumulatively over the three years. If AT&T fails to satisfy the Commitment, the adjustment described in Section 9 shall apply. Subject to the clause in Article VI of the General Agreement entitled SCOPE OF AGREEMENT, any purchases of Eligible Products, as hereinafter defined, by any present or future subsidiary or other affiliate of AT&T (collectively, the "AT&T Entities") during the Purchasing Period shall be included in the calculation of whether the Commitment has been satisfied. (b) Upon written notice to NCR, AT&T may, at its option, extend the Purchasing Period until December 31, 2000 and/or December 31, 2001, subject to Sections 9(a) and 9(b). 3. PRODUCTS AND SERVICES. The NCR products and services which the AT&T Entities may purchase in satisfaction of the Commitment ("Eligible Products") include all present and future products and services of any NCR Entity except products that are exclusive to the Personal Computer, Retail, and/or Financial product lines. Eligible Products include, but are not limited to, the following: Professional Services; Customer Support Services (including without limitation Large Systems Support and Software Support; repair and replacement parts and technical support; and all products and services purchased in support of AT&T's self-maintenance activities, including any parts purchased in the fourth quarter of 1996 in contemplation of NCR's spin-off, systems infrastructure and customer engineer education); Servers; Massively Parallel Processors; Software; and Networking Products. The AT&T Entities may purchase Eligible Products for their own internal use or (pursuant to the terms of a separate written agreement) for resale worldwide (but with the applicable AT&T Entity additionally responsible for any customs, duties, or local country taxes incurred by NCR by providing products and services outside the United States), provided that the applicable AT&T products or services to a customer ("Solutions Sale"), and provided further that if the AT&T Entity receives written notice that NCR has entered into an exclusive distribution agreement with a third party in a given foreign country, that AT&T Entity will not be authorized hereunder to resell NCR products and services in that foreign country without obtaining NCR's prior written consent, which consent will not be unreasonably withheld or delayed if the resale can be accomplished without violation of such exclusive distribution agreement. Subsidiaries acquired by Supplier after the effective date of this Agreement shall have their products and services added to this Agreement at mutually agreeable discount rates. 4. INDIRECT PURCHASES. Subject to the clause in Article VI of the General Agreement entitled SCOPE OF AGREEMENT, if the AT&T Entities purchase Eligible Products from any of NCR's authorized Value Added Resellers ("VARs") or Independent Software Vendors ("ISVs") or from a third party NCR exclusive distributor in a given foreign country, NCR will credit towards AT&T's Commitment hereunder, the price paid by the AT&T Entities to the VAR, ISV or third party foreign distributor for components produced by NCR. 5. PRICES. Unless the parties otherwise mutually agree, and except as required by Section 6, NCR prices to the AT&T Entities for the Purchasing Period shall be determined as follows: (a) For all NCR products and services for which NCR has published a Manufacturer's Suggested References Price ("MSRP"), the price to the AT&T Entities shall be the MSRP reduced by a Discount calculated in accordance with Section 5(b). NCR has furnished AT&T with a list of MSRPs for all such products and services and thereafter shall provide AT&T not less than 30 days' prior written notice of any changes to the MSRP list. For United States Customer Support Services, any increase in the MSRP for Customer Support Services (or any component thereof) shall not exceed the percentage increase in the Consumer Price Index - All Urban Wage Earners and Clerical Workers, as issued by the Bureau of Labor Statistics of the United States Department of Labor ("CPI") relative to the CPI that was in effect on the later of January 1, 1996 or the date the previous list price became effective. (b) For each category of NCR product or service, the Discount shall be a percentage equal to the effective discount off MSRP that was available as of January 1, 1996 under the lowest NCR prices regularly offered to any AT&T business unit. The formula for calculating the Discount, using MSRP and discounted price in effect as of January 1, 1996 is as follows: (1/1/96 MSRP - 1/1/96 discounted price) x 100 = Discount (%) --------------------------------------- 1/1/96 MSRP Based on this formula, NCR and AT&T will establish the percentage amount of the Discount for each product or service category by mutual written agreement. (c) For all NCR products and services for which NCR has not published an MSRP, NCR and AT&T shall negotiate prices in good faith. Such prices shall yield margins to NCR not greater than the margins realized on comparable products and services priced in accordance with Section 5(a). (d) In order for NCR to comply with all applicable laws and regulations, NCR's prices for products and services which the AT&T Entities purchase indirectly through VARs and ISVs will be NCR's standard prices in effect with such VARs and ISVs, and NCR's prices for products which the AT&T Entities purchase for Solution Sales in which title to the NCR product passes to an AT&T customer will be NCR's standard resale prices or such prices as the parties may separately negotiate ("Indirect and Resale Prices"). (e) In the event that NCR redefines its pricing strategy in a manner that would make the current model pricing obsolete, the AT&T Entities shall have the option to move to this new pricing paradigm in its entirety through the remaining term of this Agreement. Should a new pricing paradigm occur, only new products/service transactions would be impacted through this change. (f) NCR may, from time to time, offer AT&T to substitute upgraded or later-developed items of equipment, components or parts for the products purchased herein. In such event, NCR will allow a trade-in credit for the equipment being traded-in toward the purchase of the upgraded or later-developed equipment. the trade-in credit shall be in accordance with mutually agreed upon allowances in effect at the time of such trade-in. 6. MOST FAVORED CUSTOMER STATUS. (a) For the Purchasing Period, NCR agrees that all prices, except for Indirect and Resale Prices and non-United States services prices, charged to the AT&T Entities under this Agreement shall be as favorable as any prices offered or charged by NCR during the preceding 12-month period to any other NCR customer making a comparable purchasing commitment, in each case taking into account the value of terms and conditions of sale. With respect to non-United States services pricing, prices charged to the AT&T Entities in any given country shall be as favorable as any prices offered or charged by NCR during the preceding 12-month period to any other NCR customer making a comparable purchasing commitment for comparable services in that country, in each case taking into account the value of terms and conditions of sale. For purposes of this Section 6, the purchasing commitment made to NCR by Lucent Technologies Inc., and the terms and conditions of sale applicable thereto, shall be deemed comparable to those of the AT&T Entities under this Agreement and the General Agreement. If NCR charges a more favorable price (other than an Indirect or Resale Price) to any such NCR customer, NCR shall immediately reduce the AT&T Entities price as necessary to comply with this Section 6; provided, however, that AT&T's and the AT&T's Entities' sole remedy for NCR's unintentional breach of this requirement shall be to recover from NCR the difference between what the applicable AT&T Entity was actually charged and what should have been charged had NCR complied with its obligations hereunder. Notwithstanding the foregoing, NCR may offer or charge more favorable prices to other NCR customers without lowering the prices to the AT&T Entities under this Agreement, provided any such more favorable prices are offered or charged for the limited purpose of initiating a new customer relationship, reestablishing a customer relationship that has been discontinued for no less than six (6) months or expanding an existing customer relationship by selling products or services of a type not previously sold to that customer during the previous 12 months and provided further that such more favorable prices are not offered or charged for more than 6 months. (b) At AT&T's request, but not more frequently than once each calendar year, NCR's compliance with its obligations under this Section 6 shall be subject to an audit of reasonable scope by an independent auditing firm selected by AT&T and reasonably satisfactory to NCR. AT&T will bear the auditing firms's charges. The audit will be conducted in a manner that will minimize NCR's inconvenience and expense in providing information necessary to perform the audit. Prior to the auditor submitting findings to AT&T, NCR will be afforded a reasonable opportunity to review and comment on any preliminary finding by the auditor that NCR has failed to fulfill its obligation under this Section 6. Prior to the commencement of each audit, the auditor will execute a non-disclosure agreement reasonably acceptable to NCR which will require the auditor to hold all information received from NCR in confidence, except such information contained in the auditor's final report (which shall be disclosed to AT&T only upon AT&T's entry into a non-disclosure agreement acceptable to NCR.) Should the auditor determine that NCR has not fulfilled its obligations under this Section 6, NCR will issue AT&T a credit (without interest) in the amount determined to be the difference between what AT&T paid and the price that AT&T would have paid had NCR complied with its obligations hereunder. Such credit may be reduced by the amount of any underbillings which may be disclosed by the audit and substantiated with evidence reasonably satisfactory to AT&T. 7. ADJUSTMENTS TO COMMITMENT. The parties recognize that future events may make it impractical or inequitable for the AT&T Entities to purchase NCR products and services in the amounts contemplated by the Commitment. Accordingly, the Commitment shall be reduced in amount, or terminated and extinguished in its entirety, under the circumstances described in this Section 7. (a) If an AT&T Competitor (as hereinafter defined) enters into a relationship with NCR that would potentially enable the AT&T Competitor to obtain AT&T (including its subsidiaries) proprietary or confidential information, NCR will take all necessary steps to assure that the AT&T Competitor does not have access to such information through NCR without AT&T's express prior written consent. In addition, if at any time an AT&T Competitor owns or controls shares representing a controlling interest in NCR, AT&T may, at its option, terminate the Commitment at any time by giving written notice to NCR. Upon any such termination, the Commitment shall be extinguished, AT&T's obligation thereunder shall be deemed entirely fulfilled, and the Purchasing Period shall terminate. For purposes of this Agreement, an AT&T Competitor is any company, person, or other entity which, either directly or through an affiliate, offers (or has announced future availability of) any product or service that AT&T reasonably determines to be substantially competitive with a product or service offered or announced by AT&T (including its subsidiaries); provided, that a third party will not be deemed an AT&T Competitor unless AT&T (including its subsidiaries) and such third party each have aggregate actual or forecasted annual revenues from substantially competitive products and services exceeding $250 MILLION for at least one year of the Purchasing Period. (b) If AT&T or a controlled United States subsidiary purchases any information technology product or service from a third party ("Alternative IT Supplier") because the available Eligible Products do not meet its needs (as defined in this Section 7(b)), the amount of the Commitment shall be reduced by the amount of each such purchase from the Alternative IT Supplier. For purposes of this Section 7(b), failure to meet the needs of AT&T or such controlled United States subsidiary means circumstances substantially similar to the following: (i) NCR has discontinued an Eligible Product and has not replaced it with a comparable, technologically compatible Eligible Product that delivers equal or better performance, features, and value. (ii) NCR is unable or unwilling to provide the delivery interval or response time reasonably required by AT&T or such affected subsidiary for an Eligible Product, or imposes unreasonable charges to do so. (iii) Multiple units of an Eligible Product do not meet industry standards or the reasonable requirements of AT&T or such affected subsidiary for quality, performance, or reliability. (iv) A substantial number of units of an Eligible Product have had an excessive failure rate, or have performed below NCR's specifications. (c) If AT&T or a controlled United States subsidiary purchases any Information Technology product or service from an Alternative IT Supplier because NCR has unreasonably refused to modify, extend, or adapt an Eligible Product to offer functionality, features, performance, or interoperability required by AT&T or such affected subsidiary, the Commitment may be reduced by a mutually agreed amount (or absent such agreement, by an amount determined pursuant to Article V DISPUTE RESOLUTION of the General Agreement, not to exceed the amount of each such purchase from the Alternative IT Supplier). For purposes of this Section 7(c), the extent to which NCR's refusal was reasonable will be evaluated by considering such factors as (i) whether NCR possessed the requisite know-how (and, if applicable, the production capability) to accommodate AT&T's or such affected subsidiary's request, (ii) whether the new Eligible Product could have been marketed to other customers in markets that NCR is addressing now and new markets it may address in the future, (iii) whether AT&T or such affected subsidiary has offered to pay a reasonable price for the new Eligible Product, taking into account NCR's anticipated costs and the potential for sales to other customers, and (iv) whether the development requested by AT&T or such affected subsidiary is necessary to sustain the utility, functionality, and value of other Eligible Products purchased by AT&T or such affected subsidiary. (d) Subject to the clause in Article VI of the General Agreement entitled SCOPE OF AGREEMENT, if AT&T or a controlled United States subsidiary cancels any order, terminates any service, or receives any refund or credit from NCR due to delays, lateness (except for delays or lateness due to force majeure conditions under the General Agreement), breach of warranty, breach of contract, or nonperformance by NCR, the amount of the Commitment shall be reduced by the amount (included any related purchases) that AT&T or such affected subsidiary would have spent but for such event. (e) AT&T's spending forecast in effect as of January 1, 1997 sets forth AT&T's initial estimate of its aggregate spending for information technology products and services obtained from all sources during the Purchasing Period ("Initial Forecasted Spending"). If, after the date of this Agreement, AT&T adopts a smaller aggregate budget for such information technology spending during the Purchasing Period ("Revised Forecasted Spending"), the Commitment will be proportionately reduced according to the following formula: - -- -- -- -- |Revised Forecasted Spending | |other adjustments| |--------------------------- X $350 million| - | to Commitment | = adjusted |Initial Forecasted Spending | | per Section 7 | Commitment - -- -- -- -- Notwithstanding the foregoing, if AT&T's actual aggregate spending for information technology Products and Services during the Purchasing Period ("Actual Spending") is less than Initial Forecasted Spending but exceeds Revised Forecasted Spending, Actual Spending will be used instead of Revised Forecasted Spending in the above formula; provided, however, that for purposes of the above formula, the ratio of Revised Forecasted Spending (or Actual Spending, if applicable) to Initial Forecasted Spending shall not exceed 1/1, and the adjustment to Commitment described in this Section 7(e) shall not under any circumstances be used to increase the amount of the Commitment. For purposes of this Section 7(e), Revised Forecasted Spending and Actual Spending shall exclude spending by (or on behalf of) any AT&T business organization that was not included in the projection of Initial Forecasted Spending. (f) NCR acknowledges that AT&T's ability to fulfill the Commitment will be impaired if companies engaged in equipment financing or leasing ("Financing Companies") are unwilling to provide financing or leasing for NCR products on terms as favorable as those offered for comparable non-NCR products ("Standard Financing Terms"). Accordingly, the Commitment shall be adjusted in accordance with this Section 7(f) if any of the following events occurs: (i) If any Financing Company selected by a customer of AT&T or its controlled United States subsidiaries (or by its agent, including AT&T's AT&T Solutions business unit) refuses to provide financing or leasing to or for that customer for any Eligible Product on Standard Financing Terms, and if such refusal persists after NCR has had a reasonable opportunity to address the reasons therefor, the Commitment shall be reduced by the dollar amount of the purchases AT&T represents would have been made by or for such customer from NCR (including related purchases) but for such refusal. (ii) If any four Major Financing Companies (as defined in Section 7(f)(iv)) selected by a dealer or distributor or reseller (or by any of their respective agents) or AT&T or its controlled United States subsidiary refuse to provide financing or leasing to such person for any Eligible Product on Standard Financing Terms, and if such refusal persists after NCR has had a reasonable opportunity (not to exceed 90 days) to address the reasons therefor, the Commitment shall be reduced by the dollar amount of the purchases AT&T represents would have been made by or for such dealer, distributor or reseller from NCR (including related purchases) but for such refusal. (iii) If any four Major Financing Companies selected by AT&T (including its controlled United States subsidiaries) refuse to provide financing or leasing to AT&T or such subsidiary for any Eligible Product on Standard Financing Terms, and if such refusal persists after NCR has had a reasonable opportunity (not to exceed 90 days) to address the reasons therefor, AT&T may, at its option, terminate the Commitment at any time by giving written notice to NCR. Upon any such termination, the Commitment shall be extinguished, AT&T's obligation thereunder shall be deemed entirely fulfilled, and the Purchasing Period shall terminate. (iv) As used in this Section 7(f), the term "Major Financing Companies" includes the five Financing Companies having the greatest aggregate dollar volume of current financing or leasing transactions with AT&T (including its controlled United States subsidiaries), plus all other Financing Companies that are among the 20 largest Financing Companies. 8. MONITORING AND REPORTING. (a) At least once each calendar quarter, NCR shall furnish to AT&T a written report of Commitment fulfilled by AT&T's direct purchases from NCR during the preceding quarter. Each such report shall include a breakdown of Eligible Products purchased, by product and service category, and shall summarize the cumulative status of Commitment fulfillment. (b) At least once each calendar quarter, AT&T shall furnish to NCR a written report of Eligible Products purchased by AT&T from NCR VARs and ISVs both domestic and international during the preceding quarter. AT&T's report shall also identify any adjustments to Commitment claimed by AT&T pursuant to Section 7 as a result of events that became known to AT&T in that preceding quarter. (c) Within 90 days after the end of each calendar year of the Purchasing Period, NCR and AT&T shall enter into a written agreement documenting the amount of Commitment fulfilled achieved during that year and the remaining balance of unfulfilled Commitment. If the parties are unable to reach agreement during the 90-day interval, either party may initiate alternative dispute resolution pursuant to Article V of the General Agreement. (d) Each party shall afford the other party such documentation and limited audit rights as may be reasonably necessary to enable verification of the information reported pursuant to this Section 8. 9. NONFULFILLMENT OF COMMITMENT. (a) If AT&T has failed to fulfill its Commitment by December 31, 1999, and elects to extend the Purchasing Period until December 31, 2000 pursuant to Section 2(b), the remaining unfulfilled balance of the Commitment as of January 1, 2000 shall be increased by 5 percent, according to the following formulas: | adjustments to | | Commitment | | Commitment | |unfulfilled | $350 million - | per Section 7 | - | fulfillment | = | Commitment | |through 12/31/99 | |through 12/31/99| |as of 1/1/00| | unfulfilled | | Commitment | X 1.05 = Year 2000 Increased Commitment | as of 1/1/00 | (b) If AT&T has failed to fulfill its Increased Commitment by December 31, 2000 and elects to extend the Purchasing Period until December 31, 2001 pursuant to Section 2(b), the remaining unfulfilled balance of the Increased Commitment as of January 1, 2001 shall be increased by 10 percent, according to the following formulas: | adjustments to | | Year 2000 | Year 2000 | Commitment | | Year 2000 | | unfulfilled | Commitment - | per Section 7 | - | Commitment | = | Commitment | | from 1/01/00 | | fulfillment | | as of 1/1/01| |through 12/31/00| |through 12/31/00| |unfulfilled | | Commitment | X 1.10 = Year 2001 Increased Commitment |as of 1/1/01| (c) At the conclusion of the Purchasing Period (as extended, should AT&T so elect pursuant to Section 2(b)), if AT&T has not fully discharged the Commitment, NCR shall, in January 2000 (or in January 2001 or 2002, if the Purchasing Period has been extended), bill AT&T a carrying charge equal to the shortfall at December 31, 1999, 2000 or 2001, as applicable, multiplied by the prime rate plus two percent (2%). Thereafter, NCR shall, each month, bill AT&T a carrying charge equal to the shortfall, if any, at the end of the preceding month, multiplied by 1/12 multiplied by the prime plus two percent (2%). (d) In the event AT&T meets or exceeds the Commitment as defined in Section 2(a), NCR agrees to extend the prices described in this Agreement and make them available to the AT&T Entities until December 31, 2000. (e) NCR EXPRESSLY AGREES THAT THE REMEDY DESCRIBED IN SECTION 9(c) SHALL BE NCR's SOLE AND EXCLUSIVE REMEDY FOR AT&T's FAILURE TO FULFILL THE COMMITMENT. NCR HEREBY WAIVES ANY OTHER REMEDIES THAT ARE OR MAY BECOME AVAILABLE, AND NCR HEREBY RELEASES AT&T (AND ASSOCIATED ENTITIES, AND THEIR RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES, AND AGENTS) FROM ANY AND ALL CLAIMS IN EXCESS OF SUCH REMEDY, FOR AT&T's FAILURE TO FULFILL THE COMMITMENT. (f) UNDER NO CIRCUMSTANCES SHALL EITHER PARTY (OR A PARTY's AFFILIATES, OR THEIR RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES, OR AGENTS) BE HEREUNDER LIABLE TO THE OTHER PARTY FOR ANY INDIRECT, INCIDENTAL, CONSEQUENTIAL, OR PUNITIVE DAMAGES (EVEN IF MADE AWARE OF THE POSSIBILITY OF SUCH DAMAGES), OR FOR LOSS OF PROFITS OR REVENUE. (g) THE LIMITATIONS OF REMEDIES AND LIABILITIES SET FORTH IN SECTIONS 9(e) THROUGH 9(f) SHALL APPLY REGARDLESS OF THE FORM OF ACTION, WHETHER IN CONTRACT, TORT (INCLUDING NEGLIGENCE, WHETHER ACTIVE OR PASSIVE), OR OTHERWISE, AND SHALL SURVIVE THE EXPIRATION OR TERMINATION OF THIS AGREEMENT. 10. TERMS AND CONDITIONS GOVERNING PURCHASES. Contemporaneously with the execution of this Agreement, AT&T and NCR are entering into a General Procedures Agreement (hereinabove and below referred to as the "General Agreement"), to establish terms and conditions governing AT&T's purchases of products and services from NCR. In the event of any conflict between the terms and conditions of this Agreement and those in the General Agreement, the terms and conditions of this Agreement shall prevail and control. 11. COUNTERPARTS; ENTIRE AGREEMENT; CORPORATE POWER. (a) This 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, including the documents incorporated by reference herein, together with the General Agreement, contains the entire agreement between the parties with respect to the subject matter hereof, and supersedes all previous agreements, negotiations, discussions, writings, understandings, commitments, and conversations with respect to such subject matter. (c) AT&T represents on behalf of itself and each of its subsidiaries, and NCR represents on behalf of itself and each of its subsidiaries, 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 this Agreement and to consummate the transactions contemplated hereby; and (ii) this Agreement has been duly executed and delivered by it and constitutes a valid and binding agreement of it enforceable in accordance with the terms thereof. 12. SUCCESSOR COMPANIES. The parties recognize that the ownership and organization of their respective companies may change during the term of this Agreement. Accordingly, the parties agree as follows: (a) If a third party (including without limitation any present or future NCR parent or affiliate) succeeds to any substantial portion of the business of NCR with respect to any Eligible Product ("NCR Successor Company"), NCR shall use reasonable efforts to continue making such Eligible Product available to AT&T under this Agreement and the General Agreement. These efforts may include, at NCR's option, arranging for NCR to resell the Eligible Product to AT&T. Alternatively, NCR may obtain the NCR Successor Company's agreement to join in the terms and conditions of this Agreement and of the General Agreement, in which event the parties shall promptly amend the definitions of NCR in this Agreement and in the General Agreement to include the NCR Successor Company. If NCR is unable or unwilling to continue making the Eligible Product available to AT&T under this Agreement and the General Agreement, NCR shall be deemed to have failed to meet AT&T's needs for the Eligible Product, and any resulting AT&T purchases from Alternative IT Suppliers shall reduce the Commitment in accordance with Section 7(b). (b) If AT&T notifies NCR that any third party has succeeded or will succeed to any substantial portion of the business of AT&T ("AT&T Successor Company"), the parties shall take the following steps: (i) If the AT&T Successor Company directly or indirectly controls AT&T, or if the AT&T Successor Company and AT&T are under substantial common control, and if the AT&T Successor Company's spending for Information Technology products and services is included in the aggregate AT&T budget for information technology spending described in Section 7(e), the parties (subject to the concurrence of the AT&T Successor Company) will amend the definitions of AT&T in this Agreement and in the General Agreement to include the AT&T Successor Company. Such amendments will enable the AT&T Successor Company to purchase from NCR under the prices, terms, and conditions of this Agreement and of the General Agreement, and all such purchases by the AT&T Successor Company will be deemed purchases by AT&T for purposes of Commitment fulfillment. (ii) If the AT&T Successor Company is an affiliate of AT&T but does not control and is not under common control with AT&T, or if the AT&T Successor Company's spending for information technology products and services is not included in the aggregate AT&T budget for information technology spending described in Section 7(e), NCR and AT&T (in consultation with the AT&T Successor Company) will mutually determine whether to amend this Agreement and the General Agreement in the manner described in Section 12(b)(i). If NCR and AT&T fail to agree upon such amendments within 60 days after AT&T's notice, AT&T may, at its option, reduce the Commitment pursuant to Section 7(e) by excluding all future purchases by the AT&T Successor Company from AT&T's Revised Forecasted Spending and AT&T's Actual Spending. (iii) If the AT&T Successor Company is neither a parent nor an affiliate of AT&T, AT&T may, at its option, reduce the Commitment pursuant to Section 7(e) by excluding all future purchases by the AT&T Successor Company from AT&T's Revised Forecasted Spending and AT&T's Actual Spending. (iv) If AT&T elects to reduce the Commitment as permitted by Sections 12(b)(ii) or (iii), NCR will have no obligation to make the pricing described in this Agreement available to the AT&T Successor Company, and future purchases by the AT&T Successor Company will not count toward Commitment fulfillment. 13. MISCELLANEOUS. The provisions of Article 8 of the Distribution Agreement are specifically incorporated herein by reference. AT&T Corp. NCR Corporation By: By: Name: ______________________________ Name: - ------------------------- Title: _____________________________ Title: - ------------------------ Date: ______________________________ Date: - ------------------------- EX-10 10 EXHIBIT (10)(III)(A)4 AT&T SENIOR MANAGEMENT LONG TERM DISABILITY AND SURVIVOR PROTECTION PLAN As Amended and Restated effective January 1, 1995 AT&T SENIOR MANAGEMENT LONG TERM DISABILITY AND SURVIVOR PROTECTION PLAN Table of Contents ARTICLE 1 DEFINITIONS.........................................................4 ARTICLE 2 DISABILITY ALLOWANCE................................................7 ARTICLE 3 MINIMUM RETIREMENT BENEFIT.........................................11 ARTICLE 4 SURVIVING SPOUSE BENEFIT...........................................12 ARTICLE 5 DEATH BENEFITS.....................................................13 ARTICLE 6 SOURCE OF PAYMENT..................................................14 6.01. SOURCE OF PAYMENTS......................................................14 6.02. UNFUNDED STATUS.........................................................14 ARTICLE 7 ADMINISTRATION OF THE PLAN.........................................16 7.01. ADMINISTRATION AND AUTHORITIES..........................................16 7.02. COMMITTEE...............................................................16 7.03. INDEMNIFICATION.........................................................16 7.04. BENEFIT CLAIMS AND APPEALS..............................................16 ARTICLE 8 ADOPTION, AMENDMENT AND TERMINATION................................18 8.01. ADOPTION OF PLAN........................................................18 8.02. AMENDMENT AND TERMINATION...............................................18 8.03. SALE, SPIN-OFF, OR OTHER DISPOSITION OF PARTICIPATING COMPANY...........20 ARTICLE 9 GENERAL PROVISIONS.................................................21 9.01. EFFECTIVE DATE..........................................................21 9.02. ASSIGNMENT OF BENEFITS..................................................21 9.03. CLAIMS RELEASE..........................................................21 9.04. DAMAGE CLAIMS OR SUITS..................................................21 9.05. JUDGMENT OR SETTLEMENT..................................................22 9.06. FORFEITURE OF BENEFITS..................................................22 9.07. PAYMENT UNDER LAW.......................................................22 9.08. GOVERNING LAW...........................................................22 9.09. SEVERABILITY............................................................22 9.10. FACILITY OF PAYMENT.....................................................23 9.11. HEADINGS................................................................23 9.12. TAX WITHHOLDING.........................................................23 9.13. FIDUCIARY RELATIONSHIP..................................................23 9.14. NO GUARANTEE OF EMPLOYMENT..............................................23 9.15. PLAN YEAR...............................................................24 9.16. ENTIRE PLAN.............................................................24 APPENDIX A PRIOR PLAN PROVISIONS..............................................25 ARTICLE 1 DEFINITIONS For the purpose of the Plan, the following terms shall have the meanings set forth in thisArticle 1. 1.01. "Administrator" shall mean the person identified as the Pension Plan Administrator under the Pension Plan or such other person or entity designated by the Company. 1.02. "Affiliated Corporation" shall mean any corporation or other entity of which 50 percent or more of the voting stock is owned directly or indirectly by AT&T. 1.03. "AT&T" or "Company" shall mean AT&T Corp. (formerly American Telephone and Telegraph Company), a New York Corporation, or its successors. 1.04. "Annual Basic Pay" shall mean the Participant's annual base salary rate on the last day the Participant was on the active payroll plus, with respect to a Participant whose last day on the active payroll occurred after April 15, 1991, an amount determined with reference to the Short Term Plan, but excluding all differentials regarded as temporary or extra payments and all awards and distributions made under the Long Term Plan. For purposes of determining the Disability Allowance under Article 2, the amount determined with reference to the Short Term Plan shall be the last Short Term Award granted to the Participant prior to the last day the Participant was on the active payroll. For purposes of determining the Minimum Retirement Benefit under Article 3 and the Surviving Spouse Benefit under Article 4, the amount determined with reference to the Short Term Plan shall be the greater of (1) the Short Term Award for the last full calendar year of service prior to the earlier of the Participant's retirement, termination or death, or (2) the Short Term Award granted with respect to any later partial calendar year of service. 1.05. "Board" shall mean the Board of Directors of AT&T Corp. 1.06. "Committee" shall mean the Employees' Benefit Committee appointed by the Company to administer the Pension Plan. 1.07. "Disability Benefit Plan" shall mean a Participating Company's Sickness and Accident Disability Benefit Plan. 1.08. "Insured Annuitant's Plan" shall mean the AT&T Senior Management Post-Retirement Insured Annuitant's Benefit Plan established as part of the AT&T Senior Management Individual Life Insurance Program. 1.09. "Long Term Plan" shall mean the AT&T Senior Management Long Term Incentive Program or predecessor long term incentive plans. 1.10. (a) "Participant" for purposes of the Disability Allowance under Article 2, shall mean an employee of a Participating Company holding a position evaluated or classified as above "E-band" or equivalent, except that no employee who has been notified in writing that the assignment to such position will be temporary shall be considered as a Participant for any purpose under this Plan. (b) "Participant" for purposes of the Minimum Retirement Benefit under Article 3, shall mean an employee described in Section 1.10 (a) above, or a former employee of a Participating Company who was a Participant under Section 1.10 (a) on the last day of employment, if such former employee is retired on a service pension under the Pension Plan. (c) "Participant" for purposes of the Surviving Spouse Benefit under Article 4, shall mean an employee described in Section 1.10 (a) above, or a former employee of a Participating Company who was a Participant under Section 1.10 (a) on the last day of employment, if such former employee (1) is eligible to receive a Disability Allowance under Article 2, or (2) is eligible to receive a Minimum Retirement Benefit under Article 3. (d) "Participant" for purposes of the Death Benefit under Article 5, shall mean a former employee of a Participating Company who was a Participant under Section 1.10 (a) above on the last day of employment, if such former employee is eligible to receive a Disability Allowance under Article 2, or is eligible to receive a Minimum Retirement Benefit under Article 3. (e) For purposes of Sections 1.10 (b), 1.10 (c), and 1.10 (d) above, a former employee shall be considered to be eligible to receive a Disability Allowance under Article 2 or a Minimum Retirement Benefit under Article 3 if he has met the conditions specified in Article 2 or in Article 3, even though the receipt of other benefits by such former employee precludes his or her receipt of any benefits under Article 2 or under Article 3. 1.11. "Participating Company" shall mean AT&T and any Affiliated Corporation that has elected, with the approval of the Committee as required by Section 8.01, to participate in the Plan. 1.12. "Pension Plan" shall mean the AT&T Management Pension Plan or predecessor pension plans. 1.13. "Plan" shall mean this AT&T Senior Management Long Term Disability and Survivor Protection Plan. 1.14. "Short Term Award" means the actual amount awarded (including any amounts deferred pursuant to the AT&T Senior Management Incentive Award Deferral Plan) annually to a Participant pursuant to the AT&T Short Term Incentive Plan or predecessor short term incentive plans. Short Term Awards shall, for purposes of this Plan, be considered to be awarded on the last day of the performance period with respect to which they are earned. 1.15. "Short Term Plan" shall mean the AT&T Short Term Incentive Plan or predecessor short term incentive plans. 1.16. "Successor Plan Sponsor" shall mean Lucent Technologies Inc. and any other corporation or entity that enters into an agreement or agreements providing for the assumption of liabilities arising under this Plan comparable to the Management Interchange Agreement dated as of April 8, 1996, and the Employee Benefits Agreement dated as of March 29, 1996, between AT&T and Lucent Technologies Inc. 1.17. "Term of Employment" shall have the same meaning as the meaning assigned to such expression in the Pension Plan. 1.18. "Transition Participant" shall mean a Participant or a person eligible to receive a Surviving Spouse Benefit or a Death Benefit as to whom the responsibility and liability for the payment of benefits accrued or payable under this Plan has been assumed by a Successor Plan Sponsor. ARTICLE 2 DISABILITY ALLOWANCE 2.01. (a) A Participant shall be considered to be "disabled" at any time during the first fifty-two week period following the onset of a physical or mental impairment, if such impairment prevents the Participant from meeting the performance requirements of the position held immediately preceding the onset of the physical or mental impairment. (b) A Participant shall be considered to be "disabled" after the first fifty-two week period following the onset of a physical or mental impairment if such impairment prevents the Participant from meeting the performance requirements of (1) the position held immediately preceding the onset of the physical or mental impairment, (2) a similar position, or (3) any appropriate position with the Company or any other Participating Company which the Participant would otherwise be capable of performing by reason of the Participant's background and experience. (c) The Administrator shall make the determination of whether a Participant is disabled within the meaning of paragraph (a) above; the Committee shall make such determination with respect to paragraph (b) above. 2.02. A Participant who is disabled during a period described in Section 2.01(a) shall be eligible to receive a monthly disability allowance equal to 100 percent of the Participant's monthly base salary rate on the last day the Participant was on the active payroll, reduced by any amounts described in Section 2.05(a) which are attributable to the period for which benefits are provided under this Section 2.02. 2.03. A Participant who is disabled during a period described in Section 2.01(b) shall, prior to his or her sixty-fifth birthday, be eligible to receive a monthly disability allowance equal to sixty percent of the Participant's monthly base salary rate on the last day the Participant was on the active payroll, reduced by any amounts described in Section 2.05(b) which are attributable to the period for which benefits are provided under this Section 2.03. 2.04. A Participant who is disabled during a period described in Section 2.01(b) shall commencing with his or her sixty-fifth birthday or the start of the period described in Section 2.01 (b), if later, be eligible to receive a monthly disability allowance equal to the greater of: (i) one and one-quarter percent of the Participant's annual basic pay, as defined in Section 1.04, on the last day the Participant was on the active payroll, or (ii) if the Participant's Term of Employment has been five years or more, ninety percent of the sum of (a) the monthly pension the Participant would have been entitled to receive commencing at age sixty-five under the Pension Plan (as in effect on the last day the Participant was on the active payroll, but ignoring any minimum service requirements for eligibility to a pension), if the period after the last day the Participant was on the active payroll and prior to the Participant's sixty-fifth birthday had been included in the Participant's term of employment as of the end of the applicable averaging period under the Pension Plan, plus (b) the monthly pension the Participant would have been entitled to receive commencing at age 65 under the AT&T Non-Qualified Pension Plan (as in effect on the last day the Participant was on the active payroll, but ignoring any minimum service requirements for eligibility to a pension), if the period after the last day the Participant was on the active payroll and prior to the Participant's sixty-fifth birthday had been included in the Participant's Term of Employment as of the end of the applicable averaging period under the AT&T Non-Qualified Pension Plan, reduced by any amounts described in Section 2.05(c) that are attributable to the period for which benefits are provided under this paragraph. 2.05. (a) The Disability allowance determined for any period under Section 2.02 shall be reduced by the sum of the following benefits received by the Participant which are attributable to the period for which such disability allowance is provided: a service pension, deferred vested pension, or disability pension under the Pension Plan, a pension under the AT&T Excess Benefit and Compensation Plan, a pension under the AT&T Non-Qualified Pension Plan, a pension under the AT&T Mid-Career Pension Plan, an accident disability benefit or sickness disability benefit under the Disability Benefit Plan, any Workers' Compensation Benefit, plus any comparable benefits provided under the plans or programs of any Successor Plan Sponsor and any other benefit payments required by law on account of the Participant's disability. However, no reduction shall be made on account of any pension under the Pension Plan at a rate greater than the rate of such pension on the date the Participant first received such pension after his or her disability, and no reduction shall be made on account of any pension under the AT&T Non-Qualified Pension Plan, the AT&T Excess Benefit and Compensation Plan, or the AT&T Mid-Career Pension Plan at a rate greater than the rate of such pension, including adjustments if any to reflect post-retirement incentive awards to the Participant under the Short Term Plan, as of the first date the Participant was entitled to receive such pension after his or her disability. (b) The disability allowance determined for any period under Section 2.03 shall be reduced by the sum of the following benefits received by the Participant which are attributable to the period for which such disability allowance is provided: a service pension, deferred vested pension or disability pension under the Pension Plan, a pension under the AT&T Excess Benefit and Compensation Plan, a pension under the AT&T Non-Qualified Pension Plan, a pension under the AT&T Mid-Career Pension Plan, an accident disability benefit under the Disability Benefit Plan, any other retirement income payments from the Participant's Participating Company or any Successor Plan Sponsor, any Workers' Compensation Benefit, plus any Social Security Insurance Benefit. However, no reduction shall be made on account of any pension under the Pension Plan at a rate greater than the rate of such pension on the date the Participant first received such pension after his or her disability, and no reduction shall be made on account of any pension under the AT&T Non-Qualified Pension Plan, the AT&T Excess Benefit and Compensation Plan, or under the AT&T Mid-Career Pension Plan at a rate greater than the rate of such pension, including adjustments if any to reflect post-retirement incentive awards to the Participant under the Short Term Plan, as of the first date the Participant was entitled to receive such pension after his or her disability, and no reduction shall be made on account of any Social Security Benefit at a rate greater than the rate which the Participant would have first been eligible to receive after his or her disability and as if no other members of his or her family were eligible for any Social Security Benefit. Furthermore, the Board of Directors of the Company, in its discretion, may reduce the disability allowance by the amount of outside compensation or earnings of the Participant for work performed by the Participant during the period for which such disability allowance is provided. (c) The disability allowance determined for any period under Section 2.04 shall be reduced by the sum of the following benefits received by the Participant which are attributable to the period for which such disability allowance is provided: a service pension, deferred vested pension or disability pension under the Pension Plan, a pension under the AT&T Excess Benefit and Compensation Plan, a pension under the AT&T Non-Qualified Pension Plan, a pension under the AT&T Mid-Career Pension Plan, an accident disability benefit under the Disability Benefit Plan, any other retirement income payments from the Participant's Participating Company or any Successor Plan Sponsor, plus any Workers' Compensation Benefit. However, no reduction shall be made on account of any pension under the Pension Plan at a rate greater than the rate of such pension on the date the Participant first received such pension after his or her disability, and no reduction shall be made on account of any pension under the AT&T Non-Qualified Pension Plan, the AT&T Excess Benefit and Compensation Plan, or under the AT&T Mid-Career Pension Plan at a rate greater than the rate of such pension, including adjustments if any to reflect post-retirement incentive awards to the Participant under the Short Term Plan, as of the first date the Participant was entitled to receive such pension after his or her disability. 2.06. For purposes of Sections 2.01(a) and 2.01(b), the measurement of time following the onset of a physical or mental impairment shall coincide with the measurement of time used to calculate periods of Sickness and Accident Disability Benefits under Sections 4 and 5 of the Disability Benefit Plan. Successive periods of physical or mental impairment shall be counted together in computing the periods during which the Participant shall be entitled to the benefits provided under Sections 2.02 and 2.03, except that any disability absence after the Participant has been continuously engaged in the performance of duty for thirteen weeks shall be considered to commence a new period of physical or mental impairment under Section 2.01 (a), so that such Participant shall be entitled during such new period to the benefits provided under Section 2.02. 2.07. With respect to a Participant not subject to mandatory retirement at age 65 under the Age Discrimination in Employment Act (29 U.S.C. 631), the period of eligibility for the disability allowance provided in Section 2.03 and the period of eligibility for the disability allowance provided in Section 2.04, shall be the period described in Section 2.03, and the period described in Section 2.04, respectively, or such other period as is required under the Age Discrimination in Employment Act or under any applicable governing regulations or interpretations thereunder. ARTICLE 3 MINIMUM RETIREMENT BENEFIT 3.01. A Participant described in Section 1.10(a) whose term of employment has been five years or more and is not disabled, who terminates employment on or after his or her sixty-second birthday, or a Participant described in Section 1.10(b) who is retired on a service pension under the Pension Plan, shall be eligible to receive a monthly minimum retirement benefit equal to one and one-quarter percent of Participant's annual basic pay, as defined in Section 1.04, on the last day the Participant was on the active payroll reduced by the sum of the following benefits received by the Participant which are attributable to the period for which benefits are provided under this Article 3: a service pension or deferred vested pension under the Pension Plan, a pension under the AT&T Excess Benefit and Compensation Plan, a pension under the AT&T Non-Qualified Pension Plan, a pension under the AT&T Mid-Career Pension Plan, and by any other retirement income payments received by the Participant from his or her Participating Company or from a Successor Plan Sponsor. However, no reduction shall be made on account of any pension under the Pension Plan at a rate greater than the rate of such pension on the date the Participant first received such pension after his or her retirement or other termination of employment, and no reduction shall be made on account of any pension under the AT&T Non-Qualified Pension Plan, the AT&T Excess Benefit and Compensation Plan, or under the AT&T Mid-Career Pension Plan at a rate greater than the rate of such pension, including adjustments if any to reflect post-retirement incentive awards to the Participant under the Short Term Plan, as of the first date the Participant was entitled to receive such pension after his or her retirement or other termination of employment. 3.02. If an amendment to the Pension Plan effective on or after January 1, 1988, provides for an increase in the service pensions of previously retired employees, then a Participant's minimum retirement benefit shall be increased pursuant to the same terms and conditions as are set forth in such Pension Plan amendment. ARTICLE 4 SURVIVING SPOUSE BENEFIT 4.01. In the event of the death of a Participant, who is described in Section 1.10(c), the surviving lawful spouse of such Participant shall be eligible to receive a monthly benefit equal to one and one-quarter percent of the Participant's annual basic pay, as defined in Section 1.04, on the last day the Participant was on the active payroll prior to his or her death reduced by the sum of the following benefits received by the Participant's surviving lawful spouse on account of the death of the Participant and which are attributable to the period for which benefits are provided under this Article 4: an annuitant's pension under the Pension Plan, an annuity under the Insured Annuitant's Plan, an annuitant's pension under the AT&T Excess Benefit and Compensation Plan, an annuitant's pension under the AT&T Non-Qualified Pension Plan and any other lifetime payments to such surviving lawful spouse from the Participant's Participating Company or from any Successor Plan Sponsor. However, no reduction shall be made on account of an annuitant's pension under the Pension Plan, or on account of an annuitant's pension under the AT&T Non-Qualified Pension Plan or on account of an annuitant's pension under the AT&T Excess Benefit and Compensation Plan, or on account of any annuity under the Insured Annuitant's Plan at a rate greater than (1) the rate of such pension or annuity on the date such pension or annuity was first payable in the case of the death of a Participant who is on the active payroll or (2) the rate of such pension or annuity on the date such pension or annuity first would have been payable had the Participant died on the day after the last day the Participant was on the active payroll in the case of the death of a Participant who is not on the active payroll. 4.02. Notwithstanding any provision of Section 4.01 to the contrary, the surviving lawful spouse of a Participant shall not be eligible to receive benefits under this Article 4 if, prior to the Participant's death, he could have elected under the Pension Plan or under any predecessor pension plan maintained by a Participating Company to receive a reduced pension for his or her life in order to provide thereafter an annuity for the life of his or her lawful spouse, but he declined to make such an election. 4.03. If an amendment to the Pension Plan effective on or after January 1, 1988, provides for an increase in the survivor annuities payable under said Plan, then the Surviving Spouse Benefit payable under Section 4.01 above shall be increased pursuant to the same terms and conditions as are set forth in such Pension Plan amendment, except that no such increase shall apply to the Surviving Spouse Benefit related to a deceased Participant who had not terminated employment or died prior to the effective date of such amendment. ARTICLE 5 DEATH BENEFITS 5.01. Upon the death of a Participant described in Section 1.10(d) whose last day on the active payroll occurred on or after January 1, 1987, and who has not retired on a service pension or a disability pension under the Pension Plan, a death benefit in the amount of the Participant's annual base salary rate in effect on the last day said Participant was on the active payroll shall be paid to one or more of the beneficiaries listed in Section 5.02 below as determined by the Committee, provided, however, that such death benefit shall be reduced by the sum of any death benefit paid under Section 5 of the Pension Plan on account of the Participant's death. 5.02. The persons who may be the beneficiaries of the death benefit described in Section 5.01 are the Participant's legal spouse if living with him at the time of his or her death, his or her unmarried child or children under age 23 (or over that age if physically or mentally incapable of self-support) who were being supported in whole or in part by the deceased at his or her death, or a dependent parent or parents living with the deceased at the time of his or her death or in a separate household in the vicinity of the deceased and provided by him. 5.03. If the Participant is not survived by any person listed in Section 5.02, a death benefit up to the maximum amount shown in Section 5.01 above may be payable, at the discretion of the Committee, to any other dependent relative receiving or entitled to receive support from the deceased; if no such dependent relative survives the deceased, no death benefit will be payable under this Plan. ARTICLE 6 SOURCE OF PAYMENT 6.01. Source of Payments. AT&T may establish a trust to hold assets to be used to make benefit payments under the terms of this Plan, provided such trust does not cause the Plan to be "funded" within the meaning of ERISA. Funds invested hereunder shall, for purposes of this Plan, be considered to be part of the general assets of the Participating Company which invested the funds, and no Participant, beneficiary or lawful spouse shall have any interest or right in such funds. To the extent trust assets are available, they may be used to pay benefits arising under this Plan and all costs, charges and expenses relating thereto. To the extent that the funds held in the trust are insufficient to pay such benefits, costs, charges and expenses, AT&T or the responsible Participating Company shall pay such benefits, costs, charges and expenses from its general assets. In addition, AT&T may, in its sole discretion, direct that payments required under this Plan to any Participant or surviving lawful spouse be made through the purchase and distribution of one or more nontransferable annuity contracts or cause the trustee of the trust to purchase and distribute such annuity contracts. Any such purchase and distribution of an annuity contract shall be a full and complete discharge of the Plan's, AT&T's and the Participating Companies' liability for payments assumed by the issuer of the annuity contract. Further, the Senior Vice President, Human Resources, may determine, in his or her sole discretion, to pay additional sums to any Senior Manager, from the Company's general assets or from the trust, if any, to reimburse the Senior Manager for additional federal and state income taxes estimated to be incurred by reason of the distribution of any such annuity contracts. The Senior Vice President, Human Resources shall establish a methodology or methodologies for determining the amount of such additional sums. The methodology or methodologies selected shall be those that the Senior Vice President, Human Resources determines, in his or her sole discretion, to be the most effective and administratively feasible for the purpose of producing after tax periodic benefit payments that approximate the after tax periodic benefit payments that would have been received by Participants in the absence of the distribution of the annuity contract. 6.02. Unfunded Status. The Plan at all times shall be entirely unfunded for purposes of the Internal Revenue Code of 1986, and ERISA, and, except as provided in Section 6.01, no provision shall at any time be made with respect to segregating any assets of a Participating Company for payment of any benefits hereunder. Funds invested hereunder shall continue for all purposes to be part of the general assets of the Participating Company which invested the funds. The Plan constitutes a mere promise by the Participating Company to make payments, if any, in the future. No Participant, spouse, beneficiary or any other person shall have any interest in any particular assets of a Participating Company by reason of the right to receive a benefit under the Plan and to the extent the Participant, surviving lawful spouse, beneficiary or any other person acquires a right to receive benefits under this Plan, such right shall be no greater than the right of any unsecured general creditor of a Participating Company. ARTICLE 7 ADMINISTRATION OF THE PLAN 7.01. Administration and Authorities. The Plan shall be administered by the Company and it shall have full discretionary authority to manage and control the operation and administration of the Plan, including the power to interpret provisions of the Plan, make determinations of fact, promulgate rules and regulations, determine benefit eligibility of individual and classes of Participants, delegate its powers and duties hereunder to the Committee, the Administrator or others and take such other action as it shall find necessary and appropriate to implement the provisions of the Plan. The Committee and the Administrator may retain attorneys, consultants, accountants or other persons (who may be employees of the Company or an Affiliated Corporation) to render advice and assistance and may delegate any of the authorities conferred on it to such persons as it shall determine to be appropriate to effect the discharge of its duties hereunder. The Company, the Affiliated Corporations and any of their officers and employees shall be entitled to rely upon the advice, opinions, and determinations of any such persons. Any exercise of the authorities set forth in this Section, whether by the Company, the Committee or its Delegate, or the Administrator, shall be final and binding upon the Company, its Affiliated Corporations, their officers, directors and affected Participants and beneficiaries. 7.02. Committee. The Company has delegated to the Committee authority to make the final determination to grant or deny claims for benefits under the Plan with respect to Participants and to authorize disbursements according to the terms of the Plan. 7.03. Indemnification. No member of the Board or the Committee or the Administrator shall be personally liable by reason of any contract or other instrument executed by such individual on his or her behalf or in his or her capacity as a member of the Board, Committee or the Administrator nor for any mistake of judgment made in good faith, and AT&T shall indemnify and hold harmless each member of the Board, each member of the Committee, the Administrator and each other employee, officer, or director of AT&T or any Participating Company to whom any duty or power relating to the administration or interpretation of the Plan may be allocated or delegated, against any cost or expense (including attorneys' fees) or liability (including any sum paid in settlement of a claim) arising out of any act or omission to act in connection with the Plan unless arising out of such person's own fraud or bad faith. 7.04. Benefit Claims and Appeals. (a) Benefit Claims. All claims for benefit payments under the Plan shall be submitted in writing by Participants to the person designated by the Company to make determinations as to eligibility for benefits under the Plan and such person shall notify the Participant in writing within 90 days after receipt as to whether the claim has been granted or denied. This period may be extended for up to an additional 90 days in unusual cases provided that written notice of the extension is furnished to the claimant prior to the commencement of the extension. In the event the claim is denied, such notice shall (i) set forth the specific reason or reasons for denial, (ii) make reference to the pertinent Plan provisions on which the denial is based, (iii) describe any additional material or information necessary before the Participant's request may be acted upon favorably, and (iv) explain the procedure for appealing the adverse determination. (b) Benefit Appeals. A Participant whose claim for benefits has been denied may, within 60 days of receipt of any adverse benefit determination, appeal such denial to the Committee. All appeals shall be in the form of a written statement and shall (i) set forth all of the reasons in support of favorable action on the appeal, (ii) identify those provisions of the Plan upon which the claimant is relying, and (iii) include copies of any other documents or materials which may support favorable consideration of the claim. The Committee shall decide the issues presented within 60 days after receipt of such request, but this period may be extended for up to an additional 60 days in unusual cases provided that written notice of the extension is furnished to the claimant prior to the commencement of the extension. The decision of the Committee shall be set forth in writing, include specific reasons for the decision, refer to pertinent Plan provisions on which the decision is based, and shall be final and binding on all persons affected thereby. ARTICLE 8 Adoption, Amendment and Termination 8.01. Adoption of Plan. Any Affiliated Corporation that participates in the Pension Plan may, with the consent of the Committee, elect to participate in the Plan. Such Affiliated Corporation shall become a Participating Company as of the date specified by the Committee in its resolution approving the participation of the Affiliated Corporation in the Plan. 8.02. Amendment and Termination. AT&T is the Sponsor of the Plan and the Board or its delegate, may from time to time amend, modify or change the Plan as set forth in this document, and the Board or its delegate (acting pursuant to the Board's delegations of authority then in effect) may terminate the Plan at any time. Plan amendments may include, but are not limited to, elimination or reduction in the level or type of benefits provided to any class or classes or Participants, surviving lawful spouses and beneficiaries). Any and all Plan amendments may be made without the consent of any employee, Participant, spouse or beneficiary. Notwithstanding the foregoing, the exercise of the power to amend, modify or terminate the Plan shall be subject to the limitations described in paragraphs (a) and (b) below. (a) Such amendment, modification or termination shall not affect the rights of any Participant or surviving lawful spouse, without his or her consent, to any benefit under the Plan to which such Participant or surviving lawful spouse may have previously become entitled as a result of disability, death or termination of employment which occurred prior to the later of the adoption date or the effective date of such amendment or termination. (b) Such amendment, modification or termination shall not affect the rights of any Participant or his or her surviving lawful spouse, without his or her consent, to any future benefits payable under Article 3 or Article 4, provided that, prior to the later of the adoption date or the effective date of such amendments or termination, such participant either (i) had satisfied the requirements for eligibility for the benefits described in Article 3, other than the termination of employment requirement, or (ii) had begun to receive a disability allowance under Article 2. For purpose of determining a spouse's benefit, it shall be assumed that a Participant who is receiving a disability allowance as of the later of the adoption date or effective date of such amendment will continue to receive said allowance until his or her death. The annual basic pay used to compute such future benefits under Article 3 or Article 4 shall be the Participant's highest annual basic pay as described in Section 1.04 on any day during the term of his or her employment completed prior to the later of the adoption date or the effective date of such amendments or termination as if the Participant had terminated employment on that day. 8.03. Sale, Spin-Off, or Other Disposition of Participating Company. (a) Subject to Section 8.02 of this Plan, in the event AT&T sells, spins off, or otherwise disposes of an Affiliated Corporation, or disposes of all or substantially all of the assets of an Affiliated Corporation such that one or more Participants terminate employment for the purposes of accepting employment with the purchaser of such stock or assets, any person employed by such Affiliated Corporation who ceases to be an employee of the Company or an Affiliated Corporation as a result of the sale, spin-off, or disposition shall be deemed to have terminated his or her employment with a Participating Company for all relevant purposes under this Plan. (b) Notwithstanding the foregoing provisions of this Section 8.03, and subject to Section 8.02 of this Plan, if the sale, spin-off, or other disposition of the stock or assets of an Affiliated Corporation is to a Successor Plan Sponsor with the effect that a Participant is or becomes a Transition Participant, the Successor Plan Sponsor shall be solely liable for the payment of the pension and death benefits described in this Plan, and the entitlement of the Transition Participant or his or her surviving lawful spouse or beneficiary to benefits under this Plan shall terminate. A Transition Participant shall not be considered to have terminated his or her employment with AT&T or a Participating Company for any purpose under this Plan. ARTICLE 9 GENERAL PROVISIONS 9.01. Effective Date. This Plan was first adopted with effect on March 17, 1976 and is amended and restated effective January 1, 1995. The amendments set forth herein shall be effective with respect to Participants who first become eligible for benefits under this Plan on or after January 1, 1995. 9.02. Assignment of Benefits. The benefits payable hereunder or the right to receive future benefits under the Plan may not be anticipated, alienated, sold, transferred, assigned, pledged, executed upon, encumbered, or subjected to any charge or legal process; no interest or right to receive a benefit may be taken, either voluntarily or involuntarily, for the satisfaction of the debts of, or other obligations or claims against, such person or entity, including without limitation, any judgment or claim for alimony, support or separate maintenance pursuant to a domestic relations order within the meaning of Section 206(d)(3) of ERISA and claims in bankruptcy proceedings. Any such attempted disposition shall be null and void. 9.03. Claims Release. In case of accident resulting in injury to or death of a Participant which entitles the Participant or his or her surviving lawful spouse to benefits under the Plan, the Participant or his or her surviving lawful spouse may elect to accept such benefits or to prosecute such claims at law as the Participant or the surviving lawful spouse may have against one or more Participating Companies. If an election is made to accept the benefits under the Plan, such election shall be in writing and shall release such Participating Company or such Participating Companies from all claims and demands that the Participant or his or her surviving lawful spouse may have against it, or against them, otherwise than under this Plan or under any other plan maintained by a Participating Company, on account of such accident. The right of the Participant to a disability allowance under Article 2 of the Plan shall lapse if election to accept such benefits, as above provided, is not made within sixty days after injury, or within such greater time as the Company shall fix for the making of such election. 9.04. Damage Claims or Suits. Should a claim other than under this Plan or under any other plan maintained by a Participating Company be presented or suit brought against a Participating Company, for damages on account of injury or death of a Participant, nothing shall be payable under this Plan on account of such injury or death except as provided in Section 9.05, provided, however, that the Company may, in its discretion and upon such terms as it may prescribe waive this provision if such claims be withdrawn or if such suit be discontinued. 9.05. Judgment or Settlement. In case any judgment is recovered against a Participating Company or any settlement is made of any claim or suit on account of the injury or death of a Participant, and the total amount which would otherwise have been payable under the Plan and under any other plan maintained by the Participating Company is greater than the amount paid on account of such judgment or settlement, the lesser of (a) the difference between such two amounts or (b) the amount which would otherwise have been payable under this Plan, may in the discretion of the Company, be distributed to the beneficiaries who would have received benefits under this Plan. 9.06. Forfeiture of Benefits. All Benefits to which a Participant and his or her lawful spouse would be otherwise eligible hereunder may be forfeited, at the discretion of the Board or of the Committee, if an individual without the Company's consent establishes a relationship with a competitor of the Company or engages in any activity in conflict with or adverse to the interests of the Company under the standards of the AT&T Non-Competition Guideline and as determined by the Board or the Committee in its sole discretion. 9.07. Payment under Law. In the case of any benefit, which the Committee shall determine to be of the same general character as a payment provided by the Plan, shall be payable to any participant, to his or her beneficiaries, his or her estate or his or her annuitant under any law now in force or hereafter enacted, only the excess, if any, of the amount prescribed in the Plan above the amount of such payment prescribed by law shall be payable under the Plan; provided, however, that no benefit payable under the Plan shall be reduced by reason of any governmental benefit or pension payable on account of military service or by reason of any benefit which the recipient would be entitled to receive under the Social Security Act or Railroad Retirement Act. In those cases where, because of differences in the beneficiaries or in the time or methods of payment or otherwise, the determination of any such excess is not ascertainable by mere comparison but adjustments are necessary, the Committee or the Administrator, as applicable, shall, in its discretion, determine whether or not in fact any such excess exists and make the adjustments necessary to carry out in a fair and equitable manner the spirit of the provision for the payment of any such excess. 9.08. Governing Law. To the extent such laws are not preempted by the laws of the United States of America, the Plan shall be governed by the laws of the State of New Jersey, except as to its principles of conflict of laws. 9.09. Severability. If any section, clause, phrase, provision or portion of this Plan or the application thereof to any person or circumstance shall be invalid or unenforceable under any applicable law, such event shall not affect or render invalid or unenforceable the remainder of this Plan and shall not affect the application of any section, clause, provision, or portion hereof to other persons or circumstances. 9.10. Facility of Payment. If the Administrator shall find that any person to whom any amount is or was payable under the Plan is unable to care for his or her affairs because of illness or accident, then any payment, or any part thereof, due to such person (unless a prior claim therefor has been made by a duly appointed legal representative), may, if the Administrator so directs AT&T, be paid to the same person or institution that benefit with respect to such person is paid or to be paid under the Pension Plan if applicable, or the Participant's lawful spouse, a child, a relative, an institution maintaining or having custody of such person, or any other person deemed by the Administrator to be a proper recipient on behalf of such person otherwise entitled to payment. Any such payment shall be in complete discharge of the liability of AT&T, the Board, the Committee, the Administrator, and the Participating Company therefor. If any payment to which a Participant or beneficiary is entitled under this Plan is unclaimed or otherwise not subject to payment to the person or persons so entitled, such amounts representing such payment or payments shall be forfeited after a period of two years from the date the first such payment was payable and shall not escheat to any state or revert to any party; provided, however, that any such payment or payments shall be restored if any person otherwise entitled to such payment or payments makes a valid claim. 9.11. Headings. The captions of the preceding the sections and articles hereof have been inserted solely as a matter of convenience and shall not in any manner define or limit the scope or intent of any provision of the Plan. 9.12. Tax Withholding. AT&T shall withhold all federal, state, local or other taxes required by law to be withheld from payments or accruals under the Plan. 9.13. Fiduciary Relationship. Nothing contained in the Plan, and no action taken pursuant to the provisions of the Plan, shall create or be construed to create a trust or contract of any kind, or a fiduciary relationship between or among AT&T, any other Participating Company, any Affiliated Corporation, the Board, the Administrator, the Committee, any Participant, employee, any surviving lawful spouse or any other person. 9.14. No Guarantee of Employment. Neither the Plan nor any action taken hereunder shall be construed as (i) a contract of employment or deemed to give any employee the right to be retained in the employment of a Participating Company, the right to any level of compensation, or the right to future participation in the Plan; or (ii) affecting the right of the Participating Company to discharge or dismiss any employee at any time. 9.15. Plan Year. For purposes of administering the Plan, the plan year shall begin on January 1 and end on December 31. 9.16. Entire Plan. This written Plan document is the final and exclusive statement of the terms of this Plan, and any claim of right or entitlement under the Plan shall be determined in accordance with its provisions pursuant to the procedures described in Article 7. Unless otherwise authorized by the Board or its delegate, no amendment or modification to this Plan shall be effective until reduced to writing and adopted pursuant to Section 8.02. Appendix A Prior Plan Provisions Section 1. Definition of Annual Basic Pay For retirements occurring after August 10, 1980, and before April 15, 1991, the following was the applicable definition of "Annual Basic Pay": "Annual Basic Pay" shall mean the Participant's annual base salary rate on the last day the Participant was on the active payroll plus, with respect to a Participant whose last day on the active payroll occurred after August 9, 1980, an amount determined with reference to the Short Term Plan, but excluding all differentials regarded as temporary or extra payments and all cash payments and distributions made under the Long Term Plan. The amount determined with reference to the Short Term Plan shall be the lesser of the Participant's standard Short Term Award in effect on the last day the Participant was on the active payroll or the Participant's position rate on the last day the participant was on the active payroll multiplied by the applicable percentage determined as follows: Last Day on Active Payroll % of Position Rate --------------------------- - ------------------ August 10, 1980 through October 30, 1981 15% October 31, 1981 through September 29, 1983 50% On or after September 30, 1983 60% EX-10 11 EXHIBIT (10)(III)(A)7 THE AT&T DIRECTORS INDIVIDUAL LIFE INSURANCE PROGRAM January 1, 1987 Revised 12/1/95 TABLE OF CONTENTS PAGE PROGRAM OVERVIEW...............................................................1 ELIGIBILITY....................................................................1 COVERAGE.......................................................................1 INSURABILITY...................................................................1 PREMIUM SHARING/BENEFIT SHARING................................................2 PREMIUM PERIOD.................................................................2 PREMIUM AMOUNT.................................................................3 PREMIUM WAIVERS................................................................3 OWNERSHIP......................................................................3 CASH VALUE.....................................................................3 CASH AVAILABILITY..............................................................3 EARLY RETIREMENT...............................................................3 CONTRACTUAL AGREEMENT..........................................................3 TAXES..........................................................................4 ENROLLMENT.....................................................................4 Enrollment Package Program Overview The Directors Individual Life Insurance Program (DILIP) is an arrangement where the Company and you purchase a permanent life insurance policy on your life and share the premium payment. If you die while AT&T is still a party to the policy, typically before you reach age 70, the death benefit is also shared between the Company and your designated beneficiary. This type of arrangement this known in the insurance industry as "Split Dollar." After attaining age 70 or if later, 10 years (in some cases it may be longer to avoid violation of the Internal Revenue Service Regulations Section 7702 guidelines) from the date of issuance of this policy, the Company will recoup its premium payments from the cash value build-up in the policy and cease to have any interest in the policy. The remaining cash value will be sufficient to give you a "paid-up" death benefit after attaining normal retirement age, i.e., all premiums will cease and the death benefit of the policy will be secured for the designated beneficiary with no further cost to you. At the time of enrollment your death benefit will be $100,000. Your death benefit will increase annually at 7%. The premium cost to you will also increase to reflect your increasing age as well as the increased death benefit. The Company will pay a significant portion of the premium (see the attached illustration). Over time, the Company portion of the premium will decrease. Although this arrangement is primarily designed to pay a benefit upon your death, there is also a cash value build-up occurring coincident with the premium payments that continues after the premium payments cease. Once sufficient funds have accumulated and the Company no longer has an interest in the policy, because it has recouped its premiums, you have the option to use some or all of the remaining cash in lieu of some or all of the death benefit. Eligibility DILIP is for non-employee members of the AT&T Board of Directors. Coverage The death benefit will automatically increase 7% on January 1 of each year. Insurability If you enroll within 60 days of becoming a Board Member, you are guaranteed to be insured. If you choose to delay enrollment, proof of insurability may be required at that time before a policy can be written or coverage increased. If you are on disability at the time of eligibility, enrollment must be delayed until you return to work. Premium Sharing/Benefit Sharing DILIP has its origin in what the insurance industry calls a "Split Dollar" program. The term "Split Dollar" insurance comes from a concept of the Employer and the Employee sharing the premium payment on a life insurance policy on the employee. At age 70 or if later, 10 years (in some cases it may be longer to avoid violation of the Internal Revenue Service Regulations Section 7702 guidelines) from the date of issuance of the policy, the Company's aggregate premiums are returned from a "special" cash value built into the policy expressly for this purpose. Should you die before the Company's aggregate premiums are returned, death benefit payments are made to both the Company and your beneficiary. However, the benefit the Company receives does not reduce the death benefit paid to your beneficiary. After the Company's aggregate premiums are returned, the Company no longer has an interest in the policy. At that time you will have a "paid up" permanent life insurance policy with a cash value that can be made available to you at your option. Example:* Sample Director's Program Current Age 55 Annual Premium Cash Value Attained Death Age Benefit Director Company Director Company - --- ------- -------- - ------- -------- ------- 55 $100,000 $ 620 $10,959 0 $ 9,085 60 140,300 1,459 10,120 $ 9,362 64,447 65 196,700 3,345 8,234 52,636 112,066 69 257,900 4,384 7,195 118,594 142,495 70# 257,900 0 0 122,893 0
* This example is for illustrative purposes only and assumes a 7% annual growth in death benefit (assumed base salary) and an 8% yield on investment for the cash value. The yield on investment is not guaranteed. # At normal retirement the death benefit becomes constant, premiums cease, the Company's aggregate premiums are returned and your cash value may continue to grow. Premium Period DILIP is designed for premiums to be extended over a period of time to ease the impact on cash flow to both you and the Company. This period is normally from the time of your enrollment until you reach age 70, however, premiums must be paid for a minimum of 10 years (in some cases it may be longer to avoid violation of the Internal Revenue Service Regulations Section 7702 guidelines). Therefore, if you enroll in the program after age 60, you and the Company will continue premium contributions until the minimum is reached. Premium Amount Included as an attachment is a personal illustrations. The illustration shows the Company's as well as your annual premium through the life of the policy. Premium Waivers There are no Premium Waivers associated with this policy. Ownership There are three options: Board Member as Owner All paperwork should be signed by Senior Manager as proposed insured and owner. Owner at Enrollment is not the Board Member Another option is for you not to take ownership, but rather another, i.e., individual, trust, etc., apply for ownership of the policy. It is of particular importance that if the owner of the policy is not you, the owner must sign as the "Applicant/Owner" and you must sign the application as the "Proposed Insured". Transfer of Ownership The owner of this policy may subsequently transfer ownership to another, i.e., an individual, trust, etc. Please contact Kathy Pruna at 908 630-2827 for the necessary forms and/or information. Since ownership has long term and/or irrevocable implications, we urge you to consult with an attorney and/or tax advisor before making this decision. Cash Value This program is designed to provide you with a pre- and post-retirement death benefit. However, in addition to the death benefit, there is a cash value build-up. That is, part of each premium is placed in an "investment fund" to earn income. Investment earnings beyond the amounts necessary to increase the death benefit, build on a tax advantaged basis in the policy. Cash Availability Cash Build-up Your share of the cash build-up will not begin until several years into the policy but will build quickly after that. As with any cash amount, the longer it is left intact the greater the amount will be. Loans The cash value attributed to you may be withdrawn in the form of a loan after the Company no longer has an interest in the policy. There are certain restrictions and tax implications associated with a loan. We suggest that you speak with your financial counselor/tax advisor before taking such a step. Income Stream or Lump Sum It is possible, after retirement, to convert all or any portion of the policy from a death benefit to either an income "stream" (i.e., an annuity) or a lump sum cash payout. The extent to which you convert to income or cash will cancel or reduce the valuable death benefit. Once you convert, it is not possible to re-establish the original death benefit. Early Retirement If you before age 70, the death benefit will continue to increase until age 70. Both you and the Company will continue to pay premiums until you reach age 70 or if later, 10 years (in some cases it may be longer to avoid violation of the Internal Revenue Service Regulations Section 7702 guidelines) from the date of issuance of the policy. At that time the premiums will cease and the Company's aggregate premiums will be returned to the Company. If you leave the Company and engage in competitive activity as determined by AT&T, the Company's aggregate premiums will be immediately returned to the Company. You can, at your option, either maintain the policy by continuing to pay the total premium, i.e., both your amount and the amount previously paid by the Company, use the remaining cash value (if any) to buy paid up life insurance, or withdraw any remaining cash value and cancel the policy. Contractual Agreement One of the unique aspects of this insurance policy is the existence of a contract between you and AT&T. This agreement has no relationship to employment or any other benefit but rather defines the responsibilities of both the Company and you in the operation of the policy. You will own the policy and determine who beneficiary. The Company will hold the policy and have a "Collateral Assignment" from the owner (you or another you name) entitling AT&T, as long as it has a collateral interest in the policy, to an amount equal to its premiums paid. This document is a legal agreement and as such includes a significant amount of detail and warrants your careful review before signing. Although somewhat unique to life insurance, a collateral assignment is similar in context to an automobile loan where the car becomes "collateral" for the money lent to buy it. In this case, a portion of the value and benefit of the policy is the collateral the Company receives for contributing premium payments to "buy" the life insurance policy. The agreement is satisfied when the premium paid by the Company is returned. Some of the major sections of the agreement are: - Description of the policy - How the premiums are paid - How the proceeds are paid - How the agreement terminates - Claims procedure - Description of the assignment The Agreement is included with this package. Taxes Split Dollar life insurance policies have been in existence for decades. The IRS has issued several rulings over this period which treat these policies favorably from a tax perspective. However, the Company does not assure any particular tax treatment and recommends that you review your own situation with your personal attorney and/or tax advisor. Enrollment Included with this package are the documents required for enrolling in the Directors Individual Life Insurance Program. The Application Form while appearing lengthy requires, for our purposes, just a few basic pieces of information, as does the Beneficiary Designation form. Both of these documents include instructions on how to complete. The Collateral Assignment requires signatures only. EX-10 12 EXHIBIT (10)(III)(A)9 AT&T EXCESS BENEFIT AND COMPENSATION PLAN AT&T Corp. and Such of its Subsidiary Companies which are Participating Companies Effective October 1, 1996 AT&T EXCESS BENEFIT AND COMPENSATION PLAN Table of Contents 1. BACKGROUND AND PURPOSE......................................................1 2. DEFINITIONS.................................................................3 2.1. ADMINISTRATOR........................................................3 2.2. AFFILIATED CORPORATION...............................................3 2.3. AT&T.................................................................3 2.4. BENEFICIARY..........................................................3 2.5. BENEFIT LIMITATION...................................................3 2.6. BOARD................................................................3 2.7. CODE.................................................................3 2.8. COMMITTEE............................................................3 2.9. COMPENSATION LIMITATION..............................................4 2.10. EBA.................................................................4 2.11. ERISA...............................................................4 2.12. EXCESS RETIREMENT BENEFIT...........................................4 2.13. EXECUTIVE...........................................................4 2.14. PARTICIPANT.........................................................4 2.15. PARTICIPATING COMPANY...............................................4 2.16. PLAN................................................................4 2.17. SUBSIDIARY..........................................................4 2.18. SURVIVING SPOUSE....................................................4 2.19. TERM OF EMPLOYMENT..................................................5 2.20. TRANSFERRED INDIVIDUAL..............................................5 3. ELIGIBILITY.................................................................6 3.1. PARTICIPATION........................................................6 3.2. SURVIVING SPOUSE BENEFIT.............................................6 3.3. RELATIONSHIP TO OTHER PLANS..........................................6 3.4. FORFEITURE OF BENEFITS...............................................6 4. RETIREMENT AND DEATH BENEFITS...............................................7 4.1. EXCESS RETIREMENT BENEFITS...........................................7 4.2. AMOUNT OF EXCESS RETIREMENT BENEFIT..................................7 4.3. COMMENCEMENT AND FORM OF BENEFITS PAYABLE TO PARTICIPANT OR SURVIVING SPOUSE..................................................8 4.4. NO SURVIVING SPOUSE..................................................8 4.5. FUTURE BENEFIT ADJUSTMENTS...........................................8 4.6. DETERMINATION OF BENEFITS............................................9 4.7. SUSPENSION AND RECOMMENCEMENT OF BENEFIT PAYMENTS....................9 4.8. MANDATORY PORTABILITY AGREEMENT......................................9 4.9. EXCESS DEATH BENEFIT.................................................9 5. DISPOSITION OF PARTICIPATING COMPANY.......................................11 5.1. SALE, SPIN-OFF, OR OTHER DISPOSITION OF PARTICIPATING COMPANY.......11 6. SOURCE OF PAYMENT..........................................................12 6.1. SOURCE OF PAYMENTS..................................................12 6.2. UNFUNDED STATUS.....................................................12 6.3. FIDUCIARY RELATIONSHIP..............................................13 7. ADMINISTRATION OF THE PLAN.................................................14 7.1. ADMINISTRATION......................................................14 7.2. INDEMNIFICATION.....................................................14 7.3. CLAIMS PROCEDURE....................................................14 7.4. NAMED FIDUCIARIES...................................................15 7.5. ROLE OF THE COMMITTEE...............................................15 7.6. ALLOCATION OF RESPONSIBILITIES......................................15 7.7. MULTIPLE CAPACITIES.................................................15 8. AMENDMENT AND TERMINATION..................................................16 8.1. AMENDMENT AND TERMINATION...........................................16 9. GENERAL PROVISIONS.........................................................17 9.1. BINDING EFFECT......................................................17 9.2. NO GUARANTEE OF EMPLOYMENT..........................................17 9.3. TAX WITHHOLDING.....................................................17 9.4. ASSIGNMENT OF BENEFITS..............................................17 9.5. FACILITY OF PAYMENT.................................................17 9.6. SEVERABILITY........................................................18 9.7. PLAN YEAR...........................................................18 9.8. HEADINGS............................................................18 9.9. GOVERNING LAW.......................................................18 9.10. ENTIRE PLAN........................................................18 ADMINISTRATION OF THE PLAN AT&T EXCESS BENEFIT AND COMPENSATION PLAN AMENDED and RESTATED effective October 1, 1996 Article 1. Background and Purpose The AT&T Excess Benefit Plan was established to provide eligible management and occupational employees of AT&T Corp. (formerly American Telephone and Telegraph Company) ("AT&T") and its subsidiaries that became Participating Companies with certain benefits which would have been payable under the AT&T Management Pension Plan or the AT&T Pension Plan, respectively, but for the limitations placed on benefits payable under the AT&T Management Pension Plan or the AT&T Pension Plan by section 415 of the Internal Revenue Code of 1986, as amended (and its predecessor, the Internal Revenue Code of 1954, as amended) ("Code"). Effective January 1, 1989, AT&T established an additional plan to provide eligible management employees with certain benefits which would have been payable under the AT&T Management Pension Plan but for the limitations placed on eligible compensation by Code ss. 401(a)(17). The aforementioned plans are intended to encompass those plans identified in AT&T's December 28, 1992 filing with the Pension and Welfare Benefits Administration ("PWBA") in response to the PWBA's September 21, 1992 Notice (Extension of Grace Period for Assessment of Civil Penalties for Failure to File Timely Annual Return Reports; Top Hat Plans and Pre-Grace Period Late Filers). These plans are amended and restated, effective January 1, 1994, and shall hereinafter be referred to collectively as the "AT&T Excess Benefit and Compensation Plan" or "Plan." The Plan is intended to constitute an unfunded "excess benefit plan" as defined in section 3(36) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), to the extent it provides benefits that would be paid under the AT&T Management Pension Plan or the AT&T Pension Plan but for the limitations imposed by Code ss. 415, and an "unfunded plan of deferred compensation for a select group of management or highly compensated employees" for purposes of Title I of ERISA, to the extent it provides other benefits. Except as expressly provided below, this amended and restated plan document applies only to employees who terminate employment on or after October 1, 1996. For former employees who terminated employment before October 1, 1996, the provisions of the AT&T Excess Benefit and Compensation Plan in effect at termination of the former employee's employment governs. Effective October 1, 1996, Lucent Technologies Inc. established the Lucent Technologies Inc. Excess Benefit and Compensation Plan as a successor to the AT&T Excess Benefit and Compensation Plan, in effect as of September 30, 1996, with respect to Transferred Individuals (as defined in Article 2). Accordingly, the AT&T Excess Benefit and Compensation Plan relinquished to the Lucent Technologies Inc. Excess Benefit and Compensation Plan all liabilities as of September 30, 1996 relating to Transferred Individuals, and the Lucent Technologies Inc. Excess Benefit and Compensation Plan assumed and is solely responsible for all such liabilities. Except to the extent required by law or Article 5 of this Plan, the Plan shall not recognize service and compensation before October 1, 1996 with respect to Transferred Individuals. Effective as of the date an individual becomes a "Transition Individual" (as defined in Section 1.38(a) or (d) of the Management Interchange Agreement or Section 1.30(a) or (d) of the Occupational Interchange Agreement), the Plan shall also assume and be solely responsible for all liabilities relating to such Transition Individuals. Article 2. Definitions Unless the context clearly indicates otherwise, the following terms have the meanings described below when used in this Plan and references to a particular Article or Section shall mean the Article or Section so delineated in this Plan. 2.1. Administrator With respect to individuals covered by the AT&T Management Pension Plan, the Pension Plan Administrator under the AT&T Management Pension Plan and, with respect to individuals covered by the AT&T Pension Plan, the Pension Plan Administrator under the AT&T Pension Plan. 2.2. Affiliated Corporation Any corporation of which more than 50 percent of the voting stock is owned directly or indirectly by AT&T. 2.3. AT&T AT&T Corp. (formerly the American Telephone and Telegraph Company), a New York corporation, or its successor. 2.4. Beneficiary Any person entitled to an Excess Death Benefit pursuant to Section 4.9. 2.5. Benefit Limitation The maximum benefit payable to a Participant under the AT&T Management Pension Plan or the AT&T Pension Plan in accordance with Code ss. 415, but after application of the Compensation Limitation, if any, under the AT&T Management Pension Plan or the AT&T Pension Plan. 2.6. Board The Board of Directors of AT&T. 2.7. Code The Internal Revenue Code of 1986, as amended from time to time. Any reference to a particular section of the Code includes any applicable regulations promulgated under that section. 2.8. Committee The AT&T Employees' Benefit Committee. 2.9. Compensation Limitation The maximum amount of annual compensation under Code ss. 401(a)(17) that may be taken into account in any Plan Year for benefit accrual purposes undeR the AT&T Management Pension Plan or for purposes of calculating an Accident Death Benefit, Sickness Death Benefit or Pensioner Death Benefit under the AT&T Management Pension Plan. 2.10. EBA The Employee Benefits Agreement between AT&T and Lucent Technologies Inc. as of February 1, 1996, as amended. 2.11. ERISA The Employee Retirement Income Security Act of 1974, as amended from time to time. Any reference to a particular section of ERISA includes any applicable regulations promulgated under that section. 2.12. Excess Retirement Benefit The benefit, if any, described in Article 4 which is payable to a Participant or a Surviving Spouse under the terms of the Plan. 2.13. Executive An individual who is considered to be within "a select group of management or highly compensated employees" for purposes of Title I of ERISA and whose annual compensation in any year exceeds the Compensation Limitation. 2.14. Participant An individual and/or an Executive who has satisfied the eligibility requirements in Section 3.1 for accrual of an Excess Retirement Benefit. 2.15. Participating Company AT&T and any Affiliated Corporation which is a Participating Company under the AT&T Management Pension Plan or the AT&T Pension Plan. 2.16. Plan This AT&T Excess Benefit and Compensation Plan. 2.17. Subsidiary Any corporation of which more than 80% of the voting stock is owned directly or indirectly by AT&T. 2.18. Surviving Spouse A deceased Participant's surviving spouse who is eligible to receive a survivor annuity benefit under the AT&T Management Pension Plan or the AT&T Pension Plan. 2.19. Term of Employment "Term of Employment" within the meaning of the AT&T Management Pension Plan or the AT&T Pension Plan, as applicable, for purposes of calculating the amount of a Participant's benefit. 2.20. Transferred Individual A "Transferred Individual" within the meaning of the EBA. Article 3. Eligibility 3.1. Participation (i) Each individual who becomes eligible or is eligible for a deferred vested pension, a disability pension or a service pension, under the terms and conditions of either the AT&T Management Pension Plan or the AT&T Pension Plan, shall be eligible to participate in this Plan, and/or (ii) each Executive who, in any year, has annual compensation in excess of the Compensation Limitation and who becomes or is eligible for a deferred vested pension, a disability pension or a service pension, under the terms and conditions of the AT&T Management Pension Plan, shall be eligible to participate in this Plan. 3.2. Surviving Spouse Benefit Each Surviving Spouse of a Participant shall be eligible to receive an Excess Retirement Benefit under the Plan, if eligible as provided in Section 4.1 of the Plan. 3.3. Relationship To Other Plans The Excess Retirement Benefit and Excess Death Benefit payable under the Plan shall be in addition to any other benefits provided, directly or indirectly, to a Participant, Surviving Spouse or Beneficiary by any the Participating Company. Participation in the Plan shall not preclude or limit the participation of the Participant in any other benefit plan sponsored by a Participating Company for which such Participant would otherwise be eligible. The Excess Retirement Benefit and Excess Death Benefit payable to a Participant, Surviving Spouse or Beneficiary under this Plan shall not duplicate benefits payable to such Participant, Surviving Spouse or Beneficiary under any other plan or arrangement of a Participating Company or any Affiliated Corporation. 3.4. Forfeiture of Benefits If any Participant who otherwise would be entitled to an Excess Retirement Benefit under this Plan is discharged for cause due to conviction of a felony related to his or her employment, the rights of such Participant to an Excess Retirement Benefit under this Plan, including the rights of the Participant's spouse to an Excess Retirement Benefit as a Surviving Spouse and/or the rights of a Beneficiary to an Excess Death Benefit, shall be forfeited. Article 4. Retirement and Death Benefits 4.1. Excess Retirement Benefits If the benefit payable to a Participant or a Surviving Spouse under the AT&T Management Pension Plan or the AT&T Pension Plan is limited by reason of the application of the Benefit Limitation and/or, for an Executive or a Surviving Spouse of an Executive, the Compensation Limitation, an Excess Retirement Benefit shall be paid as provided in this Article 4 to the Participant or the Surviving Spouse. 4.2. Amount of Excess Retirement Benefit The amount, if any, of the Excess Retirement Benefit payable monthly to a Participant or a Surviving Spouse shall be equal to the difference between (i) and (ii) where: (i) is the amount of the monthly pension benefit which would be provided to the Participant or Surviving Spouse under the AT&T Management Pension Plan or the AT&T Pension Plan, without regard to the Benefit Limitation and/or for an Executive, or a Surviving Spouse of an Executive, without regard to the Compensation Limitation under the AT&T Management Pension Plan, based upon the AT&T Management Pension Plan or the AT&T Pension Plan formula, as applicable, in effect as of the date of termination of employment or death; and (ii) is the amount of the monthly pension benefit actually payable to such Participant or Surviving Spouse under the AT&T Management Pension Plan or the AT&T Pension Plan. The amount of the Excess Retirement Benefit payable as a result of the application of the Benefit Limitation under the AT&T Management Pension Plan or the AT&T Pension Plan shall be determined or redetermined, based upon the AT&T Management Pension Plan or the AT&T Pension Plan formula, as applicable, in effect as of the date of termination of employment or termination of reemployment pursuant to Section 4.7 or death, (a) as of the date when benefits are to commence pursuant to Section 4.3 or recommence pursuant to Section 4.7; (b) as of the effective date of any subsequent increases and/or decreases in the Benefit Limitation, and/or (c) as of the effective date of any special increases in the monthly benefit payable, prior to application of the Benefit Limitation, as a result of amendments to the AT&T Management Pension Plan and/or the AT&T Pension Plan, whichever is applicable. Further, the amount of the Excess Retirement Benefit shall be reduced for commencement of the Excess Retirement Benefit prior to age 55 and/or for the cost of the survivor annuity, if any, in the same manner as is set forth in the AT&T Management Pension Plan or the AT&T Pension Plan, as applicable. 4.3. Commencement and Form of Benefits Payable to Participant or Surviving Spouse The Excess Retirement Benefit provided under this Plan payable to either the Participant or the Surviving Spouse (a) shall commence at the same time, (b) shall be paid for as long as (subject to Section 4.2) and (c) shall be paid in the same benefit form as the Participant's or Surviving Spouse's benefits are paid under the AT&T Management Pension Plan or the AT&T Pension Plan; whichever is applicable, provided, however, that the Committee shall have the right to approve the Participant's election of the form of the Excess Retirement Benefit payable to the Participant. 4.4. No Surviving Spouse If a Participant dies before the date as of which his or her benefit commences under the AT&T Management Pension Plan or the AT&T Pension Plan, and he or she does not have a Surviving Spouse on his or her date of death, no Excess Retirement Benefit shall be paid after the death of the Participant with respect to the Participant. 4.5. Future Benefit Adjustments (a)......If a Participant has commenced receiving a service or disability pension under the AT&T Management Pension Plan or the AT&T Pension Plan in the form of a joint and 50 percent survivor annuity and his or her designated annuitant subsequently predeceases him or her, the Participant's Excess Retirement Benefit under this Plan shall be calculated in accordance with Section 4.02 and thereafter paid, prospectively, by restoring the original cost of the joint and 50 percent survivor annuity form of benefit under the AT&T Management Pension Plan or the AT&T Pension Plan, whichever is applicable. Such adjustment shall be effective as of the first day of the first month following the death of the Participant's surviving annuitant. (b)......In the event that, following commencement of benefits to a Participant under the Plan, the AT&T Management Pension Plan benefit is subsequently adjusted to include any payments considered Compensation under the AT&T Management Pension Plan paid after commencement of the AT&T Management Pension Plan benefit, the Excess Retirement Benefit to the Participant under this Plan shall be recalculated as soon as practicable after the AT&T Management Pension Plan benefit is adjusted and shall be paid retroactively to the date the AT&T Management Pension Plan benefit commences, if the AT&T Management Pension Plan benefit is adjusted retroactively to such date. (c)......In the event that, following commencement of benefits to a Participant or Surviving Spouse under the Plan, the AT&T Management Pension Plan or AT&T Pension Plan benefit is subsequently increased as a result of a successful claim for benefits under the AT&T Management Pension Plan or AT&T Pension Plan, the Excess Retirement Benefit to the Participant or Surviving Spouse under this Plan shall be recalculated as soon as practicable after the AT&T Management Pension Plan or the AT&T Pension Plan benefit is adjusted. 4.6. Determination of Benefits Excess Retirement Benefit payments and Excess Death Benefit payments under this Plan shall be calculated in accordance with the rules, procedures, and assumptions utilized under the AT&T Management Pension Plan or the AT&T Pension Plan, whichever is applicable. Thus, whenever it is necessary to determine whether one benefit is less than, equal to, or larger than another, or to determine the equivalent actuarial value of any benefit, whether or not such form of benefit is provided under this Plan, such determination shall be made, at the Administrator's discretion, by AT&T's enrolled actuary, using mortality, interest and other assumptions normally used at the time in determining actuarial equivalence under the AT&T Management Pension Plan or AT&T Pension Plan, whichever is applicable. 4.7. Suspension and Recommencement of Benefit Payments A Participant's employment or reemployment subsequent to retirement or termination of employment with entitlement to an Excess Retirement Benefit under this Plan shall result in the permanent suspension of payment of the Excess Retirement Benefit to the Participant for the period of such employment or reemployment to the extent and in a manner consistent with the terms and conditions applicable to the suspension of benefit payments under the AT&T Management Pension Plan or the AT&T Pension Plan, whichever is applicable. A Participant's Excess Retirement Benefit shall recommence simultaneously with the recommencement of his or her benefits under the AT&T Management Pension Plan or the AT&T Pension Plan. The amount of the Participant's Excess Retirement Benefit upon recommencement shall be adjusted to reflect adjustments, if any, in the amount of the Participant's pension benefit under the AT&T Management Pension Plan or the AT&T Pension Plan resulting from the period of reemployment, pursuant to Section 4.2. Following recommencement of payment under this Plan, the Participant (or Surviving Spouse) shall not be eligible to receive any Excess Retirement Benefit payments that would otherwise have been payable but for the suspension. 4.8. Mandatory Portability Agreement A Participant (a) who is employed by an "Interchange Company", as that term is defined under the Mandatory Portability Agreement ("MPA"), subsequent to retirement or termination of employment from AT&T, its subsidiaries or any Affiliated Company, (b) who is covered under the terms and conditions of the MPA, and (c) for whom assets and liabilities are transferred from the AT&T Management Pension Plan or the AT&T Pension Plan, shall forfeit his rights to an Excess Retirement Benefit under this Plan, including the rights of the Participant's spouse to an Excess Retirement Benefit as a Surviving Spouse and the rights of Beneficiary to an Excess Death Benefit. 4.9. Excess Death Benefit (a)......If the actual Accident Death Benefit, Sickness Death Benefit or Pensioner Death Benefit ("Death Benefit") payable to any person as a result of the death of a Participant under the terms of the AT&T Management Pension Plan is reduced or limited by reason of the Compensation Limitation, an Excess Death Benefit shall be paid as provided in this Section 4.9 to the beneficiary otherwise entitled to receive the Death Benefit under the terms and conditions of the AT&T Management Pension Plan. (b)......The amount, if any, of the Excess Death Benefit payable shall be equal to the difference between (i) and (ii) where: (i) is the amount of the Death Benefit which would be provided to the beneficiary under the AT&T Management Pension Plan without regard to the Compensation Limitation under the AT&T Management Pension Plan in effect as of the date of death; and (ii) is the amount of the Death Benefit actually payable to such beneficiary under the AT&T Management Pension Plan. (c)......The Excess Death Benefit provided under this Plan (i) shall commence at the same time, (ii) shall be paid for as long as, and (iii) shall be paid in the same benefit form as the Committee or its delegate has determined with respect to the Death Benefit payable under the AT&T Management Pension Plan. Article 5. Disposition of Participating Company 5.1. Sale, Spin-Off, or Other Disposition of Participating Company (a)......Subject to Sections 4.8 and 9.1, in the event AT&T sells, spins off, or otherwise disposes of a Subsidiary or an Affiliated Corporation, or disposes of all or substantially all of the assets of a Subsidiary or an Affiliated Corporation such that one or more Participants terminate employment for the purpose of accepting employment with the purchaser of such stock or assets, any person employed by such Subsidiary or Affiliated Corporation who ceases to be an employee as a result of the sale, spin-off, or disposition shall be deemed to have terminated his or her employment with a Participating Company and be eligible for an Excess Retirement Benefit commencing at the same time as his or her benefit, if any, commences under the AT&T Management Pension Plan or the AT&T Pension Plan. Further, if the Participant dies after termination of employment as described in this Section 5.1, his or her Surviving Spouse may be entitled to an Excess Retirement Benefit, if eligible as provided in Section 4.1, and/or his or her Beneficiary may be entitled to an Excess Death Benefit, if eligible as provided in Section 4.9. (b)......Notwithstanding the foregoing provisions of this Section 5.1, and subject to Section 9.1, if, as part of the sale, spin-off, or other disposition of the stock or assets of a Subsidiary or Affiliated Corporation, the Subsidiary or Affiliated Corporation, its successor owner, or any other party agrees in writing to assume the liability for the payment of the Excess Retirement Benefit and/or the Excess Death Benefit to which the Participant, Surviving Spouse and/or Beneficiary would have been entitled under the Plan but for such sale, spin-off, or other disposition, then the entitlement of the Participant or his or her Surviving Spouse to an Excess Retirement Benefit and/or any Beneficiary to an Excess Death Benefit under this Plan shall terminate. Any subsequent entitlement of the former Participant or his or her Surviving Spouse or Beneficiary to the Excess Retirement Benefit and/or the Excess Death Benefit shall be the sole responsibility of the assuming party. Upon the assumption of the liability for the payment of an Excess Retirement Benefit and Excess Death Benefit by Lucent Technologies Inc. pursuant to Section 6.1 of the EBA, the entitlement of a Transferred Individual (as defined in the EBA), and/or his or her Surviving Spouse or Beneficiary, to an Excess Retirement Benefit and/or an Excess Death Benefit under this Plan shall terminate. Upon the assumption of the liability for the payment of an Excess Retirement Benefit and Excess Death Benefit by Lucent Technologies Inc. pursuant to Section 7.1 of the Management Interchange Agreement or Section 3.1 of the Occupational Interchange Agreement, both dated as of April 8, 1996, between AT&T and Lucent Technologies Inc., the entitlement of a Transition Individual (as defined in Section 1.38(b) or (c) of the Management Interchange Agreement or Section 1.30(b) or (c) of the Occupational Interchange Agreement), and/or his or her Surviving Spouse or Beneficiary, to an Excess Retirement Benefit and/or an Excess Death Benefit under this Plan shall terminate. Article 6. Source of Payment 6.1. Source of Payments Benefits arising under this Plan and all costs, charges, and expenses relating thereto will be payable from the Company's general assets. The Company may, however, establish a trust to pay such benefits and related expenses, provided such trust does not cause the Plan to be "funded" within the meaning of ERISA. To the extent trust assets are available, they may be used to pay benefits arising under this Plan and all costs, charges, and expenses relating thereto. To the extent that the funds held in the trust, if any, are insufficient to pay such benefits, costs, charges and expenses, the Company shall pay such benefits, costs, charges, and expenses from its general assets. In addition, the Company may, in its sole discretion, purchase and distribute one or more commercial annuity contracts, or cause the trustee of the trust to purchase and distribute one or more commercial annuity contracts, to make benefit payments required under this Plan, to any Senior Manager, as defined in the AT&T Non-Qualified Pension Plan, or the Surviving Spouse of any Senior Manager, provided, however, that the purchase and distribution of any such annuity contracts shall be no sooner than the expiration of any forfeiture provisions applicable to the Senior Manager under the AT&T Non-Competition Guidelines. Such annuity contracts may be purchased from a commercial insurer acceptable to the Executive Vice President - Human Resources. Further, the Executive Vice President - Human Resources, may determine, in his sole discretion, to pay additional sums to any Senior Manager, from the Company's general assets or from the trust, if any, to reimburse the Senior Manager for additional federal and state income taxes estimated to be incurred by reason of the distribution of any such annuity contracts. The Executive Vice President Human Resources shall establish a methodology or methodologies for determining the amount of such additional sums. The methodology or methodologies selected shall be those that the Executive Vice President - Human Resources determines, in his sole discretion, to be the most effective and administratively feasible for the purpose of producing after tax periodic benefit payments that approximate the after tax periodic benefit payments that would have been received by Senior Managers in the absence of the distribution of the annuity contract. 6.2. Unfunded Status The Plan at all times shall be entirely unfunded for purposes of the Code and ERISA and no provision shall at any time be made with respect to segregating any assets of a Participating Company for payment of any benefits hereunder. Funds that may be invested through a trust described in Section 6.1 shall continue for all purposes to be part of the general assets of the Participating Company which invested the funds. The Plan constitutes a mere promise by AT&T and the Participating Companies to make Excess Retirement Benefit payments and Excess Death Benefit payments, if any, in the future. No Participant, Surviving Spouse or any other person shall have any interest in any particular assets of a Participating Company by reason of the right to receive a benefit under the Plan and to the extent the Participant, Surviving Spouse or any other person acquires a right to receive benefits under this Plan, such right shall be no greater than the right of any unsecured general creditor of a Participating Company. 6.3. Fiduciary Relationship Nothing contained in the Plan, and no action taken pursuant to the provisions of the Plan, shall create or be construed to create a trust or a fiduciary relationship between or among AT&T, any other Participating Company, the Board, the Administrator, the Committee, any Participant, any Surviving Spouse, or any other person, except as provided in Section 7.4. Article 7. Administration of the Plan 7.1. Administration AT&T shall be the "plan administrator" of the Plan as that term is defined in ERISA. 7.2. Indemnification Neither the Administrator, any member of the Board or of the Committee, nor each other officer to whom any duty or power relating to the administration or interpretation of the Plan may be allocated or delegated, shall be personally liable by reason of any contract or other instrument executed by such individual or on his or her behalf in his or her capacity as the Administrator or as a member of the Board or of the Committee, nor for any mistake of judgment made in good faith, and AT&T shall indemnify and hold harmless the Administrator, each member of the Board, each member of the Committee, and each other employee or officer to whom any duty or power relating to the administration or interpretation of the Plan may be allocated or delegated, against any cost or expense (including attorneys' fees) or liability (including any sum paid in settlement of a claim) arising out of any act or omission to act in connection with the Plan unless arising out of such person's own fraud or bad faith. 7.3. Claims Procedure (a)......All claims for benefit payments under the Plan shall be submitted in writing by the Participant, Surviving Spouse, Beneficiaries, or any individual duly authorized by them ("Claimant" for purposes of Section 7.3), to the Administrator. The Administrator shall notify the Claimant in writing within 90 days after receipt as to whether the claim has been granted or denied. This period may be extended for up to an additional 90 days in unusual cases provided that written notice of the extension is furnished to the Claimant prior to the commencement of the extension. In the event the claim is denied, such notice shall (i) set forth the specific reasons for denial, (ii) make reference to the pertinent Plan provisions on which the denial is based, (iii) describe any additional material or information necessary before the Claimant's request may be acted upon, and (iv) explain the procedure for appealing the adverse determination. (b)......Any Claimant whose claim for benefits has been denied, in whole or in part, may, within 60 days of receipt of any adverse benefit determination, appeal such denial to the Committee. All appeals shall be in the form of a written statement and shall (i) set forth all of the reasons in support of favorable action on the appeal, (ii) identify those provisions of the Plan upon which the Claimant is relying, and (iii) include copies of any other documents or materials which may support favorable consideration of the claim. The Committee shall decide the issues presented within 60 days after receipt of such request, but this period may be extended for up to an additional 60 days in unusual cases provided that written notice of the extension is furnished to the Claimant prior to the commencement of the extension. The decision of the Committee shall be set forth in writing, include specific reasons for the decision, refer to pertinent Plan provisions on which the decision is based, and shall be final and binding on all persons affected thereby. Any Claimant whose claim for benefits has been denied shall have such further rights of review as are provided in ERISA ss. 503, and the Committee anD Administrator shall retain such right, authority, and discretion as is provided in or not expressly limited by ERISA ss. 503. (c)......The Committee shall serve as the final review committee, under the Plan and ERISA, for the review of all appeals by Claimants whose initial claims for benefits have been denied, in whole or in part, by the Administrator. The Committee shall have the authority to determine conclusively for all parties any and all questions arising from administration of the Plan, and shall have sole and complete discretionary authority and control to manage the operation and administration of the Plan, including, but not limited to, authorizing disbursements according to the Plan, the determination of all questions relating to eligibility for participation and benefits, interpretation of all Plan provisions, determination of the amount and kind of benefits payable to any Participant, Surviving Spouse or Beneficiary, and the construction of disputed and doubtful terms. Such decisions by the Committee shall be conclusive and binding on all parties and not subject to further review. 7.4. Named Fiduciaries AT&T, the Committee, the Pension Plan Administrator(s) and each Participating Company is each a named fiduciary as that term is used in ERISA with respect to the particular duties and responsibilities herein provided to be allocated to each of them. 7.5. Role of the Committee (a)......The Committee shall have the specific powers elsewhere herein granted to it and shall have such other powers as may be necessary in order to enable it to administer the Plan, except for powers herein granted or provided to be granted to others. (b)......The procedures for the adoption of by-laws and rules of procedure and for the employment of a secretary and assistants shall be the same as are set forth in AT&T Management Pension Plan or the AT&T Pension Plan. 7.6. Allocation of Responsibilities AT&T may allocate responsibilities for the operation and administration of the Plan consistent with the Plan's terms, including allocation of responsibilities to the Committee and the other Participating Companies. AT&T and other named fiduciaries may designate in writing other persons to carry out their respective responsibilities under the Plan, and may employ persons to advise them with regard to any such responsibilities. 7.7. Multiple Capacities Any person or group of persons may serve in more than one fiduciary capacity with respect to the Plan. Article 8. Amendment and Termination 8.1. Amendment and Termination Pursuant to ERISA ss. 402(b)(3), the Board or its delegate (acting pursuant to the Board's delegations of authority then in effect) may from time to time amend, suspend, or terminate the Plan at any time. Plan amendments may include, but are not limited to, elimination or reduction in the level or type of benefits provided prospectively to any class or classes of Participants (and Surviving Spouses and Beneficiaries). Any and all Plan amendments may be made without the consent of any Participant, Surviving Spouse or Beneficiary. Notwithstanding the foregoing, no such amendment, suspension, or termination shall retroactively impair or otherwise adversely affect the rights of any Participant, Surviving Spouse, or other person to benefits under the Plan, the AT&T Management Pension Plan or the AT&T Pension Plan which have arisen prior to the date of such action. Article 9. General Provisions 9.1. Binding Effect The Plan shall be binding upon and inure to the benefit of each Participating Company and its successors and assigns, and to each Participant, his or her successors, designees, Beneficiaries, designated annuitants, and estate. The Plan shall also be binding upon any successor corporation or organization succeeding to substantially all of the assets and business of AT&T. Nothing in the Plan shall preclude AT&T from merging or consolidating into or with, or transferring all or substantially all of its assets to, another corporation which assumes the Plan and all obligations of AT&T hereunder. AT&T agrees that it will make appropriate provision for the preservation of the rights of Participants, Surviving Spouses and Beneficiaries under the Plan in any agreement or plan or reorganization into which it may enter to effect any merger, consolidation, reorganization, or transfer of assets. Upon such a merger, consolidation, reorganization, or transfer of assets, the term "Participating Company" shall refer to such other corporation and the Plan shall continue in full force and effect. 9.2. No Guarantee of Employment Neither the Plan nor any action taken hereunder shall be construed as (i) a contract of employment or deemed to give any Participant the right to be retained in the employment of a Participating Company, the right to any level of compensation, or the right to future participation in the Plan; or (ii) affecting the right of a Participating Company to discharge or dismiss any Participant at any time. 9.3. Tax Withholding AT&T or a Participating Company, as applicable, shall withhold all federal, state, local, or other taxes required by law to be withheld from Excess Retirement Benefit payments under the Plan. AT&T shall also withhold all FICA taxes required by law to be withheld on an Executive's Excess Retirement Benefits under the Plan. 9.4. Assignment of Benefits No Excess Retirement Benefit or Excess Death Benefit under this Plan or any right or interest in such Excess Retirement Benefit or Excess Death Benefit shall be assignable or subject in any manner to anticipation, alienation, sale, transfer, claims of creditors, garnishment, pledge, execution, attachment or encumbrance of any kind, including, but not limited to, pursuant to any domestic relations order (within the meaning of ERISA ss. 206(d)(3) and Code ss. 414(p)(1)(B)) or judgment or claims for alimony, support, separate maintenance, and claims in bankruptcy proceedings, and any such attempted disposition shall be null and void. 9.5. Facility of Payment If the Administrator shall find that any person to whom any amount is or was payable under the Plan is unable to care for his or her affairs because of illness or accident, then any payment, or any part thereof, due to such person (unless a prior claim therefor has been made by a duly appointed legal representative), may, if the Administrator so directs AT&T, be paid to the same person or institution that the benefit with respect to such person is paid or to be paid under the AT&T Management Pension Plan or AT&T Pension Plan, if applicable, or the Participant's lawful spouse, a child, a relative, an institution maintaining or having custody of such person, or any other person deemed by the Administrator to be a proper recipient on behalf of such person otherwise entitled to payment. Any such payment shall be in complete discharge of the liability of AT&T, the Board, the Committee, the Administrator, and the Participating Company therefor. If any payment to which a Participant, Surviving Spouse or Beneficiary is entitled under this Plan is unclaimed or otherwise not subject to payment to the person or persons so entitled, such amounts representing such payment or payments shall be forfeited after a period of two years from the date the first such payment was payable and shall not escheat to any state or revert to any party; provided, however, that any such payment or payments shall be restored if any person otherwise entitled to such payment or payments makes a valid claim. 9.6. Severability If any section, clause, phrase, provision, or portion of this Plan or the application thereof to any person or circumstance shall be invalid or unenforceable under any applicable law, such event shall not affect or render invalid or unenforceable the remainder of this Plan and shall not affect the application of any section, clause, provision, or portion hereof to other persons or circumstances. 9.7. Plan Year For purposes of administering the Plan, each plan year shall begin on January 1 and end on December 31. 9.8. Headings The captions preceding the sections and articles hereof have been inserted solely as a matter of convenience and shall not in any manner define or limit the scope or intent of any provisions of the Plan. 9.9. Governing Law The Plan shall be governed by the laws of the State of New Jersey (other than its conflict of laws provisions) from time to time in effect, except to the extent such laws are preempted by the laws of the United States of America. 9.10. Entire Plan This written Plan document is the final and exclusive statement of the terms of this Plan, and any claim of right or entitlement under the Plan shall be determined in accordance with its provisions pursuant to the procedures described in Article 7. Unless otherwise authorized by the Board or its delegate, no amendment or modification to this Plan shall be effective until reduced to writing and adopted pursuant to Section 8.1. EX-10 13 EXHIBIT (10)(III)(A)10 AT&T NON-QUALIFIED PENSION PLAN As Amended and Restated effective January 1, 1995 AT&T NON-QUALIFIED PENSION PLAN TABLE OF CONTENTS ARTICLE 1 PURPOSE.............................................................4 ARTICLE 2 DEFINITIONS.........................................................5 ARTICLE 3 PARTICIPATION AND ELIGIBILITY.......................................9 3.01. PARTICIPATION............................................................9 3.02. ELIGIBILITY..............................................................9 ARTICLE 4 PENSION BENEFITS...................................................12 4.01. BENEFIT ELIGIBILITY.....................................................12 4.02. BENEFIT FORMULAS........................................................13 4.03. MONTHLY PAYMENTS........................................................16 4.04. COMMENCEMENT AND DURATION OF PAYMENTS...................................16 4.05. TREATMENT DURING SUBSEQUENT EMPLOYMENT..................................16 4.06. METHOD AND FORM OF PAYMENT..............................................16 ARTICLE 5 DEATH BENEFITS.....................................................18 5.01. PARTICIPATION...........................................................18 5.02. DEATH BENEFITS..........................................................18 ARTICLE 6 SOURCE OF PAYMENT..................................................21 6.01. SOURCE OF PAYMENTS......................................................21 6.02. UNFUNDED STATUS.........................................................21 ARTICLE 7 ADMINISTRATION OF THE PLAN.........................................23 7.01. ADMINISTRATION AND AUTHORITIES..........................................23 7.02. COMMITTEE...............................................................23 7.03. INDEMNIFICATION.........................................................23 7.04. BENEFIT CLAIMS AND APPEALS..............................................24 ARTICLE 8 ADOPTION, AMENDMENT AND TERMINATION................................25 8.01. ADOPTION OF PLAN........................................................25 8.02. AMENDMENT AND TERMINATION...............................................25 8.03. SALE, SPIN-OFF, OR OTHER DISPOSITION OF PARTICIPATING COMPANY...........25 ARTICLE 9 GENERAL PROVISIONS.................................................27 9.01. BINDING EFFECT..........................................................27 9.02. FIDUCIARY RELATIONSHIP..................................................27 9.03. NO GUARANTEE OF EMPLOYMENT..............................................27 9.04. TAX WITHHOLDING.........................................................28 9.05. ASSIGNMENT OF BENEFITS..................................................28 9.06. FACILITY OF PAYMENT.....................................................28 9.07. SEVERABILITY............................................................28 9.08. EFFECTIVE DATE..........................................................29 9.09. PLAN YEAR...............................................................29 9.10. HEADINGS................................................................29 9.11. GOVERNING LAW...........................................................29 9.12. FORFEITURE OF BENEFITS..................................................29 9.13. OPTION DURING DISABILITY................................................29 9.14. SPECIAL CLASSIFICATION..................................................30 9.15. CLAIMS RELEASE..........................................................30 9.16. DAMAGE CLAIMS OR SUITS..................................................30 9.17. JUDGMENT OR SETTLEMENT..................................................30 9.18. PAYMENT UNDER LAW.......................................................31 9.19. ENTIRE PLAN.............................................................31 APPENDIX A....................................................................32 APPENDIX B....................................................................36 APPENDIX C....................................................................37 AT&T NON-QUALIFIED PENSION PLAN ARTICLE 1 PURPOSE This AT&T Non-Qualified Pension Plan (the "Plan") is an Amendment and Restatement of predecessor programs sponsored by the Company that where first adopted on October 1, 1980, to provide supplemental pension, disability and death benefits to certain employees of the Company. The Plan is intended to constitute an unfunded plan of deferred compensation for a select group of management or highly compensated employees for purposes of Title I of ERISA. ARTICLE 2 DEFINITIONS Whenever used herein, the terms set forth below have the following meanings unless a different meaning is clearly required by the context: 2.01. "Active Service" means the period of active employment but excluding any time the individual is absent on account of disability and receiving or eligible to receive sickness or accident disability benefits under the Company's Sickness and Accident Disability Benefit Plan. 2.02. "ADEA" means the Age Discrimination in Employment Act of 1967, as it may be amended from time to time. 2.03. "Adjusted Career Average Pay" as used in the Alternate Formula described in Section 4.02(b), means (i) in the case of an Officer, the sum of A and B below divided by such Officer's Term of Employment and (ii) in the case of an E-band Employee, the amount described in B below divided by such E-band Employee's Term of Employment: A. the sum of (1) the average of an Officer's annual Short Term Incentive Awards and any salary amounts deferred under the AT&T Senior Management Incentive Award Deferral Plan includable in the 1989 Base Period multiplied by his or her Term of Employment as of December 31, 1989 and (2) his or her Short Term Incentive Awards includable under the Basic Formula and any salary amounts deferred under the AT&T Senior Management Incentive Award Deferral Plan for the period from January 1, 1990 to the date of retirement. B. the sum of (a) the product of (i) the Participant's average annual "Compensation" as defined in the Pension Plan for the 1992 Base Period and (ii) the Participant's Term of Employment as of December 31, 1992 and (b) the Participant's "Compensation" for the period from January 1, 1993 to the last day of his or her Term of Employment. 2.04. "Administrator" means the person identified as the Pension Plan Administrator under the Pension Plan or such other person or entity designated by the Company. 2.05. "Affiliated Corporation" means any corporation or other entity of which 50 percent or more of the voting stock is owned directly or indirectly by AT&T. 2.06. "AT&T" or "Company" means AT&T Corp. (formerly American Telephone and Telegraph Company), a New York Corporation, or its successors. 2.07. "1989 Base Period" means the period from January 1, 1987, to December 31, 1989. 2.08. "1992 Base Period" means the period from January 1, 1990, to December 31, 1992. 2.09. "Board" means the Board of Directors of AT&T. 2.10. "Committee" means the Employees' Benefit Committee appointed by the Company to administer the Pension Plan. 2.11. "Covered Compensation Base" means an amount which is the average of the maximum wage amounts on which an employee's liability for Social Security taxes were determined for each year beginning with January 1, 1958 and ending with the year in which the calculation is made. 2.12. "Delegate" means the Board's authorized representative designated pursuant to a delegation of authority by the Board to act on behalf of or to perform one or more administrative responsibilities under the Plan. 2.13. "E-band Employee" means any employee of a Participating Company employed in a position evaluated or classified as an "E-band" or equivalent position by the Company, except that no employee who is assigned to such a position on a temporary basis after being notified in writing of the temporary status of such assignment shall be an "E-band Employee" for any purpose under this Plan. 2.14. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time. 2.15. "Long Term Disability Plan" means the AT&T Senior Management Long Term Disability and Survivor Protection Plan. 2.16. "Normal Retirement Age" means the Normal Retirement Age determined under the Pension Plan. 2.17. "Officer" means any employee of a Participating Company holding a position evaluated or classified above the "E-band" level by the Company, except that no employee who is assigned to such a position on a temporary basis after being notified in writing of the temporary status of such assignment shall be an "Officer" for any purpose under this Plan. 2.18. "Participant" means an Officer who is eligible for a service pension, deferred vested pension or disability pension under the terms of the Pension Plan or an E-band Employee who is eligible for a service pension under the terms of the Pension Plan. 2.19. "Participating Company" means AT&T and any Affiliated Corporation which has elected, with the approval of the Committee as required by Section 8.01, to participate in the Plan. 2.20. "Pension Plan" means the AT&T Management Pension Plan, as amended from time to time. 2.21. "Pension Plan Benefit" means the annual pension benefit determined under the Pension Plan without regard to the limitations on covered compensation under Section 401(a)(17) of the Internal Revenue Code of 1986, or the limitations on benefit accruals and payments under Section 415 of the Internal Revenue Code of 1986, and before any reduction in such pension benefit for the cost of a survivor annuity or for early retirement. 2.22. "Plan" means this AT&T Non-Qualified Pension Plan, as set forth herein and as amended from time to time. 2.23. "Position Rate" means an amount established periodically by the Company for each Officer position upon which base salaries are administered. 2.24. "Short Term Incentive Award" means the actual amount awarded (including any amounts deferred pursuant to the AT&T Senior Management Incentive Award Deferral Plan) annually to an Officer pursuant to the AT&T Short Term Incentive Plan or predecessor short term incentive plans. Short Term Incentive Awards shall, for purposes of this Plan, be considered to be awarded on the last day of the performance period with respect to which they are earned. 2.25. "Standard Award" means an amount determined periodically for each Position Rate under the AT&T Short Term Incentive Plan or predecessor short term incentive plans. 2.26. "Successor Plan Sponsor" means Lucent Technologies Inc. and any other corporation or entity that enters into an agreement or agreements providing for the assumption of liabilities arising under this Plan comparable to the Management Interchange Agreement dated as of April 8, 1996, and the Employee Benefits Agreement dated February 1, 1996, and amended and restated as of March 29, 1996, between AT&T and Lucent Technologies Inc. 2.27. "Term of Employment" means the period of employment described in Section 2.38 of the Pension Plan and, unless expressly limited by the context, shall also mean the number of full or partial calendar years comprising Years of Service as defined in Section 2.39 of the Pension Plan. 2.28. "Total Compensation" As used in the Alternate Minimum Formula described in Section 4.02(c) means the sum of (i) the elements of Compensation as defined in Section 4.2(f) of the Pension Plan, (ii) salary amounts deferred under the AT&T Senior Management Incentive Award Deferral Plan, and (iii) Short Term Incentive Awards. 2.29. "Transition Participant" means a Participant as to whom the responsibility and liability for the payment of benefits accrued or payable under this Plan has been assumed by a Successor Plan Sponsor. ARTICLE 3 PARTICIPATION AND ELIGIBILITY 3.01. Participation. All Officers and E-band Employees who meet the criteria set forth in Section 2.18 shall be eligible to participate in this Plan. 3.02. Eligibility. (a) Service Benefit. Each Participant who is eligible for a service pension pursuant to the terms of the Pension Plan ( excluding for purposes of this Section 3.02(a) the effect of any management pension enhancement pursuant to Section 4.2(h) of the Pension Plan) and who meets the relevant requirements of Article 4 shall be eligible for a service benefit pursuant to this Plan. (b) Deferred Benefit. (i) Except as otherwise specified in Sections 4.04 and 4.05, an Officer who is eligible for a deferred vested pension pursuant to the terms and conditions of the Pension Plan is eligible for a deferred benefit pursuant to this Plan. (ii) An Officer who leaves the service of a Participating Company and who has elected to have his or her deferred vested pension payable early in reduced amounts pursuant to the terms and conditions of the Pension Plan shall be deemed to have elected to have his or her deferred benefits under this Plan payable early in reduced amounts under the same terms and conditions as set forth in the Pension Plan. In the event of such an election, the amount of deferred benefit otherwise payable at Normal Retirement Age under this Plan to such participant shall be reduced in accordance with the same formulas as are set forth in the Pension Plan for the discounting of the deferred vested pension. (iii) The Committee, the Administrator or a Delegate, as appropriate, shall notify each Officer who leaves the employment of such Participating Company (except to take employment without a break in service with another Participating Company or other Affiliated Corporation) of his or her eligibility, if any, for a deferred benefit by mailing, within a reasonable time after his or her leaving, a notice to his or her last known address as shown on the Participating Company's records. (c) Disability Benefit. A Participant who, while an Officer, has become eligible for a Disability Pension pursuant to Section 4.1(c) of the Pension Plan shall be eligible for a Disability Benefit hereunder. Should the Disability Pension be discontinued (other than by reason of conversion to a Service Pension) pursuant to the terms of the Pension Plan, the Disability Benefit hereunder shall be discontinued as well. (d) Contingent Benefits. (i) An Officer who, on or after January 1, 1986, is reassigned to a position evaluated below the E-band level for reasons other than unsatisfactory performance, and who has satisfied the vesting requirements of Section 3.02(a) or Section 3.02(b) of this Plan as of the reassignment date, will be eligible for Officer benefits upon his or her termination of employment provided he or she is then eligible for either a service pension under Section 4.1(a) or a deferred vested pension under Section 4.1(b) of the Pension Plan. The determination of the amount of such former Officer's benefits will be based on his or her Term of Employment completed as of the reassignment date and shall be computed in accordance with Section 4.02(a) in effect on such date. (ii) An Officer who, on or after January 1, 1986, is reassigned to a position evaluated below the E-band, and who has not satisfied the vesting requirements of this Plan as of the reassignment date, will not be eligible for benefits under this Plan upon his or her termination of employment. (iii) An Officer who, on or after January 1, 1986, is reassigned to a position evaluated at the E-band level for reasons other than unsatisfactory performance, and who has satisfied the vesting requirements of Section 3.02(a) or Section 3.02(b) of this Plan as of the reassignment date shall be eligible for a benefit (A) under Section 3.02(a), if such Officer is eligible for a service pension under Section 4.1(a) of the Pension Plan on the last day of his or her Term of Employment or (B) under Section 3.02(b), if such Officer is not eligible for a service pension under Section 4.1(a) of the Pension Plan on the last day of his or her Term of Employment. The benefit of any reassigned Officer described in this Section 3.02(d)(iii)(A) shall be computed based on his or her Term of Employment and in accordance with Section 4.02(b) in effect on the last day of such Term of Employment. The benefit of any reassigned Officer described in this Section 3.02(d)(iii)(B) shall be computed based on his or her Term of Employment completed as of the last day of the year in which his or her job is reclassified and in accordance with Section 4.02(a) in effect as of the date of such reassignment. (iv) A Participant, other than an Officer whose job is classified or reclassified during or after 1986 to a level below E-band will be eligible for the service benefit described in Section 3.02(a) and computed in accordance with Section 4.02(b) based on his or her Term of Employment completed as of the last day of 1988 or if later, the last day of the year in which his or her job is reclassified and based on the provisions of the Plan in effect on such day, provided he or she is then eligible for a service pension under the Pension Plan, and further provided he or she is not demoted subsequent to such day because of unsatisfactory job performance prior to retiring under the Pension Plan. ARTICLE 4 PENSION BENEFITS 4.01. Benefit Eligibility. (a) Officers. The following provisions govern the eligibility for benefits of Officers whose retirement date is on or after December 31, 1993. (i) The benefit of an Officer who had at least five Years of Service as an Officer as of December 31, 1993 will be the greater of the annual benefit amounts determined under the Basic Formula, the Alternate Formula or the Alternate Minimum Formula described in Sections 4.02(a), (b) and (c) respectively. (ii) The benefit of an Officer who is not described in Section 4.01(a)(i) but who is eligible for a service pension under Section 4.1(a) of the Pension Plan as of the last day of his or her Term of Employment will be the greater of the annual benefit amounts under the Basic Formula or the Alternate Formula described in Sections 4.02(a) and (b) respectively. (iii) The benefit of an Officer who is not described in Sections 4.01(a)(i) or (ii) but who is eligible for a deferred vested pension under Section 4.1(b) or a disability pension under Section 4.1(c) the Pension Plan as of the last day of his or her Term of Employment will be the amount determined under the Basic Formula described in Section 4.02(a). (iv) The benefit payable to the surviving lawful spouse of an Officer shall be determined in accordance with Section 4.02(d)(i), if the Officer is an employee at the time of death and in accordance with Sections 4.02(d)(ii) and (iii), if the Officer is not an employee at the time of death. (b) E-band Employees. The annual service benefit of an E-band Employee whose retirement date is on or after October 19, 1993, will be the amount computed under the Alternate Formula described in Section 4.02(b). The benefit payable to the surviving lawful spouse of an E-band Employee shall be determined in accordance with Section 4.02(d)(i), if the E-band Employee is an employee at the time of death. The formulas for computing the pension benefits of an E-band Employee whose employment terminated prior to October 19, 1993, are shown in Appendix A. 4.02. Benefit Formulas. (a) Basic Formula. The annual service or disability benefit under the Basic Formula shall be determined by adding (A) the product of one and five-tenths percent (1.5%) of the average annual Short Term Incentive Awards for the 1989 Base Period and the Officer's Term of Employment as of December 31, 1989, and (B) the sum of one and six-tenths percent (1.6%) of the Short Term Incentive Award for each successive full or partial calendar year of employment following 1989. (i) Early Retirement Discount. The monthly service benefit, determined in accordance with the Basic Formula of this Section 4.02(a), for each Officer who is granted a service benefit for reasons other than total disability as a result of sickness or injury, shall be reduced by one-half percent (0.5%) for each calendar month or part thereof by which his or her age at time benefits are first paid under this Plan is less than fifty-five (55) years, except that each Officer retired with thirty (30) or more years of service shall receive a monthly benefit allowance reduced by one-quarter percent (0.25%) for each calendar month or part thereof by which such Officer's age at the time benefits are first paid under this Plan is less than fifty-five (55) years. (ii) Deferred Benefit Amount. The monthly benefit for each Officer eligible for a deferred benefit under the provisions of Section 3.02(b) shall be calculated exclusively in accordance with the provisions specified as applicable to those receiving a benefit under this Section 4.02(a) effective as of the date such Officer leaves the service of a Participating Company. (iii) An Officer who leaves the service of a Participating Company with eligibility for a deferred benefit in accordance with Section 3.02(b) but who is not entitled to any other class of pension or benefit under this Plan shall not be considered a retiree pursuant to the Pension Plan or a retired Officer. (b) Alternate Formula. The annual benefit under the Alternate Formula shall be the excess of B over A, where A equals the Participant's Pension Plan Benefit and B equals the product of one and seven-tenths percent (1.7%) of the Participant's Adjusted Career Average Pay, less eight-tenths of one percent (0.8%) of the Participant's Covered Compensation Base, and the Participant's Term of Employment. The service benefit under this Alternate Formula will be reduced in case of retirement before age 60 by applying the appropriate reduction factor from the Table of such factors shown in Appendix C to such benefit. (c) Alternate Minimum Formula. The annual benefit under the Alternate Minimum Formula in this Section 4.02(c) shall be an amount equal to (A) the product of the greater of the amount determined under Formula A or the amount determined under Formula B, multiplied by the applicable factor set forth in Appendix B, less (B) the amount of the Officer's Pension Plan Benefit. (i) Formula A. For purposes of the Alternate Minimum Formula in this Section 4.02(c), Formula A means the sum of (a) the product of one and five tenths percent (1.5%) of average calendar year Total Compensation for the 1992 Base Period and the Term of Employment as of December 31, 1992 and (b) one and six tenths percent (1.6%)of Total Compensation for the calendar year 1993 actuarially reduced in case of retirement before age 55 by applying the appropriate reduction factor set forth in Section 4.02(a)(i). (ii) Formula B. For purposes of this Alternate Minimum Formula in this Section 4.02(c), Formula B means the product of (a) the excess of one and seven tenths percent (1.7%) of Adjusted Career Average Pay, over eight tenths of one percent (0.8%) of the Covered Compensation Base, and (b) the Officer's Term of Employment at December 31, 1993, reduced in case of retirement before age 60 by applying the appropriate reduction factor set forth in Appendix C. (d) Automatic Survivor Annuities. (i) Before-Retirement. In the event of the death of an active Participant whose Term of Employment includes at least fifteen years or who is eligible for a service benefit under Section 4.02(a) at the time of his or her death and who leaves a surviving lawful spouse, such surviving lawful spouse shall receive, effective on the day following the date of death, a survivor annuity in the amount of forty five percent (45%) of the benefit which would have been payable had such Participant retired with a service benefit, regardless of his or her actual eligibility therefor, on the date of his or her death. For purposes of the automatic survivor annuity provided in this Section 4.02(d)(i), the early retirement discounts in Sections 4.02(a)(i) and 4.02 (b)(i) shall not apply. (ii) Post-Retirement. Upon the death of an Officer receiving a service or disability benefit under this Plan who retired on or after December 31, 1986 or retired prior to that date but had not reached age 55 on or before December 31, 1983, a survivor annuity in the amount of 45% of such retired Officer's monthly benefit amount will be payable beginning on the day following the date of his or her death to the surviving lawful spouse of such retired Officer. (iii) Post-Retirement Transition Cases. In the case of a deceased Officer who retired prior to December 31, 1987, the survivor annuity payable under Section 4.02(d)(ii) above, shall be increased by the amount required, if any, to bring the total monthly survivor annuity payable under this Plan to an amount computed by multiplying the product of the average of such Officer's Standard Awards for a maximum of six (6) years prior to his or her retirement year and sixty-five hundredths percent (0.65%) by his or her Term of Employment, and dividing the result by twelve (12); the Standard Awards includable in this computation cannot exceed sixty percent (0.60%) of such Officer's Position Rate. (e) Special Increases. Service and disability benefit payments, as determined under Sections 4.02(a) and (b), of retired Officers and service benefit payments, as determined under Section 4.02(b), of retired E-band Employees, and survivor annuities in pay status under Sections 4.02(d)(i), (d)(ii), and (d)(iii) shall be increased by the same percentage and pursuant to the same terms and conditions as are set forth for comparable payments, from time to time, in the Pension Plan. 4.03. Monthly Payments. The annual benefit determined under this Article 4 shall be divided by twelve (12) and shall be payable monthly or at such other periods as the Committee or the Administrator, as applicable, may determine in each case. 4.04. Commencement and Duration of Payments (i) Subject to the exception set forth in paragraph (ii) herein, benefits granted under this Plan shall commence on the date the benefits under the Pension Plan are first paid to the Participant and shall, except for the reasons specified in Sections 3.02(c), 4.05 and 9.12, continue to the death of the recipient. (ii) Any benefit payable to an Officer pursuant to Section 4.02(c) who had at least five Years of Service as an Officer as of December 31, 1993 and as to whom the sum of his or her attained age and Term of Employment equaled or exceeded seventy (70) as of that date shall be payable as of the last day of his or her Term of Employment and shall, except for the reasons specified in Section 4.05 and Section 9.12, continue to his or her death. (iii) Benefit amounts accrued and payable under this Article 4 but not actually paid at the time of death of a Participant shall be paid in accordance with the standards and procedures set forth in the Pension Plan. 4.05. Treatment During Subsequent Employment. When a Participant's Term of Employment includes service with more than one Participating Company or with a company that is not a Participating Company, the last Participating Company to employ him or her immediately prior to his or her retirement or termination of employment with entitlement to a benefit hereunder shall be responsible for the full benefit under this Plan. Employment with any Participating Company subsequent to retirement or termination of employment with entitlement to any type of benefit under this Plan shall result in the permanent suspension of the benefit for the period of such employment or reemployment to the extent and in a manner consistent with the terms and conditions applicable to the suspension of benefit payments under the Pension Plan. Payment of a Participant's benefit under this Plan shall resume simultaneously with the recommencement of his or her benefits under the Pension Plan. Following recommencement of payment under this Plan, the Participant (or surviving lawful spouse) shall not be eligible to receive any payments under this Plan that would otherwise have been payable but for the suspension. 4.06. Method and Form of Payment. Payments under this Article 4 shall be made in the same manner as set forth under the Pension Plan. ARTICLE 5 DEATH BENEFITS 5.01. Participation. Upon the death of an active Officer or an Officer who, on or after August 10, 1980, retires on a service or disability pension under the Pension Plan (excluding for purposes of this Section 5.01 the effect of any management pension enhancement pursuant to Section 4.2(h) of the Pension Plan) or who terminates employment with eligibility to receive payments under the Long Term Disability Plan, a Death Benefit shall be provided under this Article 5. The Death Benefits under this Article 5 are in addition to the accident, sickness and pensioner death benefits under the Death Benefit Plan in the Pension Plan and shall be paid to the same beneficiary or beneficiaries and administered in the same manner as such benefits under the Pension Plan. 5.02. Death Benefits. (a) Primary Death Benefit. In the case of the death of an Officer described in Section 5.01 a benefit equal to one year's wages shall be paid. (i) Death Prior to June 1, 1991. For purposes of determining the benefit payable under this Section 5.02(a) with respect to an Officer who dies on or after August 10, 1980 but prior to June 1, 1991, one year's wages is defined as the lesser of the Officer's Standard Award in effect as of the earlier of his or her retirement date, termination date or date of death, or the percentage shown below of his or her Position Rate as of the earlier of such dates: Percentage Retirement, Termination or Death: of Position Rate On or After September 30, 1983 through May 31, 1991 60% October 31, 1981 through September 29, 1983 50% August 10, 1980 through October 30, 1981 15% (ii) Death On or After June 1, 1991. For purposes of determining the benefit payable under this Section 5.02(a) with respect to an Officer who dies on or after June 1, 1991, one year's wages is defined as the greater of (A) his or her Short Term Award for the calendar year preceding the earlier of his or her date of death or date of retirement, or (B) the Officer's Short Term Award payable with respect to any later partial calendar year period of service. (b) Other Post-Retirement Death Benefits. An additional death benefit described in this Section 5.02(b) shall be provided under this Plan in the case of an Officer who retires on a service or disability Pension under the Pension Plan after December 31, 1986, or before such date provided he or she did not attain age 55 on or before December 31, 1983. The death benefits under Section 5.02(b)(ii) are provided also in the case of an Officer who terminates employment with entitlement to Long Term Disability Plan payments. (i) Group Life Differential. Upon the death of an Officer age 66 or older who retired after December 31, 1986, and before October 1, 1990, the difference between the amount of his or her Basic Group Life Insurance under the Company's Group Life Insurance Program which was in effect on the day before his or her sixty-sixth (66) birthday and the amount of such insurance in effect on the date of his or her death shall be paid in a lump sum to a beneficiary or beneficiaries designated by the Officer, or, if there is no such beneficiary, to the Officer's Estate. (ii) Tax Differential. An individual who is the beneficiary of a deceased retired Officer or an Officer who terminated employment with entitlement to Long Term Disability payments and who receives one or more of the benefits listed below, shall be eligible to receive, under this Section 5.02(b)(ii), a tax differential payment related to the difference between the beneficiary's assumed Federal Income tax liability on such benefit or benefits and the beneficiary's assumed Federal Income Tax liability had such benefit or benefits been funded by the proceeds of a life insurance policy on the life of the retired Officer: (A) Post-Retirement Survivo Annuity described in Section 4.02(d)(ii), (B) Pensioner Death Benefit described in Section 5.02(a), (C) Group Life Differential Death Benefit described in Section 5.02(b)(i), (D) Pensioner Death Benefit described in Paragraph 3 of Section 5 of the Pension Plan, and (E) The Death Benefit described in Section 5 of the Long Term Disability Plan. Federal Estate Tax and state and local inheritance or income taxes shall not be considered in computing the tax differential payment under this Section 5.02(b)(ii). ARTICLE 6 SOURCE OF PAYMENT 6.01. Source of Payments. AT&T may establish a trust to hold assets to be used to make benefit payments under the terms of this Plan, provided such trust does not cause the Plan to be "funded" within the meaning of ERISA. Funds invested hereunder shall, for purposes of this Plan, be considered to be part of the general assets of the Participating Company which invested the funds, and no Participant, beneficiary or lawful spouse shall have any interest or right in such funds. To the extent trust assets are available, they may be used to pay benefits arising under this Plan and all costs, charges and expenses relating thereto. To the extent that the funds held in the trust are insufficient to pay such benefits, costs, charges and expenses, AT&T or the responsible Participating Company shall pay such benefits, costs, charges and expenses from its general assets. In addition, AT&T may, in its sole discretion, direct that payments required under this Plan to any Participant or surviving lawful spouse be made through the purchase and distribution of one or more nontransferable annuity contracts or cause the trustee of the trust to purchase and distribute such annuity contracts. Any such purchase and distribution of an annuity contract shall be a full and complete discharge of the Plan's, AT&T's and the Participating Companies' liability for payments assumed by the issuer of the annuity contract. Further, the Senior Vice President, Human Resources, may determine, in his sole discretion, to pay additional sums to any Senior Manager, from the Company's general assets or from the trust, if any, to reimburse the Senior Manager for additional federal and state income taxes estimated to be incurred by reason of the distribution of any such annuity contracts. The Senior Vice President, Human Resources shall establish a methodology or methodologies for determining the amount of such additional sums. The methodology or methodologies selected shall be those that the Senior Vice President, Human Resources determines, in his sole discretion, to be the most effective and administratively feasible for the purpose of producing after tax periodic benefit payments that approximate the after tax periodic benefit payments that would have been received by [Senior Managers] in the absence of the distribution of the annuity contract. 6.02. Unfunded Status. The Plan at all times shall be entirely unfunded for purposes of the Internal Revenue Code of 1986 and ERISA, and, except as provided in Section 6.01, no provision shall at any time be made with respect to segregating any assets of a Participating Company for payment of any benefits hereunder. The Plan constitutes a mere promise by the Participating Company to make payments, if any, in the future. No Participant, surviving lawful spouse or any other person shall have any interest in any particular assets of a Participating Company by reason of the right to receive a benefit under the Plan and to the extent the Participant, surviving lawful spouse or any other person acquires a right to receive benefits under this Plan, such right shall be no greater than the right of any unsecured general creditor of a Participating Company. ARTICLE 7 ADMINISTRATION OF THE PLAN 7.01. Administration and Authorities. The Plan shall be administered by the Company and it shall have full discretionary authority to manage and control the operation and administration of the Plan, including the power to interpret provisions of the Plan, make determinations of fact, promulgate rules and regulations, determine benefit eligibility of individual and classes of Participants (including, without limitation, determinations of a Participant's applicable Term of Employment, Position Rate and rate of pay), delegate its powers and duties hereunder to the Committee, the Administrator or others and take such other action as it shall find necessary and appropriate to implement the provisions of the Plan. The Committee and the Administrator may retain attorneys, consultants, accountants or other persons (who may be employees of the Company or an Affiliated Corporation) to render advice and assistance and may delegate any of the authorities conferred on it to such persons as it shall determine to be appropriate to effect the discharge of its duties hereunder. The Company, the Affiliated Corporations and any of their Officers and E-band Employees shall be entitled to rely upon the advice, opinions, and determinations of any such persons. Any exercise of the authorities set forth in this Section, whether by the Company, the Committee or its Delegate, or the Administrator, shall be final and binding upon the Company, its Affiliated Corporations, their officers, directors and affected Participants and beneficiaries. 7.02. Committee. The Company has delegated to the Committee authority to make the final determination to grant or deny claims for benefits under the Plan with respect to Participants, surviving lawful spouses, and other beneficiaries and to authorize disbursements according to the terms of the Plan. 7.03. Indemnification. No member of the Board, the Committee or the Administrator shall be personally liable by reason of any contract or other instrument executed by such individual or on his or her behalf in his or her capacity as a member of the Board, Committee or the Administrator nor for any mistake of judgment made in good faith, and AT&T shall indemnify and hold harmless each member of the Board, each member of the Committee, the Administrator and each other employee, officer, or director of AT&T or any Participating Company to whom any duty or power relating to the administration or interpretation of the Plan may be allocated or delegated, against any cost or expense (including attorneys' fees) or liability (including any sum paid in settlement of a claim) arising out of any act or omission to act in connection with the Plan unless arising out of such person's own fraud or bad faith. 7.04. Benefit Claims and Appeals (a) Benefit Claims. All claims for benefit payments under the Plan shall be submitted in writing by Participants to the person designated by the Company to make determinations as to eligibility for benefits under the Plan and such person shall notify the Participant in writing within 90 days after receipt as to whether the claim has been granted or denied. This period may be extended for up to an additional 90 days in unusual cases provided that written notice of the extension is furnished to the claimant prior to the commencement of the extension. In the event the claim is denied, such notice shall (i) set forth the specific reason or reasons for denial, (ii) make reference to the pertinent Plan provisions on which the denial is based, (iii) describe any additional material or information necessary before the Participant's request may be acted upon favorably, and (iv) explain the procedure for appealing the adverse determination. (b) Benefit Appeals. A Participant whose claim for benefits has been denied may, within 60 days of receipt of any adverse benefit determination, appeal such denial to the Committee. All appeals shall be in the form of a written statement and shall (i) set forth all of the reasons in support of favorable action on the appeal, (ii) identify those provisions of the Plan upon which the claimant is relying, and (iii) include copies of any other documents or materials which may support favorable consideration of the claim. The Committee shall decide the issues presented within 60 days after receipt of such request, but this period may be extended for up to an additional 60 days in unusual cases provided that written notice of the extension is furnished to the claimant prior to the commencement of the extension. The decision of the Committee shall be set forth in writing, include specific reasons for the decision, refer to pertinent Plan provisions on which the decision is based, and shall be final and bindin on all persons affected thereby. ARTICLE 8 Adoption, Amendment and Termination 8.01. Adoption of Plan. Any Affiliated Corporation that participates in the Pension Plan may, with the consent of the Committee, elect to participate in the Plan. Such Affiliated Corporation shall become a Participating Company as of the date specified by the Committee in its resolution approving the participation of the Affiliated Corporation in the Plan. 8.02. Amendment and Termination. AT&T is the Sponsor of the Plan and the Board or its Delegate, may from time to time amend, modify or change the Plan as set forth in this document, and the Board or its Delegate (acting pursuant to the Board's delegations of authority then in effect) may terminate the Plan at any time. Plan amendments may include, but are not limited to, elimination or reduction in the level or type of benefits provided to any class or classes of Participant (and surviving lawful spouses). Any and all Plan amendments may be made without the consent of any Participant, surviving lawful spouse or beneficiary. Notwithstanding the foregoing, no such amendment, suspension or termination shall retroactively impair or otherwise adversely affect the rights of any Participant or surviving lawful spouse to benefits under the Plan to which they have previously become entitled as a result of a Participant's satisfaction of the vesting schedule of this Plan which is the same as and never will be greater than the vesting schedule under the Pension Plan. 8.03. Sale, Spin-Off, or Other Disposition of Participating Company. (a) Subject to Section 9.01 of this Plan, in the event AT&T sells, spins off, or otherwise disposes of an Affiliated Corporation, or disposes of all or substantially all of the assets of an Affiliated Corporation such that one or more Participants terminate employment for the purposes of accepting employment with the purchaser of such stock or assets, any person employed by such Affiliated Corporation who ceases to be an employee of the Company or an Affiliated Corporation as a result of the sale, spin-off, or disposition shall be deemed to have terminated his or her employment with a Participating Company for all relevant purposes under this Plan. (b) Notwithstanding the foregoing provisions of this Section 8.03, and subject to Section 9.01 of this Plan, if the sale, spin-off, or other disposition of the stock or assets of an Affiliated Corporation is to a Successor Plan Sponsor with the effect that a Participant is or becomes a Transition Participant, the Successor Plan Sponsor shall be solely liable for the payment of the pension and death benefits described in this Plan, and the entitlement of the Transition Participant or his or her surviving lawful spouse or beneficiary to benefits under this Plan shall terminate. A Transition Participant shall not be considered to have terminated his or her employment with AT&T or a Participating Company for any purpose under this Plan. ARTICLE 9 GENERAL PROVISIONS 9.01. Binding Effect. The Plan shall be binding upon and inure to the benefit of each Participating Company and its successors and assigns, and each Participant, employee, his or her successors, assigns, designees, spouse, and estate. The Plan shall also be binding upon any successor corporation or organization succeeding to substantially all of the assets and business of AT&T, but nothing in the Plan shall preclude AT&T from merging or consolidating into or with, or transferring all or substantially all of its assets to, another corporation which assumes the Plan and all obligations of AT&T hereunder. AT&T agrees that it will make appropriate provision for the preservation of the rights of Participants, employees and surviving lawful spouses under the Plan in any agreement or plan or reorganization into which it may enter to effect any merger, consolidation, reorganization or transfer of assets. Upon such a merger, consolidation, reorganization, or transfer of assets and assumption that results in a Participant continuing to be employed by the Company or an Affiliated Corporation, the term "Participating Company" shall refer to such other corporation and the Plan shall continue in full force and effect as to that Participant and his or her lawful spouse or other beneficiary. 9.02. Fiduciary Relationship. Nothing contained in the Plan, and no action taken pursuant to the provisions of the Plan, shall create or be construed to create a trust or contract of any kind, or a fiduciary relationship between or among AT&T, any other Participating Company, any Affiliated Corporation, the Board, the Administrator, the Committee, any Participant, employee, any surviving lawful spouse or any other person. 9.03. No Guarantee of Employment. Neither the Plan nor any action taken hereunder shall be construed as (i) a contract of employment or deemed to give any employee the right to be retained in the employment of a Participating Company, the right to any level of compensation, or the right to future participation in the Plan; or (ii) affecting the right of the Participating Company to discharge or dismiss any employee at any time. 9.04. Tax Withholding. AT&T shall withhold all federal, state, local or other taxes required by law to be withheld from payments or accruals under the Plan. 9.05. Assignment of Benefits. The benefits payable hereunder or the right to receive future benefits under the Plan may not be anticipated, alienated, sold, transferred, assigned, pledged, executed upon, encumbered, or subjected to any charge or legal process; no interest or right to receive a benefit may be taken, either voluntarily or involuntarily, for the satisfaction of the debts of, or other obligations or claims against, such person or entity, including without limitation, any judgment or claim for alimony, support or separate maintenance pursuant to a domestic relations order within the meaning of Section 206(d)(3) of ERISA and claims in bankruptcy proceedings. Any such attempted disposition shall be null and void. 9.06. Facility of Payment. If the Administrator shall find that any person to whom any amount is or was payable under the Plan is unable to care for his or her affairs because of illness or accident, then any payment, or any part thereof, due to such person (unless a prior claim therefor has been made by a duly appointed legal representative), may, if the Administrator so directs AT&T, be paid to the same person or institution that the benefits with respect to such person are paid under the Pension Plan if applicable, or to the Participant's surviving lawful spouse, a child, a relative, an institution maintaining or having custody of such person, or to any other person deemed by the Administrator to be a proper recipient on behalf of such person otherwise entitled to payment. Any such payment shall be in complete discharge of the liability of AT&T, the Board, the Committee, the Administrator, and the Participating Company therefor. If any payment to which a Participant or beneficiary is entitled under this Plan is unclaimed or otherwise not subject to payment to the person or persons so entitled, such amounts representing such payment or payments shall be forfeited after a period of two years from the date the first such payment was payable and shall not escheat to any state or revert to any party; provided, however, that any such payment or payments shall be restored if any person otherwise entitled to such payment or payments makes a valid claim. 9.07. Severability. If any section, clause, phrase, provision or portion of this Plan or the application thereof to any person or circumstance shall be invalid or unenforceable under any applicable law, such event shall not affect or render invalid or unenforceable the remainder of this Plan and shall not affect the application of any section, clause, provision, or portion hereof to other persons or circumstances. 9.08. Effective Date. This Plan first became effective for Officers actively employed on or after October 1, 1980 and for E-band Employees actively employed on or after on January 1, 1984 and is amended and restated effective January 1, 1995. 9.09. Plan Year. For purposes of administering the Plan, the plan year shall begin on January 1 and end on December 31. 9.10. Headings. The captions of the preceding sections and articles hereof have been inserted solely as a matter of convenience and shall not in any manner define or limit the scope or intent of any provision of the Plan. 9.11. Governing Law. To the extent such laws are not preempted by the laws of the United States of America, the Plan shall be governed by the laws of the State of New Jersey, except as to its principles of conflict of laws. 9.12. Forfeiture of Benefits. Except as provided in this Section 9.12 and Section 3.02, benefits previously awarded may not be canceled and, upon attaining the right under the Plan for an immediate service benefit or deferred benefit or for an automatic survivor annuity, such right shall be nonforfeitable. Notwithstanding any eligibility or entitlement to benefits of an individual arising or conferred under any other provision or paragraph of this Plan, all benefits for which a Participant would otherwise be eligible hereunder may be forfeited, at the discretion of the Board or the Committee, if an individual without the Company's consent establishes a relationship with a competitor of the Company or engages in activity in conflict with or adverse to the interests of the Company under the standards of the AT&T Non-Competition Guideline and as determined by the Board or the Committee in its sole discretion. 9.13. Option During Disability. If an employee who has left the service of a Participating Company has elected to continue receiving disability benefits which he or she had been receiving prior to his or her termination and to defer receiving pension payments under the Pension Plan to which he or she is eligible, benefits under the Plan shall be deferred until such time as the employee begins to receive payments under the Pension Plan. 9.14. Special Classification. For purposes of the Plan, the determination of those causes of death not classified as due to accident shall be accomplished in the same manner as set forth in the Pension Plan. 9.15. Claims Release. In case of accident resulting in the death of a Participant which entitles his or her beneficiaries or his or her annuitant to death benefits under the Plan, such beneficiaries or annuitant shall, prior to the payment of any such benefits, sign a release, releasing the Company or other Participating Companies, as applicable, from all claims and demands which the deceased had and which his or her beneficiaries or his or her annuitant may have against them, otherwise than under the Plan, on account of such accident. If any persons other than the beneficiaries under this Plan might legally assert claims against a Participating Company on account of the death of the individual, no part of the death benefit under the Plan shall be due or payable until there have also been delivered to the Committee or the Administrator, as applicable, good and sufficient releases of all claims, arising from or growing out of the death of the individual, which such other persons might legally assert against any Participating Company. The Committee or the Administrator, as applicable, in its discretion, may require that the releases described above shall release any other company connected with the accident, including the Company or any other Participating Company, as applicable. This requirement of a release or releases shall not apply in the case of Survivor Annuities as described in Section 4.02(d). 9.16. Damage Claims or Suits. Should a claim other than under the Plan be presented or suit brought against the Company or any Participating Company for damages on account of death of a Participant, nothing shall be payable under the Plan on account of such death except as provided in Section 9.17; provided, however, that the Committee or the Administrator, as applicable, may, in its discretion and upon such terms as it may prescribe, waive this provision if such claim be withdrawn or if such suit be discontinued; and provided further that this provision shall not preclude the payment of Survivor Annuities as described in Section 4.02(d). 9.17. Judgment or Settlement. In case any judgment is recovered against any Participating Company or any settlement is made of any claim or suit on account of the death of a Participant, and the amount paid to the beneficiaries who would have received benefits under the Plan is less than what would otherwise have been payable under the Plan, the difference between the two amounts may, in the discretion of the Committee or the Administrator, as applicable, be distributed to such beneficiaries. 9.18. Payment under Law. In the case of any benefit (which the Committee or the Administrator, as applicable, shall determine to be of the same general character as a payment provided by the Plan)that is payable to any Participant, to his or her beneficiaries, his or her estate or his or her annuitant under any law now in force or hereafter enacted, only the excess, if any, of the amount prescribed in the Plan above the amount of such payment prescribed by law shall be payable under the Plan; provided, however, that no benefit payable under the Plan shall be reduced by reason of any governmental benefit or pension payable on account of military service or by reason of any benefit which the recipient would be entitled to receive under the Social Security Act or Railroad Retirement Act. In those cases where, because of differences in the beneficiaries or in the time or methods of payment or otherwise, the determination of any such excess is not ascertainable by mere comparison but adjustments are necessary, the Committee or the Administrator, as applicable, shall, in its discretion, determine whether or not in fact any such excess exists and make the adjustments necessary to carry out in a fair and equitable manner the spirit of the provision for the payment of any such excess. Further, in determining whether or not there is an excess, to the extent any payments under any law are considered in determining whether there is any excess payable to an employee under any other comparable plan sponsored by the Company, the amount of such payments under law shall not be considered under this Plan. 9.19. Entire Plan. This written Plan document is the final and exclusive statement of the terms of this Plan, and any claim of right or entitlement under the Plan shall be determined in accordance with its provisions pursuant to the procedures described in Article 7. Unless otherwise authorized by the Board or its delegate, no amendment or modification to this Plan shall be effective until reduced to writing and adopted pursuant to Section 8.02. Appendix A Prior Pension Formulas The pension formulas in effect for retirements between the period from August 10, 1980 to April 14, 1991, inclusive, are outlined below. The Basic Formula shown in Part 1. applies solely to Officers; the Alternate Formula in Part 2. applies to all participants for service benefit purposes only, and an Officer is entitled to the greater benefit provided under either the Basic Formula or Alternate Formula. Part 1 - Basic Formula: The product of one and six tenths percentum (1.6%) and an Officer's Adjusted Career Income. The early retirement discounts shown is Paragraphs 3(b)(ii) and 4(b)(i) of Section 4 of the Plan apply to pension benefits under this Formula. "Adjusted Career Income" is calculated in two steps: Step 1 - Determine the average of the amount of short term incentive awards or standard awards up to a permitted maximum amount which were paid or effective during a specified pay base period and multiply this average amount by Term of Employment completed as of the end of the pay base period; Step 2 - Total the amount of the applicable awards after the pay base period to retirement and add this amount to the amount calculated under Step 1. The components of the adjusted career income calculation are shown below:
Type of Award Type of Award Limitation on Amount Date of Pay Base Includable in Includable after of Award Includable in Retirement Period Pay Base Period* Pay Base Period* Pension Computation - ---------- ------ ---------------- - ---------------- ------------------- 8-10-80 to 1-1-75 to Actual Short Term Actual Short Term 15% of Position Rate 1-30-82 12-31-79 Incentive Award Incentive Award 1-31-82 to 10-1-76 to Actual Actual for 1981 and 50% of Position Rate 9-29-83 9-30-81 1982; Standard for 1983 9-30-83 to 10-1-77 to Actual Actual for 1982; 60% of Position Rate 1-30-86 9-30-82 Standard for 1983 and after 1-31-86 to 7-1-79 to Actual to 1-1-83; Standard 60% of Position Rate 5-30-88 6-30-85 Standard for 1983 and after 5-31-88 to 1-1-84 to Standard Standard 60% of Position Rate 4-14-91 6-30-85 * Awards for partial years during and after the Pay Base Period and for the year of retirement are prorated. In addition, no award is includable for the year of retirement if an Officer does not complete at least 3 months of Active Service during such year.
Appendix A Part 2 - Alternate Formula: Provisions applicable from January 2, 1984 through May 30, 1988 The following Alternate Formula was effective for retirements on or after January 2, 1984 through May 30. 1988: A. The product of one and two-tenths percentum (1.2%) and Adjusted Career Average Pay, PLUS B. Ten dollars ($10.) and the product of five-hundredths percentum (.05%) and the difference between the Covered Compensation Base for the year of retirement and the Adjusted Career Average Pay. TIMES C. Term of employment at retirement, MINUS D. Annual Service pension payable under the Pension Plan before reduction for a Survivor Annuity or early retirement. The early retirement discount described in Appendix C of this Plan applies to the amounts computed under the Alternate Formula. "Adjusted Career Average Pay" in the case of an Officer is calculated by dividing the sum of the total Adjusted Career Income under the Basic Formula of this Plan in effect at retirement and the total Adjusted Career Income under the Pension Plan formula in effect at retirement by such Officer's Term of Employment at retirement. "Adjusted Career Average Pay" for an E-band Employee is Calculated by dividing the total Adjusted Career Income under the Pension Plan formula in effect at retirement by such employee's Term of Employment at retirement. Provisions applicable from May 31, 1988 through October 18, 1993 The following Alternate Formula was effective for retirements on or after May 31, 1988 through October 18. 1993: A. The product of one and seven-tenths percentum (1.7%) and Adjusted Career Average Pay, MINUS B. The product of eight-tenths (0.8%) and the Covered Compensation Base, TIMES C. Term of employment at retirement, MINUS D. Annual Service pension payable under the Pension Plan before reduction for a Survivor Annuity or early retirement. The early retirement discount described in Appendix C of this Plan applies to the amounts computed under the Alternate Formula. "Adjusted Career Average Pay" is calculated by dividing the sum of the total Adjusted Career Income under the Basic Formula of this Plan in effect at retirement and the total Adjusted Career Income under the Pension Plan formula in effect at retirement by such Officer's Term of Employment at retirement. Part 3 - Waiver of Death Benefit Waiver of the Death Benefit. If an Officer is deemed to have waived the death benefit under the Pension Plan, he or she will be deemed to have waived such death benefits pursuant to this Plan as well, provided he or she either died before January 1, 1987 or he or she retired or terminated employment before December 31, 1986 and had attained age 55 on or before December 31, 1983; if a prior waiver by an Officer of death benefits under the Pension Plan is deemed rescinded under the Pension Plan, such waiver is deemed rescinded under this Plan effective December 31, 1986.
APPENDIX B Section 4.02(c) Alternate Minimum Formula - Table of Factors Age Service 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 20 or less 1.33 1.33 1.33 1.36 1.43 1.47 1.43 1.38 1.33 1.28 1.25 1.20 1.15 1.10 1.05 1.00 21 1.38 1.32 1.32 1.35 1.42 1.46 1.42 1.37 1.32 1.27 1.24 1.19 1.14 1.09 1.05 1.00 22 1.42 1.37 1.31 1.34 1.41 1.45 1.41 1.36 1.30 1.26 1.23 1.18 1.14 1.09 1.05 1.00 23 1.47 1.41 1.36 1.33 1.40 1.44 1.40 1.35 1.29 1.25 1.22 1.17 1.13 1.09 1.04 1.00 24 1.52 1.46 1.40 1.39 1.39 1.43 1.39 1.34 1.29 1.24 1.21 1.17 1.12 1.08 1.04 1.00 25 1.58 1.51 1.45 1.43 1.45 1.42 1.38 1.33 1.28 1.23 1.20 1.16 1.12 1.08 1.04 1.00 26 1.57 1.50 1.44 1.42 1.44 1.41 1.37 1.32 1.27 1.22 1.19 1.15 1.11 1.08 1.04 1.00 27 1.57 1.49 1.43 1.42 1.43 1.40 1.36 1.31 1.26 1.21 1.18 1.15 1.11 1.07 1.04 1.00 28 1.56 1.48 1.42 1.41 1.43 1.39 1.36 1.31 1.25 1.21 1/18 1.14 1.11 1.07 1.04 1.00 29 1.55 1.48 1.42 1.40 1.42 1.39 1.35 1.30 1.25 1.20 1.17 1.14 1.10 1.07 1.03 1.00 30 1.38 1.36 1.33 1.35 1.39 1.38 1.34 1.29 1.24 1.19 1.17 1.13 1.10 1.07 1.03 1.00 31 1.38 1.35 1.33 1.34 1.39 1.37 1.34 1.29 1.24 1.19 1.16 1.13 1.10 1.06 1.03 1.00 32 1.37 1.35 1.32 1.34 1.38 1.37 1.33 1.28 1.23 1.18 1.16 1.12 1.09 1.06 1.03 1.00 33 1.37 1.34 1.32 1.34 1.38 1.36 1.33 1.28 1.23 1.18 1.15 1.12 1.09 1.06 1.03 1.00 34 1.36 1.34 1/31 1.33 1.37 1.36 1.32 1.27 1.22 1.17 1.15 1.12 1.09 1.06 1.03 1.00 35 or more 1.36 1.33 1.31 1.33 1.37 1.35 1.32 1.27 1.22 1.17 1.14 1.11 1.09 1.06 1.03 1.00
APPENDIX C Section 4.02(b) Alternate Formula Early Retirement Factors Based Upon Attained Years and Months of Age Attained Age Years Months 0 1 2 3 4 5 6 7 8 9 10 11 - - - - - - - - - - - -- -- 50 .29 .29 .30 .30 .31 .31 .32 .32 .32 .33 .33 .34 -- 51 .34 .34 .35 .35 .36 .36 .37 .37 .37 .38 .38 .39 -- 52 .39 .40 .40 .41 .42 .42 .43 .44 .44 .45 .46 .46 -- 53 .47 .48 .48 .49 .50 .50 .51 .52 .52 .53 .54 .54 -- 54 .55 .56 .57 .57 .58 .59 .60 .60 .61 .62 .63 .63 -- 55 .64 .64 .66 .66 .66 .66 .67 .67 .67 .67 .69 .69 -- 56 .69 .69 .71 .71 .71 .72 .72 .72 .74 .74 .74 .76 -- 57 .76 .76 .78 .78 .78 .79 .79 .79 .81 .81 .81 .83 -- 58 .83 .83 .84 .84 .86 .86 .88 .88 .88 .90 .90 .91 -- 59 .91 .91 .93 .93 .95 .95 .97 .97 .97 .98 .98 1.00 -- 60 1.00 --
EX-10 14 EXHIBIT (10)(III)(A)11 AT&T SENIOR MANAGEMENT INCENTIVE AWARD DEFERRAL PLAN (as amended December 20, 1995) 1. ELIGIBILITY Any Senior Manager (as defined in the AT&T 1987 Long Term Incentive Program [the "1987 Plan"]) of American Telephone and Telegraph Company ("AT&T") or an Affiliate (as defined in the 1987 Plan) who is eligible for an award under the AT&T Short Term Incentive Plan (the "Short Term Incentive Plan") and/or who has been granted a Performance Award or a Stock Unit Award under the AT&T Senior Management Long Term Incentive Plan (the "Long Term Incentive Plan") or the 1987 Plan, or who is eligible for an award under the AT&T Paradyne GMT Short Term Incentive Plan (the "Paradyne Plan"), shall be eligible to participate in this AT&T Senior Management Incentive Award Deferral Plan (the "Plan"). For purposes of the Plan, AT&T and any Affiliate shall be referred to as a "Participating Company". Prior to January 1, 1984, the Plan was named the Bell System Senior Management Incentive Award Deferral Plan. 2. PARTICIPATION (a) Prior to the beginning of any calendar year, any Senior Manager may elect to participate in the Plan by directing that (i) all or part of the awards under the Short Term Incentive Plan or the Paradyne Plan, or the Performance Awards or the Stock Unit Awards under the Long Term Incentive Plan or the 1987 Plan and/or (ii) all or part of the dividend equivalent payments under the Long Term Incentive Plan or the 1987 Plan, which such employee's Participating Company would otherwise pay currently to such employee in such calendar year and subsequent calendar years, shall be credited to a deferred account subject to the terms of the Plan. However, in no event shall the part of an award under any plan credited during any calendar year be less than $1,000 (based on a valuation at the time the award would otherwise be paid). There shall be no such minimum limitation on amounts credited during any calendar year that are related to dividend equivalent payments. In addition, prior to the beginning of any calendar year, the Chairman of the Board and any other Senior Manager designated by the Chairman of the Board may elect to participate in the Plan by directing that all or part of such Senior Manager's salary, which such employee's Participating Company would otherwise pay currently to such employee in such calendar year and subsequent calendar years, shall be credited to a deferred account subject to the terms of the Plan. (b) Such an election to participate in the Plan shall be in the form of a document executed by the employee and filed with the employee's Participating Company. An election related to awards, dividend equivalent payments and/ or salary otherwise payable currently in any calendar year shall become irrevocable on the last day prior to the beginning of such calendar year. (c) An election shall continue until the employee terminates or modifies such election by written notice. Any such termination or modification shall become effective as of the end of the calendar year in which such notice is given with respect to all awards, dividend equivalents and/or salary otherwise payable in subsequent calendar years. (d) An eligible employee who has filed a termination of election may thereafter again file an election to participate with respect to awards, dividend equivalent payments and/or salary otherwise payable in calendar years subsequent to the filing of such election. 3. DEFERRED ACCOUNTS (a) (i) Deferred amounts related to awards, dividend equivalent payments which would otherwise have been distributed in cash by a Participating Company and deferred amounts related to salary shall be credited to the employee's account and shall bear interest from the date the awards, dividend equivalent payments and/or salary would otherwise have been paid. The interest credited to the account will be compounded at the end of each calendar quarter, and the annual rate of interest applied at the end of any calendar quarter shall be determined by the AT&T Board of Directors from time to time. (ii) Furthermore, if an employee made an election described in Section 2, which election was effective on December 31, 1983, then such employee's account shall also be credited during 1984 with an amount equal to the deferred amounts which would have been credited to the employee's account during 1984 had the company which employed the employee on December 31, 1983 continued to be a Participating Company during 1984, and such amount shall bear interest in accordance with (a)(i) above from the date such amount would have been credited had such company continued to be a Participating Company during 1984. (b) Deferred amounts related to awards which would otherwise have been distributed in AT&T common shares by a Participating Company shall be credited to the employee's account as deferred AT&T shares. Furthermore, if an employee made an election described in Section 2, which election was effective on December 31, 1983, then such employee's account shall also be credited during 1984 with the deferred AT&T Shares which would have been credited to the employee's account had the company which employed the employee on December 31, 1983 continued to be a Participating Company in the Plan and in the Long Term Incentive Plan during 1984. The employee's account shall also be credited on each dividend payment date for AT&T shares with an amount equivalent to the dividend payable on the number of AT&T common shares equal to the number of deferred AT&T shares in the employee's account on the record date for such dividend. Such amount shall then be converted to a number of additional deferred AT&T shares determined by dividing such amount by the price of AT&T common shares, as determined in the following sentence. The price of AT&T common shares related to any dividend payment date shall be the average of the daily high and low sale prices of AT&T common shares on the New York Stock Exchange ("NYSE") for the period of five trading days ending on such dividend payment date, or the period of five trading days immediately preceding such dividend payment date if the NYSE is closed on the dividend payment date. (c) In the event of any change in outstanding AT&T common shares by reason of any stock dividend or split, recapitalization, merger, consolidation, combination or exchange of shares or other similar corporate change, the AT&T Board of Directors shall make such adjustments, if any, that it deems appropriate in the number of deferred AT&T shares then credited to employees' accounts. Any and all such adjustments shall be conclusive and binding upon all parties concerned. 4. DISTRIBUTION (a) At the time an eligible employee makes an election to participate in the Plan, the employee shall also make an election with respect to the distribution (during the employee's lifetime or in the event of the employee's death) of the amounts credited to the employee's deferred account. Such an election related to the distribution during the employee's lifetime, of amounts otherwise payable currently in any calendar year, shall become irrevocable on the last day prior to the beginning of such calendar year. The election related to the distribution in the event of the employee's death, including the designation of a beneficiary or beneficiaries, may be changed by the employee at any time by filing the appropriate document with the Secretary of the Company. Amounts credited as cash plus accumulated interest shall be distributed in cash; amounts credited as deferred AT&T shares shall be distributed in the form of an equal number of AT&T shares. (b) An employee may elect to receive the amounts credited to the employee's account in one payment or in some other number of approximately equal annual installments (not exceeding 20), provided however, that the number of annual installments may not extend beyond the life expectancy of the employee, determined as of the date the first installment is paid. The employee's election shall also specify that the first installment (or the single payment if the employee has so elected) shall be paid either (1) on the first day of the calendar quarter next following the end of the month in which the employee attains the age specified in such election, which age shall not be earlier than age 55 or later than age 70-1/2, (2) on the first day of the calendar quarter next following the end of the month in which the employee retires from a Participating Company or otherwise terminates employment with any Participating Company (except for a transfer to another Participating Company); provided, however, that the AT&T Board of Directors or the Compensation Committee of such Board may, in its sole discretion, direct that the first installment (or the single payment) shall be paid on the first day of the first calendar quarter in the calendar year next following the year of retirement or other termination of employment, or (3) on the first day of the first calendar quarter in the calendar year next following the calendar year in which the employee retires from a Participating Company or otherwise terminates employment with any Participating Company (except for a transfer to another Participating Company). (c) Notwithstanding an election pursuant to Paragraph (b) of this Section 4, the entire amount then credited to an employee's account shall be paid immediately in a single payment (a) if the employee is discharged for cause by his or her Participating Company, (b) if the Board of Directors of such Participating Company determined that the employee engaged in misconduct in connection with the employee's employment with the Participating Company, (c) if the employee without the consent of the Board of Directors of his or her Participating Company, while employed by such Participating Company or after the termination of such employment, becomes associated with, employed by, or renders services to, or owns an interest in, any business that is in competition with any Participating Company or with any business in which a Participating Company has a substantial interest (other than as a shareholder with a non-substantial interest in such business), or (d) the employee becomes employed by a governmental agency having jurisdiction over the activities of a Participating Company or any of its subsidiaries. (d) An employee may elect that, in the event the employee should die before full payment of all amounts credited to the employee's account, the balance of the deferred amounts shall be distributed in one payment or in some other number of approximately equal annual installments (not exceeding 10) to the beneficiary or beneficiaries designated in writing by the employee, or if no designation has been made, to the estate of the employee. The first installment (or the single payment if the employee has so elected) shall be paid on the first day of the calendar quarter next following the month of death; provided, however, that the AT&T Board of Directors or the Compensation Committee of such Board may, in its sole discretion, direct that the first installment (or the single payment) shall be paid on the first day of the first calendar quarter in the calendar year next following the year of death. (e) Installments subsequent to the first installment to the employee, or to a beneficiary or to the employee's estate, shall be paid on the first day of the applicable calendar quarter in each succeeding calendar year until the entire amount credited to the employee's deferred account shall have been paid. Deferred amounts held pending distribution shall continue to be credited with interest or additional deferred AT&T shares, as applicable, determined in accordance with Section 3(a) and (b). (f) In the event an employee, or the employee's beneficiary after the employee's death, incurs a severe financial hardship, the AT&T Board of Directors or the Compensation Committee of such Board, in its sole discretion, may accelerate or otherwise revise the payment schedule from the employee's account to the extent reasonably necessary to eliminate the severe financial hardship. For the purpose of this subsection (f), a severe financial hardship must have been caused by an accident, illness, or other event beyond the control of the employee or, if applicable, the beneficiary. (g) The obligation to make a distribution of deferred amounts credited to an employee's account during any calendar year plus the additional amounts credited on such deferred amounts pursuant to Section 3(a) and (b) shall be borne by the Participating Company which otherwise would have paid the related award or salary currently. However, the obligation to make distribution with respect to deferred amounts which are related to amounts credited to an employee's account under Section 3(a)(ii) and under the second sentence of Section 3(b), and with respect to which no Participating Company would otherwise have paid the related award currently, shall be borne by the Participating Company which employed the employee on January 1, 1984. 5. MISCELLANEOUS (a) The deferred amounts shall be held in the general funds of the Participating Companies. The Participating Companies shall not be required to reserve, or otherwise set aside, funds for the payment of such amounts. (b) The rights of an employee to any deferred amounts plus the additional amounts credited pursuant to Section 3(a) and (b) shall not be subject to assignment by the employee. (c) The Senior Vice President - Human Resources of AT&T shall have the authority to administer and to interpret the Plan. (d) The AT&T Board of Directors may at any time amend the Plan or terminate the Plan, but such amendment or termination shall not adversely affect the rights of any employee, without his or her consent, to any benefit under the Plan to which such employee may have previously become entitled prior to the effective date of such amendment or termination. The Senior Vice President Human Resources of AT&T with the concurrence of the Senior Vice President and General Counsel of AT&T shall be authorized to make minor or administrative changes to the Plan, as well as amendments required by applicable federal or state law (or authorized or made desirable by such statutes). EX-10 15 EXHIBIT (10)(III)(A)12 AT&T MID-CAREER PENSION PLAN AT&T Corp. and Such of its Subsidiary Companies which are Participating Companies Amended and Restated as of October 1, 1996 AT&T MID-CAREER PENSION PLAN Table of Contents 1. BACKGROUND AND PURPOSE......................................................1 2. DEFINITIONS.................................................................2 2.1. ADEA.................................................................2 2.2. ADMINISTRATOR........................................................2 2.3. AFFILIATED CORPORATION...............................................2 2.4. AT&T CONTROLLED GROUP................................................2 2.5. BOARD................................................................2 2.6. CODE.................................................................2 2.7. COMMITTEE............................................................2 2.8. COMPANY..............................................................2 2.9. COMPENSATION.........................................................2 2.10. D-BAND..............................................................2 2.11. E-BAND..............................................................3 2.12. INTERCHANGE AGREEMENT...............................................3 2.13. INTERCHANGE COMPANY.................................................3 2.14. MANDATORY RETIREMENT AGE............................................3 2.15. MID-CAREER PENSION CREDITS..........................................3 2.16. NORMAL RETIREMENT AGE...............................................3 2.17. PARTICIPATING COMPANY...............................................3 2.18. PENSION PLAN........................................................4 2.19. PLAN................................................................4 2.20. PLAN YEAR...........................................................4 2.21. SUBSIDIARY..........................................................4 2.22. TERM OF EMPLOYMENT..................................................4 2.23. TRANSFERRED INDIVIDUAL..............................................4 3. ADMINISTRATION..............................................................5 3.1. ADMINISTRATION.......................................................5 3.2. ROLE OF THE COMMITTEE................................................5 3.3. CLAIMS PROCEDURE.....................................................5 (a) Benefit Claims....................................................5 (b) Benefit Appeals...................................................5 (c) Final Review......................................................6 3.4. INDEMNIFICATION......................................................6 3.5. NAMED FIDUCIARIES....................................................6 3.6. ALLOCATION OF RESPONSIBILITIES.......................................6 3.7. MULTIPLE CAPACITIES..................................................6 4. BENEFITS....................................................................7 4.1. PARTICIPANT..........................................................7 4.2. ELIGIBILITY..........................................................7 (a) Employee..........................................................7 (b) Service and Disability Benefit....................................8 (c) Deferred Benefit..................................................8 (d) Contingent Benefits...............................................8 4.3. BENEFIT AMOUNTS......................................................8 (a) Calculation of Monthly Pension Benefit............................8 (b) Early Retirement Discount........................................10 (c) Deferred Benefit Amount..........................................10 (d) Management Pension Enhancement...................................10 (e) Special Increases................................................11 4.4. TREATMENT DURING SUBSEQUENT EMPLOYMENT..............................11 4.5. COMMENCEMENT AND DURATION OF PAYMENTS...............................11 (a) Service or Disability Benefit....................................11 (b) Deferred Benefit.................................................11 4.6. FORFEITURE OF BENEFITS..............................................11 5. GENERAL PROVISIONS.........................................................13 5.1. NO GUARANTEE OF EMPLOYMENT..........................................13 5.2. ASSIGNMENT OR ALIENATION............................................13 5.3. BREAKS IN SERVICE...................................................13 5.4. LEAVE OF ABSENCE....................................................13 5.5. METHOD OF PAYMENT...................................................13 5.6. AMOUNTS ACCRUED PRIOR TO DEATH......................................13 5.7. FACILITY OF PAYMENT.................................................13 5.8. OPTION DURING DISABILITY............................................14 5.9. PAYMENTS UNDER LAW..................................................14 5.10. BINDING EFFECT.....................................................14 5.11. SEVERABILITY.......................................................15 5.12. HEADINGS...........................................................15 5.13. ENTIRE PLAN........................................................15 6. PLAN MODIFICATION..........................................................16 6.1. AMENDMENT AND TERMINATION...........................................16 7. SOURCE OF PAYMENT..........................................................17 7.1. SOURCE OF PAYMENTS..................................................17 7.2. UNFUNDED STATUS.....................................................17 8. DISPOSITION OF PARTICIPATING COMPANY.......................................18 8.1. SALE, SPIN-OFF, OR OTHER DISPOSITION OF PARTICIPATING COMPANY.......18 DISPOSITION OF PARTICIPATING COMPANY AT&T MID-CAREER PENSION PLAN AMENDED AND RESTATED effective October 1, 1996. Article 8 1. Background and Purpose The purpose of the AT&T Mid-Career Pension Plan is to provide certain unfunded single life pension payments, as set forth more fully herein, to eligible employees of the Company and such other subsidiaries of the Company that become Participating Companies. The Plan is intended to constitute an unfunded pension plan for a select group of management or highly compensated employees for purposes of Title I of the Employee Retirement Income Security Act of 1974, as amended. Except as expressly provided below, this amended and restated plan document applies only to Employees who terminate employment on or after October 1, 1996. For former Employees who terminated employment before October 1, 1996 , the provisions of the AT&T Mid-Career Pension Plan in effect at termination of the former Employee's employment governs. Effective October 1, 1996, Lucent Technologies Inc. established the Lucent Technologies Inc. Mid-Career Pension Plan as a successor to the AT&T Mid-Career Pension Plan, in effect as of September 30, 1996, with respect to Transferred Individuals (as defined in Article 2). Accordingly, the AT&T Mid-Career Pension Plan relinquished to the Lucent Technologies Inc. Mid-Career Pension Plan all liabilities as of September 30, 1996 relating to Transferred Individuals, and the Lucent Technologies Inc. Mid-Career Pension Plan assumed and is solely responsible for all such liabilities. Except to the extent required by law or Article 8 of this Plan, the Plan shall not recognize service and compensation before October 1, 1996 with respect to Transferred Individuals. Effective as of the date an individual becomes a "Transition Individual" (as defined in Section 1.38(a) or (d) of the Management Interchange Agreement or Section 1.30(a) or (d) of the Occupational Interchange Agreement), the Plan shall also assume and be solely responsible for all liabilities relating to such Transition Individuals. Article 2. Definitions Unless the context clearly indicates otherwise, the following terms have the meanings described below when used in this Plan and references to a particular Article or Section shall mean the Article or Section so delineated in this Plan. 2.1. ADEA The Age Discrimination in Employment Act of 1967, as amended from time to time. 2.2. Administrator The "Pension Plan Administrator" under the Pension Plan. 2.3. Affiliated Corporation Any corporation of which more than 50 percent of the voting stock is owned directly or indirectly by the Company. 2.4. AT&T Controlled Group The "AT&T Controlled Group" within the meaning of the Pension Plan. 2.5. Board The Board of Directors of the Company. 2.6. Code The Internal Revenue Code of 1986, as amended from time to time. Any reference to a particular section of the Code includes any applicable regulations promulgated under that section. 2.7. Committee The Employees' Benefit Committee appointed by the Company to administer the Pension Plan. 2.8. Company AT&T Corp., a New York corporation, or its successors. 2.9. Compensation "Compensation" within the meaning of the Pension Plan. 2.10. D-band "D-band," formerly D-level, Fourth level and SG-10 and SG-11, shall mean the level directly above C-band, or any equivalent salary grade or level as determined by the Company. 2.11. E-band "E-band," formerly E-Level, Fifth level and SG-12 through SG-14, shall mean the level directly above D-band, or any equivalent salary grade or level as determined by the Company. 2.12. Interchange Agreement An "Interchange Agreement" within the meaning of the Pension Plan. 2.13. Interchange Company An "Interchange Company" within the meaning of the Pension Plan. 2.14. Mandatory Retirement Age Age 65 for those employees referred to in ADEA ss. 12(c)(1) or at such later time as may first be permissible under such section of the ADEA. For those employees for whom age is a bona fide occupational qualification within the meaning of ADEA ss. 4(f)(1), the Mandatory Retirement Age shall be as may be applicable under the ADEA. 2.15. Mid-Career Pension Credits (a)......For those employees hired or rehired by a Participating Company at E-band or above, and all of whose Term of Employment is at E-band or above, Mid-Career Pension Credits is the difference between 35 years and the Term of Employment that could accrue if the employee worked to the later of Normal Retirement Age, retirement or termination of employment, provided that the Mid-Career Pension Credits shall not exceed the actual Term of Employment and shall not include any part-time service if the employee was hired on or after November 18, 1981. (b)......For those employees hired or rehired by a Participating Company at D-band or above, and whose Term of Employment includes service at D-band or below, Mid-Career Pension Credits is computed by multiplying the employee's Mid-Career Pension Credits as defined in Section 2.15(a), by a fraction, the numerator of which shall be the number of years and months of service completed at E-band and above, and the denominator of which shall be the actual Term of Employment at termination of employment, provided, however, that for any employee on the active roll as of August 29, 1991, his or her benefit under this Plan shall equal the greater of the benefit calculated under the definition of Mid-Career Pension Credits in this Section 2.15(b) as of the employee's retirement or termination of employment or the benefit accrued under the AT&T Mid-Career Pension Plan in effect as of August 29, 1991. 2.16. Normal Retirement Age "Normal Retirement Age" within the meaning of the Pension Plan. 2.17. Participating Company The Company or any subsidiary of the Company which is a Participating Company under the Pension Plan. 2.18. Pension Plan The AT&T Management Pension Plan. 2.19. Plan This AT&T Mid-Career Pension Plan. 2.20. Plan Year The Plan Year for the Plan shall be January 1 through December 31. 2.21. Subsidiary Any corporation of which more than 80% of the voting stock is owned directly or indirectly by the Company. 2.22. Term of Employment "Term of Employment" within the meaning of the Pension Plan for purposes of calculating the amount of an employee's benefit, except that "Term of Employment" shall not include any period of part-time employment completed after November 18, 1981, in the case of an employee hired or rehired by a Participating Company on or after November 18, 1981. 2.23. Transferred Individual A "Transferred Individual" within the meaning of the Employee Benefits Agreement between the Company and Lucent Technologies Inc. dated as of February 1, 1996, as amended. Article 3. Administration 3.1. Administration The Company shall be the "plan administrator" and the "sponsor" of the Plan as those terms are defined in ERISA. 3.2. Role of the Committee (a)......The Committee shall have the specific powers elsewhere herein granted to it and shall have such other powers as may be necessary in order to enable it to administer the Plan, except for powers herein granted or provided to be granted to others. (b)......The procedures for the adoption of by-laws and rules of procedure and for the employment of a secretary and assistants shall be the same as are set forth in the Pension Plan. 3.3. Claims Procedure (a) Benefit Claims All claims for benefit payments under the Plan shall be submitted in writing by the Participant or any individual duly authorized by him ("Claimant" for purposes of Section 3.3) to the Administrator. The Administrator shall notify the Claimant in writing within 90 days after receipt as to whether the claim has been granted or denied. This period may be extended for up to an additional 90 days in unusual cases provided that written notice of the extension is furnished to the Claimant prior to the commencement of the extension. In the event the claim is denied, such notice shall (i) set forth the specific reasons for denial, (ii) make reference to the pertinent Plan provisions on which the denial is based, (iii) describe any additional material or information necessary before the Claimant's request may be acted upon, and (iv) explain the procedure for appealing the adverse determination. (b) Benefit Appeals A Claimant whose claim for benefits has been denied, in whole or in part, may, within 60 days of receipt of any adverse benefit determination, appeal such denial to the Committee. All appeals shall be in the form of a written statement and shall (i) set forth all of the reasons in support of favorable action on the appeal, (ii) identify those provisions of the Plan upon which the Claimant is relying, and (iii) include copies of any other documents or materials which may support favorable consideration of the claim. The Committee shall decide the issues presented within 60 days after receipt of such request, but this period may be extended for up to an additional 60 days in unusual cases provided that written notice of the extension is furnished to the Claimant prior to the commencement of the extension. The decision of the Committee shall be set forth in writing, include specific reasons for the decision, refer to pertinent Plan provisions on which the decision is based, and shall be final and binding on all persons affected thereby. Any Claimant whose claim for benefits has been denied shall have such further rights of review as are provided in ERISA ss. 503, and the Committee anD Administrator shall retain such right, authority, and discretion as is provided in or not expressly limited by ERISA ss. 503. (c) Final Review The Committee shall serve as the final review committee, under the Plan and ERISA, for the review of all appeals by Claimants whose initial claims for benefits have been denied, in whole or in part, by the Administrator. The Committee shall have the authority to determine conclusively for all parties any and all questions arising from administration of the Plan, and shall have sole and complete discretionary authority and control to manage the operation and administration of the Plan, including, but not limited to, authorizing disbursements according to the Plan, the determination of all questions relating to eligibility for participation and benefits, interpretation of all Plan provisions, determination of the amount and kind of benefits payable to any Participant, and the construction of disputed and doubtful terms. Such decisions by the Committee shall be conclusive and binding on all parties and not subject to further review. 3.4. Indemnification Neither the Administrator, any member of the Board or of the Committee, nor each other employee or officer to whom any duty or power relating to the administration or interpretation of the Plan may be allocated or delegated, shall be personally liable by reason of any contract or other instrument executed by such individual or on his or her behalf in his or her capacity as the Administrator or as a member of the Board or of the Committee, nor for any mistake of judgment made in good faith, and the Company shall indemnify and hold harmless the Administrator, each member of the Board, each member of the Committee, and each other employee or officer to whom any duty or power relating to the administration or interpretation of the Plan may be allocated or delegated, against any cost or expense (including attorneys' fees) or liability (including any sum paid in settlement of a claim) arising out of any act or omission to act in connection with the Plan unless arising out of such person's own fraud or bad faith. 3.5. Named Fiduciaries The Committee, the Administrator and each Participating Company is each a named fiduciary as that term is used in ERISA with respect to the particular duties and responsibilities allocated to each of them. 3.6. Allocation of Responsibilities The Company may allocate responsibilities for the operation and administration of the Plan consistent with the Plan's terms, including allocation of responsibilities to the Committee and the other Participating Companies. The Company and other named fiduciaries may designate in writing other persons to carry out their respective responsibilities under the Plan, and may employ persons to advise them with regard to any such responsibilities. 3.7. Multiple Capacities Any person or group of persons may serve in more than one fiduciary capacity with respect to the Plan. Article 4. Benefits 4.1. Participant An individual is a Participant in this Plan if (a) the individual was hired or rehired by a Participating Company at age 35 or older and, (b) the individual was hired or rehired at D-band or above, and (c) the individual's Term of Employment includes at least one year of continuous employment for a Participating Company at D-band or above, provided, however, that if an individual was hired or rehired on or after November 18, 1981, such continuous employment was on a full-time basis (as classified by the Company), and (d) the individual terminates employment at E-band or above. 4.2. Eligibility (a) Employee For purposes of this Article 4, the word "Employee" shall mean (a) a Participant, as defined in Section 4.1 and (b) who (i) if hired or rehired by a Participating Company before November 18, 1981, has completed a Term of Employment of at least five years for one or more Participating Companies at E-band or above, prior to the last day of the month in which he or she reaches Normal Retirement Age, or (ii) if hired or rehired by a Participating Company on or after November 18, 1981, has completed a Term of Employment of at least five years, classified by the Company as full-time, for one or more Participating Companies at E-band or above, prior to the last day of the month in which he or she reaches Normal Retirement Age, provided, however, that unless approved by the Board, or its delegate, an individual is not an Employee if: (i) the individual (ineligible to participate in this Plan because he or she was hired after age 35 and/or he or she was hired below D-band) terminates employment with a Participating Company, and is rehired by a Participating Company within one year of his or her termination of employment; (ii) the individual terminates employment with a company with which a Participating Company has an Interchange Agreement, and is hired by a Participating Company within one year of termination of employment, if the individual has not waived coverage pursuant to the terms of the applicable Interchange Agreement; (iii) the individual terminates employment with a company in which a Participating Company has an ownership interest, and is hired or rehired by a Participating Company within one year of termination of employment, unless he or she was a Participant in the Plan prior to employment with the AT&T non-Controlled Group company or the nonparticipating AT&T Controlled Group company; or (iv) the individual is employed by a company which is acquired by a Participating Company. (b) Service and Disability Benefit Any Employee shall be eligible for a service benefit or a disability benefit pursuant to this Plan if he or she is eligible for a service or a disability pension pursuant to the Pension Plan, including an Employee who is eligible for a service pension as the result of a Transition Leave of Absence or a Transition to Retirement as set forth in the Pension Plan. (c) Deferred Benefit Any Employee is eligible for a deferred benefit pursuant to this Plan if the Employee is not eligible for either a service or a disability pension under the Pension Plan. (d) Contingent Benefits An Employee whose job category has been reclassified during the Grandfathering Period, defined below, from E-band to a salary grade level below E-band, and who has completed a Term of Employment of at least five years at (1) E-band or above, or (2) the reclassified level below E-band prior to the end of the Grandfathering period, shall be entitled to a frozen benefit under this Plan based upon the terms of this Plan and his or her Term of Employment as of the last day of the Grandfathering Period, provided, however, that such Employee shall not be entitled to a benefit under this Plan if he or she has been demoted for performance subsequent to job reclassification and prior to attainment of the requisite number of years of benefit eligibility. The Grandfathering Period shall be January 1, 1986 through the later of December 31, 1988 or the last day of the calendar year in which the job has been reclassified. If an Employee whose job has been reclassified, as described in this Section 4.2(d), is promoted to E-band or above, his or her benefit under this Plan shall be calculated as if his or her job had never been reclassified. 4.3. Benefit Amounts (a) Calculation of Monthly Pension Benefit (i) Formula The annual benefit amount will equal: [GRAPHIC OMITTED] + [GRAPHIC OMITTED] Where: A = Mid-Career Pension Credits; B = One-half of the Pension Plan Base Formula Multiplier; C = Average Base Period Compensation x Term of Employment to the end of the Base Period divided by Total Term of Employment; D = One-half of the AT&T Non-Qualified Pension Plan ("NQPP") Base Formula Multiplier; E = NQPP Average Base Period Compensation x Term of Employment to the end of the Base Period divided by Total Term of Employment; F = One-half of the Pension Plan Post-Base Formula Multiplier; G = Post-Base Period Compensation divided by Total Term of Employment; H = One-half of the NQPP Post-Base Formula Multiplier; I = NQPP Post-Base Period Compensation divided by Total Term of Employment. (ii) Mid-Career Pension Credits For purposes of determining A in Section 4.3(b)(i), "Mid-Career Pension Credits" is defined in Section 2.15(a) or (b), as applicable. (iii) Base Period For purposes of determining B and C in Section 4.3(a)(i), "Base Period" shall be the pay base averaging period as is set forth in the Pension Plan effective August 1, 1994, provided, however, that if an Employee's benefit under the Pension Plan is determined under an earlier pay base averaging period, such other pay base averaging period shall be used for determining B & C in Section 4.3(a)(i). For purposes of determining D and E in Section 4.3(a)(i), "Base Period" shall be the 1989 Base Period as is set forth in the Basic Formula of the NQPP. (iv) Base Formula Multiplier For purposes of determining B in Section 4.3(a)(i), the "Pension Plan Base Formula Multiplier" shall be the numerical percentage which is multiplied by the Employee's average annual Compensation for the Base Period, in the calculation of the Employee's accrued pension benefit under the Pension Plan. For purposes of determining D in Section 4.3(a)(i), the "NQPP Base Formula Multiplier" shall be the numerical percentage which is multiplied by the Employee's average annual Short Term Incentive Awards for the Base Period, in the calculation of the Employee's accrued pension benefit under the Basic Formula of the NQPP. (v) Average Base Period Compensation For purposes of determining C in Section 4.3(a)(i), "Average Base Period Compensation" shall be the Employee's average annual Compensation for the Base Period, in the calculation of the Employee's accrued pension benefit under the Pension Plan, except that Compensation shall be defined for this purpose as not being limited by Code ss. 401(a)(17). For purposes of determining E in Section 4.3(a)(i), "NQPP Average Base Period Compensation" shall be the average annual Short Term Incentive Awards for the Base Period in the calculation of the Employee's accrued pension benefit under the Basic Formula of the NQPP. (vi) Total Term of Employment For purposes of determining C, E, G & I in Section 4.3(a)(i), "Total Term of Employment" shall be the Employee's actual Term of Employment as of retirement or termination of employment. (vii) Post-Base Formula Multiplier For purposes of determining F in Section 4.3(a)(i), "Pension Plan Post-Base Formula Multiplier" shall be the numerical percentage which is multiplied by the Employee's Compensation for periods after the Base Period, in the calculation of the Employee's accrued pension benefit under the Pension Plan. For purposes of determining H in Section 4.3(a)(i), the "NQPP Post-Base Formula Multiplier" shall be the numerical percentage which is multiplied by the Employee's Short Term Incentive Awards for periods after the Base Period, in the calculation of the Employee's accrued pension benefit under the Basic Formula of the NQPP. (viii) Post-Base Period Compensation For purposes of determining G in Section 4.3(a)(i), "Post-Base Period Compensation" shall be the Employee's Compensation after the Base Period, in the calculation of the Employee's accrued pension benefit under the Pension Plan, except that Compensation shall be defined for this purpose as not being limited by Code ss. 401(a)(17). For purposes of determining I in Section 4.3(a)(i), "NQPP Post-Base Period Compensation" shall be the Employee's Short Term Incentive Awards for periods after the Base Period, in the calculation of the Employee's accrued pension benefit under the Basic Formula of the NQPP. (b) Early Retirement Discount Where an Employee terminates from service under the age of 55 years and commences a service pension under the Pension Plan, his or her monthly service benefit, as set forth in Section 4.2(b), shall be reduced in the same manner as is set forth in the Pension Plan in the case of service pensions. (c) Deferred Benefit Amount The monthly benefit amount for each person eligible for a deferred benefit under the provisions of Section 4.2(c) shall be calculated exclusively in accordance with the provisions specified as applicable to those receiving a benefit under Section 4.2(b) effective as of the date his or her benefit payments commence pursuant to Section 4.5(b). No recomputation of the benefit shall be made after such date or as a result of amendments made to this Plan subsequent to such date. (d) Management Pension Enhancement The calculation of benefit amounts and eligibility for a benefit amount shall be determined without regard to the Management Pension Enhancement set forth in the Pension Plan. (e) Special Increases Monthly service and disability benefit payments, as determined in Section 4.3(a), of retired Employees shall be increased by the same percentage and pursuant to the same terms and conditions as are set forth in the Pension Plan. 4.4. Treatment During Subsequent Employment Notwithstanding any other provision of this Plan, employment with any Participating Company or with any Interchange Company (if the Employee is covered by the applicable Interchange Agreement and, if applicable, has not waived coverage pursuant to the terms of the Interchange Agreement), subsequent to retirement or termination of employment with entitlement to any type of benefit described heretofore shall result in the permanent suspension of the benefit for the period of such employment or reemployment. Notwithstanding any other provision of this Plan, employment with any AT&T Controlled Group company which is not a Participating Company subsequent to retirement or termination of employment with entitlement to any type of benefit described heretofore shall result in the permanent suspension of the benefit for the period of such employment or reemployment if the Employee's benefit under the Pension Plan is suspended by reason of such employment. 4.5. Commencement and Duration of Payments Except for the reasons specified in Section 4.6, or as may be otherwise determined by the Company, benefits granted under this Plan shall commence as follows: (a) Service or Disability Benefit Payment of a service or disability benefit under this Plan shall commence to an Employee at the same time as the Employee's service or disability pension benefits commence under the Pension Plan and shall continue to the Employee's date of death, or, in the case of a disability benefit, until termination of disability pension payments under the Pension Plan, if earlier, subject to Section 4.4 of this Plan. (b) Deferred Benefit (i) Payment of a deferred benefit under this Plan shall commence to an Employee at the same time as the Employee's deferred vested pension benefits commence under the Pension Plan and shall continue to the Employee's date of death, subject to Section 4.4 of this Plan. (ii) Eligibility for a deferred benefit payable before Normal Retirement Age in reduced amounts shall be pursuant to the same terms and conditions as are set forth in the Pension Plan with respect to deferred vested pensions. 4.6. Forfeiture of Benefits (a) Notwithstanding Section 4.5, all or a portion of benefits for which an Employee would be otherwise eligible hereunder may be forfeited under the following circumstances, at the discretion of the Board or its delegate: (i) The Employee is discharged by a Participating Company for cause. For purposes of this Plan, cause shall mean: (A) The Employee's conviction (including a plea of guilty or nolo contendere) of a felony or any crime of theft, dishonesty or moral turpitude; (B) Gross omission or gross dereliction of any statutory or common law duty of loyalty to the Company. (ii) Determination by the Board or its delegate that the Employee engaged in misconduct in connection with the Employee's employment with a Participating Company or with any other entity of which the Company has an ownership interest. (iii) The Employee, without the consent of the Board, violates the AT&T Non-Competition Guideline. (b)......The portion of the benefit subject to forfeiture under the conditions described in this Section 4.6(a), are as follows: (i) The total benefit, or any unpaid benefit if the former Employee is in pay status, is subject to forfeiture, except as provided in Section 4.6(b)(ii). (ii) In the case of an Employee who is retiring at his or her Mandatory Retirement Age, as defined in ADEA, the provisions of Section 4.6(b)(i) shall not apply to that portion of the benefits computed under Section 4 of this Plan which, when added to the retirement payments payable under the Pension Plan (prior to any reduction for the cost of a survivor annuity) and the AT&T Excess Benefit and Compensation Plan, does not exceed the nonforfeitable retirement income requirement of ADEA ss. 12(c)(i). Article 5. General Provisions 5.1. No Guarantee of Employment Neither the Plan nor any action taken hereunder shall be construed as (i) a contract of employment or deemed to give any Participant the right to be retained in the employment of a Participating Company, the right to any level of compensation, or the right to future participation in the Plan; or (ii) affecting the right of a Participating Company to discharge or dismiss any Participant at any time. 5.2. Assignment or Alienation No service, disability, or deferred benefit under this Plan or any right or interest in such service, disability, or deferred benefit shall be assignable or subject in any manner to anticipation, alienation, sale, transfer, claims of creditors, garnishment, pledge, execution, attachment or encumbrance of any kind, including, but not limited to, pursuant to any domestic relations order (within the meaning of ERISA ss. 206(d)(3) and Code ss. 414(p)(1)(B)) or judgment or claims for alimony, support, separate maintenance, and claims in bankruptcy proceedings, and any such attempted disposition shall be null and void. 5.3. Breaks in Service For purposes of this Plan a break in service shall be defined and treated in the same manner as is set forth in the Pension Plan. 5.4. Leave of Absence For purposes of this Plan, a leave of absence shall be defined and administered in the same manner as is set forth in the Pension Plan. 5.5. Method of Payment Payments under this Plan shall be made in the same manner as is set forth under the Pension Plan. 5.6. Amounts Accrued Prior to Death Benefit amounts accrued but not actually paid at the time of death of a former employee or retiree shall be paid in accordance with the standards and procedures set forth in the Pension Plan. 5.7. Facility of Payment If the Administrator shall find that any person to whom any amount is or was payable under the Plan is unable to care for his or her affairs because of illness or accident, then any payment, or any part thereof, due to such person (unless a prior claim therefor has been made by a duly appointed legal representative), may, if the Administrator so directs the Company, be paid to the same person or institution that the benefit with respect to such person is paid or to be paid under the Pension Plan, or to the Participant's lawful spouse, a child, a relative, or institution maintaining or having custody of such person, or any other person deemed by the Administrator to be a proper recipient on behalf of such person otherwise entitled to payment. Any such payments made pursuant to this Section 5.7 shall be in complete discharge of the liability of the Company, the Board, the Committee, the Administrator, and the Participating Company therefor. If any payment to which a Participant or beneficiary is unclaimed, such payment shall be forfeited after a period of two years from the date the first such payment was payable and shall not escheat to any state or revert to any party; provided, however, that any such payment or payments shall be restored if any person otherwise entitled to such payment or payments makes a valid claim. 5.8. Option During Disability For an employee who has left the service of a Participating Company and has elected to continue receiving disability benefits which he or she had been receiving prior to his or her termination of employment (including disability benefits under the AT&T Senior Manager Long Term Disability and Survivor Protection Plan) and to defer receiving pension payments under the Pension Plan to which he or she is eligible, benefits under this Plan shall be deferred until such time as the employee begins to receive payments under the Pension Plan. 5.9. Payments Under Law In case any benefit which the Committee shall determine to be of the same general character as a payment provided by the Plan that is payable to a former employee of a Participating Company under any law now in force or hereafter enacted, the excess only, if any, of the amount prescribed in the Plan the amount of such payment prescribed by law shall be payable under the Plan; provided, however, that no benefit payable under this Plan shall be reduced by reason of any governmental benefit or pension payable on account of military service, or by reason of any benefit which the recipient would be entitled to receive under the Social Security Act or the Railroad Retirement Act. In those cases where, because of differences in the beneficiaries, or differences in the time or methods of payment, or otherwise, whether or not there is such excess is not ascertainable by mere comparison but adjustments are necessary, the Committee has discretion to determine whether or not in fact any such excess exists and to make the adjustments necessary to carry out in a fair and equitable manner the spirit of the provision for the payment of such excess. Further, in determining whether or not there is an excess, to the extent any payments under any law are considered in determining whether there is any excess payable to an employee under the Pension Plan, the amount of such payments under law shall not be considered under this Plan. 5.10. Binding Effect The Plan shall be binding upon and inure to the benefit of each Participating Company and its successors and assigns, and to each Participant, his or her successors, designees, beneficiaries, designated annuitants, and estate. The Plan shall also be binding upon any successor corporation or organization succeeding to substantially all of the assets and business of a Participating Company. Nothing in the Plan shall preclude a Participating Company from merging or consolidating into or with, or transferring all or a portion of all of its assets to, another corporation which assumes the Plan or a portion of the Plan and all or a portion of the obligations of a Participating Company hereunder. Each Participating Company agrees that it will make appropriate provision for the preservation of the rights of Participants and beneficiaries under the Plan in any agreement or plan or reorganization into which it may enter to effect any merger, consolidation, reorganization into which it may enter to effect any merger, consolidation, reorganization, or transfer of assets. Upon such a merger, consolidation, reorganization, or transfer of assets, the term "Participating Company" shall refer to such other corporation and the Plan shall continue in full force and effect. 5.11. Severability If any section, clause, phrase, provision, or portion of this Plan or the application thereof to any person or circumstance shall be invalid or unenforceable under any applicable law, such event shall not affect or render invalid or unenforceable the remainder of this Plan and shall not affect the application of any section, clause, provision, or portion hereof to other persons or circumstances. 5.12. Headings The captions preceding the sections and articles hereof have been inserted solely as a matter of convenience and shall not in any manner define or limit the scope or intent of any provisions of the Plan. 5.13. Entire Plan This written Plan document is the final and exclusive statement of the terms of this Plan, and any claim of right or entitlement under the Plan shall be determined in accordance with its provisions pursuant to the procedures described in Article 3. Unless otherwise authorized by the Board or its delegate, no amendment or modification to this Plan shall be effective until reduced to writing and adopted pursuant to Section 6.1. Article 6. Plan Modification 6.1. Amendment and Termination Pursuant to ERISA ss. 402(b)(3), the Board or its delegate, (acting pursuant to the Board's delegations of authority then in effect) may from time to time amend, modify or change the Plan at any time as set forth in this document, and the Board or its delegate (acting pursuant to the Board's delegations of authority then in effect) may terminate the Plan at any time. Plan amendments may include, but are not limited to, elimination or reduction in the level or type of benefits provided to employees. Any and all Plan amendments may be made without the consent of any employee. Notwithstanding the foregoing, no such amendment, suspension or termination shall retroactively impair or otherwise adversely affect the accrued benefit of any employee as of the date of such action. Article 7. Source of Payment 7.1. Source of Payments Benefits arising under this Plan and all costs, charges, and expenses relating thereto will be payable from the Company's general assets. The Company may, however, establish a trust to pay such benefits and related expenses, provided such trust does not cause the Plan to be "funded" within the meaning of ERISA. To the extent trust assets are available, they may be used to pay benefits arising under this Plan and all costs, charges, and expenses relating thereto. To the extent that the funds held in the trust, if any, are insufficient to pay such benefits, costs, charges and expenses, the Company shall pay such benefits, costs, charges, and expenses from its general assets. In addition, the Company may, in its sole discretion, purchase and distribute one or more commercial annuity contracts, or cause the trustee of the trust to purchase and distribute one or more commercial annuity contracts, to make benefit payments required under this Plan, to any Senior Manager, as defined in the AT&T Non-Qualified Pension Plan, or the Surviving Spouse of any Senior Manager, provided, however, that the purchase and distribution of any such annuity contracts shall be no sooner than the expiration of any forfeiture provisions applicable to the Senior Manager under the AT&T Non-Competition Guidelines. Such annuity contracts may be purchased from a commercial insurer acceptable to the Executive Vice President - Human Resources. Further, the Executive Vice President - Human Resources, may determine, in his sole discretion, to pay additional sums to any Senior Manager, from the Company's general assets or from the trust, if any, to reimburse the Senior Manager for additional federal and state income taxes estimated to be incurred by reason of the distribution of any such annuity contracts. The Executive Vice President Human Resources shall establish a methodology or methodologies for determining the amount of such additional sums. The methodology or methodologies selected shall be those that the Executive Vice President - Human Resources determines, in his sole discretion, to be the most effective and administratively feasible for the purpose of producing after tax periodic benefit payments that approximate the after tax periodic benefit payments that would have been received by Senior Managers in the absence of the distribution of the annuity contract. 7.2. Unfunded Status The Plan at all times shall be entirely unfunded for purposes of the Code and ERISA and no provision shall at any time be made with respect to segregating any assets of a Participating Company for payment of any benefits hereunder. Funds that may be invested through a trust described in Section 7.1 shall continue for all purposes to be part of the general assets of the Participating Companies which invested the funds. The Plan constitutes a mere promise by the Participating Companies to make benefit payments under this Plan in the future. No Participant shall have any interest in any particular assets of a Participating Company by reason of the right to receive a benefit under the Plan and to the extent the Participant acquires a right to receive benefits under this Plan, such right shall be no greater than the right of any unsecured general creditor of a Participating Company. Article 8. Disposition of Participating Company 8.1. Sale, Spin-Off, or Other Disposition of Participating Company (a)......Subject to Section 5.10, in the event the Company sells, spins off, or otherwise disposes of a Subsidiary or an Affiliated Corporation, or disposes of all or substantially all of the assets of a Subsidiary or an Affiliated Corporation such that one or more Participants terminate employment for the purpose of accepting employment with the purchaser of such stock or assets, any person employed by such Subsidiary or Affiliated Corporation who ceases to be an employee as a result of the sale, spin-off, or disposition shall be deemed to have terminated his or her employment with a Participating Company and be eligible for a Mid-Career Pension benefit commencing at the same time as his or her benefit, if any, commences under the Pension Plan. (b)......Notwithstanding the foregoing provisions of this Section 8.1, and subject to Section 5.10, if, as part of the sale, spin-off, or other disposition of the stock or assets of a Subsidiary or Affiliated Corporation, the Subsidiary or Affiliated Corporation, its successor owner, or any other party agrees in writing to assume the liability for the payment of the Mid-Career Pension benefit to which the Participant would have been entitled under the Plan but for such sale, spin-off, or other disposition, then the entitlement of the Participant to a Mid-Career Pension benefit under this Plan shall terminate. Any subsequent entitlement of the former Participant to the Mid-Career Pension benefit shall be the sole responsibility of the assuming party. Upon the assumption of the liability for the payment of a Mid-Career Pension benefit by Lucent Technologies Inc. pursuant to Section 7.1 of the Management Interchange Agreement or Section 3.1 of the Occupational Interchange Agreement, both dated as of April 8, 1996, between Lucent Technologies Inc. and AT&T Corp., the entitlement of a Transition Individual (as defined in Section 1.38(b) or (c) of the Management Interchange Agreement or Section 1.30(b) or (c) of the Occupational Interchange Agreement), to a Mid-Career Pension benefit under this Plan shall terminate. EX-10 16 EXHIBIT (10)(III)(A)16 AT&T CORP. SENIOR MANAGEMENT BASIC LIFE INSURANCE PROGRAM OCTOBER 1, 1990 Revised 5/17/95 SENIOR MANAGEMENT BASIC LIFE INSURANCE PROGRAM TABLE OF CONTENTS PROGRAM OVERVIEW...............................................................1 ELIGIBILITY....................................................................2 COVERAGE.......................................................................2 CONVERSION RIGHTS..............................................................2 PROGRAM ILLUSTRATION...........................................................2 IMPUTED INCOME RATE COMPARISON WITH BASIC GROUP LIFE INSURANCE.................3 PREMIUM PERIOD.................................................................3 CASH VALUE.....................................................................3 CASH AVAILABILITY..............................................................4 INSURABILITY...................................................................4 TRANSFER/ASSIGNMENT OF OWNERSHIP...............................................4 EARLY RETIREMENT OR TERMINATION................................................5 DEMOTION.......................................................................5 CONTRACTUAL AGREEMENT..........................................................6 SECURED BENEFIT................................................................6 TAXES..........................................................................7 ENROLLMENT.....................................................................7 Program Overview The Senior Management Basic Life Insurance Program (SMBLIP) is an arrangement where the Company and you purchase a permanent life insurance policy on your life. SMBLIP replaces the pre-age 65 one times salary rounded to the next higher $1,000 death benefit provided under the AT&T Corp. Basic Group Life Insurance Plan. The Company pays the annual premium. Your W-2 will reflect an imputed income amount associated with the insurance coverage provided to you under the policy. In certain cases, e.g., your death before retirement, the total benefits will be shared between the Company and your designated beneficiary but the Company will share in the death benefit only to the extent that the total insurance amount exceeds one times your salary rounded to the next highest $1,000. This type of arrangement is known in the insurance industry as "Split Dollar." After attaining normal retirement (age 65) or, if later, 10 years (in some cases it may be longer to avoid violation of the Internal Revenue Service Regulations Section 7702 guidelines) from the date of issuance of this policy, the Company will recoup its premium payments from the cash value build-up and cease to have any interest in the policy. The remaining cash value will be sufficient to maintain your death benefit without further premium payments. As in the Basic Group Life Insurance Plan, your death benefit will change to reflect any change in your salary. At retirement, your death benefit will become frozen at your final annual salary rounded to the next higher $1,000. During the period in which the Company makes premium payments, your imputed income will increase to reflect your increasing age, as well as any increase in death benefit. Your imputed income will be lower than under the current Basic Group Life Insurance Plan because it will be based on the insurers' term life insurance rates, which are lower than the corresponding federal government standard rates for group insurance. After premium payments discontinue, i.e., the later of your attaining age 65 or 10 years (in some cases it may be longer to avoid violation of the Internal Revenue Service Regulations Section 7702 guidelines) from the policy issue date, you will have no further imputed income. Although this arrangement is primarily designed to pay a benefit upon your death, there is also a cash value build-up. Once sufficient funds have accumulated and the Company no longer has an interest in the policy because it has recouped its premiums, you have the option to use some or all of the remaining cash in lieu of some or all of the death benefit. AT&T Corp. has selected two insurers to provide the SMBLIP coverage. You will therefore have two policies on your life; one from each insurer, and each insurer will provide half the defined amount of death benefit on your life. Eligibility SMBLIP is for active AT&T Corp. Senior Managers. Employees who are promoted to or hired as Senior Managers are immediately eligible to enroll in this program. Coverage SMBLIP is provided as a replacement to the death benefit coverage associated with the Basic Group Life Insurance Plan. The benefit is one times salary rounded to the next higher $1,000. The death benefit will be updated to reflect changes in your salary. There may be circumstances where a large increase in salary and, therefore, a corresponding increase in death benefit, will require providing medical information to the insurer. By providing this medical information, the insurer is able to keep the premium payments at the lowest level. A medical information waiver, signed by you, will be kept on file in the event this circumstance occurs. This will allow the Company to release, to the insurer, the required information from your Company medical records. Higher death benefit coverage associated with salary increases is guaranteed, no matter what your health circumstances may be at that time. Conversion Rights If you were a participant in the AT&T Corp. Basic Group Life Insurance Plan at the time you became eligible for SMBLIP, for a limited period of time you have the right to convert your coverage under the Basic Group Plan to a separate individual policy provided by the group insurance carrier. We suggest you discuss this with your financial advisor before exercising or declining this right. You may exercise this right by contacting your Executive Human Resources Consultant or Rosemarie Wolfstromer at Metropolitan Life directly on 201-712-5463. Program Illustration Included as an attachment is a personal illustration based on your current salary. This illustration shows your costs and benefits as well as the Company's, over the life of the policy. It is provided to give a picture of how the policy works and what your tax on imputed income might be, using an assumed salary growth. The actual ongoing life insurance amounts will be different from this illustration. Imputed Income Rate Comparison with Basic Group Life Insurance SMBLIP offers a cost-effective life insurance program for Senior Managers, with imputed income rates substantially below the Basic Group Life rates. (The cost to you of the SMBLIP will be the income tax payable on the amount of your imputed income.) Annual Imputed Income Rate per $1,000 of Life Insurance Federal Government Standard Rates for Age Basic Group Life SMBLIP --- - ---------------- ------ 40 $ 2.04 $ .57 45 3.48 .82 50 5.76 1.15 55 9.00 1.62 60 14.04 2.59 Premium Period SMBLIP is designed for premiums to be extended over a period of time to ease the impact on cash flow to the Company. This period is normally from the time of your enrollment until the first policy anniversary after you reach age 65. However, in all cases, premiums must be paid for a minimum of 10 years(in some cases it may be longer to avoid violation of the Internal Revenue Service Regulations Section 7702 guidelines). Therefore, if you enroll in the program after age 55, the Company will continue premium payments and you will continue to recognize income until the minimum is reached. Cash Value This program is designed to provide you with a pre- and post retirement death benefit. However, in addition to the death benefit, there is a cash value build-up. That is, part of each premium is placed in an "investment fund" to earn income. Investment earnings beyond the amounts necessary to provide the death benefit coverage build on a tax advantaged basis in the policy. The policy's cash value is the basis for your subsequent "premium free" death benefit. Cash Availability Under SMBLIP you have considerably greater flexibility than under the Basic Group Life Insurance Plan. After the Company interest has been satisfied, you may reduce your death benefit and utilize the policy cash value in a number of ways. For example: a) Loans The cash value attributed to you may be withdrawn in the form of a loan. There could be tax implications as well as death benefit diminution associated with a loan. b) Income Stream or Lump Sum It is possible to convert all or any portion of the policy from a death benefit to either an income "stream" (i.e., an annuity) or a lump sum cash payout. The extent to which you convert to income or cash will cancel or reduce the death benefit. Once you convert, it is not possible to re-establish the original death benefit. We suggest that you speak with your financial advisor before exercising these options. Insurability During the enrollment period you will be guaranteed to be insured. Your imputed income rate, however, will not depend on your health or smoking status. Rather, it will differ from others depending only on age and amount of Death Benefit. This enrollment methodology also applies to new Senior Managers who enroll within 60 days of becoming a Senior Manager. Enrollment after 60 days may require a medical questionnaire or examination. Transfer of Ownership As with the Basic Group Life Insurance Plan, after you take ownership in the policy, you may transfer ownership to anyone you choose, e.g., an individual, trust, etc. Since these transfers are generally construed to be irrevocable, we urge you to consult with an attorney and/or tax advisor before making this decision. Another option is for you to not take ownership, but rather another, e.g., individual, trust, etc., may apply for ownership of the policy. It is of particular importance that if the original owner of the policy is not you, that the owner should sign as the "Applicant/Owner" and you should sign the application as the "Proposed Insured". Early Retirement or Termination If, at retirement, you are "Pension Eligible" (i.e., you retire on an immediate Service or Disability Pension under the AT&T Corp. Management Pension Plan, or with a Disability Allowance or Minimum Retirement Benefit under the AT&T Corp. Senior Management Long Term Disability and Survivor Protection Plan) and you have not reached normal retirement age (65), the Company will continue to pay premiums until you reach age 65 or, if later, ten years (in some cases it may be longer to avoid violation of the Internal Revenue Service Regulations Section 7702 guidelines) from the date of issuance of the policy. During this period you will continue to have imputed income based on your age and the amount of insurance in force. At the end of this period, i.e., the later of the policy anniversary immediately following your attainment of age 65 or the tenth (in some cases it may be longer to avoid violation of the Internal Revenue Service Regulations Section 7702 guidelines) policy anniversary, the premiums will cease and the aggregate Company premiums will be returned to the Company. If you separate from the Company without being Pension Eligible, the aggregate amount of Company premiums paid up to that point will be immediately returned to the Company from the cash value of the policy. You can, at your option, either maintain the policy by paying the policy premiums, or you may use the remaining cash value (if any) to buy other "self-supporting" life insurance, or you may withdraw any remaining cash value and cancel the policy. Whether or not you are Pension Eligible, if you leave the Company, and without the Company's consent, establish a relationship with a competitor of the Company or engage in activity in conflict with or adverse to the interests of the Company under the standards of the AT&T Corp. Non-Competition Guidelines and as determined by the AT&T Corp. Management Executive Committee, the process will be the same as with retirement/termination without being Pension Eligible. Demotion If you are demoted to a position which is not a Senior Manager, the effect is the same as if terminated from the Company. You will however, automatically become re-eligible for coverage under the AT&T Corp. Basic Group Life Insurance Plan. Contractual Agreement One of the unique aspects of this insurance policy is the existence of a contract between you and AT&T Corp.. This agreement has no relationship to employment or any other benefit but rather defines the responsibilities of both the Company and you in the operation of the policy. You, or another, will own the policy and determine who the beneficiary is. The Company will hold the policy and have a "Collateral Assignment" from the owner entitling AT&T Corp., as long as it has a collateral interest in the policy, to any death benefit amounts in excess of one times your salary, and all cash values up to an amount equal to its cumulative premiums paid. This document is a legal agreement and as such includes a significant amount of detail and warrants careful review before signing. Although somewhat unique to life insurance, a collateral assignment is similar in context to an automobile loan where the car becomes "collateral" for the money lent to buy it. In this case, a portion of the cash value and death benefit of the policy is the collateral the Company receives for contributing premium payments to "buy" the life insurance policy. The agreement is satisfied when the aggregate premiums paid by the Company are returned. Some of the major sections of the agreement are: - Description of the policy - How the premiums are paid - How the proceeds are paid - How the agreement terminates - Claims procedure - Description of the assignment The Agreement is included with this package. Secured Benefit Changes to the tax law over the years have required more and more of the Senior Management benefit programs to be paid from Company operating income. SMBLIP allows the Company to contribute towards the cost of this program on a timely basis while securing the benefit payment from a third party (the insurance companies). Taxes Split Dollar life insurance policies have been in existence for decades. The IRS has issued several rulings over this period which treat these policies favorably from a tax perspective. However, the Company does not assure any particular tax treatment and recommends that you review your own situation with your personal attorney and/or tax advisor. Enrollment AT&T Corp. has selected two insurers to provide the coverage for each Senior Manager. This was done to provide the best combination of premium rates and Senior Manager protection. As such, there may be a requirement for some duplication of forms, signatures, etc. Once enrollment has been completed, however, this two insurer approach should have a minimal impact on you. The documents required for enrolling in the Senior Management Basic Life Insurance Program are included. The Application Forms require, for this program, just a few basic pieces of information, as do the Beneficiary Designation forms. The documents include instructions on how to fill them out. The Collateral Assignment requires signature only. After completing the forms, enclose them in the self-addressed envelope and return to the Executive Human Resources Group. EX-10 17 EXHIBIT (10)(III)(A)18 Form of EMPLOYMENT AGREEMENT This Agreement, dated as of October 23, 1996, by and between AT&T Corp., a New York Corporation with its headquarters at 32 Avenue of the Americas, New York, New York 10013 (hereinafter called the "Company"), and John R. Walter (hereinafter called the "Employee"). WHEREAS the Employee was employed as a senior executive with another company; and WHEREAS the Employee has accepted employment with the Company; and WHEREAS the Company has assigned and appointed the Employee to a Senior Management position as President and Chief Operating Officer of the Company, reporting to the Chairman, with the contemplation that after a transition period he will become Chief Executive Officer of the Company and later be named Chairman of the Board. Employee has also been elected a member of the Company's Board of Directors. WHEREAS, it is of special importance for the Company to mitigate the impact on Employee of early departure from the Employee's prior employer; NOW, therefore, and in consideration of the promises and the mutual agreements as set forth above and hereinafter contained, the Company and Employee do hereby agree as follows: 1. Employment. Subject to the provisions set forth elsewhere in this Agreement, the Company hereby employs the Employee and the Employee hereby accepts employment with the Company as President and Chief Operating Officer of the Company during the employment term set forth in Section 2 of this Agreement with the contemplation that at the time periods announced by the Company, Employee will become Chairman and Chief Executive Officer. The Company has also elected Employee as a member of the Company's Board of Directors. Employee represents and warrants that there are no agreements or arrangements, whether written or oral, in effect which would prevent him from rendering exclusive services to the Company during the term hereof, and that he has not made and will not make any commitment, agreement or arrangement, or do any act, in conflict with this Agreement and that entering into this Agreement will not be in violation of any other agreement. Such employment shall be upon the terms and conditions hereinafter contained. 2. Term of Employment. The term of employment hereunder ("the Employment Term") shall commence on October 23, 1996 (the "Effective Date") and will terminate at the will of either party to this Agreement upon written notice to the other and shall be subject to the terms and conditions of the Agreement. 3. Employee's Compensation and Benefits. Subject to this Agreement and as more fully set forth hereinbelow, during the Employment Term, the Employee shall be treated in the same manner as, and be entitled to such benefits and other perquisites and terms and conditions of employment no less favorable than, Senior Managers of the Company at a similar level and with comparable responsibilities. Employee shall receive no additional compensation for serving as a member of the Board of Directors of the Company or as an officer or director of any subsidiary or affiliate. (a) Base Salary. The Company agrees to pay and the Employee agrees to accept for services to be rendered hereunder during the Employment Term, a base salary of not less than $975,000 a year, payable in installments on a monthly or other periodic basis in accordance with the prevailing payroll practices of the Company. Employee will be eligible for consideration by the Compensation Committee of base salary increases as appropriate from time to time. (b) Perquisites. During the Employment Term, the Company shall (i) provide the Employee with perquisites of employment as are commonly provided to an employee of the Company at a similar level and with comparable responsibilities, and (ii) reimburse the Employee for reasonable and necessary business expenses incurred in connection with his employment, in accordance with employee business expense practices applicable to employees of the Company at a similar level and with comparable responsibilities. (c) Benefits. Subject to the terms and provisions of this Agreement, during the Employment Term, the Employee shall be entitled to coverage under or benefits in accordance with those employee and Senior Management benefit plans and programs as are made available, or which may subsequently become applicable, to other Senior Managers of the Company at comparable levels. Employee shall be entitled to five (5) weeks of annual vacation applicable to 1997 and subsequent years, provided however, Employee may commence taking his 1997 vacation any time after the Effective Date. Employee shall also be entitled to: -- Relocate under the terms of the AT&T Management Relocation Plan -- Utilize the assistance of one or more firms of his choice for purposes of the Company's financial counseling program -- Receive death benefit coverage at a rate of two times base salary under the AT&T Senior Management Basic Life Insurance Plan, a split-dollar life insurance program, or any successor program. -- Commencing the month Employee closes on his New Jersey residence, in lieu of any Mortgage Interest or High Housing Cost Area Differentials under the AT&T Management Relocation Plan, the Company will provide a temporary (i.e., 36 month) monthly housing allowance of $10,500 for each of the first 12 months, 8,400 for each of the next 12 months and $6,300 for each of the final 12 months. (d) Incentive Plans. During the Employment Term, the Employee will be eligible for consideration for both long term and annual incentive awards pursuant to the terms of the Company's 1987 Long Term Incentive Program and Short-Term Incentive Plan, respectively (the "Incentive Plans") or replacements thereof, as are in effect from time to time, at levels and on terms and conditions consistent with awards to other Senior Managers. Annual incentives for AT&T Senior Managers currently take the form of AT&T Performance Awards (APA) and Merit Awards (MA). Award levels under the APA program are predicated on overall corporate performance and award levels under the MA program are determined by individual and team contributions. Employee will be eligible for a prorated 1996 Annual Incentive based on his partial service in 1996. The Company cannot make any representations regarding the continuation of the APA/MA incentive format, or the size of Employee's APA and MA awards in any given year, if any. Notwithstanding the foregoing, Employee's standard (or target) annual incentive opportunity under such Incentive Plans, or those replacement plans as may from time-to-time be in effect, for 1997 (payable in 1998) shall not be less than $1,170,000 and for 1998 and 1999 it is contemplated such target annual incentive opportunities shall not be less than 120% of Employee's base salary as of the first day of such year. As of the Effective Date, the Compensation Committee has awarded 34,175 Performance Shares/Stock Units to the Employee under the Company's 1987 Long Term Incentive Program covering the 1996 - 1998 performance period, subject to the terms and conditions set forth in the Stock Unit Award Agreement provided to Employee with this Agreement. Distributions of Long Term Performance Shares/Stock Units will be in accordance with the applicable 1987 Long Term Incentive Program and award provisions, provided, however, that as a result of the Company's restructuring and the difficulty of setting long-term financial targets while the restructure is in progress, the performance criteria established for the 1996 - 1998 long-term cycle are not applicable. For such performance period, the criteria are deemed to have been met at the target level. However, the opportunity to earn a payout above 100% is eliminated, and all other terms and conditions of the award continue to apply. In January 1997, Employee will also be eligible to receive a Performance Share/Stock Unit Award for the 1997 - 1999 performance period or a replacement long term incentive vehicle of generally comparable value. The Compensation Committee of the Board has not yet determined the format or magnitude of such award. Also, as of the Effective Date of this Agreement, a Stock Option Award with respect to 112,500 shares of AT&T Common Stock has been granted to the Employee under the Company's 1987 Long Term Incentive Program. Such Award is subject to the terms and conditions set forth in the Non-statutory Stock Option Agreement provided to Employee with this Agreement. The option price is 100% of market price on the Effective Date. In January 1997, Employee will also be eligible to receive another Stock Option grant, the magnitude of which has not yet been determined by the Compensation Committee. As with the Annual Incentive Award, Long Term Incentives are closely linked with the Company's strategy to meet the challenges of an ever changing marketplace. Accordingly, other than the grants as made in this Agreement, the Company cannot guarantee continuation of the Long Term Incentive Plan in its current format, nor can it guarantee annual grant levels to individual participants. Notwithstanding the foregoing, to further incent Employee to achieve Company's goal of substantially enhancing shareowner wealth, it is contemplated Employee will receive (i) Stock Option grants for Company Stock that will average no less than 200,000 options per year (adjusted for stock splits or other occurrences that result in adjustments of shares subject to outstanding stock options) during 1997, 1998 and 1999 delivered through a variety of grant forms e.g., standard annual grants, special grants and "premium" grants and (ii) awards of Performance Shares/Stock Units or replacement long term equity incentives that will have an average value at the time of grant during 1997, 1998 and 1999 of at least $1,350,000, per year on terms and conditions as the Compensation Committee shall determine at the time of the awards, provided that such terms and conditions shall be no less favorable to Employee than for long term equity awards being simultaneously made to other Senior Managers. The terms and conditions of various long-term incentive awards set forth in the attached Award Agreements and in this Agreement, are in accordance with the scope and provisions of the Company's 1987 Long-Term Incentive Program. (e) Hiring Bonus. To recognize certain forfeitures Employee will incur when he leaves his current employer and to incent him to join the Company, the Compensation Committee has as of the Effective Date of this Agreement granted the following one time special arrangements to Employee: -- An award of 34,175 "Seasoned" 1995 - 1997 AT&T Performance Shares/Stock Units (i.e., Performance Shares/Stock Units which would have been granted to Employee had he been with the Company in 1995) under the AT&T Long Term Incentive Program, as set forth in the Stock Unit Award Agreement provided to Employee with this Agreement. As a result of Company's restructuring and the difficulty of setting long-term financial targets while the restructure is in progress, the performance criteria established for the 1995 - 1997 cycle are not applicable and for this performance period, the criteria are deemed to have been met at the target level. However, the opportunity to earn a payout above 100% is eliminated, and all other terms and conditions of the award continue to apply. -- A $5,000,000 cash bonus payable within ten days of the Effective Date. Employee has expressed a desire that he will use a substantial portion of the after-tax proceeds of the bonus to purchase, with the intent to retain for long term investment purposes, 50,000 shares of AT&T Common Stock. -- A stock option award on the Effective Date with respect to 112,500 shares of AT&T Common Stock, subject to the terms and conditions set forth in the Non-statutory Stock Option Agreement provided to Employee with this Agreement, which terms include, but are not limited to, an option exercise price equal to the market price per share of AT&T Common Stock on the Effective Date. -- An award of 75,000 AT&T Restricted Stock Units, subject to the terms and conditions set forth in the Stock Unit Award Agreement provided to Employee with this Agreement. -- Two "premium" stock option awards on the Effective Date, each with respect to 100,000 shares of AT&T Common Stock, subject to the terms and conditions set forth in the Non-statutory Stock Option Agreements provided to Employee with this Agreement, which terms include, but are not limited to, an option exercise price equal to the market price per share of AT&T Common Stock on the Effective Date. -- Establishment of a Deferred Account to be maintained and paid to Employee in accordance with the following provisions: On the Effective Date, the Company shall credit the Deferred Account with an initial balance of $7,000,000. The Deferred Account will be maintained as a bookkeeping account on the records of the Company and the Employee will have no ownership interest in the Deferred Account, nor in any asset of the Company with respect thereto. The Deferred Account may not be assigned, pledged or otherwise alienated by the Employee and any attempt to do so, or any garnishment, execution or levy of any kind with respect to the Deferred Account, will not be recognized. Employee shall not have any right to receive any payment with respect to the Deferred Account, except as expressly provided below. The Company shall credit interest to the Deferred Account as of the end of each calendar quarter (and compounded quarterly) at a rate equal to one quarter of 120% of the Applicable Annual Federal Mid-Term Rate in effect for the last month of such quarter. The vesting, forfeiture or distribution of the Deferred Account shall be in accordance with the following provisions: In the event of termination of Employee's employment prior to the fifth anniversary of the Effective Date: -- For any reason other than death, "Long Term Disability" (as defined below), Company-initiated termination for other than "Cause" (as defined below), or Employee- initiated termination for "Good Reason" (as defined below), then all amounts in the Deferred Account shall be cancelled and Employee shall not receive any distribution with respect to the Deferred Account; or have any further interest in the Deferred Account -- By reason of death or Long-Term Disability, all amounts credited through the last day of the first calendar quarter of the calendar year following the year in which such termination of employment occurs shall be paid to Employee (or, in the event of the Employee's death to Employee's beneficiary designated on a Company form filed with Executive Human Resources, or to his estate if no beneficiary has been designated), within 30 business days of the end of such calendar quarter; or -- By reason of Company-initiated termination for other than Cause, or Employee-initiated termination for Good Reason, amounts credited to the Deferred Account shall continue to accrue interest through the later of (i) the last day of the calendar quarter in which the fifth anniversary of this Agreement occurs or (ii) the last day of the first calendar quarter of the calendar year following the year in which such termination occurs, at which time the balance credited to the Deferred Account shall be paid to the Employee (or his designated beneficiary or estate, as described above, in the event of his death) within 30 business days after the end of such quarter; In the event of termination of Employee's employment after the fifth anniversary of the Effective Date for any reason, all amounts credited to the Deferred Account through the last day of the first calendar quarter of the calendar year following the year in which such termination of employment occurs shall be paid to the Employee (or his designated beneficiary, or estate, as described above, in the event of his death) within 30 business days after the end of such quarter. Payments from the Deferred Account are in addition to and not in lieu of any pension, savings, or other defined benefit or defined contribution plan, program or arrangement covering Employee, including other provisions of this Agreement. The Company shall pay to Employee an additional amount which, after gross-up for applicable Federal and state income, payroll and other withholding taxes in accordance with the Company's tax gross-up policies applicable to Senior Management, is equal to the FICA Medicare tax withholding due from Employee on the initial $7,000,000 deferral (but not earnings thereon) upon the establishment of the Deferred Account or, if not then so taxable, when such FICA Medicare tax becomes due. For purposes of this Agreement: "Long Term Disability" shall mean termination of Employee's employment with the Company with eligibility to receive a disability allowance under the AT&T Senior Management Long Term Disability and Survivor Protection Plan or a replacement plan. "Good Reason" shall mean a material breach of this Agreement by the Company which is not cured within twenty days of the giving of written notice thereof by Employee. Good reason shall include any uncured failure by the Company to provide the compensation and benefits required hereunder, to provide the contemplated equity and incentive awards as stated hereunder (except those that cannot legally be continued) or awards that the Compensation Committee believes in good faith provide substantially, in the aggregate, equivalent pre-tax economic benefits and opportunities to the foregoing, to elect the Employee to the future offices contemplated by this Agreement within the time framework announced by the Company, to maintain Employee in such positions, or to effect an assumption as provided in Section 10(b). Employee's sole remedy for any breach of this Agreement by the Company during the Employment Term which would provide him with a right to terminate with Good Reason, including but not limited to failures referred to in the prior sentence, shall be a termination for Good Reason and the amounts and benefits provided hereunder upon such termination (as well as any accrued but unpaid base salary, accrued vacation and amounts due under the terms of any plan or program upon such termination), and in no event shall the Company or its affiliates be liable for any other damages of any kind whatsoever as a result of any such breach. The amounts paid and benefits provided upon such a Good Reason termination shall be deemed to include liquidated damages for such breach, and Employee shall not be entitled to any actual damages (which the parties agree would be difficult, if not impossible, to determine). Any notice of termination of employment for Good Reason shall be given within 180 days after the occurrence of the event on which such Good Reason termination is to be based. For purposes of this Agreement, any award agreement, and any other agreement, plan or program of the Company to which Employee is a party or by which he is covered, "Cause" or "cause" (or words of similar import) shall mean: (i) The Employee is convicted (including a plea of guilty or nolo contendere) of a felony involving theft or moral turpitude, other than a felony predicated on Employee's vicarious liability. Vicarious liability means, and only means, any liability which is based on acts of the Company for which the Employee is charged solely as a result of his offices with the Company and in which he was not directly involved or did not have prior knowledge of such actions or intended actions. (ii) The Employee engages in conduct that constitutes willful gross neglect or willful gross misconduct in carrying out his duties under this Agreement, resulting, in either case, in material economic harm to the Company. 4. Special Pension and Other Post-Termination Arrangements. (a) In the event Employee's employment terminates on or after Employee's 55th birthday for any reason other than for a Company-initiated termination for Cause, the Company will provide an immediate pension benefit (the "Special Pension") based on (1) the greater of the pension amounts reflected in Attachment A or (2) actual Company Net Credited Service and compensation calculated under the then-existing Company qualified and non-qualified pension formulas, but without reference to age and service eligibility requirements for purposes of determining benefit commencement, (i.e., such accrued pension benefits would normally under plan provisions be payable at age 65, therefore waiving the age and service eligibility requirement will facilitate payment of such accrued benefits commencing as early as age 55). Non-qualified pensions affected by these practices would include those provided under the AT&T Non-Qualified Pension Plan, the AT&T Mid-Career Pension Plan, but specifically would exclude the minimum retirement benefit and surviving spouse benefit payable under the AT&T Senior Management Long-Term Disability and Survivor Protection Plan. Special Pension payments shall be paid to the Employee from Company operating income and Employee shall be a general creditor of the Company with regard to such benefits. Such benefits may not be assigned, pledged or otherwise alienated by the Employee and any attempt to do so, or any garnishment, execution or levy of any kind with respect to the Special Pension, will not be recognized. The total pension amount which results from application of the preceding provisions of this Section 4 will be reduced by (1) the pension payable by Employee's former employer and (2) all amounts actually received by Employee or his surviving spouse under any other Company or affiliate's qualified or non-qualified pension, retirement, disability or annuity plan or program, except the AT&T Long-Term Savings Plan for Management Employees and the AT&T Senior Management Incentive Award Deferral Plan. Special Pension benefits payable under this Section 4 will be afforded the same post employment "ad hoc" inflation adjustments, if any, as may be applicable to the AT&T Non-Qualified Pension Plan from time to time. Employee may elect, prior to the commencement of the Special Pension (or, if earlier, such earlier date such that the election would not be subject to constructive receipt treatment) to receive the benefit in the form of a joint and 50% survivor annuity with his spouse (or under any other optional form of benefit then available under the AT&T Management Pension Plan or replacement plan) at the time of such election, subject to the adjustments as provided for in Attachment A. To the extent any adjustments in form of any benefit are required to calculate an offset, the actuarial practices applicable to the AT&T Management Pension Plan or replacement plan shall be used. Any benefits with a later starting date than this Special Pension benefit shall be offset only when such offsetting benefits commence. In the event termination is as a result of the Employee's death, a 50% survivor annuity shall be paid to Employee's spouse, if any, assuming, for benefit calculation purposes, he had terminated his employment and commenced benefits in the form of a joint and 50% survivor annuity on the day before his death. (b) Conditioned upon termination and eligibility to an immediate pension under Section 4(a), Employee will be entitled to the following post-termination ancillary entitlements, administered in a manner consistent with the then-current treatment of Service Pension eligible Senior Managers and in accordance with the terms and conditions applicable to each Senior Management plan, program or practice (or replacement therefor) as they may exist from time to time. -- Two times base salary Senior Management Basic Life Insurance -- One and one half times salary Senior Management Individual Life Insurance -- One times salary plus annual incentive death benefit normally payable under the AT&T Management Pension Plan and AT&T Non-Qualified Pension Plan to certain qualified survivors, e.g., spouse or dependent child of a Service Pensioner. In the event: (1) such benefit is available to Service Pensioners upon Employee's death and (2) Employee is not eligible for such benefit, then in such case a death benefit equal to such benefit will be paid from the Company's operating income to a qualified survivor, if any, per comparable death benefit provisions under the AT&T Management Pension Plan. Any lump sum death benefit payable under the AT&T Senior Management Long Term Disability and Survivor Protection Plan will be an offset to the death benefit payable under this provision. -- Participation in the post-retirement Senior Management benefit or prerequisite plans, programs and practices as well as any employee benefit plan, (except those for which alternate coverage is made available in the Agreement or through a special Senior Management plan, program or practice), but only to the extent and under such terms and conditions as such employee benefits and Senior Management benefits and perquisites are available to Service Pension eligible Senior Managers at the time of Employee's termination. -- Immediate (or, if later, six months from the date of grant) vesting and exercisability of all outstanding Stock Options granted under this Agreement as of the Effective Date, other than premium options, without regard to any prorated cancellation under the Award Agreements of awards granted in the year of termination of employment or retirement -- Immediate vesting in all outstanding Performance Share/Stock Units awards granted under this Agreement as of the Effective Date with payout thereof being made as if Employee's employment continued through payout at the end of the applicable Performance Period. -- Acceleration or continuation of vesting and/or exercisabilit of other awards under this Agreement or any long-term incentive plan to the extent and under the same terms and conditions applicable to Service Pension eligible Senior Managers at the time such awards were granted, all as set forth in the applicable long-term award agreements. -- Immediate vesting of the 75,000 Restricted Stock Units described in Section 3(e) of this Agreement. -- Retention of the two "premium" Stock Option grants described in Section 3(e) of this Agreement, with vesting and exercisability as if Employee had remained an active employee of the Company. 5. Powers and Duties. The Employee shall devote his full business time and best efforts and abilities to the performance of duties under this Agreement, it being understood in connection therewith that he may, in his discretion and subject to not interfering with his duties and responsibilities hereunder, devote time to civic, public and professional activities and may serve as a director of other business corporations not engaged in competition with the Company or any subsidiary or affiliate of the Company; provided, however, that he shall not accept directorships on more than three boards of other business corporations; and provided, further, that for purposes of the immediately preceding clause, directorships on the boards of two or more companies with at least 50% common ownership shall count as a single company. Furthermore, so long as it does not interfere with his Company duties and subject to the AT&T Non-Competition Guideline, Employee may continue to manage his passive investments. 6. Indemnification. The Company and Employee shall promptly enter into the Indemnity Agreement annexed hereto as Attachment B. 7. Restrictive Convenants. (a) Competition. Notwithstanding any other provisions of this Agreement, any and all payments (except those made from Company-sponsored Tax Qualified Pension or Welfare Plans), benefits or other entitlements to which the Employee may be eligible in accordance with the terms hereof, may be forfeited, whether or not in pay status, at the discretion of the Company, if the Employee at any time without the consent of the Company "establishes a relationship with a competitor" or "engages in an activity" which is in conflict with or adverse to the interest of the Company, all within the meaning of the Non-Competition Guidelines referred to below (a "Competitive Activity"). The payments, benefits and other entitlements hereunder are being made in part in consideration of the obligations of this Section 7 and in particular the post-employment payments, benefits and other entitlements are being made in consideration of, and dependent upon, compliance with this Section 7(a) and, to the extent set forth in Section 8, the Release and Agreement referred to in Section 8. Attachment C is a copy of the Non-Competition Guideline. (b) Confidentiality. The Employee agrees that he will not, at any time during his employment pursuant to this Agreement or thereafter, disclose or use any trade secret, proprietary or confidential information of the Company or any subsidiary or affiliate of the Company, obtained during the course of his employment, except as required in the course of such employment or with the written permission of the Company or, as applicable, any subsidiary or affiliate of the Company or as may be required by law, provided that, if Employee receives legal process with regard to disclosure of such information, he shall promptly notify the Company and cooperate with the Company in seeking a protective order. The Employee agrees that at the time of the termination of his employment with the Company, whether at the instance of the Employee or the Company, and regardless of the reasons therefore, he will deliver to the Company, and not keep or deliver to anyone else, any and all notes, files, memoranda, papers and, in general, any and all physical matter containing information, including any and all documents significant to the conduct of the business of the Company or any subsidiary or affiliate of the Company which are in his possession, except for any documents for which the Company or any subsidiary or affiliate of the Company has given written consent to removal at the time of the termination of the Employee's employment and his personal rolodex, phone book and similar items. Employee agrees that the Company's remedies at law would be inadequate in the event of a breach or threatened breach of this Paragraph (b); accordingly, the Company shall be entitled, in addition to its rights at law, to an injunction and other equitable relief without the need to post a bond. (c) Any Competitive Activity by the Employee not permitted by the provisions of Section 7(a) above shall result, at the discretion of the Company, in the cancellation of all rights and entitlements of the Employee hereunder (including but not limited to those for payments or benefits), provided that: (i) the Deferred Account in such event shall not be forfeited, but may at the Company's discretion be immediately paid out and (ii) no forfeiture or cancellation (or accelerated payout of the Deferred Account) shall take place with respect to any payments, benefits or entitlements hereunder or under any other award agreement, plan or practice unless the Company shall have first given the Employee written notice of its intent to so forfeit, or cancel or pay out and Employee has not, within thirty (30) days of giving such notice, ceased such unpermitted Competitive Activity, provided that the foregoing prior notice procedure shall not be required with respect to (x) a Competitive Activity which Employee initiated after the Company had informed the Employee in writing that it believed such Competitive Activity violated Section 7(a) or the AT&T Non-Competition Guidelines, (y) any Competitive Activity regarding local, regional or long distance telephone services or other products or services which are part of a line of business which represents more than 5% percent of the Company's consolidated gross revenues for its most recent completed fiscal year at the time the Competitive Activity commences. 8. Termination Provision. (a) If, at any time during the period beginning with the Effective Date and ending on the day prior to the Employee's 55th birthday, Employee is terminated by the Company for any reason other than Cause or Long Term Disability or Employee terminates his Company employment for Good Reason, the Employee will be entitled to: -- Monthly payments for a 12 month period following termination, each such payment in an amount equal to one twelfth of the greater of (1) $3,217,500 or (2) 150% of the sum of Employee's annual base salary rate plus target Annual Incentive rate in effect as of the date of Employee's termination. -- An annual incentive award for the year of termination payable at the target amount but prorated to the nearest half month based on actual service in the final performance year and payable to Employee within fifteen (15) business days after such termination. -- Distribution of the Deferred Account as provided for in Section 3(e). -- The Special Pension provided for in Section 4(a) of this Agreement determined on the basis that Employee's age at termination was the greater of age 55 or his actual age plus two years, and further provided that such pension will commence no earlier than his actual attainment of age 55. -- The post-termination benefits and entitlements as described in Section 4(b) (b) If, at any time during the period beginning with the Effective Date of this Agreement and ending on the day prior to the Employee's 55th birthday, Employee's employment terminates because of Long Term Disability, the Employee will be entitled to: -- Distribution of the Deferred Account as provided for in Section 3(e) -- The Special Pension provided for in Section 4(a) of this Agreement assuming Employee's age at termination was the greater of age 55 or his actual age plus two years, and further provided that such pension will commence no earlier than his actual attainment of age 55. -- The post-termination benefits entitlements as described in Section 4(b) (c) In the event Employee's employment terminates because of Employee's death at any time during the period beginning with the Effective Date and ending on the day prior to the Employee's 55th birthday: -- Employee's surviving spouse shall be entitled to a survivor pension for her lifetime commencing the month after the month which includes the date of Employee's death. The amount of such pension shall be $29,000 per month. This survivor pension will be offset by the minimum surviving spouse pension benefit (or lump sum alternate if such becomes available) payable under the AT&T Senior Management Long Term Disability and Survivor Protection Plan (or replacement plan) and any other benefit under any Company qualified or non-qualified retirement or annuity plan payable to the surviving spouse. -- In addition, amounts and benefits shall be paid or provided as otherwise specified herein or as provided in the applicable Company programs and plans upon an in-service death. (d) In the event Employee's employment terminates voluntarily (other than for Good Reason) or as the result of a Company-initiated termination for Cause, at any time during the period beginning with the Effective Date and ending on the day prior to the Employee's 55th birthday, Employee shall only receive such amounts and benefits as are provided under the Company's programs and plans. (e) Any payments or benefits made pursuant to this Section 8 are: (1) subject to the provisions, restrictions and limitations of Section 7(a) and (c) above, but not otherwise subject to offset or mitigation, (2) subject to Employee signing a Release and Agreement not to sue the Company in the form of Attachment D hereto with such changes therein or additions thereto as needed under then applicable law to give effect to the intent of the Release and Agreement and (3) receipt of Employee's resignation from all offices, directorships and fiduciary positions with the Company, its affiliates and their respective benefit plans. Notwithstanding the due date of any post-employment payment, any amounts due under this Section 8 shall not be due until after the end of any applicable revocation period with regard to the Release and Agreement. 9. Dispute Resolution. At the option of the Employee or the Company, any dispute, controversy, or question arising under, out of or relating to this Agreement or the breach thereof, other than that for injunctive relief under Section 7(b), shall be referred for decision by arbitration in the State of New Jersey by a neutral arbitrator selected by the parties hereto. The proceeding shall be governed by the Rules of the American Arbitration Association then in effect or such rules last in effect (in the event such Association is no longer in existence). If the parties are unable to agree upon such a neutral arbitrator within thirty (30) days after either party has given the other written notice of the desire to submit the dispute, controversy or question for decision as aforesaid, then either party may apply to the American Arbitration Association for an appointment of a neutral arbitrator, or if such Association is not then in existence or does not act in the matter within 30 days of application, either party may apply to the Presiding Judge of the Superior Court of any county in New Jersey for an appointment of a neutral arbitrator to hear the parties and settle the dispute, controversy or question, and such Judge is hereby authorized to make such appointment. In the event that either party exercises the right to submit a dispute arising hereunder to arbitration, the decision of the neutral arbitrator shall be final, conclusive and binding on all interested persons and no action at law or equity shall be instituted or, if instituted, further prosecuted by either party other than to enforce the award of the neutral arbitrator. The award of the neutral arbitrator may be entered in any court that has jurisdiction. In the event that the Employee is successful in pursuing any claim or dispute arising out of this Agreement, the Company shall reimburse all of the Employee's attorney's fees and costs, including the compensation and expenses of any arbitrator, relating solely, or allocable, to such successful claim. In any other case, the Employee and the Company shall each bear all their own costs and attorneys fees, except the Company shall pay the costs of any arbitrator appointed hereunder. 10. Assignment. (a) Employee. This Agreement is a personal contract and the rights and interests of the Employee hereunder may not be sold, transferred, assigned, pledged or hypothecated by him, but shall be binding upon and inure to the benefit of his heirs, administrators, and executors.. (b) Company. This Agreement shall inure to the benefit of and be binding upon the Company, its successors and assigns, provided that the Company may not assign this Agreement except in connection with an assignment of all or substantially all of the assets of the Company or by law as a result of a merger or consolidation. In the event of such assignment, a failure by the successor to specifically assume in writing, delivered to the Employee, the obligations and liabilities of the Company hereunder shall be deemed a material breach of this Agreement. 11. Taxes. It is understood that all payments and benefits provided under this Agreement are subject to withholding for applicable federal, state and local income (or similar) taxes. 12. Other. The Company reserves the right to prospectively discontinue or modify its compensation, incentive, benefit and perquisite plans, programs and practices, but any such discontinuance or modification shall not diminish any specified right of Employee hereunder. Moreover, the very brief summaries contained herein are subject to the terms of such plans, programs and practices. For purposes of the employee benefit plans, the definition of compensation is as stated in the plans. Currently, pensions are based on base salary and annual incentives. Other benefits are based on either base salary or base salary plus annual incentives. All other compensation and payments included in this Agreement are not included in the base for calculation of employee benefits. The amounts paid under this Agreement upon a termination of employment are in lieu of and inclusive of any amounts payable under any other plan, program or practice of the Company with regard to termination of employment. 13. Entire Agreement; Amendments. This Agreement, which may be executed in two or more counterparts, comprises 23 pages, 16 Sections and 4 Attachments and represents the entire Agreement between Employee and the Company in respect of the subject matter contained herein and supersedes all prior agreements, promises, convenants, arrangements, communications, representations or warranties, whether oral or written, by any officer, employee or representative of any party hereto. No amendments or modifications to this Agreement may be made except in writing signed by the Company, by the Chairman of the Compensation Committee or his specially authorized representative, and the Employee. 14. Survivorship. The respective rights and obligations of the parties hereunder shall survive any termination of the Employee's employment to the extent necessary to the intended preservation of such rights and obligations. 15. Notices. Any notice given to a party shall be in writing and shall be deemed to have been given when delivered personally or two days after mailing if sent by certified or registered mail, postage prepaid, return receipt requested, duly addressed to the party concerned at the address indicated below or to such changed address as such party may subsequently give such notice of: If to the Company: AT&T 295 North Maple Ave. Basking Ridge, NJ 07920 Attn: Executive Vice President, Human Resources If to the Employee: John R. Walter President and Chief Operating Officer AT&T 295 North Maple Avenue Basking Ridge, NJ 07920 With a copy to: Robert J. Stucker Vedder, Price, Kaufman & Kammholz 222 N. LaSalle St., Suite 2600 Chicago, IL 60601 16. Governing Law. This Agreement shall be construed and enforced in accordance with the laws of the State of New Jersey without consideration of conflict of law principles. In Witness Whereof, the parties hereto have executed this Agreement and Company has affixed its corporate seal as of the day and year first above written. Company: By: ________________________ H. W. Burlingame Date: ________________________ Witnessed: ________________________ Date: ________________________ Employee: ________________________ Date: ________________________ Witnessed: ________________________ Date: ________________________ Attachment A MINIMUM PENSION SCHEDULE (Amounts Assume 50% Joint and Survivor Pension is declined)* Retirement Age# Total Monthly Pension** --------------- - --------------------- 55 $ 69,444 56 75,000 57 80,554 58 86,109 59 91,664 60 97,219 61 102,774 62 108,329 63 113,884 64 119,433 65 125,000 * If survivor annuity is elected, amounts will be decreased to reflect practices in effect upon Employee's termination. ** The above Minimum Pension Schedule is subject to offsets provided for in Section 4(a) of the Agreement. # Minimum Pension amounts will be prorated to the nearest whole month. EX-12 18 EXHIBIT (12) Exhibit 12 AT&T Corp. Computation of Ratio of Earnings to Fixed Charges (Dollars in Millions) (Unaudited) For the Year Ended December 31, 1996 1995 1994 1993 1992 ---- ---- ---- - ---- ---- Earnings Before Income Taxes $8,866 $5,255 $7,240 $6,359 $5,386 Less Interest Capitalized during the Period 193 107 39 61 54 Less Undistributed Earnings of Less than 50% Owned Affiliates 155 205 91 59 76 Add Fixed Charges 1,127 1,350 1,224 1,269 1,293 Total Earnings $9,645 $6,294 $8,334 $7,508 $6,549 Fixed Charges Total Interest Expense Including Capitalized Interest $ 887 $1,095 $ 951 $ 980 $1,002 Interest Portion of Rental Expense 240 255 273 289 291 Total Fixed Charges $1,127 $1,350 $1,224 $1,269 $1,293 Ratio of Earnings to Fixed Charges 8.6 4.7 6.8 5.9 5.1 EX-13 19 EXHIBIT (13) Management's Discussion and Analysis 1996 was a historic year for AT&T as we successfully separated into three independent entities. In 1996 we successfully completed our plan to separate into three publicly held stand-alone companies, each focused on serving certain core businesses. This began with the initial public offering (IPO) of 17.6% of Lucent Technologies Inc. (Lucent) shares in April 1996, the largest IPO in history. We distributed to our shareowners all of the shares we owned of Lucent on September 30, 1996. On October 1, 1996, we completed the sale of our majority interest in AT&T Capital Corporation (AT&T Capital) and we received $1.8 billion in cash. Finally, on December 31, 1996 we completed our plan when we distributed to our shareowners all of our shares in NCR Corporation (NCR). The actions taken in 1996 leave us in a strong position for the future. Our debt ratio, excluding financial services, at the end of 1996 was 18.7%, among the lowest in our industry. Our return on average assets from continuing operations was approximately 10.3%, among the highest in our industry. We made significant expenditures in 1996 for strategic investments into various markets which we believe complement our core business. These include internet access, consulting and outsourcing and local expansion. In 1996 we continued our market share leadership in the consumer and business long distance markets. We continued to provide new products and services to our customers, such as our AT&T One Rate program, a flat 15-cents-a-minute plan for consumers. Announced at the end of September, the program already had nearly 3 million subscribers at the end of December. Although the majority of One Rate customers are existing AT&T customers moving from other calling plans, One Rate has attracted a number of wins from competitors. Success in the telecommunications market is about meeting complex customer needs and providing valuable and reliable services. We are committed to meeting these needs by providing the necessary service plans and by maintaining the AT&T long distance network which has unparalleled reliability by almost any measure. We continued to expand our relationship with our business customers from one of simply carrying voice and data traffic playing a consultative role and becoming strategic partners. We now provide business consulting, outsourcing and electronic commerce solutions among other services to business markets. For example, we signed a $1.1 billion, ten-year contract with Textron, Inc. to upgrade, expand and manage their global communications infrastructure. As a result of the strategic restructuring, some changes in our financial reporting format have been made. In order to appropriately reflect the ongoing operations of the "new" AT&T, certain reclassifications have been made to reflect the results of businesses that we have divested or plan to divest. Accordingly, the revenues and expenses, assets and liabilities and cash flows of Lucent, NCR and AT&T Capital, as well as certain other businesses, have been excluded from the respective captions in the Consolidated Statements of Income, Consolidated Balance Sheets and Consolidated Statements of Cash Flows. The net operating results of these businesses have been reported as "Income (loss) from discontinued operations," net of applicable income taxes, the net assets as "Net assets of discontinued operations" and the net cash flows as "Net cash used in discontinued operations." In addition, the consolidated results for continuing operations have been reclassified to improve comparability with the communications services industry. As a result of the spin-offs of Lucent and NCR and the sale of AT&T Capital, our Consolidated Balance Sheet at December 31, 1996 no longer includes these entities in "Net assets of discontinued operations." Additionally, the results of operations and net cash flows for Lucent and AT&T Capital are reflected in our Consolidated Statements of Income and Consolidated Statements of Cash Flows through the date these dispositions occurred. Restructuring and Other Charges In the fourth quarter of 1995 we recorded a pretax charge of $3,029 million for restructuring costs of $2,307 million and asset impairments and other charges of $722 million. The charges covered consolidating and reorganizing numerous corporate and business unit operations over several years. The total pretax charge was recorded as $844 million in network and other communications services, $934 million in depreciation and amortization, $1,245 million in selling, general and administrative and $6 million in financial services expenses. The tax benefit associated with the charges was $993 million. During 1996 we continued to implement our restructuring plans. We completed the restructuring of our proprietary network and messaging services business, closed several call servicing centers, sold certain international operations, and reorganized and reduced certain corporate support functions. As of December 31, 1996, approximately 5,000 management employees and 1,000 occupational employees have been separated. Of the 5,000 management separations, approximately 3,000 accepted voluntary separation packages. We expect the majority of our plans to be completed during 1997. However, certain severance and facility costs have payment terms extending beyond 1997. A detailed discussion of restructuring and other charges is in Note 5 to the Consolidated Financial Statements. AT&T operates in two industry segments, the telecommunications industry and the financial services industry. Our communications services (which is part of the telecommunications industry) consists of a wide range of services to residential and business customers, including domestic and international wireline long distance voice, data and video services, wireless services, network management, business consulting, outsourcing, electronic commerce solutions and internet access service. Our financial services segment primarily consists of our AT&T Universal Card credit card business. COMMUNICATIONS SERVICES Communications services revenues grew 4.4% in 1996 and 5.4% in 1995. Dollars in millions 1996 1995 1994 Revenues Wireline $45,647 $44,226 $42,320 Wireless 3,476 2,926 2,280 Products and other services 1,392 1,251 1,338 Total communications services revenues $50,515 $48,403 $45,938 Operating income $ 8,746 $5,159 $ 7,370 Operating margin 17.3% 10.7% 16.0% Wireline services revenue, which includes traditional long distance toll calling, network management, messaging and other network-enabled services, increased 3.2% in 1996 and 4.5% in 1995. We handled a record 68 billion calls in 1996, causing conversation minutes for switched long distance services (volume) to rise 5.9%. The volume growth in 1996 slowed from the nearly 9.0% growth registered in 1995, reflecting competitive pressures from traditional sources in the consumer markets as well as nontraditional sources such as smaller telecommunications companies and dial-around resellers. This pressure was somewhat offset by strong volume growth in business inbound services, particularly toll-free 800 and 888 services. Volume growth continued to exceed revenue growth in 1996. This reflected lower pricing from promotional discounts, increased movement of customers to optimal calling plans and increased discounts given to large accounts. As we continued to expand internationally, international volumes increased while related revenue remained relatively flat. In 1995 we saw volume growth in calling card, business inbound services and consumer international services. Although volume growth exceeded revenue growth (due primarily to customers taking advantage of our calling plans and promotions), the gap between revenues and volumes was about 4% in 1995. This reflected movement among calling plans by both business and residential customers and some targeted price increases. The long distance market is increasingly characterized by aggressive pricing actions, the introduction of new competitors (such as dial-around resellers) and price sensitivity on the part of consumers. As a result, revenue as well as volume growth was adversely impacted. We expect that these conditions will intensify in the future as the Regional Bell Operating Companies (RBOCs) are permitted to provide long distance services in their home regions, thereby negatively impacting our long distance volume and revenue. As the RBOCs, who currently have zero market share, begin providing long distance services, we will lose long distance market share. However, we will gain market share in the local telephone service market as we are able to enter it. Wireless services revenue, which includes cellular, messaging services, and air-to-ground services, grew 18.8% in 1996 and 28.3% in 1995. The growth in both periods was the result of consolidated cellular subscriber growth of 31.7% in 1996 and 39.2% in 1995. Cellular customers, reported on the same basis as consolidated wireless revenues, stood at 5.2 million at December 31, 1996 compared with 3.9 million at December 31, 1995 and 2.8 million at December 31, 1994. Cellular customers served by companies in which we have or share a controlling interest increased to 7.1 million at December 31, 1996 from 5.5 million at December 31, 1995 and 4.0 million at December 31, 1994. Cellular revenue per subscriber was approximately $60 per month in 1996 compared with approximately $69 in 1995 and approximately $79 in 1994. The decline reflected industry wide pricing pressures, as well as lower average usage per subscriber as expansion included growth in subscribers who are more casual users (e.g. for emergency and other personal use). However, based on reported financial information of wireless competitors, our revenue per subscriber is above the industry average. The number of casual users is expected to continue to grow in 1997, which will likely result in lower average revenue per subscriber next year. By combining our 800 MHZ cellular and 1900 MHZ personal communications services (PCS) licenses, we can eventually provide wireless telecommunication services to markets covering approximately 93% of the U.S. population. In October 1996 we launched AT&T Digital PCS service in more than 40 of our existing 800 MHZ wireless markets, covering 70 million potential customers. The difference between AT&T Digital PCS and analog cellular service is in the features. AT&T Digital PCS provides longer battery life, short text messaging service, caller identification, message waiting indicator and enhanced security. AT&T Digital PCS allows customers to make and receive voice and data transmissions to people rather than places. At December 31, 1996, we had more than 900,000 digital subscribers, including over 500,000 receiving AT&T Digital PCS service. The overall penetration rate (number of cellular customers as a percentage of the total population in the service territory) for markets in which we have or share a controlling interest increased from 5.9% at December 31, 1995 to 7.5% at December 31, 1996. Products and other services revenue includes wireless product sales, online services, consulting and outsourcing services, and other sales and services to businesses and consumers. Products and other services revenue increased 11.2% in 1996 and decreased 6.5% in 1995. The roll-out of new and nontraditional services drove the increase in 1996. The 1995 decrease was mainly due to lower other services in our wireless business. During 1996 we began offering internet access service under AT&T WorldNet(sm) and had 568,000 subscribers by the end of the year. Our AT&T WorldNet(sm) and hosting services and our consulting and outsourcing businesses contributed to the increase in revenues. However, these start-up businesses required significant expenditures in both years. These investments are necessary for us to expand into the strategic areas we believe are important to our future. We signed numerous agreements in 1996 to provide consulting and outsourcing services to various companies. We expect these agreements to increase products and other services revenue in 1997. Revenue expected under contracts executed in 1996 primarily for outsourcing amounted to approximately $2.9 billion at December 31, 1996. This is earned over the contract term, which can extend to up to 10 years. Since revenue depends on actual usage under service contracts, actual revenue for a particular contract may be higher or lower than the reported expected amount. Operating Expenses Operating expenses for communications services included $3,023 million of restructuring and other charges in 1995 and $246 million of McCaw Cellular Communications, Inc. (McCaw) merger-related expenses in 1994. Excluding these charges, operating expenses for communications services increased 3.9% in 1996 and 5.0% in 1995. The 1996 growth was due to increased selling, general and administrative expenses and increased network and other communications services expenses partially offset by decreased access and other interconnection expenses. The 1995 growth was primarily due to increased selling, general and administrative expenses. The expense growth rate decreased in 1996 primarily due to lower access and other interconnection charges. As a result, the operating margin for communications services increased in 1996 to 17.3% from 16.9% in 1995, excluding restructuring and other charges, and 16.6% in 1994. Access and other interconnection expenses are the charges for facilities provided by local exchange carriers and other domestic service providers and fees paid to foreign telephone companies (international settlements) to connect calls made to or from foreign countries on our behalf. These charges are designed to reimburse these carriers for the common and dedicated facilities and switching equipment used to connect our network with their network. These costs declined in both 1996 and 1995 due to lower per-minute access cost resulting from changes in the price setting methodology approved by the Federal Communications Commission (FCC), operational improvements in our infrastructure and reduced international settlements. The decrease in 1996 was also partially due to a second quarter accounting adjustment of previously estimated accruals to reflect actual billing. These reductions were partially offset by increased volumes and international traffic mix. Access and other interconnection expenses as a percentage of wireline services revenue were 35.8% in 1996, 39.8% in 1995 and 42.1% in 1994. Network and other communications services expenses include operating and maintaining our network, operator services, nonincome taxes and the provision for uncollectible receivables. Network and other communications services expenses, excluding $844 million in 1995 related to restructuring and other charges, increased in both 1996 and 1995 due to increased costs from our expansion into new initiatives, enhancements made in customer care facilities and higher provisions for uncollectibles. New initiatives such as AT&T WorldNet(sm) and hosting services, preparing for local service entry and our consulting and outsourcing businesses represented approximately half of the increase in network and other communications services expenses in 1996 and most of the increase in 1995. We filed to offer local service in all 50 states less than three weeks after the Telecommunications Act of 1996 (the Telecommunications Act) was signed in February 1996. As of December 31, 1996, we had received authority to provide local service in 42 states. The higher provision for uncollectibles in 1996 reflects collection issues as well as a shift in industry wide credit risk profiles of business customers which resulted in increased bankruptcies, delinquencies and fraud. In particular the business reseller market has experienced significant competition which has had a negative impact on these customers' payment patterns. Our ongoing provision for uncollectibles will continue to reflect the increased risk in our business markets. In 1996 the cost of operating our worldwide intelligent network was essentially unchanged despite increased calling volumes and the increased complexity of our service offerings. Depreciation and amortization expenses, excluding $934 million of restructuring and other charges in 1995, increased $154 million or 6.0% in 1996. This increase was primarily the result of additions to the telecommunications network and was partially offset by the impact of the asset write-downs at the end of 1995. We expect depreciation and amortization expense to continue to increase with the expansion of our networks. (See Financial Condition and Cash Flows - Investing activities for a discussion of capital expenditures.) Additionally, subsequent to their divestment, purchases from Lucent and NCR are recorded at the full commercial price. When these entities were part of our consolidated results, these purchases were reflected at their manufacturing costs. Going forward, this will result in higher capital expenditures and related depreciation expense as well as higher period expenses for those items not capitalized. We have committed to purchase $3,000 million from Lucent by the end of 1998 and $350 million from NCR by the end of 1999. By the end of 1996 we had purchased $2,726 million from Lucent and NCR under these agreements. In 1995 depreciation and amortization expenses increased $192 million or 8.0%, excluding restructuring and other charges, due to increased capital expenditures to support our telecommunications network services, to provide for growth in calling volumes, to introduce new technology and to enhance reliability. Also contributing to the increase was amortization associated with the acquisition of the remaining interest in LIN Broadcasting Corporation (LIN) in October 1995. Selling, general and administrative expenses, excluding $1,245 million of restructuring and other charges in 1995 and $246 million of McCaw merger-related expenses in 1994, were 29.3% of communications services revenues in 1996, 27.1% in 1995 and 24.8% in 1994. These costs increased as a percentage of communications services revenues in both 1996 and 1995 due to expenditures for new initiatives, higher marketing and sales expenses and enhancements to customer care facilities. Our initiatives for online services, such as AT&T WorldNet(sm), local expansion and our consulting and outsourcing businesses represented about 30% of our increase in 1996 and approximately 15% of our increase in 1995. These increases were slightly offset in 1996 by lower costs per point for our True Rewards program as well as the expiration of some True Rewards points. Additionally, further offsetting the 1996 increase were cost reduction benefits obtained from the 1995 restructuring. Also included in selling, general and administrative expenses were $640 million, $563 million and $463 million of research and development expenses in 1996, 1995 and 1994, respectively. Research and development expenditures are mainly for work on wireless technology, advanced communications services and projects aimed at international growth. These expenses included $6 million of restructuring and other charges in 1995. Financial Services Dollars in millions 1996 1995 1994 Revenues (1) $ 1,669 $ 2,261 $ 1,838 Operating income 64 294 216 Operating margin 3.8% 13.0% 11.8% Universal Card Information: Total owned finance receivables $ 7,056 $10,618 $12,380 Total owned and managed finance receivables 13,556 14,118 12,380 Cardholder accounts in millions 18.3 17.6 15.1 (1) Reflects revenues from owned receivables only. Owned receivables as a percentage of total owned and managed receivables were 52% in 1996 and 75% in 1995. Our financial services segment is primarily our AT&T Universal Card Services business. Contributing to a lesser degree are some finance assets that we retained from AT&T Capital as a result of their 1993 restructuring. Universal Card continued to experience competitive pricing pressures and higher charge-offs in 1996, as did the industry. The reserve for credit losses is set based on experience, current delinquencies and the outlook for the economy. Revenues have decreased in 1996 compared with 1995 primarily due to the impact of securitizations we completed during 1995 and 1996. Additionally, lower rate offers continued to decrease margins. In 1995 revenues increased due to a higher level of average owned receivables. Universal Card's total managed receivables included $6,500 million and $3,500 million of cumulative securitized receivables at the end of 1996 and 1995, respectively. Universal Card retains the servicing and customer relationships of the credit card accounts that were securitized. Financial services expenses decreased $356 million or 18.2% in 1996, excluding $6 million in 1995 for restructuring and other charges. This decrease reflects a decrease in overall direct portfolio expenses (interest, provisions for credit losses and other related costs) due to decreased owned receivables primarily associated with the securitization program. Selling, general and administrative expenses increased $83 million primarily due to customer loyalty programs. Financial services operating income decreased $236 million in 1996, and increased $84 million in 1995, excluding restructuring and other charges. Operating margin was 3.8% in 1996, 13.3% in 1995 and 11.8% in 1994. The decrease in 1996 was primarily due to the continued declinein portfolio credit performance and increased selling, general and administrative expenses. The increase in 1995 was due to a higher level of average earning assets. Other Income Statement Line Items Other income - net includes sales and exchanges of cellular properties, net equity earnings from investments, increases in the value of corporate-owned life insurance policies on officers, minority owners' interests in the earnings or losses of subsidiaries and other miscellaneous transactions. In addition to the above, other income for 1996 included a loss on our investment in Novell, Inc. stock and other income for 1994 included the loss from a lost satellite and preferred dividends of a subsidiary. Interest expense decreased in 1996 compared with 1995 due to lower levels of average debt. The lower levels of average debt are primarily attributable to the assignment of debt to Lucent and the application of the proceeds from the sale of AT&T Capital. Interest expense in 1995 compared with 1994 increased as a result of higher levels of average debt offset partially by lower average rates on long-term debt. The effective income tax rate is the provision for income taxes as a percentage of income from continuing operations before income taxes. The effective income tax rate for 1996 of 36.7% was impacted by tax benefits associated with various legal entity restructurings. The 1995 effective income tax rate of 39.0% was impacted by the restructuring and other charges. Excluding such charges, our 1995 effective income tax rate was 36.7% which was favorably impacted by lower state tax rates and higher research credits. The 1994 effective income tax rate of 39.3% was impacted by McCaw merger-related expenses as well as a tax benefit of $74 million as a result of the redemption of a subsidiary's preferred stock. Excluding these charges, our effective income tax rate for 1994 was 38.8%. Income from discontinued operations was $138 million in 1996, $251 million in 1995 excluding restructuring and other charges of $3,317 million, and $317 million in 1994. Income from discontinued operations includes the results of NCR and other businesses, and the results of Lucent and AT&T Capital through September 30, 1996. As a result, the decline in 1996 relates primarily to Lucent and AT&T Capital being included for only a portion of the year. Discontinued operations also includes the elimination of intercompany transactions, an allocation of AT&T's interest expense (based on a ratio of net assets of discontinued operations to total AT&T consolidated assets), and a portion of AT&T's consolidated taxes attributable to discontinued businesses. We recognized a $162 million after-tax gain on the sale of AT&T Capital as a separate component of discontinued operations in 1996. Included in 1996 income from discontinued operations in 1996. Included in 1996 income from discontinued operations is a nonrecurring tax benefit of $155 million as a result of reversing deferred tax liabilities on the earnings of Lucent's non-U.S. consolidated subsidiaries. The subsidiaries have the ability and specific intention to permanently reinvest such undistributed earnings. These deferred tax liabilities reduced income from discontinued operations in earlier years. Financial Condition and Cash Flows Operating activities. Cash flow from operating activities decreased 3.6% to $8,734 million in 1996 and increased 14.0% to $9,060 million in 1995. The decrease in 1996 related to required cash payments for restructuring and other charges amounting to $471 million. We expect that another $1.4 billion will require future cash payments. The increase in 1995 was consistent with the growth in our income from continuing operations, excluding restructuring and other charges. EBITDA (earnings before interest, taxes, depreciation and amortization) for our communications services business was $11,938 million in 1996, $11,098 million in 1995 (excluding restructuring and other charges) and $10,138 million in 1994 (excluding merger-related expenses). The increase in EBITDA in both 1996 and 1995 relates to a higher level of revenues and lower access and interconnection expenses. EBITDA is a measure of our ability to generate cash flows, and should be considered in addition to, but not as a substitute for, other measures of financial performance reported in accordance with generally accepted accounting principles. Investing activities. We used $1,490 million in 1996, $8,987 million in 1995 and $7,276 million in 1994 for investing activities. Included in 1996 investing activities were net capital expenditures, proceeds received from securitizations and proceeds received from divestments, including the sale of AT&T Capital. Capital expenditures (primarily associated with our network and wireless infrastructure), acquisitions of businesses and investments and the acquisitions of PCS and cellular licenses were approximately $7.3 billion in 1996, $10.0 billion in 1995 and $3.9 billion in 1994. This resulted in net cash outlays for the foregoing in each of 1996, 1995 and 1994 of approximately $6.9 billion, $10.1 billion and $3.8 billion, respectively. In 1996 we continued to invest in our communications network in order to increase capacity, reliability and enhance network intelligence to provide new products and services. This included the continued deployment of Synchronous Optical Network Technology (SONET) for our long distance network, as well as SONET rings which provide millisecond restoration of traffic in the event of a fiber cut. We also invested in switching system software associated with advanced call features. Further, we expanded our wireless infrastructure to provide higher capacity and improve service quality. Substantial investments in our communications services business are expected to continue as we upgrade our network and invest in new markets. Competition in communications is global and increasingly involves multinational firms and partners. We believe commitments of resources to expand globally are necessary for future growth. For example, we have established a presence in the United Kingdom to compete directly with the dominant national provider. Also contributing to investing activities is our financial services business. Securitizations of credit card receivables brought in cash of $3.0 billion in 1996 and $3.5 billion in 1995. Securitization may continue to be used as a financing alternative in the future. Financing activities. Cash used for financing activities was $5,381 million in 1996 and $222 million in 1994. In 1995 financing activities provided cash of $1,420 million. AT&T has raised all necessary external financing through issuances of commercial paper and long-term debt, as well as asset-backed securities (the Universal Card securitizations) and equity. We expect to be able to arrange any necessary future financing using these same sources, with the timing of issue, principal amount and form depending on our needs and the prevailing market and economic conditions. During 1996 we retired long-term debt of $1,236 million and decreased short-term debt by $5,302 million. The changes in debt reflect the use of alternative sources of funding, such as securitizations, as well as the impact of Lucent obtaining its own external financing in 1996. Additionally, the cash collection of the $2.0 billion in accounts receivable retained by AT&T continuing operations as part of the restructuring plan and the proceeds of $1.8 billion from the sale of AT&T Capital were used to pay down our debt. In 1995 we retired $2,137 million of long-term debt, but borrowed an additional $2,392 million of long-term debt and $1,939 million of short-term debt. In 1994 we retired $4,078 million in long-term debt and borrowed $3,422 million of long-term debt and $1,217 million of short-term debt. In each of the past three years, we issued new shares of common stock in our shareowner and employee benefit stock-ownership plans. In 1997 stock used in our shareowner and employee benefit stock-ownership plans will now be purchased in the stock market instead of using unissued or treasury shares. This will minimize the dilutive effects of these plans on equity shareowners, but will require us to use cash to purchase the shares. We also paid dividends of $2,122 million in 1996, $2,088 million in 1995 and $1,870 million in 1994. On a limited basis, we use certain derivative financial instruments in an effort to manage exposure to interest rate risk and foreign exchange risk. Our utilization of these instruments is limited to interest rate swap agreements, forward contracts and options in foreign currencies to hedge exposures. We do not enter into such instruments for speculative purposes. All hedging activity is in accordance with board-approved policies. Any potential loss or exposure related to our use of derivative instruments is immaterial to our overall operations, financial condition and liquidity. The notional amounts of derivative contracts do not represent direct credit exposure or future cash requirements. Credit exposure is determined by the market value of derivative contracts that are in a gain position as well as the ability of the counterparty to perform its payment obligations under the agreements. We control credit risk of our derivative contracts through credit approvals, exposure limits and other monitoring procedures. There were no past due amounts related to our derivative contracts at December 31, 1996, nor have we ever recorded any charge-offs related to derivative contracts. Total assets decreased from the end of 1995 primarily due to lower net assets of discontinued operations, finance receivables and current deferred income taxes. The decrease in net assets of discontinued operations is primarily due to the dispositions of Lucent, NCR and AT&T Capital in 1996. Finance receivables decreased mainly due to the Universal Card securitizations. The decrease in current deferred income tax assets is partially offset by the decrease in long-term deferred income tax liabilities. These decreases reflect the portion of long-term deferred income tax liabilities at year-end 1995 that became current in 1996. The decreases in assets were partially offset by increases in property, plant and equipment and accounts receivable. The increase in property, plant and equipment was primarily due to capital expenditures for the AT&T network and wireless infrastructure. The increased accounts receivable was driven by our increased revenues. Total liabilities decreased from December 31, 1995 primarily due to lower short- and long-term debt, deferred income taxes and other long-term liabilities and deferred credits. The lower levels of debt are primarily attributable to the Universal Card securitization program, the assignment of debt to Lucent, and the application of the cash received from the $2.0 billion in retained receivables from Lucent and the proceeds from the sale of AT&T Capital. Long-term deferred income tax liabilities declined due to the reclassification of deferred income taxes to current as discussed above. Other long-term liabilities and deferred credits were down primarily due to certain restructuring-related liabilities becoming current. These decreases were offset by increases in accounts payable and other current liabilities. Increased accounts payable relate to increased capital expenditures, higher international settlement payables due to timing of payments and payables related to increased marketing and sales efforts. Increased current liabilities reflect increased current taxes payable due primarily to the sale of AT&T Capital. Shareowners' equity was $20,295 million at December 31, 1996 and $17,274 million at December 31, 1995. The increase is due primarily to net income and shares issued under employee plans offset primarily by the impact of the Lucent and NCR spin-offs of approximately $2.2 billion and dividends of $2.1 billion. The ratio of total debt to total capital (debt plus equity) decreased to 33.8% at December 31, 1996, compared with 54.5% at December 31, 1995. Most of our debt supports financial services operations. Excluding financial services, our debt ratio was 18.7% at the end of 1996 and 41.3% at the end of 1995. In 1996 we reduced our debt levels significantly as discussed above. The 1995 ratio was higher because of the restructuring and other charges and by the issuance of additional debt to finance the acquisitions of PCS licenses and the remaining 48% of LIN. Additionally, we had approximately $6.0 billion of unused available lines of credit at December 31, 1996. The fair value of our pension plan assets is greater than our projected pension obligations. We record pension income when our expected return on plan assets plus the amortization of the transition asset (created by our 1986 adoption of the current standard for pension accounting) is greater than the interest cost on our projected benefit obligation plus service cost for the year. Consequently we continued to have pension income that added to our prepaid pension asset in 1996. Legislative Developments, Regulatory Developments and Competition In February 1996 the Telecommunications Act became law. The Telecommunications Act, among other things, was designed to foster local exchange competition by establishing a regulatory framework to govern new competitive entry in local and long distance telecommunications services. The Telecommunications Act permits RBOCs to provide interexchange services after demonstrating to the FCC that such provision is in the public interest and satisfying the conditions for developing local competition established by the Telecommunications Act. In August 1996 the FCC adopted rules and regulations (the Implementing Rules) to implement the local competition provisions of the Telecommunications Act. The Implementing Rules rely on each state to develop the specific rates and procedures in such state within the framework prescribed by the FCC for developing such rates and procedures. In October 1996 the United States Court of Appeals for the 8th circuit ordered a stay of the effectiveness of certain of the Implementing Rules until such court resolves challenges thereto by local telephone companies and telephone regulators in several states. We believe that such stay may inhibit the establishment of appropriate permanent rates for the provision of network elements and wholesale services. Absent full effectiveness of the stayed Implementing Rules, each state will determine the applicable rates and procedures independent of the framework of the Implementing Rules. Since the stay was issued, many states have used the Implementing Rules as guidelines in establishing interim rates that will apply pending the determination of permanent rates in subsequent state proceedings. Nevertheless, in the absence of the Implementing Rules, there can be no assurance that the prices and other conditions established in each state will provide for effective local service entry and competition or provide us with new market opportunities. In addition to the matters referred to above, various other factors, including market acceptance, start-up and ongoing costs associated with the provision of new services and local conditions and obstacles, could adversely affect the timing and success of our entrance into the local exchange services market and our ability to offer combined service packages that include local service. Because it is widely anticipated that substantial numbers of long distance customers will seek to purchase local, interexchange and other services from a single carrier as part of a combined or full service package, any competitive disadvantage, inability to profitably provide local service at competitive rates or delays or limitations in providing local service or combined service packages could adversely affect our future revenues and earnings. In addition, the simultaneous entrance of numerous new competitors for interexchange and combined service packages is likely to adversely affect our long distance revenues and could adversely affect earnings. We currently face significant competition in the communications services industry and expect that the level of competition will continue to increase. The Telecommunications Act has already begun to intensify the competitive environment in recent months. Non-RBOC local exchange carriers, which are not required to implement the Telecommunications Act competitive checklist prior to offering long distance in their home markets, anticipating changes in the industry, have begun integrating their local service offerings with long distance offerings in advance of AT&T being able to offer combined local and long distance service in these areas. In addition, most of the RBOCs have indicated their intention to petition the FCC during 1997 for permission to offer interexchange services in one or more states within their home regions. Recent Pronouncements In June 1996 the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities." This statement requires that liabilities incurred or obtained by transferors as part of a transfer of financial assets be initially measured at fair value, if practical. It also requires that servicing assets and other retained interests in transferred assets be recognized and measured by allocating the previous carrying amount between assets sold and retained interests based upon their relative fair values at the date of transfer. The statement is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after December 31, 1996, and early adoption is prohibited. The adoption of this standard will not have a material impact on our consolidated financial statements. Forward Looking Statements Except for the historical statements and discussions contained herein, statements contained in this report constitute "forward looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward looking statements rely on a number of assumptions concerning future events, and are subject to a number of uncertainties and other factors, many of which are outside our control, that could cause actual results to differ materially from such statements. Readers are cautioned not to put undue reliance on such forward looking statements. These factors and uncertainties include the adoption of balanced and effective rules and regulations by the state public regulatory agencies, our ability to achieve a significant market penetration in new markets and the related costs thereof, and competitive pressures. Shareowners may review our reports filed with the Securities and Exchange Commission for a more detailed description of the uncertainties and other factors that could cause actual results to differ materially from such forward looking statements. We disclaim any intention or obligation to update or revise forward looking statements, whether as a result of new information, future events or otherwise. SIX-YEAR SUMMARY OF SELECTED FINANCIAL DATA (UNAUDITED) AT&T Corp. and Subsidiaries Dollars in millions (except per share amounts) 1996 1995* 1994 1993* 1992 1991* - ------------------------------------------------------------------------------------------------ RESULTS OF OPERATIONS Total revenues $52,184 $50,664 $47,776 $45,002 $43,784 $42,309 Operating income 8,810 5,453 7,586 6,675 6,278 2,503 Income from continuing operations before cumulative effects of accounting changes 5,608 3,205 4,393 3,882 3,253 1,083 Income before cumulative effects of accounting changes 5,908 139 4,710 3,702 3,442 171 Net income (loss) 5,908 139 4,710 (5,906) 3,442 171 Earnings per common share: Income from continuing operations before cumulative effects of accounting changes 3.47 2.01 2.81 2.51 2.14 0.73 Income before cumulative effects of accounting changes 3.66 0.09 3.01 2.39 2.27 0.12 Net income (loss) 3.66 0.09 3.01 (3.82) 2.27 0.12 Dividends declared per common share 1.32 1.32 1.32 1.32 1.32 1.32 ASSETS AND CAPITAL Property, plant and equipment - net $19,794 $16,083 $14,470 $13,699 $13,638 $13,096 Total assets - continuing operations 55,026 54,969 48,578 42,217 41,239 37,450 Total assets 55,552 62,395 57,448 50,181 50,632 48,781 Long-term debt 7,883 8,542 8,934 10,287 12,210 12,167 SIX-YEAR SUMMARY OF SELECTED FINANCIAL DATA (Cont'd) (UNAUDITED) AT&T Corp. and Subsidiaries Dollars in millions (except per share amounts) 1996 1995* 1994 1993* 1992 1991* - ------------------------------------------------------------------------------------------------ Total debt 10,343 20,718 18,533 18,191 17,122 16,756 Shareowners' equity 20,295 17,274 17,921 13,374 20,313 17,973 Gross capital expenditures 6,785 4,522 3,370 2,554 2,319 2,435 Employees - continuing operations 130,400 128,400 119,100 121,900 122,000 119,100 OTHER INFORMATION Operating income as a percentage of revenues 16.9% 10.8% 15.9% 14.8% 14.3% 5.9% Income from continuing operations as a percentage of revenues 10.7% 6.3% 9.2% 8.6% 7.4% 2.6% Return on average common equity 28.0% 0.7% 29.5% (47.1)% 17.6% 0.9% Data at year-end: Stock price per share** $41.31 $44.40 $34.46 $36.00 $34.97 $26.83 Book value per common share $12.50 $10.82 $11.42 $ 8.65 $13.31 $12.05 Debt ratio 33.8% 54.5% 50.8% 57.6% 45.7% 48.2% Debt ratio excluding financial services 18.7% 41.3% 30.0% 43.0% 36.5% 42.9% - ------------------------------------------------------------------------------------------------ *1995 continuing operations data reflect $3.0 billion of pretax business restructuring and other charges. 1993 net income reflects a $9.6 billion net charge for three accounting changes. 1991 continuing operations data reflect $3.5 billion of pretax business restructuring and other charges. **Stock prices have been restated to reflect the spin-offs of Lucent and NCR.
REPORT OF MANAGEMENT Management is responsible for the preparation, integrity and objectivity of the financial statements and all other financial information included in this report. Management is also responsible for maintaining a system of internal controls as a fundamental requirement for the operational and financial integrity of results. The financial statements, which reflect the consolidated accounts of AT&T Corp. and subsidiaries (AT&T) and other financial information shown, were prepared in conformity with generally accepted accounting principles. Estimates included in the financial statements were based on judgments of qualified personnel. To maintain its system of internal controls, management carefully selects key personnel and establishes the organizational structure to provide an appropriate division of responsibility. We believe it is essential to conduct business affairs in accordance with the highest ethical standards as set forth in the AT&T Code of Conduct. These guidelines and other informational programs are designed and used to ensure that policies, standards and managerial authorities are understood throughout the organization. Our internal auditors monitor compliance with the system of internal controls by means of an annual plan of internal audits. On an ongoing basis, the system of internal controls is reviewed, evaluated and revised as necessary in light of the results of constant management oversight, internal and independent audits, changes in AT&T's business and other conditions. Management believes that the system of internal controls, taken as a whole, provides reasonable assurance that (1) financial records are adequate and can be relied upon to permit the preparation of financial statements in conformity with generally accepted accounting principles and (2) access to assets occurs only in accordance with management's authorizations. The Audit Committee of the Board of Directors, which is composed of directors who are not employees, meets periodically with management, the internal auditors and the independent accountants to review the manner in which these groups of individuals are performing their responsibilities and to carry out the Audit Committee's oversight role with respect to auditing, internal controls and financial reporting matters. Periodically, both the internal auditors and the independent accountants meet privately with the Audit Committee. These accountants also have access to the Audit Committee and its individual members at any time. The financial statements in this annual report have been audited by Coopers & Lybrand L.L.P., Independent Accountants. Their audits were conducted in accordance with generally accepted auditing standards and include an assessment of the internal control structure and selective tests of transactions. Their report follows. Richard W. Miller Robert E. Allen Senior Executive Vice President, Chairman of the Board, Chief Financial Officer Chief Executive Officer REPORT OF INDEPENDENT ACCOUNTANTS To the Shareowners of AT&T Corp.: We have audited the consolidated balance sheets of AT&T Corp. and subsidiaries (AT&T) at December 31, 1996 and 1995, and the related consolidated statements of income, changes in shareowners' equity and cash flows for the years ended December 31, 1996, 1995 and 1994. These financial statements are the responsibility of AT&T's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of AT&T at December 31, 1996 and 1995, and the consolidated results of their operations and their cash flows for the years ended December 31, 1996, 1995 and 1994, in conformity with generally accepted accounting principles. Coopers & Lybrand L.L.P. 1301 Avenue of the Americas New York, New York January 22, 1997 CONSOLIDATED STATEMENTS OF INCOME AT&T CORP. AND SUBSIDIARIES Years Ended December 31 Dollars in millions (except per share amounts) 1996 1995 1994 Sales and Revenues Communications services..................... $50,515 $48,403 $45,938 Financial services.......................... 1,669 2,261 1,838 Total revenues.............................. 52,184 50,664 47,776 Operating Expenses Access and other interconnection............ 16,332 17,618 17,797 Network and other communications services... 7,911 7,750 6,747 Depreciation and amortization............... 2,740 3,520 2,394 Selling, general and administrative......... 14,786 14,356 11,630 Total communications services expenses.... 41,769 43,244 38,568 Financial services expenses................. 1,605 1,967 1,622 Total operating expenses.................... 43,374 45,211 40,190 Operating income............................ 8,810 5,453 7,586 Other income - net.......................... 390 280 89 Interest expense............................ 334 478 435 Income from continuing operations before income taxes.............................. 8,866 5,255 7,240 Provision for income taxes.................. 3,258 2,050 2,847 Income from continuing operations........... 5,608 3,205 4,393 Discontinued operations Income(loss) from discontinued operations (net of tax benefits of $374 in 1996, $1,254 in 1995 and $39 in 1994)........... 138 (3,066) 317 Gain on sale of discontinued operation (net of taxes of $138).................... 162 - - Net income ................................. $ 5,908 $ 139 $ 4,710 Weighted-average common shares and common share equivalents (millions)....... 1,616 1,592 1,564 Per common share Income from continuing operations........... $ 3.47 $ 2.01 $ 2.81 Income(loss) from discontinued operations... 0.09 (1.92) 0.20 Gain on sale of discontinued operation...... 0.10 - - Net income.................................. $ 3.66 $ 0.09 $ 3.01 The notes on pages 34 through 44 are an integral part of the consolidated financial statements. CONSOLIDATED BALANCE SHEETS AT&T CORP. AND SUBSIDIARIES At December 31 Dollars in millions 1996 1995 ASSETS Cash and cash equivalents................... $ 134 $ 129 Receivables, less allowances of $1,336 and $1,252 Accounts receivable....................... 8,973 8,359 Finance receivables....................... 7,087 10,665 Deferred income taxes....................... 1,413 2,437 Other current assets........................ 703 498 TOTAL CURRENT ASSETS........................ 18,310 22,088 Property, plant and equipment - net......... 19,794 16,083 Licensing costs, net of accumulated amortization of $913 and $743............. 8,071 8,056 Investments................................. 3,883 3,646 Long-term finance receivables............... 703 768 Prepaid pension costs....................... 1,933 1,793 Other assets................................ 2,332 2,535 Net assets of discontinued operations....... 526 7,426 TOTAL ASSETS................................ $55,552 $62,395 LIABILITIES Accounts payable............................ $ 6,173 $ 5,089 Payroll and benefit-related liabilities..... 2,635 2,908 Debt maturing within one year............... 2,460 12,176 Dividends payable........................... 536 527 Other current liabilities................... 4,514 3,880 TOTAL CURRENT LIABILITIES................... 16,318 24,580 Long-term debt.............................. 7,883 8,542 Long-term benefit-related liabilities....... 3,037 2,871 Deferred income taxes....................... 4,827 5,446 Other long-term liabilities and deferred credits 3,192 3,682 TOTAL LIABILITIES........................... 35,257 45,121 SHAREOWNERS' EQUITY Common shares, par value $1 per share....... 1,623 1,596 Authorized shares: 2,000,000,000 Outstanding shares: 1,623,487,646 at December 31, 1996; 1,596,005,351 at December 31, 1995 Additional paid-in capital.................. 15,643 16,614 Guaranteed ESOP obligation.................. (96) (254) Foreign currency translation adjustments.... 47 5 Retained earnings (deficit)................. 3,078 (687) TOTAL SHAREOWNERS' EQUITY................... 20,295 17,274 TOTAL LIABILITIES AND SHAREOWNERS' EQUITY... $55,552 $62,395 The notes on pages 34 through 44 are an integral part of the consolidated financial statements. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREOWNERS' EQUITY AT&T CORP. AND SUBSIDIARIES Years Ended December 31 Dollars in millions 1996 1995 1994 Common shares Balance at beginning of year $ 1,596 $ 1,569 $ 1,547 Shares issued: Under employee plans 19 13 11 Under shareowner plans 8 13 8 Other - 1 3 Balance at end of year 1,623 1,596 1,569 Additional paid-in capital Balance at beginning of year 16,614 15,825 14,324 Shares issued: Under employee plans 975 598 536 Under shareowner plans 434 687 424 Other - 31 133 Preferred stock redemption - - 408 Dividends declared - (527) - Spin-offs of Lucent and NCR(a) (2,380) - - Balance at end of year 15,643 16,614 15,825 Guaranteed ESOP obligation Balance at beginning of year (254) (305) (355) Amortization 52 51 50 Assumption by Lucent(a) 106 - - Balance at end of year (96) (254) (305) Foreign currency translation adjustments Balance at beginning of year 5 145 (32) Translation adjustments (33) (140) 177 Spin-offs of Lucent and NCR(a) 75 - - Balance at end of year 47 5 145 Retained earnings (deficit) Balance at beginning of year (687) 687 (2,110) Net income 5,908 139 4,710 Dividends declared (2,132) (1,570) (1,940) Other changes (11) 57 27 Balance at end of year 3,078 (687) 687 Total Shareowners' Equity $20,295 $17,274 $17,921 (a) The net impact of the spin-offs of Lucent and NCR on total shareowners' equity was $2,199 million. In March 1990 we issued 13.4 million new shares of common stock in connection with the establishment of an ESOP feature for the nonmanagement savings plan. The shares are being allocated to plan participants over ten years commencing in July 1990 as contributions are made to the plan. In connection with the Lucent spin-off, $106 million of the unamortized guaranteed ESOP obligation was assumed by Lucent. We have 100 million authorized shares of preferred stock at $1 par value. No preferred stock is currently issued or outstanding. The notes on pages 34 through 44 are an integral part of the consolidated financial statements. CONSOLIDATED STATEMENTS OF CASH FLOWS AT&T CORP. AND SUBSIDIARIES Years Ended December 31 Dollars in millions 1996 1995 1994 OPERATING ACTIVITIES Net income $ 5,908 $ 139 $ 4,710 Add:(Income)loss from discontinued operations (138) 3,066 (317) Gain on sale of discontinued operation (162) - - Income from continuing operations 5,608 3,205 4,393 Adjustments to reconcile net income to net cash provided by operating activities of continuing operations: Restructuring and other charges - 3,029 - Depreciation and amortization 2,740 2,586 2,394 Provision for uncollectibles 2,443 2,272 1,697 Increase in accounts receivable (2,149) (2,231) (1,857) Increase in accounts payable 438 850 562 Net (increase)decrease in other operating assets and liabilities (861) (93) 319 Other adjustments for noncash items - net 515 (558) 436 NET CASH PROVIDED BY OPERATING ACTIVITIES OF CONTINUING OPERATIONS 8,734 9,060 7,944 INVESTING ACTIVITIES Capital expenditures (6,339) (4,616) (3,302) Proceeds from sale or disposal of property, plant and equipment 145 204 54 Decrease(increase) in finance assets 139 (2,364) (3,537) Proceeds from securitizations of finance receivables 3,000 3,492 - Acquisitions of licenses (267) (1,978) (293) Net increase in investments (290) (101) (114) Dispositions(acquisitions), net of cash acquired 2,145 (3,406) (105) Other investing activities - net (23) (218) 21 NET CASH USED IN INVESTING ACTIVITIES OF CONTINUING OPERATIONS (1,490) (8,987) (7,276) FINANCING ACTIVITIES Proceeds from long-term debt issuances - 2,392 3,422 Retirements of long-term debt (1,236) (2,137) (4,078) Issuance of common shares 1,293 1,214 976 Dividends paid (2,122) (2,088) (1,870) (Decrease)increase in short-term borrowings - net (5,302) 1,939 1,217 Other financing activities - net 1,986 100 111 NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES OF CONTINUING OPERATIONS (5,381) 1,420 (222) Effect of exchange rate changes on cash 9 40 (6) Net cash used in discontinued operations (1,867) (1,624) (392) Net increase(decrease) in cash and cash equivalents 5 (91) 48 Cash and cash equivalents at beginning of year 129 220 172 Cash and cash equivalents at end of year $ 134 $ 129 $ 220 The notes on pages 34 through 44 are an integral part of the consolidated financial statements. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AT&T CORP. AND SUBSIDIARIES (AT&T) (Dollars in millions, except per share amounts) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONSOLIDATION The consolidated financial statements include all majority-owned subsidiaries. Investments in which we exercise significant influence but which we do not control (generally a 20% - 50% ownership interest) are accounted for under the equity method of accounting. This represents the majority of our investments. Generally, investments in which we have less than a 20% ownership interest are accounted for under the cost method of accounting. CURRENCY TRANSLATION For operations outside of the U.S. that prepare financial statements in currencies other than the U.S. dollar, we translate income statement amounts at average exchange rates for the year, and we translate assets and liabilities at year-end exchange rates. We present these translation adjustments as a separate component of shareowners' equity. REVENUE RECOGNITION We recognize wireline and wireless services revenue based upon minutes of traffic processed and contracted fees. Generally, we recognize products and other services revenue in accordance with contract terms. Our financial services revenue is recognized over the life of the finance receivables using the interest method. ADVERTISING COSTS We expense costs of advertising as incurred. Advertising expense was $2,667, $2,148 and $2,050 in 1996, 1995 and 1994, respectively. INVESTMENT TAX CREDITS We amortize investment tax credits as a reduction to the provision for income taxes over the useful lives of the property that produced the credits. EARNINGS PER SHARE We use the weighted-average number of shares of common shares and common share equivalents outstanding during each period to compute earnings per common share. Common share equivalents are stock options assumed to be exercised for purposes of this computation. STOCK-BASED COMPENSATION We apply the intrinsic value based method of accounting for our stock-based compensation plans, and except for certain plans, we do not record compensation expense. CASH EQUIVALENTS We consider all highly liquid investments with original maturities of generally three months or less to be cash equivalents. PROPERTY, PLANT AND EQUIPMENT We state property, plant and equipment at cost, unless impaired, and determine depreciation based upon the assets= estimated useful lives using either the group or unit method. The group method is used for most depreciable assets. When we sell or retire assets that were depreciated using the group method, we deduct the cost from property, plant and equipment and accumulated depreciation. The unit method is used primarily for large computer systems and undersea submarine cables. When we sell assets that were depreciated using the unit method, we include the gains or losses in operating results. We use accelerated depreciation methods primarily for digital equipment used in the telecommunications network, except for switching equipment placed in service before 1989 and certain high technology computer processing equipment. All other plant and equipment is depreciated on a straight-line basis. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the sum of the expected future undiscounted cash flows is less than the carrying amount of the asset, a loss is recognized for the difference between the fair value and carrying value of the asset. LICENSING COSTS Licensing costs are costs incurred to develop or acquire cellular, personal communications services (PCS) and messaging licenses. Generally, amortization begins with the commencement of service to customers and is computed using the straight-line method over a period of 40 years. GOODWILL Goodwill is the excess of the purchase price over the fair value of net assets acquired in business combinations accounted for as purchases. We amortize goodwill on a straight-line basis over the periods benefited ranging from 5 to 40 years. Goodwill is reviewed for impairment annually or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the sum of the expected future undiscounted cash flows is less than the carrying amount, a loss is recognized for the difference between the fair value and carrying value of the asset. DERIVATIVE FINANCIAL INSTRUMENTS We use various financial instruments, including derivative financial instruments, for purposes other than trading. We do not use derivative financial instruments for speculative purposes. Derivatives, used as part of our risk management strategy, must be designated at inception as a hedge and measured for effectiveness both at inception and on an ongoing basis. Gains and losses that do not qualify as hedges are recognized in other income - net. 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 revenues and expenses during the period reported. Actual results could differ from those estimates. Estimates are used when accounting for certain items such as long-term contracts, allowance for doubtful accounts, depreciation and amortization, employee benefit plans, taxes, restructuring reserves and contingencies. RECLASSIFICATIONS We reclassified certain amounts for previous years to conform with the 1996 presentation. 2. DISCONTINUED OPERATIONS On September 20, 1995, AT&T announced a plan, subject to certain conditions, to separate into three independent, publicly held, global companies: communications services (AT&T), communications systems and technologies (Lucent Technologies Inc., "Lucent") and transaction-intensive computing (NCR Corporation, "NCR"). In April 1996 Lucent sold 112 million shares of common stock in an initial public offering (IPO), representing 17.6% of the Lucent common stock outstanding. Because of AT&T's plan to spin off its remaining 82.4% interest in Lucent, the sale of the Lucent stock was recorded as an equity transaction, resulting in an increase in AT&T's additional paid-in capital at the time of the IPO. In addition, in connection with the restructuring, Lucent assumed $3.7 billion of AT&T debt in 1996. On September 30, 1996, AT&T distributed to AT&T shareowners of record as of September 17, 1996, the remaining Lucent common stock held by AT&T. The shares were distributed on the basis of .324084 of a share of Lucent for each AT&T share outstanding. Also announced as part of the separation plan was AT&T's intent to pursue the sale of its remaining approximate 86% interest in AT&T Capital Corporation (AT&T Capital). On October 1, 1996, AT&T sold its remaining interest in AT&T Capital for approximately $1.8 billion, resulting in a gain of $162, or $.10 per share, after taxes. On December 31, 1996, AT&T also distributed all of the outstanding common stock of NCR to AT&T shareowners of record as of December 13, 1996. The shares were distributed on the basis of .0625 of a share of NCR for each AT&T share outstanding on the record date. As a result of the Lucent and NCR distributions, AT&T's shareowners' equity was reduced by $2.2 billion. The distributions of the Lucent and NCR common stock to AT&T shareowners were noncash transactions which did not affect AT&T's results of operations. The distribution of NCR stock completed AT&T's strategic restructuring plan as announced on September 20, 1995. The consolidated financial statements of AT&T have been restated to reflect the dispositions of Lucent, NCR and AT&T Capital and the planned dispositions of other businesses as discontinued operations. Accordingly, the revenues, costs and expenses, assets and liabilities, and cash flows of Lucent, NCR, AT&T Capital and other businesses have been excluded from the respective captions in the Consolidated Statements of Income, Consolidated Balance Sheets and Consolidated Statements of Cash Flows, and have been reported through the dates of disposition as "Income (loss) from discontinued operations," net of applicable income taxes; as "Net assets of discontinued operations"; and as "Net cash used in discontinued operations" for all periods presented. Summarized financial information for the discontinued operations is as follows: 1996 1995 1994 Revenues $22,341 $28,945 $27,318 Income (loss) before income taxes (236) (4,320) 278 Net income (loss) 138 (3,066) 317 Current assets 554 17,415 Total assets 862 34,181 Current liabilities 230 14,787 Total liabilities 336 26,755 Net assets of discontinued operations $ 526 $ 7,426 The income (loss) before income taxes includes allocated interest expense of $45, $134 and $198 in 1996, 1995 and 1994, respectively. Interest expense was allocated to discontinued operations based on a ratio of net assets of discontinued operations to total AT&T consolidated assets. 3. CHANGES IN ACCOUNTING PRINCIPLES In 1997 we will adopt Statement of Financial Accounting Standards (SFAS) No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." Among other provisions, this standard requires that in connection with the transfer of financial assets, liabilities incurred should be measured at fair value and retained interests should be recorded as a portion of the original carrying amount of the transferred financial assets. The adoption of this standard will not have a material impact on our results of operations, financial position or cash flows. 4. SUPPLEMENTARY FINANCIAL INFORMATION SUPPLEMENTARY INCOME STATEMENT INFORMATION Years ended December 31 1996 1995 1994 INCLUDED IN DEPRECIATION AND AMORTIZATION Amortization of licensing costs $ 170 $ 133 $ 115 Amortization of goodwill 52 74 38 INCLUDED IN SELLING, GENERAL AND ADMINISTRATIVE Research and development expenses $ 640 $ 563 $ 463 FINANCIAL SERVICES EXPENSES Interest expense $ 392 $ 638 $ 453 Provision for losses 504 663 539 Other costs 410 450 361 Selling, general and administrative 299 216 269 Total $1,605 $1,967 $1,622 OTHER INCOME - NET 1996 1995 1994 Interest income $ 18 $ 38 $ 30 Minority interests in earnings of subsidiaries (15) (17) (22) Net equity earnings from investments 67 103 104 Officers' life insurance 74 73 34 Sale/exchange of cellular investments 158 64 12 Miscellaneous - net 88 19 (69) Total other income - net $ 390 $ 280 $ 89 DEDUCTED FROM INTEREST EXPENSE Capitalized interest $ 193 $ 107 $ 39 SUPPLEMENTARY BALANCE SHEET INFORMATION At December 31 1996 1995 PROPERTY, PLANT AND EQUIPMENT Machinery, electronic and other equipment $32,858 $27,320 Buildings and improvements 6,288 5,973 Land and improvements 376 411 Total property, plant and equipment 39,522 33,704 Accumulated depreciation (19,728) (17,621) Property, plant and equipment - net $19,794 $16,083 OTHER ASSETS Unamortized goodwill $ 1,325 $ 1,345 Deferred charges 491 596 Other 516 594 Total other assets $ 2,332 $ 2,535 SUPPLEMENTARY CASH FLOW INFORMATION Years ended December 31 1996 1995 1994 Interest payments net of amounts capitalized $ 765 $ 1,049 $ 873 Income tax payments 2,121 2,154 2,136 On September 30, 1996 AT&T distributed to AT&T shareowners all of the remaining 82.4% of Lucent common stock held by AT&T, resulting in a noncash distribution of $2.7 billion. Also, on December 31, 1996 AT&T distributed all of the outstanding stock of NCR to AT&T shareowners, resulting in a noncash distribution of $2.1 billion. In 1995 we acquired the remaining 48% of LIN Broadcasting Corporation (LIN) for approximately $3.3 billion. The purchase price was allocated to the fair value of assets acquired of $4.0 billion and the fair value of liabilities assumed of $.7 billion. 5. BUSINESS RESTRUCTURING AND OTHER CHARGES In the fourth quarter of 1995 we recorded a pretax charge of $3,029 to cover restructuring costs of $2,307 and asset impairments and other charges of $722. This charge included plans to exit certain proprietary network and messaging services; restructure customer service organizations; consolidate call servicing centers; exit certain satellite services; reorganize corporate support functions such as information systems, human resources and financial operations; and restructure certain international operations. As part of our plan to sell certain businesses and to restructure our operations, restructuring liabilities of $1,718 were recorded for employee separation costs, costs associated with early termination of building leases and other items. In addition, asset impairments of $567 (which directly reduced the carrying value of the related asset balances) and $22 of benefit plan losses were recorded. Benefit plan losses relate to our pension and other employee benefit plans and primarily represent losses in the current year for actuarial changes that otherwise might have been amortized over future periods. The 1995 restructure charge of $2,307 included separation costs for nearly 17,000 employees, which included approximately 12,000 management and 5,000 occupational employees. As of December 31, 1996, approximately 5,000 management employees and 1,000 occupational employees have been separated. Of the 5,000 management sepa rations, approximately 3,000 accepted voluntary severance packages. During 1996 we completed the restructuring of our proprietary network and messaging services business, closed several call servicing centers, sold certain international operations and reorganized certain corporate support functions. The implementation of certain restructuring activities are occurring at a slower pace than planned. There have been delays in exiting certain businesses and reorganizing corporate support functions, in part, to ensure customer satisfaction during this transition period. We expect the majority of our plans to be completed during 1997. However, certain severance and facility costs have payment terms extending beyond 1997. We believe that the balance is adequate to complete these plans. The following table displays a rollforward of the liabilities for business restructuring from December 31, 1994 to December 31, 1996: 1995 ---------------------- Dec. 31, Dec. 31, 1994 Amounts 1995 Balance Additions Utilized Balance Type of Cost Employee separations $ 76 $ 934 $ (79) $ 931 Facility closings 512 497 (248) 761 Other 111 287 8 406 Total $ 699 $1,718 $(319) $2,098 - --------------------------------------------------------------------------- 1996 ---------------------- Dec. 31, Dec. 31, 1995 Amounts 1996 Balance Additions Utilized Balance Type of Cost Employee separations $ 931 - $(325) $ 606 Facility closings 761 - (233) 528 Other 406 - (152) 254 Total $2,098 - $(710) $1,388 - --------------------------------------------------------------------------- Utilization primarily represents cash payments and other noncash utilization of restructuring reserves. 1996 noncash utilization includes $112 of net transfers to Lucent and NCR. The December 31, 1994 business restructuring balance included reserves primarily for real estate and reengineering operator services. As of December 31, 1996, $319 of the $699 December 31, 1994 balance remained. This balance is primarily related to excess space in various leased facilities and is expected to be fully utilized over the remaining terms of the leases. The balance is adequate to complete these plans. The 1995 charge of $722 for asset impairments and other charges included $668 for writing down certain impaired assets, including the write-down in the value of some unnecessary network facilities, the write-down of nonstrategic wireless assets and the reduction in value of some investments. There were no assets to be disposed of or sold included in these write-downs. The charge also included $54 of other items, none of which individually exceed 1% of the total charge. The total pretax charge of $3,029 for 1995 was recorded as $844 in network and other communications services; $934 in depreciation and amortization; $1,245 in selling, general and administrative; and $6 in financial services expenses. If viewed by type of cost, the combined charges reflect $956 for employee separations and other related items; $1,235 for asset write-downs; $497 for closing, selling and consolidating facilities; and $341 for other items. The total charge reduced income from continuing operations by $2,036, or $1.28 per share. In addition, charges of $1,172 (net of taxes) in the third quarter of 1995 and $2,145 (net of taxes) in the fourth quarter of 1995 are reflected in the loss from discontinued operations. These charges reduced income from discontinued operations by a total of $3,317, or $2.08 per share in 1995. 6. INCOME TAXES The following table shows the principal reasons for the difference between the effective tax rate and the United States federal statutory income tax rate: Years ended December 31 1996 1995 1994 U.S. federal statutory income tax rate 35% 35% 35% Federal income tax at statutory rate $3,103 $1,839 $2,534 Amortization of investment tax credits (21) (35) (32) State and local income taxes, net of federal income tax effect 272 186 270 Amortization of intangibles 13 62 3 Foreign rate differential 131 (11) 14 Taxes on repatriated and accumulated foreign income, net of tax credits 19 17 1 Legal entity restructuring (195) - - Research credits (13) (24) (12) Other differences - net (51) 16 69 Provision for income taxes $3,258 $2,050 $2,847 Effective income tax rate 36.7% 39.0% 39.3% The U.S. and foreign components of income before income taxes and the provision for income taxes are presented in this table: Years ended December 31 1996 1995 1994 INCOME BEFORE INCOME TAXES United States $9,069 $5,742 $7,367 Foreign (203) (487) (127) Total $8,866 $5,255 $7,240 PROVISION FOR INCOME TAXES CURRENT Federal $2,289 $2,029 $2,144 State and local 397 395 309 Foreign 25 1 (12) $2,711 $2,425 $2,441 DEFERRED Federal $ 534 $ (232) $ 338 State and local 23 (109) 107 Foreign 11 1 - $ 568 $ (340) $ 445 Deferred investment tax credits (21) (35) (39) Provision for income taxes $3,258 $2,050 $2,847 Deferred income tax liabilities are taxes we expect to pay in future periods. Similarly, deferred income tax assets are recorded for expected reductions in taxes payable in future periods. Deferred income taxes arise because of differences in the book and tax bases of certain assets and liabilities. Deferred income tax liabilities and assets consist of the following: At December 31 1996 1995 LONG-TERM DEFERRED INCOME TAX LIABILITIES Property, plant and equipment $5,302 $5,042 Investments 96 125 Other 1,403 2,069 Total long-term deferred income tax liabilities $6,801 $7,236 LONG-TERM DEFERRED INCOME TAX ASSETS Business restructuring $ 195 $ 447 Net operating loss/credit carryforwards 220 181 Employee pensions and other benefits - net 1,300 623 Reserves and allowances 121 141 Valuation allowance (164) (128) Other 302 526 Total long-term deferred income tax assets $1,974 $1,790 Net long-term deferred income tax liabilities $4,827 $5,446 CURRENT DEFERRED INCOME TAX LIABILITIES Total current deferred income tax liabilities* $ 130 $ 104 CURRENT DEFERRED INCOME TAX ASSETS Business restructuring $ 250 $ 141 Net operating loss/credit carryforwards 3 61 Employee pensions and other benefits 525 1,186 Reserves and allowances 734 768 Valuation allowance (2) (1) Other 20 386 Total current deferred income tax assets $1,530 $2,541 Net current deferred income tax assets $1,400 $2,437 *Includes $13 of foreign deferred income taxes recorded in other current liabilities. At December 31, 1996 we had net operating loss carryforwards (tax effected) for federal and state income tax purposes of $15 and $57, respectively, expiring through 2010. We also had foreign net operating loss carryforwards (tax effected) of $103, of which $96 has no expiration date, with the balance expiring by the year 2000. We also had federal tax credit carryforwards of $47 which are not subject to expiration. We recorded a valuation allowance to reflect the estimated amount of deferred tax assets which, more likely than not, will not be realized. 7. EMPLOYEE BENEFIT PLANS PENSION PLANS We sponsor noncontributory defined benefit plans covering the majority of our employees. Benefits for management employees are principally based on career-average pay. Benefits for occupational employees are not directly related to pay. Pension contributions are principally determined using the aggregate cost method and are primarily made to trust funds held for the sole benefit of plan participants. Immediately following the spin-off of Lucent on September 30, 1996, Lucent established separate defined benefit plans, and a share of the pension obligations and pension assets held in trust were transferred from AT&T to Lucent based on methods and assumptions that were agreed to by both companies. The asset and pension obligation amounts that were transferred to Lucent are subject to final adjustment. The final amounts to be transferred to Lucent are not expected to be materially different from the estimated amounts. We compute pension cost using the projected unit credit method and assumed a long-term rate of return on plan assets of 9.0% in 1996, 1995 and 1994. Pension cost includes the following components: Years ended December 31 1996 1995 1994 Service cost - benefits earned during the period $ 299 $ 203 $ 239 Interest cost on projected benefit obligation 863 748 701 Amortization of unrecognized prior service costs 99 90 73 Credit for expected return on plan assets* (1,195) (1,043) (1,015) Amortization of transition asset (183) (193) (193) Charges for special pension options - 58 - Net pension credit $ (117) $ (137) $ (195) * The actual return on plan assets was $2,981 in 1996, $1,044 in 1995 and $156 in 1994. The net pension credit in 1995 includes a one-time charge of $58 for early retirement options and curtailments. This table shows the funded status of the defined benefit plans: At December 31 1996 1995 Actuarial present value of accumulated benefit obligation, including vested benefits of $10,083 and $9,874 $11,520 $10,959 Plan assets at fair value $17,680 $15,294 Less: Actuarial present value of projected benefit obligation 12,380 11,572 Excess of assets over projected benefit obligation 5,300 3,722 Unrecognized prior service costs 766 804 Unrecognized transition asset (889) (1,136) Unrecognized net gain (3,303) (1,620) Net minimum liability of nonqualified plans (51) (49) Prepaid pension costs $ 1,823 $ 1,721 We used these rates and assumptions to calculate the projected benefit obligation: At December 31 1996 1995 Weighted-average discount rate 7.5% 7.0% Rate of increase in future compensation levels 5.0% 5.0% The prepaid pension costs shown above are net of pension liabilities for plans where accumulated plan benefits exceed assets. Such liabilities are included in other liabilities in the Consolidated Balance Sheets. We are amortizing over approximately 15.9 years the unrecognized transition asset related to our 1986 adoption of SFAS No. 87, "Employers' Accounting for Pensions." We amortize prior service costs primarily on a straight-line basis over the average remaining service period of active employees. Our plan assets consist primarily of listed stocks (including $56 and $61 of AT&T common stock at December 31, 1996 and 1995, respectively), corporate and governmental debt, real estate investments and cash and cash equivalents. SAVINGS PLANS We sponsor savings plans for the majority of our employees. The plans allow employees to contribute a portion of their pretax and/or after-tax income in accordance with specified guidelines. We match a percentage of the employee contributions up to certain limits. Our contributions amounted to $180 in 1996, $159 in 1995 and $134 in 1994. 8. POSTRETIREMENT BENEFITS Our benefit plans for retirees include health care benefits, life insurance coverage and telephone concessions. Immediately following the spin-off of Lucent on September 30, 1996, Lucent established separate postretirement benefit plans, and a share of the postretirement benefit obligations and postretirement benefit assets held in trust were transferred from AT&T to Lucent based on methods and assumptions that were agreed to by both companies. The assets and postretirement benefit obligations that were transferred to Lucent are subject to final adjustment. The final amounts to be transferred to Lucent are not expected to be materially different from the estimated amounts. This table shows the components of the net postretirement benefit cost: Years ended December 31 1996 1995 1994 Service cost - benefits earned during the period $ 54 $ 41 $ 45 Interest cost on accumulated postretirement benefit obligation 263 258 245 Expected return on plan assets* (99) (78) (64) Amortization of unrecognized prior service costs 39 23 4 Amortization of net loss (gain) 2 (5) 1 Charge for special options 1 2 - Net postretirement benefit cost $260 $241 $231 * The actual return on plan assets was $313 in 1996, $256 in 1995 and $(11) in 1994. We had approximately 37,900, 34,500 and 34,000 retirees as of December 31, 1996, 1995 and 1994, respectively. Our plan assets consist primarily of listed stocks, corporate and governmental debt, cash and cash equivalents and life insurance contracts. The following table shows the funded status of our postretirement benefit plans reconciled with the amounts recognized in the Consolidated Balance Sheets: At December 31 1996 1995 Accumulated postretirement benefit obligation: Retirees $2,244 $2,138 Fully eligible active plan participants 453 432 Other active plan participants 1,042 1,195 Total accumulated postretirement benefit obligation 3,739 3,765 Plan assets at fair value 1,566 1,241 Unfunded postretirement obligation 2,173 2,524 Less: Unrecognized prior service costs 206 263 Unrecognized net gain (510) (54) Accrued postretirement benefit obligation $2,477 $2,315 We made these assumptions in valuing our postretirement benefit obligation at December 31: 1996 1995 Weighted-average discount rate 7.5% 7.0% Expected long-term rate of return on plan assets 9.0% 9.0% Assumed rate of increase in the per capita cost of covered health care benefits 5.6% 6.1% We assumed that the growth in the per capita cost of covered health care benefits (the health care cost trend rate) would gradually decline after 1996 to 4.7% by the year 2006 and then remain level. This assumption greatly affects the amounts reported. To illustrate, increasing the assumed trend rate by 1% in each year would raise our accumulated postretirement benefit obligation at December 31, 1996 by $166 and our 1996 postretirement benefit costs by $19. 9. STOCK-BASED COMPENSATION PLANS Under the 1987 Long-Term Incentive Program, we grant stock options, performance shares, restricted stock and other awards. On January 1 of each year, 0.6% of the outstanding shares of our common stock become available for grant. The exercise price of any stock option is equal to or greater than the stock price when the option is granted. Generally, the options vest over three years and are exercisable up to ten years from the date of grant. Performance share units are awarded to key employees in the form of either common stock or cash at the end of a three year period based on AT&T's return-to-equity performance compared with a target. Under the AT&T 1996 Employee Stock Purchase Plan (Plan) which was effective July 1, 1996, we are authorized to issue up to 50 million shares of common stock to our eligible employees. Under the terms of the Plan, employees may have up to 10% of their earnings withheld to purchase AT&T's common stock. The purchase price of the stock on the date of exercise is 85% of the average high and low sale prices of shares on the New York Stock Exchange for that day. Under the Plan, we sold approximately 3 million shares to employees during 1996. We apply Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related Interpretations in accounting for our plans. Accordingly, no compensation expense has been recognized for our stock-based compensation plans other than for our performance-based and restricted stock awards, SARs, and prior to July 1, 1996 for the stock purchase plan for former McCaw Cellular Communications, Inc. employees. Compensation costs charged against income were $41 in 1996. A summary of option transactions is shown below: Weighted- Average Exercise Shares in thousands 1996 Price 1995 1994 Outstanding at January 1 47,689 $43.21 40,285 38,012 Lucent and NCR spin-off adjustments 22,678 - - - - Options granted 9,132 $45.53 13,276 5,803 Options and SARs exercised (10,708) $19.16 (8,181) (2,498) Average exercise price $29.39 $25.04 Options assumed in purchase of LIN - - 3,382 - Options canceled or forfeited: Lucent and NCR spin-offs (16,179) $37.25 - - - Other employee plans (5,702) $37.12 (1,073) (1,032) At December 31: Options outstanding 46,910 $33.89 47,689 40,285 Average exercise price $43.21 $36.61 Options exercisable 28,034 $28.81 28,775 28,010 Shares available for grant 19,693 - 17,524 22,015 Effective on the dates of spin-off of Lucent and NCR, AT&T stock options held by Lucent and NCR employees were canceled. For the holders of unexercised AT&T stock options, the number of options was adjusted and all exercise prices were decreased immediately following each spin-off date to preserve the economic values of the options that existed prior to those dates. During 1996, 73,145 SARs were exercised and no SARs were granted. The number of outstanding SARs was adjusted by 131,088 in connection with the Lucent and NCR spin-offs. At December 31, 1996, 743,840 SARs remained unexercised, all of which were exercisable. AT&T has adopted the disclosure-only provisions of SFAS No. 123, "Accounting for Stock-Based Compensation." If AT&T had elected to recognize compensation costs based on the fair value at the date of grant for awards in 1996 and 1995, consistent with the provisions of SFAS No. 123, AT&T's net income and earnings per common share would have been reduced to the following pro forma amounts: Years ended December 31 1996 1995 Income from continuing operations $5,537 $3,192 Income (loss) from discontinued operations 111 (3,072) Net income $5,810 $ 120 Earnings per common share Continuing operations $ 3.43 $ 2.00 Discontinued operations .07 (1.92) Net income $ 3.60 $ .08 Without the effect of pro forma costs related to the conversion of options in the Lucent and NCR spin-offs, pro forma income from continuing operations was $5,567 or $3.44 per share in 1996. The pro forma effect on net income for 1996 and 1995 may not be representative of the pro forma effect on net income of future years because the SFAS No. 123 method of accounting for pro forma compensation expense has not been applied to options granted prior to January 1, 1995. The weighted-average fair values at date of grant for options granted during 1996 and 1995 were $13.12 and $14.02, respectively, and were estimated using the Black-Scholes option-pricing model. The following assumptions were applied for periods before the Lucent spin-off and subsequent to the Lucent spin-off, respectively: (i) expected dividend yields of 2.4% and 2.8%, (ii) expected volatility rates of 19.0% and 21.0%, and (iii) expected lives of 5.0 years and 4.5 years. The risk-free interest rates applied for 1996 and 1995 were 6.11% and 6.44%, respectively. The following table summarizes information about stock options outstanding at December 31, 1996: Options Outstanding Options Exercisable Number Weighted- Number Outstanding Average Weighted- Exercisable Weighted- Range of at Remaining Average at Average Exercise Dec. 31, 1996 Contractual Exercise Dec. 31, 1996 Exercise Prices (in thousands) Life Price (in thousands) Price $ 1.11 - $15.76 1,619 2.45 $11.90 1,619 $11.90 15.83 - 27.12 12,666 4.03 23.26 12,647 23.26 27.16 - 34.95 8,991 6.89 34.16 5,036 33.59 35.20 - 36.96 10,106 6.81 35.96 7,157 36.08 $37.02 - $47.37 13,528 8.53 44.74 1,575 42.38 46,910 6.42 $33.89 28,034 $28.81 10. DEBT OBLIGATIONS DEBT MATURING WITHIN ONE YEAR At December 31 1996 1995 Commercial paper $1,950 $10,917 Long-term debentures and notes 463 1,193 Other 47 66 Total debt maturing within one year $2,460 $12,176 Weighted-average interest rate of short-term debt 5.5% 5.7% A consortium of lenders provides revolving credit facilities of $6.0 billion to AT&T. These credit facilities are intended for general corporate purposes, which include support for AT&T's commercial paper, and were unused at December 31, 1996. LONG-TERM OBLIGATIONS At December 31 1996 1995 Interest Rates (a) Maturities DEBENTURES 4 3/8% to 4 3/4% 1998-1999 $ 500 $ 750 5 1/8% to 6% 2000-2001 500 500 8 1/8% to 8 5/8% 1997-2031 1,996 1,999 NOTES 4 1/4% to 7 3/4% 1997-2025 4,341 5,380 7 4/5% to 8 19/20% 1997-2025 786 838 9% to 13% 1997-2004 60 101 Variable rate 1997-2054 115 120 Total debentures and notes 8,298 9,688 Other 112 122 Less: Unamortized discount - net 64 75 Total long-term obligations 8,346 9,735 Less: Amounts maturing within one year 463 1,193 Net long-term obligations $7,883 $8,542 (a) Note that the actual interest paid on our debt obligations may have differed from the stated amount due to our entering into interest rate swap contracts to manage our exposure to interest rate risk and our strategy to reduce finance costs. This table shows the maturities, at December 31, 1996, of the $8,346 in total long-term obligations: 1997 1998 1999 2000 2001 Later Years $463 $892 $1,065 $670 $652 $4,604 11. FINANCIAL INSTRUMENTS In the normal course of business we use various financial instruments, including derivative financial instruments, for purposes other than trading. We do not use derivative financial instruments for speculative purposes. These instruments include commitments to extend credit, letters of credit, guarantees of debt, interest rate swap agreements and foreign currency exchange contracts. Interest rate swap agreements and foreign currency exchange contracts are used to mitigate interest rate and foreign currency exposures. Collateral is generally not required for these types of instruments. By their nature all such instruments involve risk, including the credit risk of nonperformance by counterparties, and our maximum potential loss may exceed the amount recognized in our balance sheet. However, at December 31, 1996 and 1995, in management's opinion there was no significant risk of loss in the event of nonperformance of the counterparties to these financial instruments. We control our exposure to credit risk through credit approvals, credit limits and monitoring procedures and we believe that our reserves for losses are adequate. We do not have any significant exposure to any individual customer or counterparty, nor do we have any major concentration of credit risk related to any financial instruments. COMMITMENTS TO EXTEND CREDIT We participate in the general-purpose credit card business through AT&T Universal Card Services Corp., a wholly owned subsidiary. We purchase essentially all cardholder receivables under an agreement with the Universal Bank, which issues the cards. The unused portion of available credit was $69,041 at December 31, 1996 and $72,179 at December 31, 1995. This represents the receivables we would need to purchase if all Universal Card accounts were used up to their full credit limits. The potential risk of loss associated with, and the estimated fair value of, the unused credit lines are not considered to be significant. LETTERS OF CREDIT Letters of credit are purchased guarantees that ensure our performance or payment to third parties in accordance with specified terms and conditions and do not create any additional risk to AT&T. GUARANTEES OF DEBT From time to time we guarantee the debt of our subsidiaries and certain unconsolidated joint ventures. Additionally, in connection with restructurings of AT&T, we issued guarantees for certain debt obligations of AT&T Capital and NCR. At December 31, 1996, the amount of guaranteed debt associated with AT&T Capital and NCR was $230. INTEREST RATE SWAP AGREEMENTS We enter into interest rate swaps to manage our exposure to changes in interest rates and to lower our overall costs of financing. We enter into swap agreements to manage the fixed/floating mix of our debt portfolio in order to reduce aggregate risk to interest rate movements. Interest rate swaps also allow us to raise funds at floating rates and effectively swap them into fixed rates that are lower than those available to us if fixed-rate borrowings were made directly. These agreements involve the exchange of floating-rate for fixed-rate payments or fixed-rate for floating-rate payments without the exchange of the underlying principal amount. Fixed interest rate payments at December 31, 1996 are at rates ranging from 4.68% to 7.75%. Floating-rate payments are based on rates tied to prime, LIBOR or U.S. Treasury bills. Interest rate differentials paid or received under these swap contracts are recognized over the life of the contracts as adjustments to the effective yield of the underlying debt. If we terminate a swap agreement, the gain or loss is recorded as an adjustment to the basis of the underlying asset or liability and amortized over the remaining life. The following table indicates the types of swaps in use at December 31, 1996 and 1995 and their weighted-average interest rates. Average variable rates are those in effect at the reporting date and may change significantly over the lives of the contracts. 1996 1995 Fixed to variable swaps - notional amount $1,342 $1,417 Average receive rate 6.67% 6.57% Average pay rate 5.45% 5.62% Variable to fixed swaps - notional amount $ 351 $ 894 Average receive rate 5.77% 5.64% Average pay rate 5.71% 6.05% The weighted average remaining terms of the swap contracts are 4 years for 1996 and 8 years for 1995. FOREIGN EXCHANGE We enter into foreign currency exchange contracts, including forward and option contracts, to manage our exposure to changes in currency exchange rates, principally French francs, Deutsche marks, pounds sterling and Japanese yen. The use of these derivative financial instruments allows us to reduce our exposure to the risk of adverse changes in exchange rates on the eventual reimbursement to foreign telephone companies for their portion of the revenues billed by AT&T for calls placed in the U.S. to a foreign country. These transactions are generally expected to occur in less than one year. Gains or losses on foreign exchange contracts that are designated for forecasted and other foreign currency transactions are recognized in other income as the exchange rates change. FAIR VALUES OF FINANCIAL INSTRUMENTS INCLUDING DERIVATIVE FINANCIAL INSTRUMENTS The following table summarizes the notional amounts of material financial instruments. The notional amounts represent agreed upon amounts on which calculations of dollars to be exchanged are based. They do not represent amounts exchanged by the parties and, therefore, are not a measure of our exposure. Our exposure is limited to the fair value of the contracts with a positive fair value plus interest receivable, if any, at the reporting date. 1996 1995 Contract/ Contract/ Notional Notional Amount Amount DERIVATIVES AND OFF BALANCE SHEET INSTRUMENTS Interest rate swap agreements $ 1,693 $ 2,311 Foreign exchange: Forward contracts 646 491 Option contracts 65 8 Letters of credit 264 260 Guarantees of debt 328 112 The tables below show the valuation methods and the carrying amounts and estimated fair values of material financial instruments. Financial instrument Valuation method Universal Card finance receivables Carrying amounts. These accrue interest at a prime-based rate Debt excluding capital leases Market quotes or based on rates available to us for debt with similar terms and maturities Letters of credit Fees paid to obtain the obligations Guarantees of debt Not practicable. There are no quoted market prices for similar agreements available Interest rate swap agreements Market quotes obtained from dealers Foreign exchange contracts Market quotes For finance receivables other than leases, the carrying amount equals the fair value. These amounts were $6,688 and $10,263 for 1996 and 1995, respectively. For debt excluding capital leases, the carrying amounts and fair values were $10,330 and $10,620, respectively, for 1996; and $20,698 and $21,225, respectively, for 1995. 1996 Carrying Amount Fair Value Asset Liab. Asset Liab. DERIVATIVES AND OFF BALANCE SHEET INSTRUMENTS Interest rate swap agreements $ 5 $ 9 $47 $23 Foreign exchange forward contracts 6 15 7 35 1995 Carrying Amount Fair Value Asset Liab. Asset Liab. DERIVATIVES AND OFF BALANCE SHEET INSTRUMENTS Interest rate swap agreements $ 8 $ 6 $63 $46 Foreign exchange forward contracts 6 28 10 20 SECURITIZATION OF RECEIVABLES For the years ended December 31, 1996 and 1995, we securitized portions of our short-term finance receivable portfolios amounting to $3,000 and $3,500, with proceeds received of $3,000 and $3,492, respectively. We continue to service these accounts for the purchasers. At December 31, 1996 and 1995, $6,500 and $3,500, respectively, of receivables previously securitized remained outstanding. 12. SEGMENT INFORMATION INDUSTRY SEGMENTS AT&T operates in two industry segments, the telecommunications industry and the financial services industry. Our communications services (which is part of the telecommunications industry) consist of a wide range of services to residential and business customers, including domestic and international wireline long distance voice, data and video services, wireless services, network management, business consulting, outsourcing, electronic commerce solutions and internet access service. Additionally, we are embarking on a strategy to expand our services to local service. Financial services is primarily our AT&T Universal Card credit card business. Revenues between industry segments are not material. 1996 1995 1994 REVENUES Communications services $50,515 $48,403 $45,938 Financial services 1,669 2,261 1,838 Total revenues $52,184 $50,664 $47,776 OPERATING INCOME (LOSS) Communications services $ 9,198 $ 5,834 $ 7,861 Financial services 78 300 218 Corporate and nonoperating (410) (879) (839) Income from continuing operations before income taxes $ 8,866 $ 5,255 $ 7,240 ASSETS Communications services $46,092 $42,440 $34,443 Financial services 8,462 12,049 13,737 Corporate assets 729 589 476 Eliminations (257) (109) (78) Total assets - continuing operations 55,026 54,969 48,578 Net assets of discontinued operations 526 7,426 8,870 Total assets $55,552 $62,395 $57,448 DEPRECIATION AND AMORTIZATION Communications services $ 2,740 $ 3,520 $ 2,394 Financial services 12 7 18 GROSS CAPITAL EXPENDITURES Communications services $ 6,776 $ 4,522 $ 3,361 Financial services 9 - - 9 TOTAL LIABILITIES Financial services $ 7,534 $10,842 $12,670 CONCENTRATIONS As of December 31, 1996 we are not aware of any significant concentration of business transacted with a particular customer, supplier or lender that could, if suddenly eliminated, severely impact our operations. We also do not have a concentration of available sources of labor, services, or licenses or other rights that could, if suddenly eliminated, severely impact our operations. 13. AT&T CREDIT HOLDINGS, INC. In connection with a March 31, 1993 legal restructuring of AT&T Capital Holdings, Inc. (formerly AT&T Capital Corporation), we issued a direct, full and unconditional guarantee of all the outstanding public debt of AT&T Credit Holdings, Inc. (formerly AT&T Credit Corporation). At December 31, 1996, $59 of the guaranteed debt remained outstanding. AT&T Credit Holdings, Inc. holds the finance assets of the former AT&T Credit Corporation and prior to the sale of AT&T Capital on October 1, 1996, held the majority of AT&T's investment in AT&T Capital. The table below shows summarized consolidated financial information for AT&T Credit Holdings, Inc. The summarized financial information includes transactions with AT&T that are eliminated in consolidation. 1996 1995 1994 Total revenues $ 202 $ 190 $ 58 Income from continuing operations 31 26 19 Income from discontinued operation 200 93 73 Net income $ 231 $ 119 $ 92 Finance receivables $1,102 $1,149 Net assets of discontinued operation - 835 Total assets 3,075 2,355 Total debt 60 100 Total liabilities 1,891 1,343 Total shareowners' equity $1,184 $1,012 14. COMMITMENTS AND CONTINGENCIES In the normal course of business we are subject to proceedings, lawsuits and other claims, including proceedings under laws and regulations related to environmental and other matters. Such matters are subject to many uncertainties, and outcomes are not predictable with assurance. Consequently, we are unable to ascertain the ultimate aggregate amount of monetary liability or financial impact with respect to these matters at December 31, 1996. These matters could affect the operating results of any one quarter when resolved in future periods. However, we believe that after final disposition, any monetary liability or financial impact to us beyond that provided for at year-end would not be material to our annual consolidated financial statements. We lease land, buildings and equipment through contracts that expire in various years through 2014. Our rental expense under operating leases was $721 in 1996, $766 in 1995 and $819 in 1994. The following table shows our future minimum lease payments due under noncancelable operating leases at December 31, 1996. Such payments total $2,873. The total of minimum rentals to be received in the future under noncancelable subleases as of December 31, 1996 was $329. 1997 1998 1999 2000 2001 Later Years $606 $469 $359 $312 $234 $893 We have entered into agreements with Lucent and NCR pursuant to which we will purchase products and services totaling at least $3,000 cumulatively by the end of 1998 from Lucent and $350 from NCR by the end of 1999. As of December 31, 1996 we purchased $2,726 of products and services from Lucent and NCR under these agreements. In January 1997 one of our satellites went out of orbital alignment. Contact could not be reestablished and the satellite was declared permanently out of service. Under various contracts related to previous sales of transponders associated with this satellite, we are required to either repair or replace the transponder or refund portions of the sale price. We have insurance to cover a portion of our exposure under these warranties as well as the carrying value of the satellite. We believe that the ultimate resolution will not have a material impact on our results of operations. 15. QUARTERLY INFORMATION (UNAUDITED) 1996 First Second Third Fourth Total revenues $12,850 $12,868 $13,228 $13,238 Operating income 2,413 2,319 2,174 1,904 Income from continuing operations 1,469 1,538 1,359 1,242 Income(loss) from discontinued operations (107) (47) 73 219 Gain on sale of discontinued operation - - - - 162 Net income 1,362 1,491 1,432 1,623 Income(loss) per common share: Continuing operations .92 .95 .84 .76 Discontinued operations (.07) (.03) .05 .14 Gain on sale of discontinued operation - - - - .10 Net income .85 .92 .89 1.00 Dividends declared .33 .33 .33 .33 Stock price*: High $68 7/8 $64 7/8 $62 3/8 $44 1/2 Low 60 1/8 58 49 1/4 33 1/4 Quarter-end close 61 1/8 62 52 1/4 43 3/8 * Stock prices obtained from the Composite Tape. Stock prices on or before September 30, 1996 have not been restated to reflect the Lucent spin-off. Stock prices on or before December 31, 1996 have not been restated to reflect the NCR spin-off. 1995 First Second Third Fourth Total revenues $12,244 $12,614 $12,920 $12,886 Operating income(loss) 2,068 2,240 2,396 (1,251) Income(loss) from continuing operations 1,261 1,367 1,525 (948) Loss from discontinue operations (63) (12) (1,263) (1,728) Net income(loss) 1,198 1,355 262 (2,676) Income(loss) per common share: Continuing operations .80 .86 .96 (.59) Discontinued operations (.04) (.01) (.80) (1.08) Net income(loss) .76 .85 .16 (1.67) Dividends declared .33 .33 .33 .33 Stock price*: High $53 1/4 $53 3/4 $66 3/8 $68 1/2 Low 47 5/8 47 7/8 51 3/8 60 1/4 Quarter-end close 51 3/4 53 65 3/4 64 3/4 * Stock prices obtained from the Composite Tape. In the third quarter of 1995, we recorded $1,597 of charges which decreased income from discontinued operations by $1,172 or $0.74 per share. In the fourth quarter of 1995, we recorded pre-tax charges of $3,029 which decreased income from continuing operations by $2,036, or $1.27 per share. In addition, the loss from discontinued operations includes charges of $2,145 (net of taxes), or $1.34 per share. - ---------- Information contained on the outside back cover of the Annual Report to Shareowners and incorporated herein is as follows: STOCK DATA AT&T (ticker symbol "T") is listed on the New York Stock Exchange, as well as on the Boston, Midwest, Pacific and Philadelphia exchanges in the U.S., and on stock exchanges in Brussels, London, Paris and Geneva. Shareowners of record as of December 31, 1996: 2,120,340. EX-21 20 EXHIBIT (21) Exhibit (21) List of Subsidiaries of AT&T Corp. As of 2/28/97 Jurisdiction of Incorporation - ------------- Alascom,Inc.......................................................Alaska Actuarial Sciences Associates,Inc.................................Delaware American Transtech, Inc...........................................Delaware AT&T Canada Long Distance Services Company........................Canada AT&T Communications, Inc..........................................Delaware AT&T Communications of California, Inc............................California AT&T Communications of Delaware, Inc..............................Delaware AT&T Communications of Hawaii, Inc................................Hawaii AT&T Communications of Illinois, Inc..............................Illinois AT&T Communications of Indiana, Inc...............................Indiana AT&T Communications of Maryland, Inc..............................Maryland AT&T Communications of Michigan, Inc..............................Michigan AT&T Communications of the Midwest, Inc...........................Iowa AT&T Communications of the Mountain States, Inc...................Colorado AT&T Communications of Nevada, Inc................................Nevada AT&T Communications of New England, Inc...........................New York AT&T Communications of New Hampshire, Inc.........................New Hampshire AT&T Communications of New Jersey, Inc............................New Jersey AT&T Communications of New York, Inc..............................New York AT&T Communications of Ohio, Inc..................................Ohio AT&T Communications of the Pacific Northwest, Inc.................Washington AT&T Communications of Pennsylvania, Inc..........................Pennsylvania AT&T Communications of the South Central States,Inc...............Delaware AT&T Communications of the Southern States, Inc...................New York AT&T Communications of the Southwest, Inc.........................Delaware AT&T Communications of Virginia, Inc..............................Virginia AT&T Communications of Washington D.C., Inc.......................New York AT&T Communications of West Virginia, Inc.........................West Virginia AT&T Communications of Wisconsin, Inc.............................Wisconsin AT&T Communications Services International Inc....................Delaware AT&T Communications (UK) LTD......................................United Kingdom AT&T Global Communications Services Inc...........................Delaware AT&T Istel........................................................United Kingdom AT&T Solutions Inc................................................Delaware AT&T of Puerto Rico, Inc..........................................New York AT&T Universal Card Services Corporation..........................Delaware AT&T Wireless Services, Inc.......................................Delaware LIN Broadcasting Corporation......................................Delaware LIN Television Corporation........................................Delaware ROSNET International J.S.C........................................Russia EX-23 21 EXHIBIT (23) Exhibit (23) CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the registration statements of AT&T Corp. ("AT&T" or the "Company") on Form S-3 for the Shareowner Dividend Reinvestment and Stock Purchase Plan (Registration No.333-00573), Form S-8 for the AT&T 1984 Stock Option Plan (Registration No.2-90983), Form S-8 for the AT&T Long Term Savings and Security Plan (Registration No. 33-34265), Form S-8 for the AT&T Long Term Savings Plan for Management Employees (Registration Nos. 33-34264, 33-29256 and 33-21937), Form S-8 for the AT&T Retirement Savings and Profit Sharing Plan (Registration No. 33-39708), Form S-8 for Shares Issuable Under the Stock Option Plan of the AT&T 1987 Long Term Incentive Program (Registration Nos. 33-56643 and 33-49465), Form S-8 for the AT&T of Puerto Rico, Inc. Long Term Savings Plan for Management Employees (Registration No. 33-50819), Form S-8 for the AT&T of Puerto Rico, Inc. Long Term Savings and Security Plan (Registration No. 33-50817), and Post-Effective Amendment No. 1 on Form S-8 to Form S-8 Registration Statement (Registration No. 33-54797) for the AT&T 1996 Employee Stock Purchase Plan, Form S-8 for the AT&T Shares for Growth Program (Registration No. 33-49089), Form S-3 for the AT&T $2,600,000,000 Notes and Warrants to Purchase Notes (Registration No. 33-49589), Form S-3 for the AT&T $3,000,000,000 Notes and Warrants to Purchase Notes (Registration No. 33-59495), Form S-4 for the AT&T 5,000,000 Common Shares (Registration No. 33-57745), and in Post-Effective Amendment Nos. 1, 2 and 3 on Form S-8 to Form S-4 Registration Statement (Registration No. 33-42150) for the NCR Corporation 1989 Stock Compensation Plan (Registration No. 33-42150-01), the NCR Corporation 1984 Stock Option Plan (Registration No. 33-42150-02) and the NCR Corporation 1976 Stock Option Plan (Registration No. 33-42150-03), respectively, and the Post-Effective Amendment Nos. 1, 2, 3, 4 and 5 on Form S-8 to Form S-4 Registration Statement (Registration No. 33-52119) for the McCaw Cellular Communications, Inc. 1983 Non-Qualified Stock Option Plan (Registration No. 33-52119-01), the McCaw Cellular Communications, Inc. 1987 Stock Option Plan (Registration No. 33-52119-02), the McCaw Cellular Communications, Inc. Equity Purchase Plan (Registration No. 33-52119-03), the McCaw Cellular Communications, Inc. 1992 Stock Option Plan for Non-Employee Directors (Registration No. 33-52119-04) and the McCaw Cellular Communications, Inc. Employee Stock Purchase Plan (Registration No. 33-52119-05), respectively, and Post-Effective Amendment No. 1 on Form S-8 to Form S-4 Registration Statement (Registration No. 33-45302) for the Teradata Corporation 1987 Incentive and Other Stock Option Plan (Registration No. 33-45302-01), Form S-8 for the AT&T Amended and Restated 1969 Stock Option Plan for LIN Broadcasting Corp. (Registration No. 33-63195) of our reports dated January 22, 1997, on our audits of the consolidated financial statements and consolidated financial statement schedule of the Company and its subsidiaries at December 31, 1996 and 1995, and for the years ended December 31, 1996, 1995 and 1994, which reports are included or incorporated by reference in this Annual Report on Form 10-K. COOPERS & LYBRAND L.L.P. 1301 Avenue of the Americas New York, New York March 28, 1997 EX-24 22 EXHIBIT (24) POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: WHEREAS, AT&T CORP., a New York corporation (hereinafter referred to as the "Company"), proposes to file with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, as amended, an annual report on Form 10-K; and WHEREAS, the undersigned is both a director and an officer of the Company, as indicated below his signature: NOW, THEREFORE, the undersigned hereby constitutes and appoints S. L. PRENDERGAST, M. B. TART and M. J. WASSER and each of them, as attorney for him and in his name, place and stead, and in his capacity as both a director and an officer of the Company, to execute and file such annual report, and thereafter to execute and file any amendments or amendments thereto, hereby giving and granting to said attorneys, and each of them, full power and authority to do and perform each and every act and thing whatsoever requisite and necessary to be done in and about the premises, as fully, to all intents and purposes, as he might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do, or cause to be done, by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 17th day of March 1997. /s/ R. E. Allen -------------------- By: R. E. Allen Chairman of the Board and Director POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: WHEREAS, AT&T CORP., a New York corporation (hereinafter referred to as the "Company"), proposes to file with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, as amended, an annual report on Form 10-K; and WHEREAS, the undersigned is both a director and an officer of the Company, as indicated below his signature: NOW, THEREFORE, the undersigned hereby constitutes and appoints S. L. PRENDERGAST, M. B. TART and M. J. WASSER and each of them, as attorneys for him and in his name, place and stead, and in his capacity as an officer of the Company, to execute and file such annual report, and thereafter to execute and file any amendments or amendments thereto, hereby giving and granting to said attorneys, and each of them, full power and authority to do and perform each and every act and thing whatsoever requisite and necessary to be done in and about the premises, as fully, to all intents and purposes, as he might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do, or cause to be done, by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 17th day of March, 1997. /s/ J. R. Walter ---------------------- By: J. R. Walter President, Chief Operating Officer and Director POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: WHEREAS, AT&T CORP., a New York corporation (hereinafter referred to as the "Company"), proposes to file with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, as amended, an annual report on Form 10-K; and WHEREAS, the undersigned is an officer of the Company, as indicated below his signature: NOW, THEREFORE, the undersigned hereby constitutes and appoints S. L. PRENDERGAST, M. B. TART and M. J. WASSER and each of them, as attorneys for him and in his name, place and stead, and in his capacity as an officer of the Company, to execute and file such annual report, and thereafter to execute and file any amendments or amendments thereto, hereby giving and granting to said attorneys, and each of them, full power and authority to do and perform each and every act and thing whatsoever requisite and necessary to be done in and about the premises, as fully, to all intents and purposes, as he might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do, or cause to be done, by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 17th day of March, 1997. /s/ R. W. Miller ---------------------- By: R. W. Miller Senior Executive Vice President and Chief Financial Officer POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: WHEREAS, AT&T CORP., a New York corporation (hereinafter referred to as the "Company"), proposes to file with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, as amended, an annual report on Form 10-K; and WHEREAS, the undersigned is an officer of the Company, as indicated below her signature: NOW, THEREFORE, the undersigned hereby constitutes and appoints S. L. PRENDERGAST and M. J. WASSER, and each of them, as attorneys for her and in her name, place and stead, and in her capacity as an officer of the Company, to execute and file such annual report, and thereafter to execute and file any amendments or amendments thereto, hereby giving and granting to said attorneys, and each of them, full power and authority to do and perform each and every act and thing whatsoever requisite and necessary to be done in and about the premises, as fully, to all intents and purposes, as she might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do, or cause to be done, by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 17th day of March, 1997. /s/ M. B. Tart -------------------- By: M. B. Tart Vice President and Controller POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: WHEREAS, AT&T CORP., a New York corporation (hereinafter referred to as the "Company"), proposes to file with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, as amended, an annual report on Form 10-K; and WHEREAS, the undersigned is a director of the Company: NOW, THEREFORE, the undersigned hereby constitutes and appoints S. L. PRENDERGAST, M. B. TART and M. J. WASSER and each of them, as attorneys for him or her and in his or her name, place and stead, and in his or her capacity as a director of the Company, to execute and file such annual report, and thereafter to execute and file any amendments or amendments thereto, hereby giving and granting to said attorneys, and each of them, full power and authority to do and perform each and every act and thing whatsoever requisite and necessary to be done in and about the premises, as fully, to all intents and purposes, as he or she might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do, or cause to be done, by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 18th day of March, 1997. /s/ Kenneth T. Derr --------------------- By: Kenneth T. Derr Director POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: WHEREAS, AT&T CORP., a New York corporation (hereinafter referred to as the "Company"), proposes to file with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, as amended, an annual report on Form 10-K; and WHEREAS, the undersigned is a director of the Company: NOW, THEREFORE, the undersigned hereby constitutes and appoints S. L. PRENDERGAST, M. B. TART and M. J. WASSER and each of them, as attorneys for him or her and in his or her name, place and stead, and in his or her capacity as a director of the Company, to execute and file such annual report, and thereafter to execute and file any amendments or amendments thereto, hereby giving and granting to said attorneys, and each of them, full power and authority to do and perform each and every act and thing whatsoever requisite and necessary to be done in and about the premises, as fully, to all intents and purposes, as he or she might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do, or cause to be done, by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 17th day of March, 1997. /s/ M. Kathryn Eickhoff ------------------------ By: M. Kathryn Eickhoff Director POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: WHEREAS, AT&T CORP., a New York corporation (hereinafter referred to as the "Company"), proposes to file with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, as amended, an annual report on Form 10-K; and WHEREAS, the undersigned is a director of the Company: NOW, THEREFORE, the undersigned hereby constitutes and appoints S. L. PRENDERGAST, M. B. TART and M. J. WASSER and each of them, as attorneys for him or her and in his or her name, place and stead, and in his or her capacity as a director of the Company, to execute and file such annual report, and thereafter to execute and file any amendments or amendments thereto, hereby giving and granting to said attorneys, and each of them, full power and authority to do and perform each and every act and thing whatsoever requisite and necessary to be done in and about the premises, as fully, to all intents and purposes, as he or she might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do, or cause to be done, by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 13th day of March, 1997. /s/ Walter Y. Elisha ---------------------- By: Walter Y. Elisha Director POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: WHEREAS, AT&T CORP., a New York corporation (hereinafter referred to as the "Company"), proposes to file with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, as amended, an annual report on Form 10-K; and WHEREAS, the undersigned is a director of the Company: NOW, THEREFORE, the undersigned hereby constitutes and appoints S. L. PRENDERGAST, M. B. TART and M. J. WASSER and each of them, as attorneys for him or her and in his or her name, place and stead, and in his or her capacity as a director of the Company, to execute and file such annual report, and thereafter to execute and file any amendments or amendments thereto, hereby giving and granting to said attorneys, and each of them, full power and authority to do and perform each and every act and thing whatsoever requisite and necessary to be done in and about the premises, as fully, to all intents and purposes, as he or she might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do, or cause to be done, by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 17th day of March, 1997. /s/ Ralph S. Larsen ---------------------- By: Ralph S. Larsen Director POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: WHEREAS, AT&T CORP., a New York corporation (hereinafter referred to as the "Company"), proposes to file with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, as amended, an annual report on Form 10-K; and WHEREAS, the undersigned is a director of the Company: NOW, THEREFORE, the undersigned hereby constitutes and appoints S. L. PRENDERGAST, M. B. TART and M. J. WASSER and each of them, as attorneys for him or her and in his or her name, place and stead, and in his or her capacity as a director of the Company, to execute and file such annual report, and thereafter to execute and file any amendments or amendments thereto, hereby giving and granting to said attorneys, and each of them, full power and authority to do and perform each and every act and thing whatsoever requisite and necessary to be done in and about the premises, as fully, to all intents and purposes, as he or she might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do, or cause to be done, by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 17th day of March, 1997. /s/ Donald F. McHenry ----------------------- By: Donald F. McHenry Director POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: WHEREAS, AT&T CORP., a New York corporation (hereinafter referred to as the "Company"), proposes to file with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, as amended, an annual report on Form 10-K; and WHEREAS, the undersigned is a director of the Company: NOW, THEREFORE, the undersigned hereby constitutes and appoints S. L. PRENDERGAST, M. B. TART and M. J. WASSER and each of them, as attorneys for him or her and in his or her name, place and stead, and in his or her capacity as a director of the Company, to execute and file such annual report, and thereafter to execute and file any amendments or amendments thereto, hereby giving and granting to said attorneys, and each of them, full power and authority to do and perform each and every act and thing whatsoever requisite and necessary to be done in and about the premises, as fully, to all intents and purposes, as he or she might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do, or cause to be done, by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 17th day of March, 1997. /s/ Michael I. Sovern ------------------------ By: Michael I. Sovern Director POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: WHEREAS, AT&T CORP., a New York corporation (hereinafter referred to as the "Company"), proposes to file with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, as amended, an annual report on Form 10-K; and WHEREAS, the undersigned is a director of the Company: NOW, THEREFORE, the undersigned hereby constitutes and appoints S. L. PRENDERGAST, M. B. TART and M. J. WASSER and each of them, as attorneys for him or her and in his or her name, place and stead, and in his or her capacity as a director of the Company, to execute and file such annual report, and thereafter to execute and file any amendments or amendments thereto, hereby giving and granting to said attorneys, and each of them, full power and authority to do and perform each and every act and thing whatsoever requisite and necessary to be done in and about the premises, as fully, to all intents and purposes, as he or she might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do, or cause to be done, by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 14th day of March, 1997. /s/ Joseph D. Williams ----------------------- By: Joseph D. Williams Director POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: WHEREAS, AT&T CORP., a New York corporation (hereinafter referred to as the "Company"), proposes to file with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, as amended, an annual report on Form 10-K; and WHEREAS, the undersigned is a director of the Company: NOW, THEREFORE, the undersigned hereby constitutes and appoints S. L. PRENDERGAST, M. B. TART and M. J. WASSER and each of them, as attorneys for him or her and in his or her name, place and stead, and in his or her capacity as a director of the Company, to execute and file such annual report, and thereafter to execute and file any amendments or amendments thereto, hereby giving and granting to said attorneys, and each of them, full power and authority to do and perform each and every act and thing whatsoever requisite and necessary to be done in and about the premises, as fully, to all intents and purposes, as he or she might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do, or cause to be done, by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 13th day of March, 1997. /s/ Thomas H. Wyman ---------------------- By: Thomas H. Wyman Director EX-27 23 FDS --
5 This schedule contains summary financial information extracted from the audited balance sheet of AT&T at December 31, 1996 and the audited consolidated statement of income for the twelve-month period ended December 31, 1996 and is qualified in its entirety by reference to such financial statements. 1,000,000 12-mos Dec-31-1996 Jan-1-1996 Dec-31-1996 134 0 10,309 1,336 0 18,310 39,522 19,728 55,552 16,318 7,883 0 0 1,623 18,672 55,552 0 52,184 0 43,374 0 2,443 334 8,866 3,258 5,608 300 0 0 5,908 3.66 0
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