1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 9, 2000
REGISTRATION NO. 1-15951
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR (g) OF
THE SECURITIES EXCHANGE ACT OF 1934
------------------------
AVAYA INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 22-3713430
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
211 MOUNT AIRY ROAD 07920
BASKING RIDGE, NJ (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(908) 953-6000
------------------------
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<CAPTION>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH
TO BE SO REGISTERED EACH CLASS IS TO BE REGISTERED
------------------- ------------------------------
<S> <C>
COMMON STOCK, NEW YORK STOCK EXCHANGE
PAR VALUE $0.01 PER SHARE
SERIES A JUNIOR PARTICIPATING NEW YORK STOCK EXCHANGE
PREFERRED STOCK PURCHASE RIGHTS
</TABLE>
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
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2
AVAYA INC.
I. INFORMATION INCLUDED IN INFORMATION STATEMENT
AND INCORPORATED IN FORM 10 BY REFERENCE
Our Information Statement may be found as Exhibit 99.1 to this Form 10. For
your convenience, we have below provided a cross-reference sheet identifying
where the items required by Form 10 can be found in the Information Statement.
CROSS-REFERENCE SHEET BETWEEN INFORMATION STATEMENT
AND ITEMS OF FORM 10
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<CAPTION>
ITEM
NO. CAPTION LOCATION IN INFORMATION STATEMENT
---- ------- ---------------------------------
<C> <S> <C>
1. Business............................... "Summary," "The Distribution," "Risk Factors,"
"Forward Looking Statements," "Capitalization,"
"Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Business"
and "Relationship Between Lucent and Our Company
After the Distribution"
2. Financial Information.................. "Summary," "Selected Financial Information,"
"Unaudited Pro Forma Condensed Financial
Statements" and "Management's Discussion and
Analysis of Financial Condition and Results of
Operations"
3. Properties............................. "Business -- Properties"
4. Securities Ownership of Our Beneficial
Owners and Management................ "The Distribution," "Management," "Ownership of Our
Common Stock" and "Related Transactions and Equity
Investment"
5. Directors and Executive Officers....... "Management"
6. Executive Compensation................. "Management" and "Ownership of Our Common Stock"
7. Our Relationships and Related
Transactions......................... "Relationship Between Lucent and Our Company After
the Distribution," "Management -- Employment
Agreements" and "Related Transactions and Equity
Investment"
8. Legal Proceedings...................... "Business -- Legal Proceedings"
9. Market Price of and Dividends on the
Registrant's Common Equity and
Related Shareowner Matters........... "The Distribution," "Dividend Policy" and
"Description of Capital Stock"
10. Recent Sales of Unregistered
Securities........................... Not Included (see Part II below)
11. Description of Registrant's Securities
to be Registered..................... "The Distribution," "Dividend Policy" and
"Description of Capital Stock"
12. Indemnification of Directors and
Officers............................. "Indemnification of Directors and Officers"
13. Financial Statements and Supplementary
Data................................. "Unaudited Pro Forma Condensed Financial
Statements" and "Index to Combined Financial
Statements"
14. Changes In and Disagreements with
Accountants on Accounting and
Financial Matters.................... Not Applicable
15. Financial Statements and Exhibits...... "Unaudited Pro Forma Condensed Financial
Statements" and "Index to Combined Financial
Statements"
</TABLE>
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II. INFORMATION NOT INCLUDED IN INFORMATION STATEMENT
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES
We were incorporated under the laws of the State of Delaware under the name
"Lucent EN Corp." on February 16, 2000. Lucent EN issued 1,000 shares of its
common stock, par value $0.01 per share, to Lucent Technologies Inc., a Delaware
corporation, in consideration of a capital contribution of $10.00 by Lucent
Technologies Inc. Such issuance was exempt from registration under the
Securities Act of 1933, as amended, pursuant to Section 4(2) thereof because
such issuance did not involve any public offering of securities. As of June 27,
2000, our name was changed to "Avaya Inc."
On August 8, 2000, we entered into an agreement to sell 4,000,000 shares of
Series B convertible participating preferred stock and warrants to purchase
shares of our common stock to Warburg, Pincus Equity Partners, L.P. and several
related investment funds for a total of $400 million. This transaction will be
exempt from registration under the Securities Act of 1933, as amended, pursuant
to Section 4(2) thereof because such issuances do not involve any public
offering of the securities. For a more detailed description of this equity
investment, please see the information under the captions "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and "Related Transactions and
Equity Investment" in the Information Statement.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements filed as part of this registration statement
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Combined Financial Statements:
Combined Statements of Income for the three fiscal
years ended September 30, 1999 and the nine months
ended June 30, 2000 and 1999 (unaudited)............ F-3
Combined Balance Sheets as of September 30, 1998 and
1999 and June 30, 2000 (unaudited).................. F-4
Combined Statements of Changes in Invested Equity for
the three fiscal years ended September 30, 1999 and
the nine months ended June 30, 2000 and 1999
(unaudited)......................................... F-5
Combined Statements of Cash Flows for the three
fiscal years ended September 30, 1999 and the nine
months ended June 30, 2000 and 1999 (unaudited)..... F-6
Financial Statement Schedule:
Schedule II- Valuation and Qualifying Accounts for
the three fiscal years ended September 30, 1999..... S-1
</TABLE>
(b) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
2 Contribution and Distribution Agreement**
3.1 Restated Certificate of Incorporation of Avaya Inc.**
3.2 Amended and Restated By-laws of Avaya Inc.**
4.1 Specimen Common Stock certificate*
4.2 Restated Certificate of Incorporation of Avaya Inc. (filed
as Exhibit 3.1 hereto)**
4.3 Amended and Restated By-laws of Avaya Inc. (filed as Exhibit
3.2 hereto)**
4.4 Rights Agreement between Avaya Inc. and The Bank of New
York, as Rights Agent**
4.5 Form of Certificate of Designations of Series A Junior
Participating Preferred Stock (attached as Exhibit A to the
Rights Agreement filed as Exhibit 4.4 hereto)**
4.6 Form of Right Certificate (attached as Exhibit B to the
Rights Agreement filed as Exhibit 4.4 hereto)**
</TABLE>
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<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.1 Contribution and Distribution Agreement (filed as Exhibit 2
hereto)**
10.2 Interim Services and Systems Replication Agreement**
10.3 Employee Benefits Agreement**
10.4 Tax Sharing Agreement**
10.5 Avaya Inc. Short Term Incentive Plan**
10.6 Avaya Inc. 2000 Long Term Incentive Plan**
10.7 Avaya Inc. 2000 Long Term Incentive Plan Restricted Stock
Unit Award Agreement**
10.8 Avaya Inc. 2000 Long Term Incentive Plan Nonstatutory Stock
Option Agreement**
10.9 Avaya Inc. Deferred Compensation Plan**
10.10 Employment Agreement of Mr. Peterson, dated August 8, 1995**
10.11 Avaya Inc. Supplemental Pension Plan**
10.12 Avaya Inc. 2000 Stock Compensation Plan for Non-Employee
Directors**
10.13 Trademark License Agreement**
10.14 Patent and Technology License Agreement**
10.15 Technology Assignment and Joint Ownership Agreement**
10.16 Development Project Agreement**
10.17 Preferred Stock and Warrant Purchase Agreement**
10.18 Certificate of Designations, Preferences and Rights of
Series B Convertible Participating Preferred Stock of Avaya
Inc. (attached as Exhibit A to the Preferred Stock and
Warrant Purchase Agreement filed as Exhibit 10.17 hereto)**
10.19 Form of Warrant (attached as Exhibit B to the Preferred
Stock and Warrant Purchase Agreement filed as Exhibit 10.17
hereto)**
11 Statement re: Computation of Per Share Earnings*
21 List of Subsidiaries of Avaya Inc.**
27 Financial Data Schedule**
99.1 Avaya Inc. Information Statement dated , 2000**
</TABLE>
---------------
* To be filed by amendment.
** Filed herewith.
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SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant has duly caused this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized.
AVAYA INC.,
(Registrant)
By: /s/ DONALD K. PETERSON
------------------------------------
Name: Donald K. Peterson
Title: President and Chief
Executive Officer
Date: August 9, 2000
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INDEX TO EXHIBITS
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<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
2 Contribution and Distribution Agreement**
3.1 Restated Certificate of Incorporation of Avaya Inc.**
3.2 Amended and Restated By-laws of Avaya Inc.**
4.1 Specimen Common Stock certificate*
4.2 Restated Certificate of Incorporation of Avaya Inc. (filed
as Exhibit 3.1 hereto)**
4.3 Amended and Restated By-laws of Avaya Inc. (filed as Exhibit
3.2 hereto)**
4.4 Rights Agreement between Avaya Inc. and The Bank of New
York, as Rights Agent**
4.5 Form of Certificate of Designations of Series A Junior
Participating Preferred Stock (attached as Exhibit A to the
Rights Agreement filed as Exhibit 4.4 hereto)**
4.6 Form of Right Certificate (attached as Exhibit B to the
Rights Agreement filed as Exhibit 4.4 hereto)**
10.1 Contribution and Distribution Agreement (filed as Exhibit 2
hereto)**
10.2 Interim Services and Systems Replication Agreement**
10.3 Employee Benefits Agreement**
10.4 Tax Sharing Agreement**
10.5 Avaya Inc. Short Term Incentive Plan**
10.6 Avaya Inc. 2000 Long Term Incentive Plan**
10.7 Avaya Inc. 2000 Long Term Incentive Plan Restricted Stock
Unit Award Agreement**
10.8 Avaya Inc. 2000 Long Term Incentive Plan Nonstatutory Stock
Option Agreement**
10.9 Avaya Inc. Deferred Compensation Plan**
10.10 Employment Agreement of Mr. Peterson, dated August 8, 1995**
10.11 Avaya Inc. Supplemental Pension Plan**
10.12 Avaya Inc. 2000 Stock Compensation Plan for Non-Employee
Directors**
10.13 Trademark License Agreement**
10.14 Patent and Technology License Agreement**
10.15 Technology Assignment and Joint Ownership Agreement**
10.16 Development Project Agreement**
10.17 Preferred Stock and Warrant Purchase Agreement**
10.18 Certificate of Designations, Preferences and Rights of
Series B Convertible Participating Preferred Stock of Avaya
Inc. (attached as Exhibit A to the Preferred Stock and
Warrant Purchase Agreement filed as Exhibit 10.17 hereto)**
10.19 Form of Warrant (attached as Exhibit B to the Preferred
Stock and Warrant Purchase Agreement filed as Exhibit 10.17
hereto)**
11 Statement re: Computation of Per Share Earnings*
21 List of Subsidiaries of Avaya Inc.**
27 Financial Data Schedule**
99.1 Avaya Inc. Information Statement dated , 2000**
</TABLE>
---------------
* To be filed by amendment.
** Filed herewith.
1
Exhibit 2
DRAFT
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CONTRIBUTION AND DISTRIBUTION AGREEMENT
BY AND BETWEEN
LUCENT TECHNOLOGIES INC.
AND
AVAYA INC.
DATED AS OF SEPTEMBER 30, 2000
================================================================================
2
TABLE OF CONTENTS
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TABLE OF CONTENTS.................................................................................................i
ARTICLE I DEFINITIONS...........................................................................................1
ARTICLE II THE CONTRIBUTION....................................................................................14
2.1. Transfer of Assets and Assumption of Liabilities....................................................14
2.2. Avaya Assets........................................................................................15
2.3. Avaya Liabilities...................................................................................16
2.4. Termination of Agreements...........................................................................18
2.5. Documents Relating to Transfer of Real Property Interests and Tangible Property Located Thereon.....19
2.6. Documents Relating to Other Transfers of Assets and Assumption of Liabilities.......................20
2.7. Ancillary Agreements................................................................................21
2.8. The Non-U.S. Plan...................................................................................21
2.9. Disclaimer of Representations and Warranties........................................................21
2.10. Financing Arrangements..............................................................................22
2.11. Governmental Approvals and Consents.................................................................22
2.12. Novation of Assumed Avaya Liabilities...............................................................23
2.13. Novation of Liabilities other than Avaya Liabilities................................................24
2.14. Third Party Intellectual Property License Agreements................................................24
2.15. Certain Termination Rights..........................................................................25
ARTICLE III ACTIONS PENDING THE DISTRIBUTION...................................................................26
3.1. Transactions Prior to the Distribution..............................................................25
3.2. Conditions Precedent to Consummation of the Distribution............................................26
ARTICLE IV THE DISTRIBUTION....................................................................................27
4.1. The Distribution....................................................................................27
4.2. Actions Prior to the Distribution...................................................................28
4.3. Conditions to Distribution..........................................................................28
4.4. Fractional Shares...................................................................................29
4.5. The Avaya Board of Directors........................................................................29
4.6. Charter; Bylaws; Rights Plan........................................................................29
ARTICLE V MUTUAL RELEASES; INDEMNIFICATION.....................................................................30
5.1. Release of Pre-Distribution Claims..................................................................30
5.2. Indemnification by Avaya............................................................................32
5.3. Indemnification by Lucent...........................................................................32
5.4. Indemnification Obligations Net of Insurance Proceeds and Other Amounts.............................33
5.5. Procedures for Indemnification of Third Party Claims................................................33
5.6. Additional Matters..................................................................................35
5.7. Remedies Cumulative.................................................................................36
5.8. Survival of Indemnities.............................................................................36
5.9. Alleged Infringement or Misappropriation............................................................36
</TABLE>
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ARTICLE VI CONTINGENT GAINS AND CONTINGENT LIABILITIES.........................................................38
6.1. Definitions Relating to Contingent Gains and Contingent Liabilities.................................38
6.2. Contingent Gains....................................................................................41
6.3. Exclusive Contingent Liabilities....................................................................42
6.4. Shared Contingent Liabilities.......................................................................43
6.5. Payments............................................................................................44
6.6. Procedures to Determine Status of Contingent Liability or Contingent Gain...........................44
6.7. Certain Case Allocation Matters.....................................................................45
6.8. Termination of Certain Article VI Provisions........................................................45
ARTICLE VII INTERIM OPERATIONS AND CERTAIN OTHER MATTERS.......................................................46
7.1. Insurance Matters...................................................................................46
7.2. Operating Financial Liabilities.....................................................................47
7.3. Certain Business Matters............................................................................49
7.4. Late Payments.......................................................................................49
ARTICLE VIII EXCHANGE OF INFORMATION; CONFIDENTIALITY..........................................................49
8.1. Agreement for Exchange of Information; Archives.....................................................49
8.2. Ownership of Information............................................................................50
8.3. Compensation for Providing Information..............................................................50
8.4. Record Retention....................................................................................51
8.5. Limitations of Liability............................................................................51
8.6. Other Agreements Providing for Exchange of Information..............................................51
8.7. Production of Witnesses; Records; Cooperation.......................................................51
8.8. Confidentiality.....................................................................................52
8.9. Protective Arrangements.............................................................................53
ARTICLE IX DISPUTE RESOLUTION....................................................................................53
9.1. Disputes............................................................................................53
9.2. Escalation; Mediation...............................................................................54
9.3. Court Actions.......................................................................................54
ARTICLE X FURTHER ASSURANCES AND ADDITIONAL COVENANTS..........................................................55
10.1. Further Assurances..................................................................................55
10.2. Qualifications as Tax-Free Distribution.............................................................56
10.3. Changes in Avaya Stock Ownership Following the Distribution.........................................56
10.4. Compliance with Separation and Distribution Agreement...............................................57
ARTICLE XI TERMINATION.........................................................................................57
ARTICLE XII MISCELLANEOUS......................................................................................57
12.1. Counterparts; Entire Agreement; Corporate Power.....................................................57
12.2. Governing Law.......................................................................................58
12.3. Assignability.......................................................................................58
12.4. Third Party Beneficiaries...........................................................................59
12.5. Notices.............................................................................................59
12.6. Severability........................................................................................60
</TABLE>
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<TABLE>
<S> <C>
12.7. Force Majeure.......................................................................................60
12.8. Publicity...........................................................................................60
12.9. Expenses............................................................................................60
12.10. Headings............................................................................................60
12.11. Survival of Covenants...............................................................................61
12.12. Waivers of Default..................................................................................61
12.13. Specific Performance................................................................................61
12.14. Amendments..........................................................................................61
12.15. Interpretation......................................................................................61
</TABLE>
Signatures
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SCHEDULES
<TABLE>
<S> <C>
Schedule 1.12(a)....................Supply and Vendor Contracts and Agreements
Schedule 1.12(d)....................Federal, State, and Local Government Contracts and Agreements
Schedule 1.12(e)....................Capital or Operating Equipment Lease Obligations
Schedule 1.12(g)....................Other Avaya Contracts
Schedule 1.13.......................Initial Avaya Stock Ownership Percentage
Schedule 1.74.......................Non-U.S. Plan
Schedule 1.81.......................Prohibited Strategic Alliances
Schedule 2.1(c).....................Delayed Transfer Assets and Liabilities
Schedule 2.2(a)(i)..................Avaya Assets
Schedule 2.2(a)(iv).................Capital Stock of Transferred Subsidiaries
Schedule 2.2(b)(i)..................Excluded Assets
Schedule 2.2(b)(iv).................Excluded Contracts and Agreements
Schedule 2.3(b)(v)..................Excluded Environmental Liabilities
Schedule 2.4(b)(ii).................Crossover Agreements
Schedule 2.5........................Real Estate Documentation
Schedule 2.14(a)....................Assigned Intellectual Property License Agreements
Schedule 6.1(f).....................Exclusive Avaya Contingent Gains and Liabilities
Schedule 6.1(g).....................Exclusive Lucent Contingent Gains and Liabilities
Schedule 6.1(k).....................Shared Contingent Gains
Schedule 6.1(l).....................Shared Contingent Liabilities
Schedule 6.6........................Third Party Claims, Actions
Schedule 7.2(a).....................Avaya OFLs
</TABLE>
EXHIBITS
<TABLE>
<S> <C>
Exhibit A...........................Amended and Restated Bylaws of Avaya
Exhibit B...........................Amended and Restated Certificate of Incorporation of Avaya
Exhibit C...........................Rights Agreement of Avaya
</TABLE>
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CONTRIBUTION AND DISTRIBUTION AGREEMENT
THIS CONTRIBUTION AND DISTRIBUTION AGREEMENT, dated as of September 30,
2000, is by and between Lucent and Avaya. Capitalized terms used herein and not
otherwise defined shall have the respective meanings assigned to them in Article
I hereof.
R E C I T A L S
WHEREAS, the Board of Directors of Lucent has determined that it is in
the best interests of Lucent and its stockholders to separate Lucent's existing
businesses into two independent businesses;
WHEREAS, in furtherance of the foregoing, it is appropriate and
desirable to transfer the Avaya Assets to Avaya and its Subsidiaries and to
cause Avaya and its Subsidiaries to assume the Avaya Liabilities, all as more
fully described in this Agreement and the Ancillary Agreements;
WHEREAS, the Board of Directors of Lucent has further determined that
it is appropriate and desirable, on the terms and conditions contemplated
hereby, for Lucent to distribute to holders of shares of Lucent Common Stock all
of the outstanding shares of Avaya Common Stock owned directly or indirectly by
Lucent;
WHEREAS, the Distribution is intended to qualify as a tax-free spin-off
under Section 355 of the Code; and
WHEREAS, it is appropriate and desirable to set forth the principal
corporate transactions required to effect the Contribution and the Distribution
and certain other agreements that will govern certain matters relating to the
Contribution and the Distribution and the relationship among Lucent, Avaya and
their respective Subsidiaries following the Distribution.
NOW, THEREFORE, in consideration of the mutual agreements, provisions
and covenants contained in this Agreement, the parties, intending to be legally
bound, hereby 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.
7
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 Lucent to
distribute to the stockholders of Lucent all of the shares of Avaya Common Stock
held by Lucent pursuant to the Distribution.
1.4 AGREEMENT means this Contribution and Distribution Agreement,
including all of the Schedules and Exhibits hereto.
1.5 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 Global Purchase and Service Agreement, the General Sales
Agreement and the reseller, subcontracting and original equipment manufacturing
(OEM) arrangements and other supplemental agreements related thereto, the
Employee Benefits Agreement and other related agreements thereto, the Interim
Services and Systems Replication Agreement, the Microelectronics Product
Purchase Agreement, the Master Services Agreement, the Master Subcontracting
Agreement, the Patent Assignment, the Patent and Technology License Agreement,
the Tax Sharing Agreement, the Development Project Agreement, the Technology
Assignment and Joint Ownership Agreement, the Trade Dress Assignment, the
Trademark and Service Mark Assignment, the Trademark License Agreement and the
agreements and other documents comprising the Non-U.S. Plan.
1.6 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;
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(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
vendor 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 receivable;
(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
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(q) interest rate, currency, commodity or other swap, collar,
cap or other hedging or similar agreements or arrangements.
1.7 AVAYA means Avaya Inc., a Delaware corporation.
1.8 AVAYA ASSETS has the meaning set forth in Section 2.2(a).
1.9 AVAYA BALANCE SHEET means the audited consolidated balance sheet of
Avaya, including the notes thereto, as of September 30, 1999.
1.10 AVAYA BUSINESS means: (a) the business and operations of (i) the
enterprise voice business that develops, sells and services communications
servers and private switching systems that support telephone, messaging and
customer relationship management applications for multiple users within a
business or other organization; (ii) the enterprise data networking business
that provides a wide range of data networking products and software for
businesses and other end users; (iii) the Systimax(R) connectivity solutions
business that provides broadband, multi-use cabling systems within a building or
a campus of a business or other end users; and (iv) such other business and
operations currently carried on by the enterprise networks business group of
Lucent; 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 Avaya
Business (as described in subsection (a) above) as then conducted, but in any
event not the businesses and operations related to the Excluded Assets.
1.11 AVAYA COMMON STOCK means the Common Stock, $.01 par value per
share, of Avaya.
1.12 AVAYA CONTRACTS means the following contracts and agreements to
which Lucent 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 Lucent or any member of the Lucent 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 1.12(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 Avaya
Group;
(c) any contract or agreement, including joint venture
agreements, that relates primarily to the Avaya Business;
(d) federal, state and local government and other contracts
and agreements that are listed or described on Schedule 1.12(d);
(e) any contract or agreement representing capital or
operating equipment lease obligations
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reflected on the Avaya Balance Sheet, including obligations as lessee under
those contracts or agreements listed on Schedule 1.12(e);
(f) any contract or agreement that is otherwise expressly
contemplated pursuant to this Agreement or any of the Ancillary Agreements to be
assigned to Avaya or any member of the Avaya Group;
(g) (i) any guarantee, indemnity, representation, warranty or
other Liability of any member of the Avaya Group or the Lucent Group in respect
of any Avaya Contract, any Avaya Liability or the Avaya Business (including
guarantees of financing incurred by customers or other third parties in
connection with purchases of products or services from the Avaya Business), and
(ii) the contracts, agreements and other documents listed or described on
Schedule 1.12(g); and
(h) any Avaya OFL.
1.13 AVAYA CUMULATIVE OWNERSHIP CHANGE means the total percentage
Change in Avaya Stock Ownership and shall be calculated by multiplying (a) a
fraction, (i) the numerator of which is the sum of (A) the total number of
shares of Avaya stock proposed to be issued or for which there is a change in
ownership in the proposed Change in Avaya Stock Ownership, (B) the total number
of shares of Avaya stock issued or for which there has been a change in
ownership in all prior Changes in Avaya Stock Ownership, [and (C) the number of
shares of Avaya stock set forth on Schedule 1.13], and (ii) the denominator of
which is the total number of shares of Avaya stock that would be outstanding
after the proposed Change in Avaya Stock Ownership, by (b) 100.
1.14 AVAYA GROUP means Avaya, each Subsidiary of Avaya and each other
Person that is either controlled directly or indirectly by Avaya immediately
after the Distribution Date or that is contemplated to be controlled by Avaya
pursuant to the Non-U.S. Plan (other than any Person that is contemplated not to
be controlled by Avaya pursuant to the Non-U.S. Plan).
1.15 AVAYA INDEMNITEES has the meaning set forth in Section 5.3(a).
1.16 AVAYA LIABILITIES has the meaning set forth in Section 2.3(a).
1.17 AVAYA OFL's has the meaning set forth in Section 7.2(a).
1.18 BELL LABORATORIES means the Assets of Lucent's Bell Laboratories
division as of the date hereof.
1.19 BYLAWS means the Amended and Restated Bylaws of Avaya,
substantially in the form attached hereto as Exhibit A.
1.20 CERTIFICATE means the Amended and Restated Certificate of
Incorporation of Avaya, substantially in the form attached hereto as Exhibit B.
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1.21 CHANGE IN AVAYA STOCK OWNERSHIP means any change in the ownership
of any class of stock of Avaya or of options or other interests exchangeable for
or convertible into any class of stock of Avaya including, without limitation, a
change resulting from issuance of any class of stock of Avaya in connection with
a public offering, private placement, stock or asset acquisition, merger, option
grant or capital contribution, or any change in ownership required to be
reported on Schedule 13D or 13G (or successor schedules thereto) with the
Commission. Notwithstanding the foregoing, a stock issuance shall not include
changes in ownership resulting from public trading that are not required to be
reported on Schedule 13D or 13G (or successor schedules thereto) or issuances of
stock of Avaya upon the exercise of employee stock options in the ordinary
course of business. This definition and the application thereof is intended to
monitor compliance with Section 355(e) of the Code following the Distribution
and shall be interpreted accordingly. Any clarification or change in the statute
or regulations promulgated under Section 355(e) of the Code shall be
incorporated in this definition and its interpretation.
1.22 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 and the securities of such Person that are outstanding
immediately prior to such transaction and which represent 100% of the combined
voting power of the then outstanding voting securities of such Person entitled
to vote generally in the election of directors ("Voting Securities") are changed
into or exchanged for cash, securities or property, unless pursuant to such
transaction such securities are changed into or exchanged for, in addition to
any other consideration, securities of the surviving Person or transferee that
represent immediately after such transaction, at least a majority of the
combined voting power of the Voting Securities of the surviving Person or
transferee; (b) a sale or other disposition of all or substantially all of the
assets of such Person; (c) 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 the combined voting power of
the then outstanding Voting Securities; or (d) 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.
1.23 CODE means the Internal Revenue Code of 1986, as amended.
1.24 COMMISSION means the Securities and Exchange Commission.
1.25 CONSENTS means any consents, waivers or approvals from, or
notification requirements to, any third parties.
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1.26 CONTINGENT CLAIM COMMITTEE, CONTINGENT GAIN AND CONTINGENT
LIABILITIES have the respective meanings set forth in Section 6.1.
1.27 CONTRIBUTION means the transfer of the Avaya Assets to Avaya and
its Subsidiaries and the assumption by Avaya and its Subsidiaries of the Avaya
Liabilities, all as more fully described in this Agreement and the Ancillary
Agreements.
1.28 CROSS-OVER AGREEMENT has the meaning set forth in Section 2.4(b).
1.29 DELAYED TRANSFER ASSETS means any Avaya Assets that are expressly
provided in this Agreement or any Ancillary Agreement to be transferred after
the date of this Agreement.
1.30 DELAYED TRANSFER LIABILITIES means any Avaya Liabilities that are
expressly provided in this Agreement or any Ancillary Agreement to be assumed
after the date of this Agreement.
1.31 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.
1.32 DEVELOPMENT PROJECT AGREEMENT means the Development Project
Agreement, dated as of October 1, 2000, as amended, by and between Lucent and
Avaya.
1.33 DISTRIBUTION means the distribution by Lucent on a pro rata basis
to holders of Lucent Common Stock of all of the outstanding shares of Avaya
Common Stock owned by Lucent on the Distribution Date as set forth in Article
IV.
1.34 DISTRIBUTION DATE means the date determined pursuant to Section
4.1 on which the Distribution occurs.
1.35 EMPLOYEE BENEFITS AGREEMENT means the Employee Benefits Agreement,
dated as of October 1, 2000, as amended, by and between Lucent and Avaya.
1.36 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
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Amendments and Reauthorization Act and the Resource Conservation and Recovery
Act and comparable provisions in state, local, foreign or international law.
1.37 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 product take back requirements or with any settlement,
judgment or other determination of Liability and indemnity, contribution or
similar obligations) and all costs and expenses, interest, fines, penalties or
other monetary sanctions in connection therewith.
1.38 ESCALATION NOTICE has the meaning set forth in Section 9.2.
1.39 EXCESS PORTION has the meaning specified in Section 6.1.
1.40 EXCHANGE ACT means the Securities Exchange Act of 1934, as
amended, together with the rules and regulations promulgated thereunder.
1.41 EXCLUDED ASSETS has the meaning set forth in Section 2.2(b).
1.42 EXCLUDED EMPLOYEE LIABILITIES shall mean the employee-related
liabilities retained by Lucent with respect to its employee retirees and
deferred vested former employees, as set forth in the Employee Benefits
Agreement.
1.43 EXCLUDED LIABILITIES has the meaning set forth in Section 2.3(b).
1.44 EXCLUSIVE LUCENT CONTINGENT GAIN, EXCLUSIVE LUCENT CONTINGENT
LIABILITY, EXCLUSIVE AVAYA CONTINGENT GAIN, EXCLUSIVE AVAYA CONTINGENT LIABILITY
AND EXCLUSIVE CONTINGENT LIABILITY have the respective meanings set forth in
Section 6.1.
1.45 FINANCING FACILITY means the commercial paper facility and related
credit agreement to be entered into prior to the Distribution Date by and among
Lucent, Avaya, and an agent or co-agents selected by Lucent and Avaya, pursuant
to which, prior to the Distribution Date, Lucent will issue commercial paper or
otherwise borrow an amount determined by Lucent and, as of the Distribution
Date, Avaya will become the sole obligor and Lucent will have no further
liability or obligation thereunder.
1.46 FIRST BEACON means First Beacon Insurance Company, a Vermont
corporation.
1.47 GENERAL SALES AGREEMENT means the General Sales Agreement, dated
as of October 1, 2000, as amended, by and between Lucent and Avaya.
1.48 GLOBAL PURCHASE AND SERVICE AGREEMENT means the Global Purchase
and Service Agreement, dated as of October 1, 2000, as amended, by and between
Avaya and Lucent.
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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 GRL means Lucent Technologies GRL Corporation, a Delaware
corporation.
1.52 GROUP means any of the Lucent Group or the Avaya Group, as the
context requires.
1.53 GUARDIAN means Lucent Technologies Guardian Corporation, a
Delaware corporation.
1.54 INDEMNIFYING PARTY has the meaning set forth in Section 5.4(a).
1.55 INDEMNITY has the meaning set forth in Section 5.4(a).
1.56 INDEMNITY PAYMENT has the meaning set forth in Section 5.4(a).
1.57 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.
1.58 INFORMATION STATEMENT means the information statement forming a
part of the Registration Statement.
1.59 INSURANCE POLICIES means the insurance policies written by any
insurance carrier, including those affiliated with Lucent, pursuant to which
Avaya or one or more of its Subsidiaries (or their respective officers or
directors) will be insured parties after the Distribution Date.
1.60 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
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(c) received (including by way of set off) from First Beacon
or any of its Subsidiaries or from any third party in the nature of insurance,
contribution or indemnification in respect of any Liability;
in any such case net of any applicable premium adjustments (including reserves
and retrospectively rated premium adjustments) and net of any costs or expenses
incurred in the collection thereof.
1.61 INTERIM SERVICES AND SYSTEMS REPLICATION AGREEMENT means the
Interim Services and Systems Replication Agreement, dated as of October 1, 2000,
as amended, by and between Lucent and Avaya.
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, exoneration, covenants, contracts,
controversies, agreements, promises, doings, omissions, variances, guarantees,
make whole agreements and similar obligations, and other liabilities and
requirements, 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, 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 LTII means Lucent Technologies International Inc., a Delaware
corporation.
1.64 LUCENT means Lucent Technologies Inc., a Delaware corporation.
1.65 LUCENT BUSINESS means: (a) the business and operations of (i) the
service provider networks business that provides public networking systems and
software to communications service providers and public network operators around
the world; (ii) the microelectronics and communications technologies business
that designs and manufactures high-performance integrated circuits, power
systems, and optoelectronic components for applications in the communications
and computing industries; and (iii) all other businesses (including the
businesses and operations related to the Excluded Assets) not otherwise included
in the Avaya Business; 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 described in subsection (a) above) as then conducted.
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1.66 LUCENT COMMON STOCK means the Common Stock, $.01 par value per
share, of Lucent.
1.67 LUCENT CP RATE during any month of determination shall be equal to
the weighted average rate on all Lucent commercial paper (across all maturities)
for such month.
1.68 LUCENT GROUP means Lucent and each Person (other than any member
of the Avaya Group) that is an Affiliate of Lucent immediately after the
Distribution Date.
1.69 LUCENT INDEMNITEES has the meaning set forth in Section 5.2.
1.70 MASTER SERVICES AGREEMENT means the Master Services Agreement,
dated as of October 1, 2000, as amended, by and between Avaya and Lucent.
1.71 MASTER SUBCONTRACTING AGREEMENT means the Master Subcontracting
Agreement, dated as of October 1, 2000, as amended, by and between Avaya and
Lucent.
1.72 MICROELECTRONICS PRODUCT PURCHASE AGREEMENT means the
Microelectronics Product Purchase Agreement, dated as of October 1, 2000, as
amended, by and between Lucent (Microelectronics and Communications Technologies
Group) and Avaya.
1.73 NON-AVAYA ASSETS means any Assets of Lucent or any of its
Affiliates other than Avaya Assets.
1.74 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 Lucent and its Affiliates, including LTII, have been
or will be assigned between the parties hereto, which are set forth or described
in Schedule 1.74.
1.75 NYSE means The New York Stock Exchange, Inc.
1.76 OFL's mean all Liabilities, contingencies and instruments of any
member of the Lucent Group of a financial nature with third parties existing on
the date hereof, 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;
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(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.
1.77 OTHER DISCONTINUED OPERATIONS means any terminated, divested or
discontinued businesses and operations of Lucent or Avaya or of any former or
current Affiliate of Lucent or Avaya (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 Lucent or Avaya) that are not listed
or described in, or on the Schedules to, the definitions of Lucent Business or
Avaya Business.
1.78 PATENT ASSIGNMENT means the Patent Assignment, dated as of the
date hereof, as amended, executed and delivered by Lucent to Avaya.
1.79 PATENT AND TECHNOLOGY LICENSE AGREEMENT means the Patent and
Technology License Agreement, dated as of October 1, 2000, as amended, by and
among Lucent, GRL, Avaya and [Avaya IPCo].
1.80 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.
1.81 PROHIBITED STRATEGIC ALLIANCE shall mean any direct or indirect
arrangement by contract or otherwise between Avaya or any member of the Avaya
Group and any of the Persons listed in Schedule 1.81 or any of their Affiliates
other than any such arrangement (i) which is in existence as of the date hereof
and which is identified in Schedule 1.81 or (ii) which is otherwise described on
Schedule 1.81; provided, however, that neither any direct or indirect
arrangement by contract or otherwise (x) between E.M. Warburg, Pincus & Co., LLC
or any of its Affiliates and any member of the Avaya Group or (y) between E.M.
Warburg, Pincus & Co., LLC or any of its Affiliates and any Person listed on
Schedule 1.81 shall be a Prohibited Strategic Alliance (so long as any such
direct or indirect arrangement was not entered into as a means to circumvent the
prohibition on Avaya entering into any such arrangement directly or indirectly
with the Persons listed on Schedule 1.81), and for purposes of this Agreement
neither E.M. Warburg, Pincus & Co., LLC nor any of its Affiliates shall be
deemed an Affiliate of any Person listed on Schedule 1.81. For the purposes of
this definition, the words "direct or indirect" shall include, without
limitation, (a) acting as an agent, dealer, distributor, representative,
consultant or independent contractor; (b) participating as an owner, partner,
limited partner, joint venturer, creditor, licensor or shareholder; (c)
communicating the names or addresses or any other information concerning new,
present, or identified prospective clients or customers; (d) licensing
intellectual property right or providing services to or on behalf of the other
party; or (e) any other similar relationship.
1.82 PRIME RATE means the rate which The Chase Manhattan 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.
1.83 RECORD DATE means the close of business on the date to be
determined by the Lucent Board of Directors as the record date for determining
stockholders of Lucent entitled to receive shares of Avaya Common Stock in the
Distribution.
1.84 REGISTRATION STATEMENT means the registration statement on Form 10
to be filed under the Exchange Act, pursuant to which the Avaya Common Stock to
be issued in the Distribution will be registered, together with all amendments
thereto.
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1.85 RELATED EXCLUSIVE CONTINGENT LIABILITIES has the meaning set forth
in Section 6.1.
1.86 RIGHTS PLAN means the Rights Agreement to be entered into between
Avaya and The Bank of New York, as rights agent, substantially in the form
attached hereto as Exhibit C.
1.87 SDA AGREEMENT means the Separation and Distribution Agreement
among AT&T Corp., Lucent and NCR Corporation, dated as of February 1, 1996 and
amended and restated as of March 29, 1996.
1.88 SECURITIES ACT means the Securities Act of 1933, as amended,
together with the rules and regulations promulgated thereunder.
1.89 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.
1.90 SHARED LUCENT PERCENTAGE, SHARED AVAYA PERCENTAGE, SHARED
PERCENTAGE, SHARED CONTINGENT GAIN AND SHARED CONTINGENT LIABILITIES have the
respective meanings set forth in Section 6.1.
1.91 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.
1.92 TAX SHARING AGREEMENT means the Tax Sharing Agreement, dated as of
October 1, 2000, as amended, by and between Lucent and Avaya.
1.93 TAXES has the meaning set forth in the Tax Sharing Agreement.
1.94 TECHNOLOGY ASSIGNMENT AND JOINT OWNERSHIP AGREEMENT means the
Technology Assignment and Joint Ownership Agreement, dated as of the date
hereof, as amended, by and between Lucent and Avaya.
1.95 THIRD PARTY CLAIM has the meaning set forth in Section 5.5(a).
1.96 TRADE DRESS ASSIGNMENT means the Trade Dress Assignment, dated as
of the date hereof, as amended, by Lucent to Avaya.
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1.97 TRADEMARK AND SERVICE MARK ASSIGNMENT means the Trademark and
Service Mark Assignment, dated as of the date hereof, as amended, by Lucent to
Avaya.
1.98 TRADEMARK LICENSE AGREEMENT means the Trademark License Agreement,
dated as of October 1, 2000, as amended, by and between Avaya and Lucent.
1.99 VALUE has the meaning set forth in Section 6.1.
ARTICLE II
THE CONTRIBUTION
2.1. Transfer of Assets and Assumption of Liabilities
(a) Lucent hereby contributes, assigns, transfers, conveys and
delivers to Avaya, and agrees to cause its applicable Subsidiaries to
contribute, assign, transfer, convey and deliver to Avaya, and Avaya hereby
accepts from Lucent and its Subsidiaries, all of Lucent's and its Subsidiaries'
respective right, title and interest in all Avaya Assets, other than the Delayed
Transfer Assets.
(b) Avaya hereby accepts, assumes and agrees faithfully to
perform and fulfill all the Avaya Liabilities, other than the Delayed Transfer
Liabilities, in accordance with their respective terms. Avaya shall be
responsible for all Avaya 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 Avaya
Liabilities arising out of claims made by Lucent's, or Avaya's respective
directors, officers, employees, agents, Subsidiaries or Affiliates against any
member of the Lucent Group or the Avaya 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 Lucent Group or the Avaya 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 contributed, assigned, transferred, conveyed and
delivered, and the Delayed Transfer Liabilities will be accepted and assumed, in
accordance with the terms of the agreements that provide for such contribution,
assignment, transfer, conveyance and delivery, or such acceptance and
assumption, after the date of this Agreement or as otherwise set forth on
Schedule 2.1(c). Following such contribution, assignment, transfer, conveyance
and delivery of any Delayed Transfer Asset, or the acceptance and 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 Avaya Asset or an Avaya Liability, as the case may
be.
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(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. Avaya Assets
(a) For purposes of this Agreement, "Avaya 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 Avaya or any other
member of the Avaya Group;
(ii) any Exclusive Avaya Contingent Gain and any
Shared Avaya Percentage of any Shared Contingent Gain;
(iii) subject to Section 7.1, any rights of any member
of the Avaya 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;
(iv) (A) any Assets that Section 2.5(b) contemplates
will be transferred to, or be retained by, any member of the Avaya Group, (B)
any Avaya Contracts and (C) all issued and outstanding capital stock of the
Subsidiaries of Lucent listed on Schedule 2.2(a)(iv);
(v) any Assets reflected in the Avaya Balance Sheet as
Assets of Avaya and its Subsidiaries, subject to any dispositions of such Assets
subsequent to the date of the Avaya Balance Sheet; and
(vi) except as contemplated by Section 2.5(b), any and
all Assets owned or held immediately prior to the Distribution Date by Lucent or
any of its Subsidiaries that are used primarily in the Avaya Business. The
intention of this clause (vi) 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 an Avaya Asset. No Asset shall be deemed to be an Avaya Asset
solely as a result of this clause (vi) 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 an Avaya Asset solely as a result of this
clause (vi) unless a claim with respect thereto is made by Avaya on or prior to
the first anniversary of the Distribution Date.
Notwithstanding the foregoing, the Avaya 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:
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(i) the Assets listed or described on Schedule
2.2(b)(i);
(ii) Bell Laboratories (other than the intellectual
property assigned and/or licensed to Avaya or any member of the Avaya Group
pursuant to any of the Ancillary Agreements);
(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 Lucent or any other member of the
Lucent Group;
(iv) any contract or agreement listed or described on
Schedule 2.2(b)(iv); and
(v) except to the extent expressly set forth in
Section 2.2(a)(ii) or (iii), respectively, any Contingent Gains.
2.3. Avaya Liabilities
(a) For the purposes of this Agreement, "Avaya 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 Avaya or any member of the
Avaya Group, and all agreements, obligations and Liabilities of any member of
the Avaya 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 (other than Excluded Employee Liabilities), and Environmental
Liabilities (other than the Environmental Liabilities set forth on Schedule
2.3(b)(v), primarily relating to, arising out of or resulting from:
(A) the operation of the Avaya Business, as
conducted at any time prior to, on or after the Distribution Date (including any
Liability relating to, arising out of or resulting from any act or failure to
act by any director, officer, employee, agent or representative (whether or not
such act or failure to act is or was within such Person's authority));
(B) the operation of any business conducted
by any member of the Avaya Group at any time after the Distribution Date
(including any Liability relating to, arising out of or resulting from any act
or failure to act by any director, officer, employee, agent or representative
(whether or not such act or failure to act is or was within such Person's
authority)); or
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(C) any Avaya Assets (including any Avaya
Contracts and any real property and leasehold interests);
in any such case whether arising before, on or after the Distribution Date;
(iii) subject to the terms of Article VI, all
Exclusive Avaya Contingent Liabilities and the Shared Avaya Percentage of any
Shared Contingent Liabilities;
(iv) all Liabilities relating to, arising out of or
resulting from the Financing Facility other than any third party costs and
expenses incurred by any member of the Lucent Group;
(v) all Liabilities primarily relating to, arising
out of or resulting from any of the terminated, divested or discontinued
businesses and operations of the Avaya Business; and
(vi) all Liabilities reflected as liabilities or
obligations of Avaya in the Avaya Balance Sheet, subject to any discharge of
such Liabilities subsequent to the date of the Avaya Balance sheet.
Notwithstanding the foregoing, the Avaya Liabilities shall not include the
Excluded Liabilities referred to in Section 2.3(b) below.
(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 Lucent or any
other member of the Lucent Group, and all agreements and obligations of any
member of the Lucent Group under this Agreement or any of the Ancillary
Agreements;
(ii) the Excluded Employee Liabilities;
(iii) any and all liabilities relating to, arising
out of or resulting from any Excluded Assets (including Bell Laboratories);
(iv) subject to the terms of Article VI, all
Exclusive Lucent Contingent Liabilities and the Shared Lucent Percentage of any
Shared Contingent Liabilities;
(v) the Environmental Liabilities set forth on
Schedule 2.3(b)(v); and
(vi) 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 Avaya Asset if the applicable lessor, sublessor or sub-sublessor under the
applicable lease, sublease or subsublease is a member of the Lucent Group.
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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, Avaya and each member
of the Avaya Group, on the one hand, and Lucent and each member of the Lucent
Group, on the other hand, hereby terminate, any and all agreements,
arrangements, commitments or understandings, whether or not in writing, between
or among Avaya and/or any member of the Avaya Group, on the one hand, and Lucent
and/or any member of the Lucent Group, on the other hand, effective as of the
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 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 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,
orders, commitments or understandings listed or described on Schedule 2.4(b)(ii)
(the "Crossover Agreements"); (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 Avaya Assets or Avaya Liabilities, they shall be assigned pursuant to
Section 2.1); (iv) any intercompany accounts payable or accounts receivable
accrued as of the 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 any non-wholly owned Subsidiary of Lucent or Avaya, 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 Distribution Date.
(c) On the Distribution Date, Lucent and Avaya shall each be
in the process of performing under the Crossover Agreements or providing
products, software or services related to their respective businesses pursuant
to the Crossover Agreements. The parties intend that Lucent and/or Avaya, as the
case may be, shall, or shall cause their respective Affiliates to, continue to
perform as a subcontractor or supplier to the other under the Crossover
Agreements and to provide products, software or services related to their
respective businesses pursuant to the Crossover Agreements on the terms and
conditions set forth in any such Crossover Agreement for the entire unexpired
initial term thereof, including any renewal options that may be unilaterally
exercised by the customer (but not for any other term of renewal). The prices
and terms for any such products, software and services under the Crossover
Agreements to be charged by the subcontracting party under any such Crossover
Agreement after the Distribution
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Date to the other party shall be established to ensure compliance with the
existing terms and conditions of such Crossover Agreement.
2.5. Documents Relating to Transfer of Real Property Interests and
Tangible Property Located Thereon
(a) In furtherance of the contribution, assignment, transfer
and conveyance of Avaya Assets and the acceptance and assumption of Avaya
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
Lucent and Avaya, 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 Avaya 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 THAT ARE OWNED. 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
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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 executive or officer
of any Group may, at the election of such executive or officer, be retained by,
or transferred to, the Group by which such executive or officer is employed as
of the Distribution 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 contribution, assignment, transfer and
conveyance of Avaya Assets and the acceptance and assumption of Avaya
Liabilities set forth in Section 2.1(a) and (b) simultaneously with the
execution and delivery hereof or as promptly as practicable thereafter, (i)
Lucent shall execute and deliver, and shall cause its 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 Lucent's and its Subsidiaries' right, title and
interest in and to the Avaya Assets to Avaya and (ii) Avaya shall execute and
deliver, to Lucent and its 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 Avaya Liabilities by Avaya.
2.7. Ancillary Agreements
(a) On the date hereof, but effective as of the date
immediately after the Distribution Date, except as provided in Section 2.7(b) or
Section 2.8, each of Lucent and Avaya will execute and deliver all Ancillary
Agreements to which it is a party.
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(b) Effective on the date hereof, the parties shall execute
and deliver each of the following Ancillary Agreements to which it is a party:
(i) the Patent Assignment;
(ii) the Technology Assignment and Joint Ownership
Agreement;
(iii) the Trade Dress Assignment; and
(iv) the Trademark and Service Mark Assignment.
2.8. The Non-U.S. Plan
Each of Lucent and Avaya 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 Distribution 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.
2.9. Disclaimer of Representations and Warranties
(a) Each of Lucent (on behalf of itself and each member of the
Lucent Group), and Avaya (on behalf of itself and each member of the Avaya
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 (i) any conveyance shall prove to be insufficient to vest in
the transferee good and marketable title, free and clear of any Security
Interest, and (ii) any necessary consents or approvals are not obtained or that
any requirements of laws or judgments are not complied with.
2.10. Financing Arrangements
Prior to the Distribution Date, Lucent and Avaya entered into
the Financing Facility. Lucent and Avaya agree to take all such reasonable
action as may be necessary to
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assure the assignment to and the assumption by Avaya of all obligations
thereunder and the full release and discharge of each of Lucent and any other
member of the Lucent Group of all of its obligations thereunder as of the
Distribution Date in accordance with the terms of the Financing Facility. Lucent
and Avaya shall participate in the preparation of all materials as may be
reasonably necessary to obtain such assignment, assumption, release and
discharge. As of the time of such assignment, assumption, release and discharge,
Lucent shall pay all third party costs and expenses incurred by any member of
the Lucent Group associated with the Financing Facility.
2.11. Governmental Approvals and Consents
(a) To the extent that the Contribution 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 Avaya Group of any Avaya Assets (or from the Avaya Group of any
Non-Avaya Assets) would be a violation of applicable laws or require any Consent
or Governmental Approval in connection with the Contribution or the
Distribution, then, unless Lucent shall otherwise determine, the transfer or
assignment to or from the Avaya Group, as the case may be, of such Avaya Assets
or Non-Avaya 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 Avaya Asset for purposes of determining whether any Liability is an
Avaya 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 Distribution Date, whether as a result of the
provisions of Section 2.11(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
Avaya Assets (or such Non-Avaya 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 Distribution Date to
the Avaya Group (or the Lucent 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 2.11(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.
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(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.
2.12. Novation of Assumed Avaya Liabilities
(a) Each of Lucent and Avaya, 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 (including
Avaya OFL's) of any nature whatsoever that constitute Avaya Liabilities, or to
obtain in writing the unconditional release of all parties to such arrangements
other than any member of the Avaya Group, so that, in any such case, Avaya and
its Subsidiaries will be solely responsible for such Liabilities; provided,
however, that none of Lucent or Avaya shall be obligated to pay any
consideration therefor to any third party from whom such consents, approvals,
substitutions and amendments are requested. Lucent and Avaya agree to enter into
a novation agreement with the United States Government providing for the
assignment of prime Government contracts that are Avaya Contracts from Lucent to
Avaya substantially in the form of the novation agreement prescribed by the
Federal Acquisition Regulation (FAR) or upon such terms as may be reasonably
requested by the Government and to provide the documents prescribed by the FAR
to be filed with such novation request.
(b) If Lucent or Avaya 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 (except to the extent expressly set forth
in Section 7.2 in the case of Avaya OFL's), Avaya shall, as agent or
subcontractor for Lucent or such other Person and where appropriate in the name
thereof, as the case may be, pay, perform and discharge fully all the
obligations or other Liabilities of Lucent or such other Person, as the case may
be, thereunder from and after the date hereof. Avaya shall indemnify each Lucent
Indemnitee and hold each of them harmless against any Liabilities arising in
connection therewith. Except as expressly set forth in Section 7.2 in the case
of Avaya OFL's, Lucent shall, without further consideration, pay and remit, or
cause to be paid or remitted to Avaya promptly all money, rights and other
consideration received by it or any member of its 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, Lucent 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 Group to Avaya
without payment of further consideration and Avaya shall, without the payment of
any further consideration, assume such rights and obligations.
2.13. Novation of Liabilities other than Avaya Liabilities
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(a) Each of Lucent and Avaya, 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 or assign all
obligations under agreements, leases, licenses and other obligations or
Liabilities of any nature whatsoever that do not constitute Avaya 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, the members of the Lucent Group will be solely responsible for such
Liabilities; provided, however, that neither Lucent nor Avaya shall be obligated
to pay any consideration therefor to any third party from whom such consents,
approvals, substitutions and amendments are requested.
(b) If Lucent or Avaya is unable to obtain, or to cause to be
obtained, any such required consent, approval, release, substitution or
amendment, the applicable member of the Avaya Group shall continue to be bound
by such agreements, leases, licenses and other obligations and, unless not
permitted by law or the terms thereof, Lucent shall cause a member of the Lucent
Group, as agent or subcontractor for such member of the Avaya Group and where
appropriate in the name thereof, to pay, perform and discharge fully all the
obligations or other Liabilities of such member of the Avaya Group thereunder
from and after the date hereof. Lucent shall indemnify each Avaya Indemnitee and
hold each of them harmless against any Liabilities arising in connection
therewith. Avaya shall cause each member of the Avaya Group without further
consideration, to pay and remit, or cause to be paid or remitted, to Lucent or
to another member of the Lucent Group specified by Lucent promptly all money,
rights and other consideration received by it or any member of the Avaya 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, Avaya 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 Avaya Group to Lucent or to another member of the Lucent Group
specified by Lucent without payment of further consideration and Lucent, without
the payment of any further consideration shall, or shall cause such other member
of the Lucent Group to, assume such rights and obligations.
2.14. Third Party Intellectual Property License Agreements
(a) Effective as of the date hereof, Lucent hereby assigns to
Avaya the intellectual property license agreements listed on Schedule 2.14(a).
Except for the intellectual property license agreements listed on Schedule
2.14(a), Lucent will retain all rights in and to the intellectual property
license agreements referred to in this Section 2.14.
(b) Lucent hereby further grants to Avaya a sublicense under
any and all patent license rights, with respect to which Lucent has received
from any third party pursuant to any license agreement a right to sublicense
(but only to the extent that Lucent has a right to grant such a sublicense
without payment of royalties), to make, have made, use, lease, offer to sell,
sell, and import any and all products and services.
(c) Each of Lucent and Avaya 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
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Section 2.14 apply.
2.15. Certain Termination Rights
(a) In addition to any similar provision relating to a Change
of Control of Avaya in any Ancillary Agreement, the rights granted to Avaya and
the members of the Avaya Group pursuant to this Agreement or any Ancillary
Agreement shall be subject to the provisions of this Section 2.15.
(b) In the event that, at any time (i) prior to the third
anniversary of this Agreement, there is a Change of Control of Avaya involving
either of the Persons listed on Schedule 1.81 or any of their Affiliates, or
(ii) prior to the second anniversary of this Agreement, Avaya or any member of
the Avaya Group enters into a Prohibited Strategic Alliance, then:
(A) Lucent may, in its sole discretion, terminate all
or any portion of the rights granted to Avaya and the members of the Avaya Group
pursuant to the Trademark License Agreement;
(B) Lucent may, in its sole discretion, terminate all
or any portion of the rights to patents and technology of Lucent or any member
of the Lucent Group granted to Avaya and the members of the Avaya Group pursuant
to the Patent and Technology License Agreement;
(C) at Lucent's direction, which may be given in its
sole discretion, Avaya and the members of the Avaya Group will reconvey to
Lucent or any member of the Lucent Group all of their right, title and interest
in any and all patents and technology in which Avaya or any member of the Avaya
Group was granted an undivided one-half interest pursuant to the Patent
Assignment or the Technology Assignment and Joint Ownership Agreement; and
(D) Lucent may, in its sole discretion, terminate any
or all of the following Ancillary Agreements: the General Sales Agreement, the
Microelectronics Product Purchase Agreement, the Development Project Agreement,
or any reseller, original equipment manufacturing, services or subcontracting
agreement from Lucent to Avaya.
(c) In the event that, at any time prior to the third
anniversary of this Agreement, there is a Change of Control of Avaya involving
any Person other than those persons listed on Schedule 1.81 or their Affiliates
then Lucent may, in its sole discretion, terminate any or all of the following
Ancillary Agreements: the Development Project Agreement, or any reseller,
original equipment manufacturing, services or subcontracting agreement from
Lucent to Avaya.
ARTICLE III
ACTIONS PENDING THE DISTRIBUTION
3.1. Transactions Prior to the Distribution
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(a) Lucent and Avaya shall use their reasonable best efforts
to consummate the Distribution. Such actions shall include, but not necessarily
be limited to, those specified in this Section 3.1 and Article IV.
(b) Avaya shall file the 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, including, but not
limited to, filing such amendments to the Registration Statement as may be
required by the Commission or federal, state or foreign securities laws. Lucent
and Avaya shall also cooperate in preparing, filing with the Commission and
causing to become effective a registration statement registering the Avaya
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 Contribution, the Distribution or the other transactions
contemplated by this Agreement and the Ancillary Agreements.
(c) Lucent and Avaya shall consult with each other and
Lucent's financial advisors regarding the timing, exchange ratio and other
material matters with respect to the Distribution.
(d) Avaya shall participate in the preparation of materials
and presentations as Lucent's financial advisors shall deem necessary or
desirable.
(e) Avaya shall pay all third party costs, fees and expenses
relating to the costs of producing, printing, mailing and otherwise distributing
the Information Statement.
3.2. Conditions Precedent to Consummation of the Distribution
(a) In addition to such conditions and required actions as are
set forth in Article IV, 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 Distribution. The
obligations of the parties to consummate the Distribution shall be conditioned
on the satisfaction, or waiver by Lucent, of those conditions set forth in
Article IV and the following conditions:
(i) The Registration Statement shall have been filed
and declared effective by the Commission, and there shall be no stop-order in
effect with respect thereto and no proceeding for that purpose shall have been
instituted by the Commission.
(ii) Lucent shall be satisfied in its sole discretion
that as of the Distribution Date it will have no further liability or obligation
whatsoever under the Financing Facility.
(iii) 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 4.2(b) shall have been taken
and, where applicable, have become effective or been accepted.
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(iv) The Avaya Common Stock to be issued in the
Distribution shall have been accepted for listing on the NYSE, on official
notice of issuance.
(v) 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 Contribution, Distribution or any
of the other transactions contemplated by this Agreement or any Ancillary
Agreement shall be in effect.
(vi) This Agreement shall not have been terminated.
(b) The foregoing conditions and the conditions and required
actions set forth in Article IV are for the sole benefit of Lucent and shall not
give rise to any duty on the part of Lucent or the Lucent Board of Directors to
waive or not waive such conditions or required actions or in any way limit
Lucent's right to terminate this Agreement as set forth in Article XI or alter
the consequences of any such termination from those specified in such Article.
Any determination made by the Lucent Board of Directors prior to the
Distribution Date concerning the satisfaction or waiver of any or all of the
conditions set forth in this Section 3.2 and any or all of the conditions and
required actions set forth in Article IV shall be conclusive.
ARTICLE IV
THE DISTRIBUTION
4.1. The Distribution
(a) Subject to Section 4.3 hereof, on or prior to September
30, 2000 or such later date as the Lucent Board of Directors may determine in
its sole discretion (the "Distribution Date"), Lucent will deliver to the Agent
for the benefit of holders of record of Lucent Common Stock on the Record Date,
a single stock certificate, endorsed by Lucent in blank, representing all of the
outstanding shares of Avaya Common Stock then owned by Lucent or any member of
the Lucent Group, and shall cause the transfer agent for the shares of Lucent
Common Stock to instruct the Agent to distribute on the Distribution Date the
appropriate number of such shares of Avaya Common Stock to each such holder or
designated transferee or transferees of such holder on the basis of one share of
Avaya Common Stock for every [____] shares of Lucent Common Stock (the
"Distribution") which issuance may, in part, be in the form of direct share
registration. The Distribution shall be effective at 11:59 p.m. on the
Distribution Date.
(b) Lucent and Avaya, 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) Lucent and Avaya shall prepare and mail, on or prior to
the Distribution Date, to the holders of Lucent Common Stock, such information
concerning Avaya, its business,
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operations and management, the Distribution and such other matters as Lucent
shall reasonably determine and as may be required by law. Lucent and Avaya will
prepare, and Avaya will, to the extent required under applicable law, file with
the Commission any such documentation and any requisite no action letters which
Lucent determines are necessary or desirable to effectuate the Distribution and
Lucent and Avaya shall each use its reasonable best efforts to obtain all
necessary approvals from the Commission with respect thereto as soon as
practicable.
(b) Lucent and Avaya 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) Lucent and Avaya shall take all reasonable steps necessary
and appropriate to cause the conditions set forth in Section 4.3 (subject to
Section 4.3(d)) to be satisfied and to effect the Distribution on the
Distribution Date.
(d) Avaya shall prepare and file, and shall use its reasonable
best efforts to have approved, an application for the listing of the Avaya
Common Stock to be distributed in the Distribution on the NYSE, subject to
official notice of distribution.
(e) At or prior to the Distribution Date, Avaya shall issue to
Lucent a whole number of newly issued, fully paid and non-assessable shares of
Avaya Common Stock, in exchange for the contribution of the Avaya Business and
the Avaya Assets, required to effect the Distribution.
4.3. Conditions to Distribution
The obligations of Lucent to consummate the Distribution are
subject to the satisfaction (or waiver by the Lucent Board) of each of the
following 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
Avaya of the Avaya Assets and the assumption by Avaya of the Avaya Liabilities
in connection with the Contribution will not result in the recognition of any
gain or loss to Lucent, Avaya or Lucent's or Avaya's stockholders for federal
income tax purposes, and such ruling shall be in form and substance satisfactory
to Lucent 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 Lucent shall have occurred or failed to occur that
prevents the consummation of the Distribution.
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(d) No other events or developments shall have occurred
subsequent to the date hereof that, in the judgment of the Lucent Board of
Directors, would result in the Distribution having a material adverse effect on
Lucent or on the stockholders of Lucent.
The foregoing conditions are for the sole benefit of Lucent
and shall not give rise to or create any duty on the part of Lucent or the
Lucent Board of Directors to waive or not waive any such condition.
4.4. Fractional Shares
As soon as practicable after the Distribution Date, Lucent
shall direct the Agent to determine the number of whole shares and fractional
shares of Avaya Common Stock allocable to each holder of record or beneficial
owner of Lucent Common Stock as of the Record Date, to aggregate all such
fractional shares and sell the whole shares obtained thereby at the direction of
Lucent either to Lucent, 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.
4.5. The Avaya Board of Directors
Lucent and Avaya shall each take all actions which may be
required to elect or otherwise appoint the directors of Avaya on or prior to the
Distribution Date.
4.6. Charter; Bylaws; Rights Plan
At or prior to the Distribution Date, all necessary action
shall have been taken to provide for the adoption by Avaya of the Certificate,
the Bylaws and the Rights Plan.
ARTICLE V
MUTUAL RELEASES; INDEMNIFICATION
5.1. Release of Pre-Distribution Claims
(a) Except as provided in Section 5.1(c), effective as of the
Distribution Date, Avaya does hereby, for itself and each other member of the
Avaya 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
Distribution Date have been stockholders, directors, officers, agents or
employees of any member of the Avaya Group (in each case, in their respective
capacities as such), remise, release and forever discharge each of Lucent, the
members of the Lucent Group, their Affiliates (other than any member of the
Avaya Group), successors and assigns, and all Persons who at any time prior to
the Distribution Date have been stockholders, directors, officers, agents or
employees of any member of the Lucent Group (in each case, in their
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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 Distribution Date, including in
connection with the transactions and all other activities to implement the
Contribution and the Distribution.
(b) Except as provided in Section 5.1(c), effective as of the
Distribution Date, Lucent does hereby, for itself and each other member of the
Lucent Group, its Affiliates (other than any member of the Avaya Group),
successors and assigns, and all Persons who at any time prior to the
Distribution Date have been stockholders, 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 Avaya, the members of
the Avaya Group, their Affiliates (other than any member of the Lucent Group),
successors and assigns, and all Persons who at any time prior to the
Distribution Date have been stockholders, directors, officers, agents or
employees of any member of the Avaya 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 Distribution Date, including in connection with
the transactions and all other activities to implement the Contribution 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
Distribution 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 Lucent Group or the Avaya Group that is
specified in Section 2.4(b) or the applicable Schedules thereto as not to
terminate as of the Distribution Date, or any other Liability specified in such
Section 2.4(b) as not to terminate as of the 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,
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 Distribution Date;
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(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.
In addition, nothing contained in Section 5.1(a) shall release
Lucent from honoring its existing obligations to indemnify any director, officer
or employee of Avaya who was a director, officer or employee of Lucent on or
prior to the Distribution Date, to the extent such director, officer or employee
becomes a named defendant in any litigation involving Lucent and was entitled to
such indemnification pursuant to then existing obligations.
(d) Avaya shall not make, and shall not permit any member of
the Avaya 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(a), with respect to any Liabilities released pursuant to
Section 5.1(a). Lucent shall not, 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
Avaya or any member of the Avaya Group, or any other Person released pursuant to
Section 5.1(b), with respect to any Liabilities released pursuant to Section
5.l(b).
(e) It is the intent of Lucent and Avaya 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
Distribution Date, between or among Avaya or any member of the Avaya Group, on
the one hand, and Lucent or any member of the Lucent Group, on the other hand
(including any contractual agreements or arrangements existing or alleged to
exist between or among any such members on or before the Distribution Date),
except as expressly set forth in 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 Avaya
Except as provided in Section 5.4, Avaya 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
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Lucent Indemnitees relating to, arising out of or resulting from any of the
following items (without duplication):
(a) the failure of Avaya or any other member of the Avaya
Group or any other Person to pay, perform or otherwise promptly discharge any
Avaya Liabilities or Avaya Contract in accordance with their respective terms,
whether prior to or after the date hereof;
(b) the Avaya Business, any Avaya Liability or any Avaya
Contract;
(c) any material breach by Avaya or any member of the Avaya
Group of this Agreement or any of the Ancillary Agreements;
(d) (i) termination pay, (ii) severance cost or expense or
(iii) other direct cost or expense, in each case related to, or otherwise
arising from, Lucent's providing Avaya with interim services related to accounts
payable, accounts receivable and payroll processing pursuant to the Interim
Services and Systems Replication Agreement; and
(e) 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 Registration Statement or
Information Statement.
5.3. Indemnification by Lucent
Lucent shall indemnify, defend and hold harmless Avaya, each
member of the Avaya 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 "Avaya 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):
(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
Liabilities of the Lucent Group other than the Avaya Liabilities whether prior
to or after the date hereof;
(b) the Lucent Business or any Liability of the Lucent Group
other than the Avaya Liabilities; and
(c) any material breach by Lucent or any member of the Lucent
Group of this Agreement or any of the Ancillary Agreements.
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 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
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"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 had been received, realized or recovered before the
Indemnity Payment was made.
(b) In the case of any Shared Contingent Liability, any
Insurance Proceeds 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, will remain in
proportion to their respective Shared Percentages, regardless of which party or
parties may actually receive, realize or recover such Insurance Proceeds.
(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 "wind-fall" (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 Lucent Group or the Avaya 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 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 shall give the 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 receiving any notice pursuant to Section
5.5(a) or the 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
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following any notice given by the Indemnitee to the Indemnifying Party. Unless
the 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, Lucent 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, Lucent shall be entitled to reimbursement of all
the costs and expenses of such defense once a final determination or
acknowledgment is made as to the status of the Third Party Claim; 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) Lucent shall assume the defense of, and may, subject to
Section 5.5(g), seek to settle or compromise, any Third Party Claim that is a
Shared Contingent Liability, and the costs and expenses 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 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 Lucent.
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(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, Lucent 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 of such Indemnifying
Party, in prosecuting any subrogated right, defense or claim; provided, however,
that Lucent 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, subject to section 6.4 with respect to Shared
Contingent Liabilities, and 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), the costs of any judgment or settlement, and the cost of any
interest or penalties relating to any judgment or settlement.
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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 Lucent and Avaya 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. Alleged Infringement or Misappropriation
(a) The provisions of this Section 5.9 shall apply
notwithstanding any other provisions of this Agreement or any Ancillary
Agreement. The provisions of this Section 5.9 shall apply in the event of any
claim, action, proceeding or suit by a third party alleging an infringement of
any patent, copyright, trademark or misappropriation of a trade secret against
(i) Lucent or any member of the Lucent Group with respect to any product,
software or other material provided by or ordered from the Avaya Business, or
(ii) Avaya or any member of the Avaya Group with respect to any product,
software or other material provided by or ordered from the Lucent Business, in
each case prior to the Distribution Date. In each case, Lucent, such member of
the Lucent Group, Avaya or such member of the Avaya Group is referred to as the
"IP Indemnified Party," and Lucent (in the case where Avaya or a member of the
Avaya Group is the IP Indemnified Party) or Avaya (in the case where Lucent or a
member of the Lucent Group is the Indemnified Party) shall be referred to as the
"IP Indemnifying Party." In any such claim, action, proceeding or suit, the IP
Indemnifying Party, at its expense, will defend the IP Indemnified Party,
subject to the conditions and exceptions stated below. The IP Indemnifying Party
will reimburse the IP Indemnified Party for any cost, expense or attorneys'
fees, incurred at the IP Indemnifying Party's written request or authorization,
and will indemnify the IP Indemnified Party against any liability assessed
against the IP Indemnified Party by final judgment on account of such
infringement or misappropriation arising out of such use.
(b) If the IP Indemnified Party's use shall be enjoined or in
the IP Indemnified Party's opinion is likely to be enjoined, the IP Indemnifying
Party will, at its expense and at its option, either (i) replace the enjoined
product, software or other material furnished as described in Section 5.9(a)
with a suitable substitute free of any infringement; (ii) modify it so that it
will be free of the infringement; or (iii) procure for the IP Indemnified Party
a license or other right to use it. If none of the foregoing options are
practical despite the IP Indemnifying Party's commercially reasonable efforts,
then the IP Indemnifying Party will remove the enjoined product, software or
other material and refund to the IP Indemnified Party any amounts paid to the IP
Indemnifying Party therefor less a reasonable charge for any actual period of
use by the IP Indemnified Party.
(c) The IP Indemnified Party shall give the IP Indemnifying
Party prompt written
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notice of all such claims, actions, proceedings or suits alleging infringement
or violation and the IP Indemnifying Party shall have full and complete
authority to assume the sole defense thereof, including appeals, and to settle
same; provided, however, the IP Indemnifying Party shall not consent to entry of
any judgment or enter into any settlement without the consent of the IP
Indemnified Party if the effect thereof is to permit any injunction, declaratory
judgment, other order or other nonmonetary relief to be entered, directly or
indirectly, against the IP Indemnified Party. The IP Indemnified Party shall,
upon the IP Indemnifying Party's request and at the IP Indemnifying Party's
expense, furnish all information and assistance available to the IP Indemnified
Party 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 the IP Indemnifying Party under this
Section 5.9 shall extend to any such alleged infringement or violation to the
extent that it: (i) arises from adherence to design modifications,
specifications, drawings, or written instructions which the IP Indemnifying
Party was directed by the IP Indemnified Party to follow, but only if such
alleged infringement or violation does not reside in corresponding commercial
product, software or other material of the IP Indemnifying Party's design or
selection; or (ii) arises from adherence to instructions to apply the IP
Indemnified Party's trademark, trade name or other company identification; or
(iii) resides in a product, software or other material which are not of the IP
Indemnifying Party's origin and which are furnished by the IP Indemnified Party
to the IP Indemnifying Party for use as described in Section 5.9(a); or (iv)
relates to uses of product, software or other material provided by the IP
Indemnifying Party in combinations with other product, software or other
material, furnished either by the IP Indemnifying Party or others, which
combination was not installed, recommended or otherwise approved by the IP
Indemnifying Party. In the foregoing cases numbered (i) through (iv), the IP
Indemnified Party will defend and save the IP Indemnifying Party harmless,
subject to the same terms and conditions and exceptions stated above, with
respect to the IP Indemnifying Party's rights and obligations under this
section.
(e) The liability and rights of the IP Indemnifying Party and
the IP Indemnified Party 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 product, software or other material
furnished as described in Section 5.9(a) shall be limited to the specific
undertakings contained in this Section 5.9.
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:
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(a) CONTINGENT CLAIM COMMITTEE means a committee composed of
one representative designated from time to time by each of Lucent and Avaya that
shall be established in accordance with Section 6.6.
(b) CONTINGENT GAIN means any claim or other right of Lucent,
Avaya or any of their respective Affiliates, whenever arising, against any
Person other than Lucent, Avaya or any of their respective Affiliates, if and to
the extent that (i) such claim or right has accrued as of the Distribution Date
(based on then existing law) and (ii) the existence or scope of the obligation
of such other Person as of the Distribution Date was not acknowledged, fixed or
determined in any material respect, due to a dispute or other uncertainty as of
the Distribution Date or as a result of the failure of such claim or other right
to have been discovered or asserted as of the Distribution 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 Distribution Date with respect thereto. For purposes of the foregoing,
a claim or right shall be deemed to have accrued as of the Distribution Date if
all the elements of the claim necessary for its assertion shall have occurred on
or prior to the Distribution Date, such that the claim or right, were it
asserted in an Action on or prior to the Distribution Date, would not be
dismissed by a court on ripeness or similar grounds. Notwithstanding the
foregoing, none of (i) any Insurance Proceeds, (ii) any Excluded Assets, (iii)
any reversal of any litigation or other reserve, or (iv) any matters relating to
Taxes (which are governed by the Tax Sharing Agreement) shall be 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
Lucent, Avaya or any of their respective Affiliates, whenever arising, to any
Person other than Lucent, Avaya or any of their respective Affiliates, if and to
the extent that (i) such Liability has accrued as of the Distribution Date
(based on then existing law) and (ii) the existence or scope of the obligation
of Lucent, Avaya or any of their respective Affiliates as of the Distribution
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
Distribution Date or as a result of the failure of such Liability to have been
discovered or asserted as of the Distribution 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 Distribution Date and a portion of which accrues after the Distribution
Date, only that portion that had accrued as of the Distribution Date shall be
considered a Contingent Liability. For purposes of the foregoing, a Liability
shall be deemed to have accrued as of the Distribution 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 Distribution Date, such that the claim, were it
asserted in an Action on or prior to the Distribution 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 Distribution
Date, or to satisfy any obligation accrued under any Plan (as defined in the
Employee Benefits Agreement) as of the Distribution Date, shall be deemed to be
a Contingent Liability.
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(d) EXCESS PORTION means that portion, if any, of the
aggregate Value of all amounts actually paid by Lucent or Avaya (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 $50 million.
(e) EXCLUSIVE CONTINGENT LIABILITY means any Exclusive Lucent
Contingent Liability or Exclusive Avaya Contingent Liability.
(f) EXCLUSIVE AVAYA CONTINGENT GAIN means any Contingent Gain
if such Contingent Gain primarily relates to any Avaya Business (including any
Avaya Business included in the definition of an Exclusive Lucent Contingent Gain
within the meaning of the SDA Agreement), including the matters listed or
described on Schedule 6.1(f) hereto, or if such Contingent Gain is expressly
assigned to Avaya pursuant to this Agreement or any Ancillary Agreement.
(g) EXCLUSIVE LUCENT CONTINGENT GAIN means any Contingent Gain
if such Contingent Gain primarily relates to any Lucent Business(including any
Lucent Business included in the definition of an Exclusive Lucent Contingent
Gain within the meaning of the SDA Agreement), including the matters listed or
described on Schedule 6.1(g) hereto, or if such Contingent Gain is expressly
assigned to Lucent pursuant to this Agreement or any Ancillary Agreement.
(h) EXCLUSIVE AVAYA CONTINGENT LIABILITY means any Contingent
Liability if such Contingent Liability primarily relates to any Avaya Business
(including any Avaya Business included in the definition of an Exclusive Lucent
Contingent Liability within the meaning of the SDA Agreement) , including the
matters listed or described on Schedule 6.1(f) hereto, or if such Contingent
Liability is expressly assigned to Avaya pursuant to this Agreement or any
Ancillary Agreement.
(i) EXCLUSIVE LUCENT CONTINGENT LIABILITY means any Contingent
Liability if such Contingent Liability primarily relates to any Lucent Business
(including any Lucent Business included in the definition of an Exclusive Lucent
Contingent Liability within the meaning of the SDA Agreement) including the
matters listed or described on Schedule 6.1(g) hereto, or if such Contingent
Liability is expressly assigned to Lucent pursuant to this Agreement or any
Ancillary Agreement.
(j) 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); or
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(B) any Action that is brought or threatened
to be brought as a class action and that is settled; 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.
(k) SHARED CONTINGENT GAIN means any Contingent Gain that is
not an Exclusive Lucent Contingent Gain or an Exclusive Avaya Contingent Gain
including any Contingent Gain relating to, arising out of or resulting from the
matters set forth on Schedule 6.1(k).
(l) SHARED CONTINGENT LIABILITY means, without duplication:
(i) any Contingent Liability that is not an Exclusive
Lucent Contingent Liability or an Exclusive Avaya Contingent Liability;
(ii) any Liability (other than Taxes) relating to,
arising out of or resulting from any Other Discontinued Operations;
(iii) any Liability (other than Taxes) relating to,
arising out of or resulting from the matters set forth on Schedule 6.1(l); and
(iv) any Shared Contingent Liability within the
meaning of the SDA Agreement.
(m) SHARED AVAYA PERCENTAGE means [90]%.
(n) SHARED LUCENT PERCENTAGE means [10]%.
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(o) SHARED PERCENTAGE means the Shared Lucent Percentage or
the Shared Avaya Percentage, as the case may be.
(p) 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 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 other amounts recovered
(including by way of set off) from a third party in connection with any such
Action or threatened Action and (iv) 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 Avaya Balance Sheet or the audited
consolidated balance sheet of Lucent, including the notes thereto, as of
September 30, 1999 (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 Lucent and Avaya shall have sole and exclusive
right to any benefit received with respect to any Exclusive Lucent Contingent
Gain, or Exclusive Avaya Contingent Gain, respectively. Each of Lucent and Avaya
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 Lucent Contingent
Gain or Exclusive Avaya Contingent Gain, respectively.
(b) Any benefit that may be received from any Shared
Contingent Gain shall be shared among Lucent and Avaya in proportion to the
Shared Lucent Percentage and the Shared Avaya Percentage, respectively, and
shall be paid in accordance with Section 6.5. Notwithstanding the foregoing,
Lucent 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. Avaya shall not take, or permit any member of its Group to take, any
action (including commencing any claim) that would interfere with such rights
and powers of Lucent. Lucent shall use its reasonable efforts to notify Avaya 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
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rights on the part of Avaya against Lucent or affect any other provision of this
Section 6.2. Avaya acknowledges that Lucent 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 Avaya or any business reasons that
are in the best interests of Lucent or a member of the Lucent Group, without
regard to the best interests of any member of the Avaya Group) and that no
member of the Lucent Group shall have any liability to any Person (including any
member of the Avaya 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 Lucent Contingent Gain or an Exclusive Avaya Contingent Gain,
Lucent 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 Lucent commences any such prosecution or assertion and, upon
resolution of the dispute, it is determined hereunder that Avaya has the
exclusive right to such claim or right, Lucent shall, promptly upon the request
of Avaya, discontinue the prosecution or assertion of such right or claim and
transfer the control thereof to Avaya. In such event, Avaya will reimburse
Lucent for all costs and expenses, 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 Lucent or Avaya,
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, if the aggregate Value of all amounts paid by Lucent or Avaya (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 $50 million, each of Lucent
or Avaya, 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 Lucent Contingent
Liabilities, Lucent shall bear [90]% of such Excess Portion and Avaya shall bear
[10]% of such Excess Portion; and
(ii) in the case of Exclusive Avaya Contingent
Liabilities, Avaya shall bear 50% of such Excess Portion and Lucent shall bear
50% of such Excess Portion.
(c) In the event that after any payment is made by any party
to the other party in accordance with the allocation set forth in Section
6.3(b), either party or any member of such party's Group receives any Insurance
Proceeds 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 the other party of the receipt of such Insurance Proceeds or
otherwise and will promptly reimburse the other party for the amount of any
payment that such first party would not have
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been entitled to receive if it had received such Insurance Proceeds or obtained
such recovery 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 the other party if it becomes aware of one or more Exclusive Contingent
Liabilities or Related Exclusive Contingent Liabilities that may result in a
Value of $50 million or more; provided, however, that no failure to give any
such notice shall relieve the other party of any obligation pursuant to this
Agreement. In the event of any such notice, or if the other party otherwise
determines that any such risk may exist, the other party will be entitled at its
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, attorney work
product and other judicially recognized protections and privileges 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).
6.4. Shared Contingent Liabilities
(a) As set forth in Section 5.5(c) and subject to Section
5.5(g), Lucent 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 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 Lucent and Avaya 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 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
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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, Lucent
shall be entitled to reimbursement from Avaya in advance of a final
determination of any Action for amounts paid in respect of costs and expenses
related thereto, from time to time as such costs and expenses are paid. In the
case of any Shared Contingent Gain, Lucent shall be entitled to retain from the
amount of the Shared Contingent Gain otherwise payable to Avaya, Avaya's Shared
Percentage of the costs and expenses paid or incurred by or on behalf of any
member of the Lucent 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(f), 6.1(g) or
6.1(k) (regardless of whether such matters are currently pending but not set
forth on such Schedules or are asserted or filed hereafter), Lucent and Avaya
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 Lucent Contingent Gain or an Exclusive Avaya Contingent Gain;
(iii) any Liability is a Contingent Liability;
(iv) any Contingent Liability is a Shared Contingent
Liability, an Exclusive Lucent Contingent Liability or an Exclusive Avaya
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 if the Contingent Claim Committee reaches a
determination (which shall be made within 30 days of such referral), then that
determination 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 determination as to the nature or status of any such Contingent
Liabilities or Contingent Gains within 30 days after such referral, then the
issue will be submitted to the respective General
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Counsel of Lucent and Avaya for determination. If the General Counsel cannot
reach a determination, then the procedures set forth in Article IX of this
Agreement shall govern.
(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(f), 6.1(g) and
6.1(k), whether (i) any Contingent Gain is a Shared Contingent Gain, an
Exclusive Lucent Contingent Gain or an Exclusive Avaya Contingent Gain or (ii)
any Contingent Liability is a Shared Contingent Liability, an Exclusive Lucent
Contingent Liability or an Exclusive Avaya Contingent Liability, the
categorization of Contingent Gains and Contingent Liabilities reflected in
Schedules 6.1(f), 6.1(g) and 6.1(k) shall be considered and used as a
presumptive guide.
6.7. Certain Case Allocation Matters
The parties agree that if any Action not set forth on Schedule
6.1(f), 6.1(g) or 6.1(k) 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) 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 shall not apply to any separate and distinct claim
that is de minimis or frivolous in nature.
6.8. Termination of Certain Article VI Provisions
The provisions set forth in this Article VI related to sharing
of Contingent Gains, Contingent Liabilities and the Excess Portion of any
Exclusive Liability shall terminate on the third anniversary of the Distribution
Date except for (i) any claim or action pending or asserted by either party on
or prior to such termination, or (ii) any claim or action related to any matter
that has a statute of limitations that extends beyond such termination date. Any
claim or action referred to in (i) and (ii) above shall survive until the later
of the final determination applicable to any such claim or action or for the
applicable statute of limitations covering such claim or action.
ARTICLE VII
INTERIM OPERATIONS AND CERTAIN OTHER MATTERS
7.1. Insurance Matters
(a) Lucent and Avaya agree to cooperate in good faith to
provide for an orderly transition of insurance coverage for the treatment of any
Insurance Policies that will remain in effect following the Distribution Date on
a mutually agreeable basis. In no event shall Lucent, any other member of the
Lucent Group or any Lucent Indemnitee have liability or obligation whatsoever to
any member of the Avaya Group in the event that any Insurance Policy or other
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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 Avaya Group for any reason whatsoever or shall not be
renewed or extended beyond the current expiration date.
(b) (i) Except as otherwise provided in any Ancillary
Agreement, the parties intend by this Agreement that Avaya and each other member
of the Avaya Group be successors-in-interest to all rights that any member of
the Avaya Group may have as of the Distribution Date as a subsidiary, affiliate,
division or department of Lucent prior to the Distribution Date under any policy
of insurance issued to Lucent by any insurance carrier or under any agreements
related to such policies executed and delivered prior to the Distribution Date,
including any rights such member of the Avaya 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 Distribution Date. At the request of
Avaya, Lucent shall take all reasonable steps, including the execution and
delivery of any instruments, to effect the foregoing; provided, however that
Lucent shall not be required to pay any amounts, waive any rights or incur any
Liabilities in connection therewith.
(ii) Except as otherwise contemplated by any Ancillary
Agreement, after the Distribution Date, none of Lucent or Avaya 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 Avaya 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.
(c) 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 Lucent Group
in respect of any Insurance Policy or any other contract or policy of insurance.
(d) Avaya does hereby, for itself and each other member of the
Avaya Group, agree that no member of the Lucent Group or any Lucent Indemnitee
shall have any Liability whatsoever as a result of the insurance policies and
practices of Lucent and its Affiliates as in effect at any time prior to the
Distribution 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.
(e) Nothing in this Agreement shall be deemed to restrict any
member of the Avaya Group from acquiring at its own expense any other Insurance
policy in respect of any Liabilities or covering any period.
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7.2. Operating Financial Liabilities
(a) As between Lucent and Avaya, Avaya 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 Avaya OFL's. For purposes of this
Agreement, the term "Avaya OFL" means the OFL's listed or described on Schedule
7.2(a) and any other OFL's that are primarily related to, arise out of or result
from any Avaya Asset, Avaya Liability (including any Avaya Contract) or Avaya
Business or that were otherwise entered into in connection with the conduct of
the Avaya Business. The parties hereto acknowledge that there may be OFL's that
are Avaya OFL's that are not set forth or described on such Schedule 7.2(a)
because such OFL's were inadvertently excluded from such Schedule. As a result,
the parties agree to cooperate in good faith to supplement Schedule 7.2(a) as
any additional Avaya OFL's are identified. In the event that any OFL is so added
to such Schedule 7.2(a), Lucent will retroactively bill Avaya in accordance with
this Section 7.2 for any amount payable by any member of the Lucent Group on or
after the date hereof, and Lucent will retroactively credit Avaya in accordance
with this Section 7.2 for any amount paid to any member of the Lucent 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 Lucent Group, as the case may
be, to the date of settlement of such bill or credit, at the Lucent CP Rate that
would have been applicable if such Avaya OFL had originally been included on
Schedule 7.2(a), subject to increase pursuant to Section 7.2(c)(ii).
(b) (i) Lucent may, from time to time, set forth on Schedule
7.2(a) whether any Avaya OFL's are to be paid, performed, satisfied and
discharged directly by Avaya. Lucent may at any time or from time to time on at
least 30 days' written notice to Avaya, modify such Schedule 7.2(a) to change
whether any Avaya OFL shall thereafter be paid, performed, satisfied and
discharged directly by Avaya or by Lucent. Lucent shall, in the absence of any
default by Avaya under this Section 7.2, pay, or cause to be paid, all other
Avaya OFL's, and Avaya agrees to reimburse Lucent for such payments in
accordance with the terms of this Section 7.2. If Avaya is in default of any of
its obligations under this Section 7.2, Lucent shall no longer be required to
pay, or cause to be paid, any Avaya OFL's and Avaya shall be required directly
to pay, perform, satisfy and discharge such Avaya OFL's.
(ii) In the event that payments are made by a third
party under any Avaya OFL, if Avaya is not in default of any of its obligations
under this Section 7.2, (A) if any such payment is made to any member of the
Avaya Group, such member of the Avaya 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 Lucent Group, such member of the Lucent Group shall, at Lucent's election,
either remit any such amounts it receives to Avaya or net such amounts against
payments Lucent is then required to make under any other Avaya OFL or against
payments then owed (whether or not then due) to Lucent by Avaya hereunder.
(iii) In the event that payments are made by a third
party under any Avaya OFL, if Avaya is in default of any of its obligations
under this Section 7.2, (A) if any such payment is made to any member of the
Avaya Group, Avaya shall promptly remit any such
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payments to Lucent, and (B) if any such payment is made to any member of the
Lucent Group, Lucent shall be entitled (but not required, to apply any such
payments to satisfy, any such breach by Avaya, either, at Lucent's option) by
netting amounts then owed (whether or not then due) to Lucent by Avaya hereunder
or by paying over such monies in order to satisfy any obligation in respect of
any Avaya OFL.
(iv) In the event that payment or receipt of commodities
or other property is called for under any Avaya OFL, the parties will mutually
agree upon reasonable then current market-based valuations to convert such
payment or receipt into dollars, unless Avaya determines to make delivery or
take receipt under the Avaya OFL in commodities or property.
(c) (i) Lucent shall issue a statement to Avaya for the
payments due from or payable to Avaya pursuant to this Section 7.2 in respect of
any month by the tenth business day of the following month. Each such statement
shall set forth the Lucent CP Rate for the immediately preceding month. Interest
will accrue and be payable by Avaya on all amounts due pursuant to this section
7.2 in respect of Avaya OFL's at the Lucent 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 Lucent Group under any Avaya
OFL to the date of payment therefor to Lucent by Avaya. In the event payments
are due by Lucent to Avaya under this Section 7.2, Lucent will pay interest at
the Lucent CP Rate in effect for the month immediately preceding the month in
which the statement is issued from the date of receipt by Lucent under an Avaya
OFL to the date of payment by Lucent. All payments under this Section 7.2 shall
be in same day funds.
(ii) Avaya agrees to pay Lucent any amounts due (including
in respect of interest) within 10 days of receipt of each statement. Lucent will
remit to Avaya any payments (including in respect of interest) received by any
member of the Lucent Group under any Avaya OFL (to the extent not netted in
accordance with Section 7.2(b)) within 10 days of the date of statement. Any
amounts not paid when due shall bear interest at the Prime Pate plus 2% per
annum in lieu of the Lucent CP Rate.
(d) (i) Avaya may prepay (or effect the early termination) of
any Avaya OFL's provided that no additional Liability is thereby created for any
member of the Lucent Group other than any Liabilities that are fully discharged
and satisfied by Avaya simultaneously with such prepayment or early termination.
(ii) Without Lucent's written consent, Avaya will not
enter into or permit any amendment, modification or waiver of any provision of
any Avaya OFL; provided that Lucent 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 Lucent Group or otherwise adversely affect
any member of the Lucent 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 Avaya OFL.
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(iv) In the event that Avaya makes any payment in
respect of an Avaya OFL, Avaya will be subrogated to all rights of Lucent or any
member of the Lucent Group with respect to such Avaya OFL, including with
respect to collateral, to the extent of such payment.
7.3. Certain Business Matters
Subject to Section 2.15, 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.
7.4. 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%.
ARTICLE VIII
EXCHANGE OF INFORMATION; CONFIDENTIALITY
8.1. Agreement for Exchange of Information; Archives
(a) Each of Lucent and Avaya, 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, in each case other than claims or allegations that
one party to this Agreement has against the other or (iii) subject to clause
(ii) above, to comply with its obligations under this Agreement, any Ancillary
Agreement or any Avaya 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 Distribution Date, Avaya 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 Avaya Business that are
located in archives retained or maintained by Lucent.
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Avaya 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 Avaya shall cause any such objects to be returned promptly in the same
condition in which they were delivered to Avaya and Avaya 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 Lucent. Avaya shall pay the applicable fee or rate per hour
for archives research services (subject to increase from time to time to reflect
rates then in effect for Lucent generally). Nothing herein shall be deemed to
restrict the access of any member of the Lucent Group to any such documents or
objects or to impose any liability on any member of the Lucent Group if any such
documents or objects are not maintained or preserved by Lucent.
(c) After the date hereof, (i) each of Lucent and Avaya shall
maintain in effect at its own cost and expense adequate systems and controls to
the extent necessary to enable the members of the other Group to satisfy their
respective reporting, accounting, audit and other obligations, and (ii) each of
Lucent and Avaya shall provide, or cause to be provided, to the other in such
form as such other party shall request, at no charge to such other party, all
financial and other data and information as such other party determines
necessary or advisable in order to prepare its 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 Lucent as in effect on the Distribution Date
or such other policies as may be reasonably adopted by the applicable party
after the Distribution 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
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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, employee
benefits or to Environmental Liabilities, such period shall be extended to the
expiration of the applicable statute of limitations (giving effect to any
extensions thereof) ; provided further, however, that in the event that any such
Information is also subject to a retention requirement contained in any
Ancillary Agreement that is longer than the requirement contained in this
Section 8.4, then the requirement in such agreement shall supersede this Section
8.4.
8.5. Limitations 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 Distribution Date, except in the case of an
adversarial Action by one party against another party, 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 in connection therewith.
(b) If an Indemnifying Party or Lucent 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, the other
parties shall make available to such Indemnifying Party, Lucent 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
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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 party
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 employees 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 Lucent and Avaya, 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 Lucent's confidential and
proprietary information pursuant to policies in effect as of the Distribution
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 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.
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(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
DISPUTE RESOLUTION
9.1. Disputes
Except as otherwise specifically provided in any Ancillary
Agreement, the procedures for discussion, negotiation and mediation set forth in
this Article IX shall apply to all disputes, controversies or claims (whether
arising 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 Lucent Group and
the Avaya Group.
9.2. Escalation; Mediation
(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
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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) If the parties are not able to resolve the dispute,
controversy or claim through the escalation process referred to above, then the
matter shall be referred to mediation. The parties shall 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 other proceeding. 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 shall be a prerequisite to the commencement of
any action by either party.
9.3. Court Actions
(a) In the event that any party, after complying with the
provisions set forth in Section 9.2 above, desires to commence an Action, such
party may submit the dispute, controversy or claim (or such series of related
disputes, controversies or claims) to any court of competent jurisdiction.
(b) 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.
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 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 Ancillary Agreements.
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(b) Without limiting the foregoing, prior to, on and after the
Distribution Date, each party hereto shall cooperate with the other party, 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 Avaya Assets and
the assignment and assumption of the Avaya 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 Distribution Date, Lucent and Avaya 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 Lucent, Avaya or any other Subsidiary of
Lucent, as the case may be, to effectuate the transactions contemplated by this
Agreement. On or prior to the Distribution Date, Lucent and Avaya shall take all
actions as may be necessary to approve the stock-based employee benefit plans of
Avaya in order to satisfy the requirement of Rule 16b-3 under the Exchange Act.
(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) Lucent and Avaya, 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
Avaya or any member of the Avaya Group, on the one hand, or of Lucent or any
member of the Lucent Group, on the other hand, to provide any notification or
disclosure required under any state Environmental Law in connection with the
Contribution 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 Distribution 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,
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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. Qualifications as Tax-Free Distribution
After the Distribution Date, neither Lucent nor Avaya 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.
10.3. Changes in Avaya Stock Ownership Following the Distribution
(a) For each proposed Change in Avaya Stock Ownership
occurring during the two-year period following the Distribution after which the
Avaya Cumulative Ownership Change will exceed 25 percent, Avaya agrees that
prior to consummating such Change in Avaya Stock Ownership it will (i) notify
Lucent of such proposed agreement or plan, and (ii) not consummate such
agreement or plan unless (1) Lucent shall have obtained a Supplemental Ruling in
accordance with Section 6.5(e) of the Tax Sharing Agreement that the
consummation of such agreement or plan will not effect the treatment of the
Distribution under Section 355 of the Code; or (2) Avaya shall have obtained an
opinion of Cravath, Swaine & Moore (or other nationally recognized tax counsel
acceptable to Lucent) that the consummation of such agreement or plan will not
effect the treatment of the Distribution under Section 355 of the Code; or (3)
Lucent shall have waived the requirement to obtain such a ruling or opinion, or
(4) Avaya and the other party or parties to the proposed Change in Avaya Stock
Ownership shall have agreed to indemnify Lucent, on an after-tax basis, from and
against any and all tax liabilities that may be imposed on Lucent as a result of
the proposed Change in Avaya Stock Ownership, including, but not limited to, any
tax imposed under Section 355(e) of the Code, which indemnification is
acceptable to Lucent in its sole discretion and is supported with appropriate
credit assurance, such as an escrow or a line of credit. Notwithstanding the
foregoing, if a proposed Change in EN Stock Ownership is a result of
negotiations, discussions or similar transactions that occurred at any time
during the two-year period following the Distribution, then the preceding
sentence shall apply to each such proposed Change in EN Stock Ownership during
the three-year period following the Distribution.
(b) If Avaya notifies Lucent of a proposed agreement or plan
under this Section 10.3, Avaya and Lucent shall reasonably cooperate to attempt
to obtain the IRS ruling or opinion of counsel referred to in the preceding
sentence, unless Lucent shall have waived the requirement to obtain such ruling
or opinion.
(c) For all Changes in Avaya Stock Ownership occurring during
the two-year period following the Distribution after which the Avaya Cumulative
Ownership Change will not exceed 25 percent, Avaya agrees that within 30 days
after entering into an agreement or adopting a plan to consummate such Change in
Avaya Stock Ownership, it will notify Lucent of such agreement or plan and
provide Lucent with complete details as to how the proposed Change in Avaya
Stock Ownership will impact the Avaya Cumulative Ownership Change.
10.4. Compliance with Separation and Distribution Agreement
From and after the date hereof, Avaya agrees to comply with
and abide by the provisions of the SDA Agreement applicable to Avaya, including,
without limitation, Section
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2.16 thereof.
ARTICLE XI
TERMINATION
This Agreement may be terminated and the Distribution may be
amended, modified or abandoned at any time prior to the Distribution Date by and
in the sole discretion of Lucent without the approval of Avaya or the
stockholders of Lucent. In the event of such termination, no party shall have
any liability of any kind to any other party or any other Person. After the
Distribution Date, this Agreement may not be terminated except by an agreement
in writing signed by the parties.
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) Lucent represents on behalf of itself and each other
member of the Lucent Group and Avaya represents on behalf of itself and each
other member of the Avaya 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
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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 Lucent nor Avaya shall be required to take or omit
to take any act that would violate its fiduciary duties to any minority
stockholders of any non-wholly owned Subsidiary of Lucent or Avaya, 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
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 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
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.
12.4. Third Party Beneficiaries
Except for the indemnification rights under this Agreement of
any Lucent Indemnitee or Avaya 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.
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
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or (b) deposited in the United States mail or private express mail, postage
prepaid, addressed as follows:
If to Lucent, to: Lucent Technologies Inc.
600 Mountain Avenue
Murray Hill, New Jersey 07974
Attn: Chief Financial Officer
with a copy to: Lucent Technologies Inc.
600 Mountain Avenue
Murray Hill, New Jersey 07974
Attn: General Counsel
If to Avaya to: Avaya Inc.
211 Mount Airy Road
Basking Ridge, New Jersey 07920
Attn: Chief Financial Officer
with a copy to: Avaya Inc..
211 Mount Airy Road
Basking Ridge, NJ 07920
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
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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 and Avaya shall
consult with each other prior to issuing any press releases or otherwise making
public statements with respect to the Contribution, 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 otherwise provided herein, all third party fees,
costs and expenses paid or incurred in connection with the Distribution will be
paid by Avaya.
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 the Contribution and the Distribution and shall remain in
full force and effect.
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
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is waived. Any requirements for the securing or posting of any bond with such
remedy are waived.
12.14. Amendments
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.
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. 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 September 30, 2000, regardless of any amendment or restatement
hereof.
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IN WITNESS WHEREOF, the parties have caused this Contribution
and Distribution Agreement to be executed by their duly authorized
representatives.
LUCENT TECHNOLOGIES INC.
By:___________________________
Name:
Title:
AVAYA INC.
By:___________________________
Name:
Title:
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1
Exhibit 3.1
RESTATED
CERTIFICATE OF INCORPORATION
OF
AVAYA INC.
The original Certificate of Incorporation of the Corporation
was filed with the Secretary of State of the State of Delaware on February 16,
2000, under the name "Lucent EN Corp." On June 27, 2000, pursuant to a
Certificate of Ownership and Merger filed with the Secretary of State of the
State of Delaware, Avaya Inc., a Delaware corporation was merged with and into
Lucent EN Corp. The name of the surviving corporation was, as of that date,
changed to "Avaya Inc."
This Restated Certificate of Incorporation has been duly
proposed by resolutions adopted and declared advisable by the Board of Directors
of the Corporation, duly adopted by the sole stockholder of the Corporation and
duly executed and acknowledged by the officers of the Corporation in accordance
with Sections 103, 228, 242 and 245 of the General Corporation Law of the State
of Delaware.
The text of the Certificate of Incorporation is hereby amended
and restated to read in its entirety as follows:
ARTICLE I
Name
SECTION 1.01. The name of the Corporation (which is
hereinafter referred to as the "Corporation") is "Avaya Inc."
ARTICLE II
Registered Agent
SECTION 2.01. The address of the Corporation's registered
office in the State of Delaware is 1013 Centre Road, Wilmington, Delaware 19805.
The name of the Corporation's registered agent at such address is The United
States Corporation Company.
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ARTICLE III
Purpose
SECTION 3.01. The purpose of the Corporation shall be to
engage in any lawful act or activity for which corporations may be organized and
incorporated under the General Corporation Law of the State of Delaware (the
"DGCL").
ARTICLE IV
Capital Stock
SECTION 4.01. The Corporation shall be authorized to issue
1,700,000,000 shares of capital stock, of which 1,500,000,000 shares shall be
shares of common stock, $0.01 par value ("Common Stock"), and 200,000,000 shares
shall be shares of preferred stock, $1.00 par value ("Preferred Stock").
SECTION 4.02. The Preferred Stock may be issued from time to
time in one or more series. The Board of Directors of the Corporation (the
"Board of Directors" and each member thereof, a "Director") is hereby authorized
to provide for the issuance of shares of Preferred Stock in series and, by
filing a certificate pursuant to the DGCL (a "Preferred Stock Designation"), to
establish from time to time the number of shares to be included in each such
series, and to fix the designation, powers, privileges, preferences and rights
of the shares of each such series and the qualifications, limitations and
restrictions thereof. The authority of the Board of Directors with respect to
each series shall include, but not be limited to, determination of the
following:
(a) the designation of the series, which may be by
distinguishing number, letter or title;
(b) the number of shares of the series, which number the Board
of Directors may thereafter (except where otherwise provided in the Preferred
Stock Designation) increase or decrease (but not below the number of shares
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thereof then outstanding);
(c) whether dividends, if any, shall be cumulative or
noncumulative, and, in the case of shares of any series having cumulative
dividend rights, the date or dates or method of determining the date or dates
from which dividends on the shares of such series shall be cumulative;
(d) the rate of any dividends (or method of determining such
dividends) payable to the holders of the shares of such series, any conditions
upon which such dividends shall be paid and the date or dates or the method for
determining the date or dates upon which such dividends shall be payable;
(e) the price or prices (or method of determining such price
or prices) at which, the form of payment of such price or prices (which may be
cash, property or rights, including securities of the same or another
corporation or other entity) for which, the period or periods within which and
the terms and conditions upon which the shares of such series may be redeemed,
in whole or in part, at the option of the Corporation or at the option of the
holder or holders thereof or upon the happening of a specified event or events,
if any;
(f) the obligation, if any, of the Corporation to purchase or
redeem shares of such series pursuant to a sinking fund or otherwise and the
price or prices at which, the form of payment of such price or prices (which may
be cash, property or rights, including securities of the same or another
corporation or other entity) for which, the period or periods within which and
the terms and conditions upon which the shares of such series shall be redeemed
or purchased, in whole or in part, pursuant to such obligation;
(g) the amount payable out of the assets of the Corporation to
the holders of shares of the series in the event of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the Corporation;
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(h) provisions, if any, for the conversion or exchange of the
shares of such series, at any time or times at the option of the holder or
holders thereof or at the option of the Corporation or upon the happening of a
specified event or events, into shares of any other class or classes or any
other series of the same or any other class or classes of stock, or any other
security, of the Corporation, or any other corporation or other entity, and the
price or prices or rate or rates of conversion or exchange and any adjustments
applicable thereto, and all other terms and conditions upon which such
conversion or exchange may be made;
(i) restrictions on the issuance of shares of the same series
or of any other class or series, if any; and
(j) the voting rights, if any, of the holders of shares of the
series.
SECTION 4.03. The Common Stock shall be subject to the express
terms of the Preferred Stock and any series thereof. The holders of shares of
Common Stock shall be entitled to one vote for each such share upon all
proposals presented to the stockholders on which the holders of Common Stock are
entitled to vote. Except as otherwise provided by law or by the resolution or
resolutions adopted by the Board of Directors designating the rights, powers and
preferences of any series of Preferred Stock, the Common Stock shall have the
exclusive right to vote for the election of Directors and for all other
purposes, and holders of Preferred Stock shall not be entitled to receive notice
of any meeting of stockholders at which they are not entitled to vote. The
number of authorized shares of Preferred Stock may be increased or decreased
(but not below the number of shares thereof then outstanding) by the affirmative
vote of the holders of a majority of the outstanding Common Stock, without a
vote of the holders of the Preferred Stock, or of any series thereof, unless a
vote of any such holders is required pursuant to any Preferred Stock
Designation. The Corporation shall be entitled to treat the person in whose name
any share of its stock is registered as the owner
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thereof for all purposes and shall not be bound to recognize any equitable or
other claim to, or interest in, such share on the part of any other person,
whether or not the Corporation shall have notice thereof, except as expressly
provided by applicable law.
ARTICLE V
Stockholder Action
SECTION 5.01. Effective as of the time at which Lucent
Technologies Inc., a Delaware corporation, shall cease to be the beneficial
owner of an aggregate of at least a majority of the then outstanding shares of
Common Stock (the "Trigger Date"), any action required or permitted to be taken
by the stockholders of the Corporation must be effected at a duly called annual
or special meeting of such holders and may not be effected by any consent in
writing by such holders. Effective as of the Trigger Date, except as otherwise
required by law and subject to the rights of the holders of any class or series
of stock having a preference over the Common Stock as to dividends or upon
liquidation, special meetings of stockholders of the Corporation for any purpose
or purposes may be called only by the Board of Directors pursuant to a
resolution stating the purpose or purposes thereof approved by a majority of the
total number of Directors which the Corporation would have if there were no
vacancies (the "Whole Board") or by the Chairman of the Board of Directors and,
effective as of the Trigger Date, any power of stockholders to call a special
meeting is specifically denied. No business other than that stated in the notice
shall be transacted at any special meeting. Notwithstanding anything contained
in this Certificate of Incorporation to the contrary, the affirmative vote of
the holders of at least 80% of the voting power of all shares of the Corporation
entitled to vote generally in the election of Directors (the "Voting Stock")
then outstanding, voting together as a single class, shall be required to alter,
amend, adopt any provision inconsistent with or repeal this
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Article V.
ARTICLE VI
Election of Directors
SECTION 6.01. Unless and except to the extent that the By-laws
of the Corporation (the "By-laws") shall so require, the election of Directors
of the Corporation need not be by written ballot.
ARTICLE VII
Board of Directors
SECTION 7.01. Number, election and terms. Except as otherwise
fixed by or pursuant to the provisions of Article IV hereof relating to the
rights of the holders of any class or series of stock having a preference over
the Common Stock as to dividends or upon liquidation to elect additional
Directors under specified circumstances, the number of the Directors shall be
fixed from time to time exclusively pursuant to a resolution adopted by a
majority of the Whole Board (but shall not be less than three). The Directors,
other than those who may be elected by the holders of any class or series of
stock having a preference over the Common Stock as to dividends or upon
liquidation, shall be classified, with respect to the time for which they
severally hold office, into three classes, as nearly equal in number as
possible, one class to be originally elected for a term expiring at the first
annual meeting of stockholders following the effectiveness of this Restated
Certificate of Incorporation, another class to be originally elected for a term
expiring at the second annual meeting of stockholders following the
effectiveness of this Restated Certificate of Incorporation, and another class
to be originally elected for a term expiring at the third annual meeting of
stockholders following the effectiveness of this Restated Certificate of
Incorporation, with each class to hold office until its successor is duly
elected and qualified. At each annual
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meeting of stockholders, Directors elected to succeed those Directors whose
terms then expire shall be elected for a term of office to expire at the third
succeeding annual meeting of stockholders after their election, with each
Director to hold office until such person's successor shall have been duly
elected and qualified.
SECTION 7.02. Stockholder nomination of Director candidates;
Stockholder proposal of business. Advance notice of stockholder nominations for
the election of Directors and of the proposal of business by stockholders shall
be given in the manner provided in the By-laws, as amended and in effect from
time to time.
SECTION 7.03. Newly created directorships and vacancies.
Except as otherwise provided for or fixed by or pursuant to the provisions of
Article IV hereof relating to the rights of the holders of any class or series
of stock having a preference over the Common Stock as to dividends or upon
liquidation to elect Directors under specified circumstances, newly created
directorships resulting from any increase in the number of Directors and any
vacancies on the Board of Directors resulting from death, resignation,
disqualification, removal or other cause shall be filled by the affirmative vote
of a majority of the remaining Directors then in office, even though less than a
quorum of the Board of Directors, and not by the stockholders. Any Director
elected in accordance with the preceding sentence shall hold office until the
next succeeding annual meeting of shareholders following his election by the
Directors, and, if elected by the stockholders at such meeting, shall serve for
the remainder of the full term of the class of Directors in which the new
directorship was created or the vacancy occurred and until such Director's
successor shall have been duly elected and qualified. No decrease in the number
of Directors constituting the Board of Directors shall shorten the term of any
incumbent Director.
SECTION 7.04. Removal. Subject to the rights of any class or
series of stock having a preference over the Common Stock as to dividends or
upon liquidation to elect Directors under specified circumstances, any Director
may be removed from office only for cause by the affirmative vote of the holders
of at least a majority of the voting power of all Voting Stock then outstanding,
voting together as a single class.
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SECTION 7.05. Amendment, repeal, etc. Notwithstanding anything
contained in this Certificate of Incorporation to the contrary, the affirmative
vote of the holders of at least 80% of the voting power of all Voting Stock then
outstanding, voting together as a single class, shall be required to alter,
amend, adopt any provision inconsistent with or repeal this Article VII.
ARTICLE VIII
By-laws
SECTION 8.01. The By-laws may be altered or repealed and new
By-laws may be adopted (a) at any annual or special meeting of stockholders, by
the affirmative vote of the holders of a majority of the voting power of the
Voting Stock then outstanding, voting together as a single class; provided,
however, that any proposed alteration or repeal of, or the adoption of any
By-law inconsistent with, Section 2.02 or 2.07 of the By-laws or this sentence,
by the stockholders shall require the affirmative vote of the holders of at
least 80% of the voting power of all Voting Stock then outstanding, voting
together as a single class; provided, further, however, that in the case of any
such stockholder action at a special meeting of stockholders, notice of the
proposed alteration, repeal or adoption of the new By-law or By-laws must be
contained in the notice of such special meeting, or (b) by the affirmative vote
of a majority of the Whole Board. Notwithstanding anything contained in this
Certificate of Incorporation to the contrary, the affirmative vote of the
holders of at least 80% of the voting power of all Voting Stock then
outstanding, voting together as a single class shall be required to alter,
amend, adopt any provision inconsistent with or repeal this Article VIII.
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ARTICLE IX
Amendment of Certificate of Incorporation
SECTION 9.01. The Corporation reserves the right at any time
from time to time to amend, alter, change or repeal any provision contained in
this Certificate of Incorporation, and any other provisions authorized by the
laws of the State of Delaware at the time in force may be added or inserted, in
the manner now or hereafter prescribed by law; and, except as set forth in
Article X, all rights, preferences and privileges of whatsoever nature conferred
upon stockholders, Directors or any other persons whomsoever by and pursuant to
this Certificate of Incorporation in its present form or as hereafter amended
are granted subject to the right reserved in this Article. Notwithstanding
anything contained in this Certificate of Incorporation to the contrary, the
affirmative vote of the holders of at least 80% of the Voting Stock then
outstanding, voting together as a single class, shall be required to alter,
amend, adopt any provision inconsistent with or repeal Article V, VII, VIII or
this sentence.
ARTICLE X
Limited Liability; Indemnification
SECTION 10.01. Limited Liability of Directors. A Director
shall not be personally liable to the Corporation or its stockholders for
monetary damages for breach of fiduciary duty as a Director, except, if required
by the DGCL, as amended from time to time, for liability (a) for any breach of
the Director's duty of loyalty to the Corporation or its stockholders, (b) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (c) under Section 174 of the DGCL, or (d) for any
transaction from which the Director derived an improper personal benefit.
Neither the amendment nor repeal of this Section 10.01 shall eliminate or reduce
the effect of this Section 10.01 in respect of any matter occurring, or any
cause of action, suit or claim that, but for this Section 10.01 would accrue or
arise, prior to such amendment or repeal.
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SECTION 10.02. Indemnification and Insurance. (a) Right to
Indemnification. Each person who was or is made a party or is threatened to be
made a party to or is involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative (hereinafter a "proceeding"), by
reason of the fact that such person, or a person of whom such person is the
legal representative, is or was a Director or officer of the Corporation or,
while a Director or officer of the Corporation, is or was serving at the request
of the Corporation as a Director, officer, employee or agent of another
corporation or of a partnership, joint venture, trust or other enterprise,
including service with respect to employee benefit plans, whether the basis of
such proceeding is alleged action in an official capacity as a Director,
officer, employee or agent or in any other capacity while serving as a Director,
officer, employee or agent, shall be indemnified and held harmless by the
Corporation to the fullest extent authorized by the DGCL, as the same exists or
may hereafter be amended, against all expense, liability and loss (including
attorneys' fees, judgments, fines, amounts paid or to be paid in settlement, and
excise taxes or penalties arising under the Employee Retirement Income Security
Act of 1974, as in effect from time to time) reasonably incurred or suffered by
such person in connection therewith and such indemnification shall continue as
to a person who has ceased to be a Director, officer, employee or agent and
shall inure to the benefit of such person's heirs, executors and administrators;
provided, however, that, except as provided in paragraph (b) hereof, the
Corporation shall indemnify any such person seeking indemnification in
connection with a proceeding (or part thereof) initiated by such person only if
such proceeding (or part thereof) was authorized by the Board of Directors. The
Corporation shall pay the expenses incurred in defending any such proceeding in
advance of its final disposition; any advance payments to be paid by the
Corporation within 20 calendar days after the receipt by the Corporation of a
statement or statements from the claimant requesting such advance or advances
from time to time; provided, however, that, if and to the extent the DGCL
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requires, the payment of such expenses incurred by a Director or officer in such
person's capacity as a Director or officer (and not in any other capacity in
which service was or is rendered by such person while a Director or officer,
including, without limitation, service to an employee benefit plan) in advance
of the final disposition of a proceeding, shall be made only upon delivery to
the Corporation of an undertaking, by or on behalf of such Director or officer,
to repay all amounts so advanced if it shall ultimately be determined that such
Director or officer is not entitled to be indemnified under this Section 10.02
or otherwise. The Corporation may, to the extent authorized from time to time by
the Board of Directors, grant rights to indemnification, and rights to have the
Corporation pay the expenses incurred in defending any proceeding in advance of
its final disposition, to any employee or agent of the Corporation to the
fullest extent of the provisions of this Article with respect to the
indemnification and advancement of expenses of Directors and officers of the
Corporation.
(b) Right of Claimant to Bring Suit. If a claim under
paragraph (a) of this Section 10.02 is not paid in full by the Corporation
within 30 calendar days after a written claim has been received by the
Corporation, the claimant may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim and, if successful in
whole or in part, the claimant shall be entitled to be paid also the expense of
prosecuting such claim. It shall be a defense to any such action (other than an
action brought to enforce a claim for expenses incurred in defending any
proceeding in advance of its final disposition where the required undertaking,
if any is required, has been tendered to the Corporation) that the claimant has
not met the standard of conduct which makes it permissible under the DGCL for
the Corporation to indemnify the claimant for the amount claimed, but the burden
of proving such defense shall be on the Corporation. Neither the failure of the
Corporation (including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of
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such action that indemnification of the claimant is proper in the circumstances
because the claimant has met the applicable standard of conduct set forth in the
DGCL, nor an actual determination by the Corporation (including its Board of
Directors, independent legal counsel, or its stockholders) that the claimant has
not met such applicable standard of conduct, shall be a defense to the action or
create a presumption that the claimant has not met the applicable standard of
conduct.
(c) Non-Exclusivity of Rights. The right to indemnification
and the payment of expenses incurred in defending a proceeding in advance of its
final disposition conferred in this Section 10.02 shall not be exclusive of any
other right which any person may have or hereafter acquire under any statute,
provision of the Certificate of Incorporation, By-law, agreement, vote of
stockholders or disinterested Directors or otherwise. No repeal or modification
of this Article shall in any way diminish or adversely affect the rights of any
Director, officer, employee or agent of the Corporation hereunder in respect of
any occurrence or matter arising prior to any such repeal or modification.
(d) Insurance. The Corporation may maintain insurance, at its
expense, to protect itself and any Director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust or other
enterprise against any such expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under the DGCL.
(e) Severability. If any provision or provisions of this
Article X shall be held to be invalid, illegal or unenforceable for any reason
whatsoever: (i) the validity, legality and enforceability of the remaining
provisions of this Article X (including, without limitation, each portion of any
paragraph of this Article X containing any such provision held to be invalid,
illegal or unenforceable, that is not itself held to be invalid, illegal or
unenforceable) shall not in any way be affected or impaired thereby; and
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(ii) to the fullest extent possible, the provisions of this Article X
(including, without limitation, each such portion of any paragraph of this
Article X containing any such provision held to be invalid, illegal or
unenforceable) shall be construed so as to give effect to the intent manifested
by the provision held invalid, illegal or unenforceable.
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IN WITNESS WHEREOF, the Corporation has caused this Restated
Certificate of Incorporation to be signed by its Vice President and General
Counsel and attested by its Assistant Secretary this [-] day of [-] 2000.
-----------------------
Name: Pamela F. Craven
Title: Vice President and General Counsel
-----------------------
Name: Margaret G. Gelsi
Title: Assistant Secretary this [-] day of [-], 2000.
1
Exhibit 3.2
AMENDED AND RESTATED BY-LAWS
OF
AVAYA INC.
(formerly known as Lucent EN Corp.)
ARTICLE I
Offices And Records
SECTION 1.01. Delaware Office. The principal office of the
Avaya Inc. (the "Corporation") in the State of Delaware shall be located in the
City of Wilmington, County of New Castle, and the name and address of its
registered agent is The United States Corporation Company.
SECTION 1.02. Other Offices. The Corporation may have such
other offices, either within or without the State of Delaware, as the board of
directors of the Corporation (the "Board of Directors", and each member thereof,
a "Director") may designate or as the business of the Corporation may from time
to time require.
SECTION 1.03. Books and Records. The books and records of the
Corporation may be kept outside the State of Delaware at such place or places as
may from time to time be designated by the Board of Directors.
ARTICLE II
Stockholders
SECTION 2.01. Annual Meeting. The annual meeting
of the stockholders of the Corporation shall be held on such
date and at such time as may be fixed by resolution of the
Board of Directors.
SECTION 2.02. Special Meeting. Except as otherwise required by
law and subject to the rights of the holders of any class or series of stock
having a preference over the common stock, par value $0.01 per share, of the
Corporation (the "Common Stock") as to dividends or upon liquidation, special
meetings of stockholders of the
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Corporation for any purpose or purposes may be called only by (a) the Board of
Directors pursuant to a resolution stating the purpose or purposes thereof
approved by a majority of the total number of Directors which the Corporation
would have if there were no vacancies (the "Whole Board"), or (b) by the
Chairman of the Board of Directors (the "Chairman of the Board"). In addition,
prior to the Trigger Date (as defined in the Restated Certificate of
Incorporation of the Corporation (the "Certificate of Incorporation"), the
Corporation will call a special meeting of stockholders promptly upon request by
Lucent Technologies Inc., a Delaware corporation ("Lucent") if such entity is a
stockholder of the Corporation. No business other than that stated in the notice
shall be transacted at any special meeting.
SECTION 2.03. Place of Meeting. The Board of Directors or the
Chairman of the Board, as the case may be, may designate the place, if any, of
meeting for any annual meeting or for any special meeting of the stockholders.
If no designation is so made, the place of meeting shall be the principal office
of the Corporation.
SECTION 2.04. Notice of Meeting. Notice, stating the place,
day and hour of the meeting and the purpose or purposes for which the meeting is
called, shall be delivered by the Corporation not less than 10 calendar days nor
more than 60 calendar days before the date of the meeting, either personally, by
mail or by other lawful means, to each stockholder of record entitled to vote at
such meeting. If mailed, such notice shall be deemed to be delivered when
deposited in the United States mail with postage thereon prepaid, addressed to
the stockholder at such person's address as it appears on the stock transfer
books of the Corporation. Such further notice shall be given as may be required
by law. Only such business shall be conducted at a special meeting of
stockholders as shall have been brought before the meeting pursuant to the
Corporation's notice of meeting. Meetings may be held without notice if all
stockholders entitled to notice are present (except when stockholders entitled
to notice attend the meeting for the express purpose of objecting, at the
beginning of the
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meeting, because the meeting is not lawfully called or convened), or if notice
is waived by those not present in accordance with Section 6.04. Any previously
scheduled meeting of the stockholders may be postponed, and any special meeting
of the stockholders may be canceled, by resolution of the Board of Directors
upon public notice given prior to the date previously scheduled for such meeting
of stockholders.
SECTION 2.05. Quorum and Adjournment; Voting. Except as
otherwise provided by law or by the Certificate of Incorporation, the holders of
a majority of the voting power of all outstanding shares of the Corporation
entitled to vote generally in the election of Directors (the "Voting Stock"),
represented in person or by proxy, shall constitute a quorum at a meeting of
stockholders, except that when specified business is to be voted on by a class
or series of stock voting as a class, the holders of a majority of the shares of
such class or series shall constitute a quorum of such class or series for the
transaction of such business. The chairman of the meeting may adjourn the
meeting from time to time, whether or not there is such a quorum. No notice of
the time and place of adjourned meetings need be given except as required by
law. The stockholders present at a duly called meeting at which a quorum is
present may continue to transact business until adjournment, notwithstanding the
withdrawal of enough stockholders to leave less than a quorum.
SECTION 2.06. Proxies. At all meetings of stockholders, a
stockholder may vote by proxy executed in writing (or in such manner prescribed
by the General Corporation Law of the State of Delaware (the "DGCL")) by the
stockholder, or by such person's duly authorized attorney in fact.
SECTION 2.07. Notice of Stockholder Business and
Nominations.
(a) Annual Meetings of Stockholders.
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(i) Nominations of persons for election to the Board of Directors and the
proposal of business to be considered by the stockholders may be made at an
annual meeting of stockholders (A) pursuant to the Corporation's notice of
meeting pursuant to Section 2.04, (B) by or at the direction of the Board of
Directors, (C) by any stockholder of the Corporation who was a stockholder of
record at the time of giving of 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, or (D) prior to the Trigger Date, by Lucent.
(ii) For nominations or other business to be properly brought
before an annual meeting by a stockholder pursuant to clause (C) of paragraph
(a)(i) of this Section 2.07, the stockholder must have given timely notice
thereof in writing to the Secretary of the Corporation and such other business
must otherwise be a proper matter for stockholder action. To be timely, a
stockholder's notice shall be delivered to the Secretary of the Corporation at
the principal executive offices of the Corporation not later than the close of
business on the 45th calendar day nor earlier than the close of business on the
75th calendar day prior to the first anniversary of the preceding year's annual
meeting; provided, however, that in the event that the date of the annual
meeting is more than 30 calendar days before or more than 60 calendar days after
such anniversary date, notice by the stockholder to be timely must be so
delivered not earlier than the close of business on the 75th calendar day prior
to such annual meeting and not later than the close of business on the later of
the 45th calendar day prior to such annual meeting or the 10th calendar day
following the calendar day on which public announcement of the date of such
meeting is first made by the Corporation. For purposes of determining whether a
stockholder's notice shall have been delivered in a timely manner for the annual
meeting of stockholders in 2001, the first anniversary of the previous year's
meeting shall be deemed to be [March -, 2001]. In no event shall the public
announcement of an adjournment of an annual meeting commence a new time period
for the giving of a stockholder's notice as described above. Such stockholder's
notice shall set
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forth (A) as to each person whom the stockholder proposes to nominate for
election or reelection as a Director all information relating to such person
that is required to be disclosed in solicitations of proxies for election of
Directors in an election contest, or is otherwise required, in each case
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended
(the "Exchange Act") and Rule 14a-11 thereunder (including such person's written
consent to being named in the proxy statement as a nominee and to serving as a
Director if elected); (B) as to any other business that the stockholder proposes
to bring before the meeting, a brief description of the business desired to be
brought before the meeting, the text of the proposal or business (including the
text of any resolutions proposed for consideration and in the event that such
business includes a proposal to amend these By-Laws, the language of the
proposed amendment), the reasons for conducting such business at the meeting and
any material interest in such business of such stockholder and the beneficial
owner, if any, on whose behalf the proposal is made; and (C) as to the
stockholder giving the notice and the beneficial owner, if any, on whose behalf
the nomination or proposal is made (1) the name and address of such stockholder,
as they appear on the Corporation's books, and of such beneficial owner, (2) the
class and number of shares of the Corporation which are owned beneficially and
of record by such stockholder and such beneficial owner, (3) a representation
that the stockholder is a holder of record of stock of the Corporation entitled
to vote at such meeting and intends to appear in person or by proxy at the
meeting to propose such business or nomination, and (4) a representation whether
the stockholder or the beneficial owner, if any, intends or is part of a group
which intends (x) to deliver a proxy statement and/or form of proxy to holders
of at least the percentage of the Corporation's outstanding capital stock
required to approve or adopt the proposal or elect the nominee and/or (y)
otherwise to solicit proxies from stockholders in support of such proposal or
nomination. The foregoing notice requirements shall be deemed satisfied by a
stockholder if the stockholder has notified the Corporation
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of his or her intention to present a proposal at an annual meeting in compliance
with Rule 14a-8 (or any successor thereof) promulgated under the Exchange Act
and such stockholder's proposal has been included in a proxy statement that has
been prepared by the Corporation to solicit proxies for such annual meeting. The
Corporation may require any proposed nominee to furnish such other information
as it may reasonably require to determine the eligibility of such proposed
nominee to serve as a Director.
(iii) Notwithstanding anything in the second sentence of
paragraph (a)(ii) of this Section 2.07 to the contrary, in the event that the
number of Directors to be elected to the Board of Directors is increased and
there is no public announcement by the Corporation naming all of the nominees
for Director or specifying the size of the increased Board of Directors at least
55 calendar days prior to the first anniversary of the preceding year's annual
meeting, a stockholder's notice required by this By-Law shall also be considered
timely, but only with respect to nominees for any new positions created by such
increase, if it shall be delivered to the Secretary at the principal executive
offices of the Corporation not later than the close of business on the 10th
calendar day following the day on which such public announcement is first made
by the Corporation.
(b) Special Meetings of Stockholders. Only such business shall
be conducted at a special meeting of stockholders as shall have been brought
before the meeting pursuant to the Corporation's notice of meeting under Section
2.04. Nominations of persons for election to the Board of Directors may be made
at a special meeting of stockholders at which Directors are to be elected
pursuant to the Corporation's notice of meeting (i) by or at the direction of
the Board of Directors, (ii) provided that the Board of Directors has determined
that Directors shall be elected at such meeting, by any stockholder of the
Corporation who is a stockholder of record at the time of giving of notice
provided for in this By-Law, who shall be
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entitled to vote at the meeting and who complies with the notice procedures set
forth in this By-Law, or prior to the Trigger Date, by Lucent. In the event the
Corporation calls a special meeting of stockholders for the purpose of electing
one or more Directors to the Board of Directors, any stockholder may nominate a
person or persons (as the case may be), for election to such position(s) as
specified in the Corporation's notice of meeting pursuant to such clause (ii),
if the stockholder's notice required by paragraph (a)(ii) of this Section 2.07
shall be delivered to the Secretary at the principal executive offices of the
Corporation not earlier than the close of business on the 120th calendar day
prior to such special meeting and not later than the close of business on the
later of the 90th calendar day prior to such special meeting or the 10th
calendar day following the day on which public announcement is first made of the
date of the special meeting and of the nominees proposed by the Board of
Directors to be elected at such meeting. In no event shall the public
announcement of an adjournment of a special meeting commence a new time period
for the giving of a stockholder's notice as described above.
(c) General. (i) Only such persons who are nominated in
accordance with the procedures set forth in this Section 2.07 shall be eligible
to serve as Directors and only such business shall be conducted at a meeting of
stockholders as shall have been brought before the meeting in accordance with
the procedures set forth in this By-Law. Except as otherwise provided by law,
the Certificate of Incorporation or these By-Laws, the chairman of the meeting
shall have the power and duty to determine whether a nomination or any business
proposed to be brought before the meeting was made or proposed, as the case may
be, in accordance with the procedures set forth in this Section 2.07 (including
whether the stockholder or beneficial owner, if any, on whose behalf the
nomination or proposal is made solicited (or is part of a group which solicited)
or did not so solicit, as the case maybe, proxies in support of such
stockholder's nominee or proposal in compliance with such stockholder's
representation as required by clause (a)(ii)(C)(4) of this Section 2.07) and,
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if any proposed nomination or business is not in compliance with this By-Law, to
declare that such defective proposal or nomination shall be disregarded.
Notwithstanding the foregoing provisions of this Section 2.07, if the
stockholder (or a qualified representative of the stockholder) does not appear
at the annual or special meeting of stockholders of the Corporation to present a
nomination or business, such nomination shall be disregarded and such proposed
business shall not be transacted, notwithstanding that proxies in respect of
such vote may have been received by the Corporation.
(ii) For purposes of this By-Law, "public announcement" shall
mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the Corporation with the Securities and Exchange Commission pursuant to
Section 13, 14 or 15 (d) of the Exchange Act.
(iii) Notwithstanding the foregoing provisions of this Section
2.07, a stockholder shall also comply with all applicable requirements of the
Exchange Act and the rules and regulations thereunder with respect to the
matters set forth in this Section 2.07. Nothing in this Section 2.07 shall be
deemed to affect any rights (a) of stockholders to request inclusion of
proposals in the Corporation's proxy statement pursuant to Rule 14a-8 under the
Exchange Act or (b) of the holders of any series of preferred stock of the
Corporation ("Preferred Stock") to elect Directors under an applicable Preferred
Stock Designation (as defined in the Certificate of Incorporation).
SECTION 2.08. Procedure for Election of Directors; Required
Vote. Election of Directors at all meetings of the stockholders at which
Directors are to be elected shall be by ballot, and, subject to the rights of
the holders of any series of Preferred Stock to elect Directors under an
applicable Preferred Stock Designation, a plurality of the votes cast thereat
shall elect Directors.
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Except as otherwise provided by law, the Certificate of Incorporation, Preferred
Stock Designation, applicable stock exchange rules or other rules and
regulations applicable to the Corporation or these By-Laws, in all matters other
than the election of Directors, the affirmative vote of a majority of the voting
power of the shares present in person or represented by proxy at the meeting and
entitled to vote on the matter shall be the act of the stockholders.
SECTION 2.09. Inspectors of Elections; Opening and Closing the
Polls. (a) The Board of Directors by resolution shall appoint, or shall
authorize an officer of the Corporation to appoint, one or more inspectors,
which inspector or inspectors may include individuals who serve the Corporation
in other capacities, including, without limitation, as officers, employees,
agents or representatives, to act at the meetings of stockholders and make a
written report thereof. One or more persons may be designated as alternate
inspector(s) to replace any inspector who fails to act. If no inspector or
alternate has been appointed to act or is able to act at a meeting of
stockholders, the chairman of the meeting shall appoint one or more inspectors
to act at the meeting. Each inspector, before discharging such person's duties,
shall take and sign an oath faithfully to execute the duties of inspector with
strict impartiality and according to the best of such person's ability. The
inspector(s) shall have the duties prescribed by law.
(b) The date and time of the opening and the closing of the
polls for each matter upon which the stockholders will vote at a meeting shall
be announced at the meeting by the person presiding over the meeting. The Board
of Directors may adopt by resolution such rules and regulations for the conduct
of the meeting of stockholders as it shall deem appropriate. Except to the
extent inconsistent with such rules and regulations as adopted by the Board of
Directors, the person presiding over any meeting of stockholders shall have the
right and authority to convene and to adjourn the meeting, to prescribe such
rules, regulations and procedures and to do all such acts as, in the judgment of
such presiding officer, are
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appropriate for the proper conduct of the meeting. Such rules, regulations or
procedures, whether adopted by the Board of Directors or prescribed by the
presiding officer of the meeting, may include, without limitation, the
following: (i) an agenda or order of business for the meeting; (ii) rules and
procedures for maintaining order at the meeting and the safety of those present;
(iii) limitations on attendance at or participation in the meeting to
stockholders of record of the Corporation, their duly authorized and constituted
proxies or such other persons as the chairman of the meeting shall determine;
(iv) restrictions on entry to the meeting after the time fixed for the
commencement thereof; and (v) limitations on the time allotted to questions or
comments by participants. The presiding officer at any meeting of stockholders,
in addition to making any other determinations that may be appropriate to the
conduct of the meeting, shall, if the facts warrant, determine and declare to
the meeting that a matter or business was not properly brought before the
meeting and if such presiding officer should so determine, such person shall so
declare to the meeting that any such matter or business not properly brought
before the meeting shall not be transacted or considered. Unless and to the
extent determined by the Board of Directors or the person presiding over the
meeting, meetings of stockholders shall not be required to be held in accordance
with the rules of parliamentary procedure.
ARTICLE III
Board of Directors
SECTION 3.01. General Powers. The business and affairs of the
Corporation shall be managed by or under the direction of the Board of
Directors. In addition to the powers and authorities by these By-Laws expressly
conferred upon them, the Board of Directors may exercise all such powers of the
Corporation and do all such lawful acts and things as are not by statute or by
the Certificate of Incorporation or by these By-Laws required to be exercised
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or done by the stockholders.
SECTION 3.02. Regular Meetings. A regular meeting of the Board
of Directors shall be held without other notice than this By-Law in conjunction
with the annual meeting of stockholders. The Board of Directors may, by
resolution, provide the time and place for the holding of additional regular
meetings without other notice than such resolution.
SECTION 3.03. Special Meetings. Special meetings of the Board
of Directors shall be called at the request of the Chairman of the Board, the
President or a majority of the Board of Directors then in office. The person or
persons authorized to call special meetings of the Board of Directors may fix
the place and time of the meetings.
SECTION 3.04. Notice. Notice of any special meeting of
Directors shall be given to each Director at such person's business or residence
in writing by hand delivery, first-class or overnight mail or courier service,
telegram or facsimile transmission, orally by telephone or any other lawful
means. If mailed by first-class mail, such notice shall be deemed adequately
delivered when deposited in the United States mails so addressed, with postage
thereon prepaid, at least 5 calendar days before such meeting. If by telegram,
overnight mail or courier service, such notice shall be deemed adequately
delivered when the telegram is delivered to the telegraph company or the notice
is delivered to the overnight mail or courier service company at least 24 hours
before such meeting. If by facsimile transmission, such notice shall be deemed
delivered adequately delivered when the notice is transmitted at least 12 hours
before such meeting. If by telephone, by hand delivery or by other lawful means,
the notice shall be given at least 12 hours prior to the time set for the
meeting. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the Board of Directors need be specified in the
notice of such meeting, except for amendments to these By-Laws, as provided
under Section 8.01. A meeting may be held at any time without notice if all the
Directors are present (except when Directors attend for the
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express purpose of objecting, at the beginning of the meeting, because it is not
lawfully called or conveyed) or if those not present waive notice of the meeting
either before or after such meeting.
SECTION 3.05. Action By Consent of Board of Directors. Any
action required or permitted to be taken at any meeting of the Board of
Directors or of any committee thereof may be taken without a meeting if all
members of the Board of Directors or committee, as the case may be, consent
thereto in accordance with applicable law.
SECTION 3.06. Conference Telephone Meetings. Members of the
Board of Directors or any committee thereof may participate in a meeting of the
Board of Directors or such committee by means of conference telephone or other
communications equipment by means of which all persons participating in the
meeting can hear each other, and such participation in a meeting shall
constitute presence in person at such meeting.
SECTION 3.07. Quorum. Subject to Article VII of the
Certificate of Incorporation, a whole number of Directors equal to at least a
majority of the Whole Board shall constitute a quorum for the transaction of
business, but if at any meeting of the Board of Directors there shall be less
than a quorum present, a majority of the Directors present may adjourn the
meeting from time to time without further notice. The act of the majority of the
Directors present at a meeting at which a quorum is present shall be the act of
the Board of Directors.
SECTION 3.08. Executive and Other Committees. (a) The Board of
Directors may designate an Executive Committee to exercise, subject to
applicable provisions of law, all the powers of the Board of Directors in the
management of the business and affairs of the Corporation when the Board of
Directors is not in session, including without limitation the power to declare
dividends, to authorize the issuance of the Corporation's capital stock
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and to adopt a certificate of ownership and merger pursuant to Section 253 of
the DGCL, by resolution similarly adopted, designate one or more other
committees. The Executive Committee and each such other committee shall consist
of one or more Directors. The Board of Directors may designate one or more
Directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. Any such committee, other
than the Executive Committee (the powers of which are expressly provided for
herein), may to the extent permitted by law exercise such powers and shall have
such responsibilities as shall be specified in the designating resolution. In
the absence or disqualification of any member of such committee or committees,
the member or members thereof present at any meeting and not disqualified from
voting, whether or not constituting a quorum, may unanimously appoint another
member of the Board of Directors to act at the meeting in the place of any such
absent or disqualified member. Each committee shall keep written minutes of its
proceedings and shall report such proceedings to the Board of Directors when
required.
(b) A majority of any committee may determine its action and
fix the time and place of its meetings, unless the Board of Directors shall
otherwise provide. Notice of such meetings shall be given to each member of the
committee in the manner provided for in Section 3.05. The Board of Directors
shall have power at any time to fill vacancies in, to change the membership of,
or to dissolve any such committee. Nothing herein shall be deemed to prevent the
Board of Directors from appointing one or more committees consisting in whole or
in part of persons who are not Directors; provided, however, that no such
committee shall have or may exercise any authority of the Board of Directors.
SECTION 3.09. Records. The Board of Directors shall cause to
be kept a record containing the minutes of the proceedings of the meetings of
the Board of Directors and of the stockholders, appropriate stock books and
registers and such books of records and accounts as may be necessary for the
proper conduct of the business of the
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Corporation.
ARTICLE IV
Officers
SECTION 4.01. Elected Officers. The elected officers of the
Corporation shall be a Chairman of the Board, a President, a Secretary, a
Treasurer, and such other officers (including, without limitation, Senior Vice
Presidents and Executive Vice Presidents and Vice Presidents) as the Board of
Directors from time to time may deem proper. The Chairman of the Board shall be
chosen from among the Directors. All officers elected by the Board of Directors
shall each have such powers and duties as generally pertain to their respective
offices, subject to the specific provisions of this Article IV. Such officers
shall also have such powers and duties as from time to time may be conferred by
the Board of Directors or by any committee thereof. The Board of Directors or
any committee thereof may from time to time elect, or the Chairman of the Board
or President may appoint, such other officers (including one or more Vice
Presidents, Controllers, Assistant Secretaries and Assistant Treasurers), as may
be necessary or desirable for the conduct of the business of the Corporation.
Such other officers and agents shall have such duties and shall hold their
offices for such terms as shall be provided in these By-Laws or as may be
prescribed by the Board of Directors or such committee or by the Chairman of the
Board or President, as the case may be.
SECTION 4.02. Election and Term of Office. The elected officers
of the Corporation shall be elected annually by the Board of Directors at the
regular meeting of the Board of Directors held in conjunction with the annual
meeting of the stockholders. If the election of officers shall not be held at
such meeting, such election shall be held as soon thereafter as convenient. Each
officer shall hold office until such person's successor shall have been duly
elected
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and shall have qualified or until such person's death or until he shall resign
or be removed pursuant to Section 4.08.
SECTION 4.03. Chairman of the Board; Chief Executive Officer.
The Chairman of the Board shall preside at all meetings of the stockholders and
of the Board of Directors and shall be the Chief Executive Officer of the
Corporation. The Chairman of the Board shall be responsible for the general
management of the affairs of the Corporation and shall perform all duties
incidental to such person's office which may be required by law and all such
other duties as are properly required of him by the Board of Directors. He shall
make reports to the Board of Directors and the stockholders, and shall see that
all orders and resolutions of the Board of Directors and of any committee
thereof are carried into effect. The Chairman of the Board may also serve as an
officer of the Corporation, if so elected by the Board of Directors. The
Directors also may elect a Vice-Chairman to act in the place of the Chairman of
the Board upon his or her absence or inability to act.
SECTION 4.04. President. The President shall act in a general
executive capacity and shall assist the Chairman of the Board in the
administration and operation of the Corporation's business and general
supervision of its policies and affairs. The President, if he or she is also a
Director, shall, in the absence of or because of the inability to act of the
Chairman of the Board, perform all duties of the Chairman of the Board and
preside at all meetings of stockholders and of the Board of Directors.
SECTION 4.05. Vice Presidents. Each Senior Vice President and
Executive Vice President and any Vice President shall have such powers and shall
perform such duties as shall be assigned to him by the Board of Directors or by
the President.
SECTION 4.06. (a) Treasurer. The Treasurer shall exercise
general supervision over the receipt, custody and
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disbursement of corporate funds. The Treasurer shall cause the funds of the
Corporation to be deposited in such banks as may be authorized by the Board of
Directors, or in such banks as may be designated as depositories in the manner
provided by resolution of the Board of Directors. The Treasurer shall have such
further powers and duties and shall be subject to such directions as may be
granted or imposed from time to time by the Board of Directors, the Chairman of
the Board or the President.
(b) The Treasurer may designate one or more Assistant
Treasurers who shall have such of the authority and perform such of the duties
of the Treasurer as may be assigned to them by the Board of Directors, the
Chairman of the Board or the Treasurer. During the Treasurer's absence or
inability, the Treasurer's authority and duties shall be possessed by such
Assistant Treasurer(s) as the Board of Directors, the Chairman or Vice Chairman
of the Board or the President may designate.
SECTION 4.07. Secretary. (a) The Secretary shall keep or cause
to be kept in one or more books provided for that purpose, the minutes of all
meetings of the Board of Directors, the committees of the Board of Directors and
the stockholders; the Secretary shall see that all notices are duly given in
accordance with the provisions of these By-Laws and as required by law; shall be
custodian of the records and the seal of the Corporation and affix and attest
the seal to all stock certificates of the Corporation (unless the seal of the
Corporation on such certificates shall be a facsimile, as hereinafter provided)
and affix and attest the seal to all other documents to be executed on behalf of
the Corporation under its seal and shall see that the books, reports,
statements, certificates and other documents and records required by law to be
kept and filed are properly kept and filed; and in general, shall perform all
the duties incident to the office of Secretary and such other duties as from
time to time may be assigned to the Secretary by the Board of Directors, the
Chairman of the Board or the President.
(b) The Secretary may designate one or more Assistant
Secretaries who 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. During the
Secretary's absence or inability, the Secretary's 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 of Directors may designate.
SECTION 4.08. Removal. Any officer elected, or
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agent appointed, by the Board of Directors may be removed by the affirmative
vote of a majority of the Board of Directors whenever, in their judgment, the
best interests of the Corporation would be served thereby. Any officer or agent
appointed by the Chairman of the Board or the President may he removed by him or
her whenever, in such person's judgment, the best interests of the Corporation
would be served thereby. No elected officer shall have any contractual rights
against the Corporation for compensation by virtue of such election beyond the
date of the election of such person's successor, such person's death, such
person's resignation or such person's removal, whichever event shall first
occur, except as otherwise provided in an employment contract or under an
employee benefit plan.
SECTION 4.09. Vacancies. A newly created elected office and a
vacancy in any elected office because of death, resignation, or removal may be
filled by the Board of Directors for the unexpired portion of the term at any
meeting of the Board of Directors. Any vacancy in an office appointed by the
Chairman of the Board or the President because of death, resignation, or removal
may be filled by the Chairman of the Board or the President.
ARTICLE V
Stock Certificates and Transfers
SECTION 5.01. Stock Certificates and Transfers. The interest
of each stockholder of the Corporation shall be evidenced by certificates for
shares of stock in such form as the Corporation may from time to time prescribe.
The shares of the stock of the Corporation shall be transferred on the books of
the Corporation by the holder thereof in person or by such person's attorney,
upon surrender for cancelation of certificates for at least the same number of
shares, with an assignment and power of transfer endorsed thereon or attached
thereto, duly executed, with such proof
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of the authenticity of the signature as the Corporation or its agents may
reasonably require. The certificates of stock shall be signed, countersigned and
registered in such manner as the Board of Directors may by resolution prescribe
or as may otherwise be permitted by applicable law, which resolution may permit
all or any of the signatures on such certificates to be in facsimile. In case
any officer, transfer agent or registrar who has signed or whose facsimile
signature has been placed upon a certificate has ceased to be such officer,
transfer agent or registrar before such certificate is issued, it may be issued
by the Corporation with the same effect as if he were such officer, transfer
agent or registrar at the date of issue. Notwithstanding the foregoing
provisions regarding share certificates, the Corporation may provide that,
subject to the rights of stockholders under applicable law, some or all of any
or all classes or series of the Corporation's common or any preferred shares may
be uncertificated shares.
SECTION 5.02. Lost, Stolen or Destroyed Certificates. No
certificate for shares of stock in the Corporation shall be issued in place of
any certificate alleged to have been lost, destroyed or stolen, except on
production of such evidence of such loss, destruction or theft and on delivery
to the Corporation of a bond of indemnity in such amount, upon such terms and
secured by such surety, as the Board of Directors or any financial officer may
in its or such person's discretion require.
ARTICLE VI
Miscellaneous Provisions
SECTION 6.01. Fiscal Year. The fiscal year of the Corporation
shall begin on the first day of October and end on the last day of September of
each year.
SECTION 6.02. Dividends. The Board of Directors may from time
to time declare, and the Corporation may pay, dividends on its outstanding
shares in the manner and upon the terms and conditions provided by law and the
Certificate
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of Incorporation.
SECTION 6.03. Seal. The corporate seal shall have inscribed
thereon the words "Corporate Seal," the year of incorporation and the word
"Delaware."
SECTION 6.04. Waiver of Notice. Whenever any notice is
required to be given to any stockholder or Director under the provisions of the
DGCL or these By-Laws, a waiver thereof given in accordance with applicable law
shall be deemed equivalent to the giving of such notice. Neither the business to
be transacted at, nor the purpose of, any annual or special meeting of the
stockholders or the Board of Directors or committee thereof need be specified in
any waiver of notice of such meeting.
SECTION 6.05. Audits. The accounts, books and records of the
Corporation shall be audited upon the conclusion of each fiscal year by an
independent certified public accountant selected by the Board of Directors, and
it shall be the duty of the Board of Directors to cause such audit to be done
annually.
SECTION 6.06. Resignations. Any Director or any officer,
whether elected or appointed, may resign at any time by giving written notice of
such resignation to the Chairman of the Board, the President, or the Secretary,
and such resignation shall be deemed to be effective as of the close of business
on the date said notice is received by the Chairman of the Board, the President,
or the Secretary, or at such later time as is specified therein. No formal
action shall be required of the Board of Directors or the stockholders to make
any such resignation effective.
ARTICLE VII
Contracts, Proxies, Etc.
SECTION 7.01. Contracts. Except as otherwise
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20
required by law, the Certificate of Incorporation, a Preferred Stock
Designation, or these By-Laws, any contracts or other instruments may be
executed and delivered in the name and on the behalf of the Corporation by such
officer or officers of the Corporation as the Board of Directors may from time
to time direct. Such authority may be general or confined to specific instances
as the Board of Directors may determine. The Chairman of the Board, the
President or any Senior Vice President, Executive Vice President or Vice
President may execute bonds, contracts, deeds, leases and other instruments to
be made or executed or for or on behalf of the Corporation. Subject to any
restrictions imposed by the Board of Directors or the Chairman of the Board, the
President or any Senior Vice President, Executive Vice President or Vice
President of the Corporation may delegate contractual powers to others under
such person's jurisdiction, it being understood, however, that any such
delegation of power shall not relieve such officer of responsibility with
respect to the exercise of such delegated power.
SECTION 7.02. Proxies. Unless otherwise provided by resolution
adopted by the Board of Directors, the Chairman of the Board, the President or
any Senior Vice President, Executive Vice President or Vice President may from
time to time appoint an attorney or attorneys or agent or agents of the
Corporation, in the name and on behalf of the Corporation, to cast the votes
which the Corporation may be entitled to cast as the holders of stock or other
securities in any other entity, any of whose stock or other securities may be
held by the Corporation, at meetings of the holders of the stock or other
securities of such other entity, or to consent in accordance with applicable
law, in the name of the Corporation as such holder, to any action by such other
entity, and may instruct the person or persons so appointed as to the manner of
casting such votes or giving such consent, and may execute or cause to be
executed in the name and on behalf of the Corporation and under its corporate
seal or otherwise, all such proxies or other instruments as he may deem
necessary or proper in the premises.
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ARTICLE VIII
Amendments
SECTION 8.01. Amendments. The By-Laws may be altered or
repealed and new By-Laws may be adopted (a) at any annual or special meeting of
stockholders by the affirmative vote of the holders of a majority of the voting
power of the stock issued and outstanding and entitled to vote thereat,
provided, however, that any proposed alteration or repeal of, or the adoption of
any By-Law inconsistent with, Section 2.02 or 2.07 by the stockholders shall
require the affirmative vote of the holders of at least 80% of the voting power
of all Voting Stock then outstanding, voting together as a single class, and
provided, further, however, that, in the case of any such stockholder action at
a special meeting of stockholders, notice of the proposed alteration, repeal or
adoption of the new By-Law or By-Laws must be contained in the notice of such
special meeting, or (b) by the affirmative vote of a majority of the Whole
Board.
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I HEREBY CERTIFY that the foregoing is a full, true, and correct copy of the By
Laws of Avaya Inc., a Delaware corporation, as in effect on the date hereof.
Dated: __________, 2000
-----------------------------------
Name: Pamela F. Craven
Title: Vice President and Secretary
1
EXHIBIT 4.4
RIGHTS AGREEMENT
Dated as of September 29, 2000
Between
AVAYA INC.
and
THE BANK OF NEW YORK
Rights Agent
2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
SECTION 1. Certain Definitions 1
SECTION 2. Appointment of Rights Agent 7
SECTION 3. Issue of Right Certificates 7
SECTION 4. Form of Right Certificates 9
SECTION 5. Countersignature and Registration 9
SECTION 6. Transfer, Split Up, Combination and
Exchange of Right Certificates; Mutilated,
Destroyed, Lost or Stolen Right
Certificates 10
SECTION 7. Exercise of Rights; Purchase Price;
Expiration Date of Rights 11
SECTION 8. Cancellation and Destruction of Right Certificates 13
SECTION 9. Availability of Preferred Shares 13
SECTION 10. Preferred Shares Record Date 15
SECTION 11. Adjustment of Purchase Price, Number
of Shares or Number of Rights 15
SECTION 12. Certificate of Adjusted Purchase
Price or Number of Shares 25
SECTION 13. Consolidation, Merger or Sale or
Transfer of Assets or Earning Power 26
SECTION 14. Fractional Rights and Fractional Shares 30
SECTION 15. Rights of Action 32
SECTION 16. Agreement of Right Holders 32
</TABLE>
3
<TABLE>
<S> <C>
SECTION 17. Right Certificate Holder Not Deemed a Stockholder 33
SECTION 18. Concerning the Rights Agent 33
SECTION 19. Merger or Consolidation or Change of
Name of Rights Agent 34
SECTION 20. Duties of Rights Agent 35
SECTION 21. Change of Rights Agent 37
SECTION 22. Issuance of New Right Certificates 38
SECTION 23. Redemption 39
SECTION 24. Exchange 40
SECTION 25. Notice of Certain Events 41
SECTION 26. Notices 42
SECTION 27. Supplements and Amendments 43
SECTION 28. Successors 44
SECTION 29. Benefits of this Agreement 44
SECTION 30. Severability 44
SECTION 31. Governing Law 44
SECTION 32. Counterparts 44
SECTION 33. Descriptive Headings 45
</TABLE>
4
Exhibit A - Form of Certificate of Designations
Exhibit B - Form of Right Certificate
Exhibit C - Summary of Rights to Purchase Preferred Shares
5
RIGHTS AGREEMENT (the "Agreement"), dated as of
September 29, 2000, between AVAYA INC., a Delaware
corporation (the "Company"), and THE BANK OF NEW YORK, as
Rights Agent (the "Rights Agent").
The board of directors of the Company (the "Board of
Directors") has authorized and declared a dividend of one preferred share
purchase right (a "Right") for each Common Share (as hereinafter defined) of the
Company outstanding on September 30, 2000 (the "Record Date"), each Right
representing the right to purchase one one-thousandth of a Preferred Share (as
hereinafter defined), upon the terms and subject to the conditions herein set
forth, and has further authorized and directed the issuance of one Right
(subject to adjustment as provided herein) with respect to each Common Share
that shall become outstanding between the Record Date and the earlier of the
Distribution Date and the Expiration Date (as such terms are hereinafter
defined); provided, however, that Rights may be issued with respect to Common
Shares that shall become outstanding after the Distribution Date and prior to
the Expiration Date in accordance with Section 22.
Accordingly, in consideration of the premises and the mutual
agreements herein set forth, the parties hereby agree as follows:
SECTION 1. Certain Definitions. For purposes of this
Agreement, the following terms have the meanings indicated:
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2
(a) "Acquiring Person" shall mean any Person who or which,
together with all Affiliates and Associates of such Person, shall be the
Beneficial Owner of 10% or more of the Common Shares of the Company then
outstanding, but shall not include (i) the Company, any Subsidiary of the
Company, any employee benefit or compensation plan of the Company or of any
Subsidiary of the Company, or any Person holding Common Shares for or pursuant
to the terms of any such plan, or prior to the Spinoff Date, any Lucent Entity
(each, an "Exempt Person") or (ii) any such Person who has become and is the
Beneficial Owner of 10% or more of the Common Shares of the Company then
outstanding solely as a result of (A) the acquisition by such Person or one or
more of its Affiliates or Associates of Beneficial Ownership of additional
Common Shares if such acquisition was made in the good faith belief that such
acquisition would not (x) cause the Beneficial Ownership by such Person,
together with its Affiliates and Associates, to be 10% or more of the Common
Shares of the Company outstanding at the time of such acquisition and such good
faith belief was based on the good faith reliance on information contained in
publicly filed reports or documents of the Company that are inaccurate or
out-of-date or (y) otherwise cause a Distribution Date or the adjustment
provided for in Section 11(a) to occur or (B) the acquisition by such Person or
one or more of its Affiliates or Associates of Beneficial Ownership of
additional Common Shares of the Company if the Board of Directors determines
that such acquisition was made in good faith without the knowledge by such
Person or Affiliates or Associates that such Person would thereby become an
Acquiring Person, which determination of the Board of Directors shall be
conclusive and binding on such Person, the Rights Agent, the holders of the
Rights and all other Persons. Notwithstanding the foregoing, if any Person that
is not an Acquiring Person due to (ii)(A) or (ii)(B) of the prior sentence does
not reduce its percentage of Beneficial Ownership of Common Shares of the
Company to less than 10% by the Close of Business on the tenth calendar day
after notice from the Company (the date of notice being the first day) that such
Person's Beneficial Ownership of Common Shares would make it an Acquiring
Person, such Person shall, at the end of such ten calendar day period, become an
Acquiring Person (and such clause (ii)(A) or (ii)(B) shall no longer apply to
such Person). For purposes of this definition, the determination whether any
Person acted in
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"good faith" shall be conclusively determined by the Board of Directors.
Notwithstanding anything in this definition of Acquiring Person to the contrary,
no Person shall become an "Acquiring Person" as the result of an acquisition of
Common Shares by the Company which, by reducing the number of shares
outstanding, increases the proportionate number of shares beneficially owned by
such Person to 10% or more of the Common Shares of the Company then outstanding;
provided, however, that if a Person shall become the Beneficial Owner of 10% or
more of the Common Shares of the Company then outstanding by reason of share
acquisitions by the Company and shall, after such share acquisitions by the
Company, become the Beneficial owner of any additional Common Shares of the
Company (other than pursuant to a dividend or distribution paid or made by the
Company on the outstanding Common Shares or pursuant to a split or subdivision
of the outstanding Common Shares), then such Person shall be deemed to be an
"Acquiring Person" unless upon becoming the Beneficial Owner of such additional
Common Shares such Person does not beneficially own 10% or more of the Common
Shares then outstanding.
(b) "Affiliate" shall have the meaning ascribed to such term
in Rule 12b-2 of the General Rules and Regulations under the Exchange Act as in
effect on the date of this Agreement.
(c) "Associate" shall have the meaning ascribed to such term
in Rule 12b-2 of the General Rules and Regulations under the Exchange Act as in
effect on the date of this Agreement.
(d) (i) A Person shall be deemed the "Beneficial Owner" of and
shall be deemed to "beneficially own" any securities:
(A) which such Person or any of such Person's Affiliates or
Associates beneficially owns, directly or indirectly;
(B) which such Person or any of such Person's Affiliates or
Associates has (1) the right to acquire (whether such right is
exercisable immediately or only after the passage of time) pursuant to
any agreement, arrangement or understanding (other than customary
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4
agreements with and between underwriters and selling group members with
respect to a bona fide public offering of securities), or upon the
exercise of conversion rights, exchange rights, rights (other than
these Rights), warrants or options, or otherwise; provided, however,
that a Person shall not be deemed the Beneficial Owner of, or to
beneficially own, securities tendered pursuant to a tender or exchange
offer made by or on behalf of such Person or any of such Person's
Affiliates or Associates until such tendered securities are accepted
for purchase or exchange; or (2) the right to vote, or the right to
direct the vote, pursuant to any agreement, arrangement or
understanding; provided, however, that a Person shall not be deemed the
Beneficial Owner of, or to beneficially own, any security, if the
agreement, arrangement or understanding to vote, or direct the vote of,
such security (x) arises solely from a revocable proxy or consent given
to such Person in response to a public proxy or consent solicitation
made pursuant to, and in accordance with, the applicable rules and
regulations promulgated under the Exchange Act and (y) is not also then
reportable on Schedule 13D under the Exchange Act (or any comparable or
successor report); or
(C) which are beneficially owned, directly or indirectly, by
any other Person with which such Person or any of such Person's
Affiliates or Associates has any agreement, arrangement or
understanding (other than customary agreements with and between
underwriters and selling group members with respect to a bona fide
public offering of securities) for the purpose of acquiring, holding,
voting (except to the extent contemplated by the proviso to Section
1(d)(i)(B)(2)) or disposing of such securities of the Company provided,
however, that no Person who is an officer, director or employee of an
Exempt Person shall be deemed, solely by reason of such Person's status
or authority as such, to be the "Beneficial Owner" of, to have
"Beneficial Ownership" of or to "beneficially own" any securities that
are "beneficially owned" (as defined in this Section 1(d)), including,
without limitation, in a fiduciary capacity, by an Exempt
9
5
Person or by any other such officer, director or employee of an Exempt
Person.
(ii) Notwithstanding anything in this definition of Beneficial
Ownership to the contrary (A) no Person (and no Affiliate or Associate of any
Person) shall at any time prior to the Spinoff Date be deemed to be the
"Beneficial Owner" of or to "beneficially own" any securities if such Person is
the Beneficial Owner of or "beneficially owns" such securities as a result of
one or more agreements, arrangements or understandings with any Lucent Entity
(whether or not the Company or any other Person is a party thereto) and if such
Person would not be the Beneficial Owner of or "beneficially own" such
securities if such agreements, arrangements or understandings were not then in
effect, (B) the phrase "then outstanding", when used with reference to a
Person's Beneficial Ownership of securities of the Company, shall mean the
number of such securities then issued and outstanding together with the number
of such securities not then actually issued and outstanding which such Person
would be deemed to own beneficially hereunder and (c) the Warburg Purchasers,
individually or collectively, shall not at any time be deemed to "Beneficially
Own" or to be the "Beneficial Owners" of any Common Shares (1) acquired or that
may be acquired as a result of the conversion of any Series B Preferred Stock
or the exercise of any Warrants acquired pursuant to the Preferred Stock and
Warrant Purchase Agreement, (2) acquired or that may be acquired, directly or
indirectly, pursuant to the exercise of the preemptive rights granted pursuant
to Section 5.11 of the Preferred Stock and Warrant Purchase Agreement or (3) as
a result of their ownership of the Series B Preferred Stock or Warrants
acquired pursuant to the Preferred Stock and Warrant Purchase Agreement.
(e) "Board of Directors" shall have the meaning set forth in
the preamble hereof.
(f) "Business Day" shall mean any day other than a Saturday, a
Sunday, or a day on which banking institutions in New York are authorized or
obligated by law or executive order to close.
(g) "Book-Entry" shall mean an uncertified book-entry for the
Company's Common Stock.
(h) "Close of Business" on any given date shall mean 5:00
P.M., New York time, on such date; provided, however, that, if such date is not
a Business Day, it shall mean 5:00 P.M., New York time, on the next succeeding
Business Day.
(i) "Common Shares" when used with reference to the Company
shall mean the shares of common stock, par value $0.01 per share, of the
Company. "Common Shares" when used with reference to any Person other than the
Company shall mean the capital stock (or equity interest) with the greatest
voting power of such other Person or, if such other
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6
Person is a Subsidiary of another Person, the Person or Persons which ultimately
control such first-mentioned Person.
(j) "Company" shall have the meaning set forth in the preamble
hereof.
(k) "Current Per Share Market Price" shall have the meaning
set forth in Section 11(d)(i) hereof.
(l) "Distribution Date" shall have the meaning set forth in
Section 3 hereof.
(m) "equivalent preferred shares" shall have the meaning set
forth in Section 11(b) hereof.
(n) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
(o) "Exchange Ratio" shall have the meaning set forth in
Section 24(a) hereof.
(p) "Final Expiration Date" shall have the meaning set forth
in Section 7(a) hereof.
(q) "Lucent" shall mean Lucent Technologies Inc., a Delaware
corporation.
(r) "Lucent Entity" shall mean Lucent or any Affiliate or
Associate of Lucent.
(s) "Person" shall mean any individual, firm, corporation,
partnership, limited liability company, trust or other entity, and shall include
any successor (by merger or otherwise) of such entity.
(t) "Preferred Shares" shall mean shares of Series A Junior
Participating Preferred Stock, par value $1.00 per share, of the Company having
the rights and preferences set forth in the Form of Certificate of Designations
attached to this Agreement as Exhibit A.
(u) "Preferred Stock and Warrant Purchase Agreement" shall
mean the Preferred Stock and Warrant Purchase Agreement dated as of August 8,
2000 among the Company and the Warburg Purchasers.
(v) "Purchase Price" shall have the meaning set forth in
Section 7(b) hereof.
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(w) "Record Date" shall have the meaning set forth in the
preamble hereof.
(x) "Redemption Date" shall have the meaning set forth in
Section 7(a) hereof.
(y) "Redemption Price" shall have the meaning set forth in
Section 23(a) hereof.
(z) "Right" shall have the meaning set forth in the preamble
hereof.
(aa) "Right Certificate" shall have the meaning set forth in
Section 3(a) hereof.
(bb) "Rights Agent" shall have the meaning set forth in the
preamble hereof.
(cc) "Security" shall have the meaning set forth in Section
11(d) hereof.
(dd) "Series B Preferred Stock" shall have the meaning set
forth in the Preferred Stock and Warrant Purchase Agreement.
(ee) "Shares Acquisition Date" shall mean the first date of
public announcement (which, for purposes of this definition, shall include,
without limitation, a report filed pursuant to Section 13(d) of the Exchange
Act) by the Company or an Acquiring Person that an Acquiring Person has become
such, or such earlier date as a majority of the Board of Directors shall become
aware of the existence of an Acquiring Person.
(ff) "Spinoff Date" means the time at which Lucent shall
distribute all the Common Shares of the Company it owns to its stockholders
pursuant to the Contribution and Distribution Agreement by and among the Company
and Lucent, dated as of September 30, 2000, as amended, modified or supplemented
from time to time.
(gg) "Subsidiary" of any Person shall mean any corporation or
other entity of which a majority of the voting power of the voting equity
securities or equity interest is owned, directly or indirectly, by such Person.
(hh) "Summary of Rights" shall have the meaning set forth in
Section 3(b) hereof.
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(ii) "Trading Day" shall have the meaning set forth in Section
11(d) hereof.
(jj) "Warburg Purchasers" shall mean the "Purchasers" and
"Permitted Transferees" as each such term is defined in the Preferred Stock and
Warrant Purchase Agreement.
(kk) "Warrants" shall have the meaning set forth in the
Preferred Stock and Warrant Purchase Agreements.
SECTION 2. Appointment of Rights Agent. The Company hereby
appoints the Rights Agent to act as agent for the Company and the holders of the
Rights (who, in accordance with Section 3 hereof, shall, prior to the
Distribution Date also be the holders of the Common Shares) in accordance with
the terms and conditions hereof, and the Rights Agent hereby accepts such
appointment. The Company may from time to time appoint such co-Rights Agents as
it may deem necessary or desirable.
SECTION 3. Issue of Right Certificates. (a) Until the Close of
Business on the earlier of (i) the tenth day after the Shares Acquisition Date
or (ii) such date, if any, as may be designated by the Board of Directors
following the commencement of, or first public disclosure of an intent to
commence, a tender or exchange offer by any Person (other than the Company, any
Subsidiary of the Company, any employee benefit or compensation plan of the
Company or of any Subsidiary of the Company, any Person holding Common Shares
for or pursuant to the terms of any such plan, or prior to the Spinoff Date, any
Lucent Entity) for outstanding Common Shares, if upon consummation of such
tender or exchange offer such Person would be the Beneficial Owner of 10% or
more of the outstanding Common Shares (the earlier of such dates being herein
referred to as the "Distribution Date"), (x) the Rights will be evidenced by the
Book-Entries, or certificates for, Common Stock registered in the name of the
holders of Common Stock (together with, in the case of Book-Entries
representing, or the certificates for, Common Stock outstanding as of the Record
Date, the Summary of Rights) and not by separate Book-Entries or Rights
Certificates and the record holders of the Common Stock represented by such
Book-Entries or certificates shall be the record holders of the Rights
represented thereby, and (y) the Rights will be transferable only in connection
with the transfer of Common Shares. Until the Distribution Date (or, if earlier,
the Expiration Date), transfer on the Company's stock ownership records of any
Common Stock represented by a Book-Entry or the surrender for transfer of any
certificate for Common Stock shall constitute the surrender for transfer of the
Right or Rights associated with the Company Stock evidenced thereby,
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9
whether or not accompanied by a copy of the Summary of Rights.
(b) On the Record Date, or as soon as practicable thereafter,
the Company will send a copy of a Summary of Rights to Purchase Preferred
Shares, in substantially the form of Exhibit C hereto (the "Summary of Rights"),
by first-class, postage-prepaid mail, to each record holder of Common Shares as
of the Close of Business on the Record Date, at the address of such holder shown
on the records of the Company.
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(c) Rights shall be issued in respect of all Common Shares
issued or disposed of (including, without limitation, upon disposition of Common
Shares out of treasury stock or issuance or reissuance of Common Shares out of
authorized but unissued shares) after the Record Date but prior to the earlier
of the Distribution Date and the Expiration Date, or in certain circumstances
provided in Section 22 hereof, after the Distribution Date. Certificates for
Common Shares and confirmations evidencing Book-Entries which become outstanding
(including, without limitation, reacquired Common Shares referred to in the last
sentence of this paragraph (c)) after the Record Date but prior to the earliest
of the Distribution Date, the Redemption Date or the Final Expiration Date,
shall have impressed on, printed on, written on or otherwise affixed to them the
following legend:
This certificate also evidences and entitles the holder hereof to
certain rights as set forth in a Rights Agreement between Avaya Inc.
and The Bank of New York, dated as of September 29, 2000, as amended
from time to time (the "Rights Agreement"), the terms of which are
hereby incorporated herein by reference and a copy of which is on file
at the principal executive offices of Avaya Inc. Under certain
circumstances, as set forth in the Rights Agreement, such Rights will
be evidenced by separate certificates and will no longer be evidenced
by this certificate. Avaya Inc. will mail to the holder of this
certificate a copy of the Rights Agreement without charge after receipt
of a written request therefor. Under certain circumstances, as set
forth in the Rights Agreement, Rights owned by or transferred to any
Person who is or becomes an Acquiring Person (as defined in the Rights
Agreement) and certain transferees thereof will become null and void
and will no longer be transferable.
With respect to such certificates containing the foregoing legend, until the
Distribution Date, the Rights associated with the Common Shares represented by
such certificates shall be evidenced by such certificates alone, and the
surrender for transfer of any such certificate, except as
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otherwise provided herein, shall also constitute the transfer of the Rights
associated with the Common Shares represented thereby. In the event that the
Company purchases or otherwise acquires any Common Shares after the Record Date
but prior to the Distribution Date, any Rights associated with such Common
Shares shall be deemed canceled and retired so that the Company shall not be
entitled to exercise any Rights associated with the Common Shares which are no
longer outstanding.
Notwithstanding this paragraph (c), the omission of a legend shall not affect
the enforceability of any part of this Agreement or the rights of any holder of
the Rights (other than any Acquiring Person or any Associate or Affiliate of an
Acquiring Person).
(d) As soon as practicable after the Distribution Date, the
Company will prepare and execute, the Rights Agent will countersign, and the
Company will send or cause to be sent (and the Rights Agent will, if requested,
send) by first-class, postage-prepaid mail, to each record holder of Common
Shares as of the Close of Business on the Distribution Date (other than any
Acquiring Person or any Associate or Affiliate of an Acquiring Person), at the
address of such holder shown on the records of the Company, a Right Certificate,
in substantially the form of Exhibit B hereto (a "Right Certificate"),
evidencing one Right (subject to adjustment as provided herein) for each Common
Share so held. From and after the Distribution Date, the Rights will be
evidenced solely by such Right Certificates.
SECTION 4. Form of Right Certificates. The Right Certificates
(and the forms of election to purchase shares and of assignment to be printed on
the reverse thereof) shall be substantially the same as Exhibit B hereto and may
have such marks of identification or designation and such legends, summaries or
endorsements printed thereon as the Company may deem appropriate and as are not
inconsistent with the provisions of this Agreement, or as may be required to
comply with any applicable law or with any rule or regulation made pursuant
thereto or with any rule or regulation of any stock exchange or automated
quotation system on which the Rights may from time to time be listed, or to
conform to usage. Subject to the provisions of this Agreement, the Right
Certificates shall entitle the holders
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thereof to purchase such number of one one-thousandths of a Preferred Share as
shall be set forth therein at the Purchase Price, but the number of such one
one-thousandths of a Preferred Share and the Purchase Price shall be subject to
adjustment as provided herein.
SECTION 5. Countersignature and Registration. The Right
Certificates shall be executed on behalf of the Company by its Chairman of the
Board, its Chief Executive Officer, its President, any of its Vice Presidents,
or its Treasurer, either manually or by facsimile signature, shall have affixed
thereto the Company's seal or a facsimile thereof, and shall be attested by the
Secretary or an Assistant Secretary of the Company, either manually or by
facsimile signature. The Right Certificates shall be manually countersigned by
the Rights Agent and shall not be valid for any purpose unless countersigned. In
case any officer of the Company who shall have signed any of the Right
Certificates shall cease to be such officer of the Company before
countersignature by the Rights Agent and issuance and delivery by the Company,
such Right Certificates, nevertheless, may be countersigned by the Rights Agent
and issued and delivered by the Company with the same force and effect as though
the individual who signed such Right Certificates had not ceased to be such
officer of the Company; and any Right Certificate may be signed on behalf of the
Company by any individual who, at the actual date of the execution of such Right
Certificate, shall be a proper officer of the Company to sign such Right
Certificate although at the date of the execution of this Agreement any such
individual was not such an officer.
Following the Distribution Date, the Rights Agent will keep or
cause to be kept, at its principal office, books for registration and transfer
of the Right Certificates issued hereunder. Such books shall show the names and
addresses of the respective holders of the Right Certificates, the number of
Rights evidenced on its face by each of the Right Certificates and the date of
each of the Right Certificates.
SECTION 6. Transfer, Split Up, Combination and Exchange of
Right Certificates; Mutilated, Destroyed, Lost or Stolen Right Certificates.
Subject to the provisions of this Agreement, at any time after the Distribution
Date, and
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at or prior to the Close of Business on the Expiration Date, any Right
Certificate or Right Certificates (other than Right Certificates representing
Rights that have become void pursuant to Section 11(a)(ii) hereof may be
transferred, split up, combined, or exchanged for another Right Certificate or
other Right Certificates entitling the registered holder to purchase a like
number of one one-thousandths of a Preferred Share as the Right Certificate or
Right Certificates surrendered then entitled such holder to purchase. Any
registered holder desiring to transfer, split up, combine or exchange any Right
Certificate or Right Certificates shall make such request in writing delivered
to the Rights Agent, and shall surrender the Right Certificate or Right
Certificates to be transferred, split up, combined or exchanged at the principal
office of the Rights Agent. Thereupon the Rights Agent shall countersign and
deliver to the Person entitled thereto a Right Certificate or Right
Certificates, as the case may be, as so requested. The Company may require
payment of a sum sufficient to cover any tax or governmental charge that may be
imposed in connection with any transfer, split up, combination or exchange of
Right Certificates.
Subject to the provisions of this Agreement, at any time after
the Distribution Date and prior to the Expiration Date, upon receipt by the
Company and the Rights Agent of evidence reasonably satisfactory to them of the
loss, theft, destruction or mutilation of a Right Certificate, and, in case of
loss, theft or destruction, of indemnity or security reasonably satisfactory to
them, and, at the Company's request, reimbursement to the Company and the Rights
Agent of all reasonable expenses incidental thereto, and upon surrender to the
Rights Agent and cancellation of the Right Certificate if mutilated, the Company
will make and deliver a new Right Certificate of like tenor to the Rights Agent
for delivery to the registered holder in lieu of the Right Certificate so lost,
stolen, destroyed or mutilated.
SECTION 7. Exercise of Rights; Purchase Price; Expiration Date
of Rights. (a) Except as otherwise provided herein, the Rights shall become
exercisable on the Distribution Date, and thereafter the registered holder of
any Right Certificate may exercise the Rights evidenced thereby (except as
otherwise provided herein), in whole or
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in part, at any time after the Distribution Date, upon surrender of the Right
Certificate, with the form of election to purchase on the reverse side thereof
duly executed, to the Rights Agent at the principal office of the Rights Agent,
together with payment of the Purchase Price for each one one-thousandth of a
Preferred Share (or other securities, cash or other assets, as the case may be)
as to which the Rights are exercised, at any time which is both after the
Distribution Date and prior to the time (the "Expiration Date") that is the
earliest of (i) the Close of Business on September 29, 2010 (the "Final
Expiration Date"), (ii) the time at which the Rights are redeemed as provided in
Section 23 hereof (the "Redemption Date"), or (iii) the time at which such
Rights are exchanged as provided in Section 24 hereof.
(b) The Purchase Price for each one one-thousandth of a
Preferred Share purchasable pursuant to the exercise of a Right shall initially
be $[-], and the Purchase Price and the number of one one-thousandth of a share
of Preferred Share or other securities or property to be acquired upon exercise
of a Right shall be subject to adjustment from time to time as provided in
Section 11 or 13 hereof and shall be payable in lawful money of the United
States of America in accordance with paragraph (c) below.
(c) Except as otherwise provided herein, upon receipt of a
Right Certificate representing exercisable Rights, with the form of election to
purchase duly executed, accompanied by payment of the Purchase Price for the
shares to be purchased and an amount equal to any applicable transfer tax
required to be paid by the holder of such Right Certificate in accordance with
Section 9 hereof by certified check, cashier's check or money order payable to
the order of the Company, the Rights Agent shall thereupon promptly (i)(A)
requisition from any transfer agent of the Preferred Shares, or make available
if the Rights Agent is the transfer agent for the Preferred Shares, certificates
for the number of Preferred Shares to be purchased and the Company hereby
irrevocably authorizes any such transfer agent to comply with all such requests,
or (B) requisition from the depositary agent appointed by the Company depositary
receipts representing interests in such number of one one-thousandths of a
Preferred Share as are to be purchased (in which case certificates for the
Preferred
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Shares represented by such receipts shall be deposited by the transfer
agent of the Preferred Shares with such depositary agent) and the Company hereby
directs such depositary agent to comply with such request; (ii) when
appropriate, requisition from the Company the amount of cash to be paid in lieu
of issuance of fractional shares in accordance with Section 14 hereof; (iii)
promptly after receipt of such certificates or depositary receipts, cause the
same to be delivered to or upon the order of the registered holder of such Right
Certificate, registered in such name or names as may be designated by such
holder; and (iv) when appropriate, after receipt, promptly deliver such cash to
or upon the order of the registered holder of such Right Certificate.
(d) Except as otherwise provided herein, in case the
registered holder of any Right Certificate shall exercise less than all the
Rights evidenced thereby, a new Right Certificate evidencing Rights equivalent
to the exercisable Rights remaining unexercised shall be issued by the Rights
Agent to the registered holder of such Right Certificate or to his duly
authorized assigns, subject to the provisions of Section 14 hereof.
(e) Notwithstanding anything in this Agreement to the
contrary, neither the Rights Agent nor the Company shall be obligated to
undertake any action with respect to a registered holder of Rights upon the
occurrence of any purported transfer or exercise of Rights pursuant to Section 6
hereof or this Section 7 unless such registered holder shall have (i) completed
and signed the certificate contained in the form of assignment or form of
election to purchase set forth on the reverse side of the Rights Certificate
surrendered for such transfer or exercise and (ii) provided such additional
evidence of the identity of the Beneficial Owner (or former Beneficial Owner)
thereof as the Company shall reasonably request.
SECTION 8. Cancellation and Destruction of Right Certificates.
All Right Certificates surrendered for the purpose of exercise, transfer, split
up, combination or exchange shall, if surrendered to the Company or to any of
its agents, be delivered to the Rights Agent for cancellation or in canceled
form, or, if surrendered to the Rights Agent,
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shall be canceled by it, and no Right Certificates shall be issued in lieu
thereof except as expressly permitted by any of the provisions of this
Agreement. The Company shall deliver to the Rights Agent for cancellation and
retirement, and the Rights Agent shall so cancel and retire, any other Right
Certificate purchased or acquired by the Company otherwise than upon the
exercise thereof. The Rights Agent shall deliver all canceled Right Certificates
to the Company, or shall, at the written request of the Company, destroy such
canceled Right Certificates, and, in such case, shall deliver a certificate of
destruction thereof to the Company.
SECTION 9. Availability of Preferred Shares. (a) The Company
covenants and agrees that it will cause to be reserved and kept available out of
its authorized and unissued Preferred Shares or any Preferred Shares held in its
treasury, the number of Preferred Shares that will be sufficient to permit the
exercise in full of all outstanding Rights in accordance with Section 7.
(b) So long as the of Preferred Shares issuable upon the
exercise of Rights may be listed or admitted to trading on any national
securities exchange, or quoted on NASDAQ, the Company shall use its best efforts
to cause, from and after such time as the Rights become exercisable, all shares
reserved for such issuance to be listed or admitted to trading on such exchange,
or quoted on NASDAQ, upon official notice of issuance upon such exercise.
(c) From and after such time as the Rights become exercisable,
the Company shall use its best efforts, if then necessary to permit the issuance
of Preferred Shares upon the exercise of Rights, to register and qualify such
Preferred Shares under the Securities Act and any applicable state securities or
"Blue Sky" laws (to the extent exemptions therefrom are not available), cause
such registration statement and qualifications to become effective as soon as
possible after such filing and keep such registration and qualifications
effective (with a prospectus at all times meeting the requirements of the
Securities Act) until the earlier of the date as of which the Rights are no
longer exercisable for such securities and the Expiration Date. The Company may
temporarily suspend, for a period of time not to exceed 90 days, the
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exercisability of the Rights in order to prepare and file a registration
statement under the Securities Act and permit it to become effective. Upon any
such suspension, the Company shall issue a public announcement stating that the
exercisability of the Rights has been temporarily suspended, as well as a public
announcement at such time as the suspension is no longer in effect.
Notwithstanding any provision of this Agreement to the contrary, the Rights
shall not be exercisable in any jurisdiction unless the requisite qualification
in such jurisdiction shall have been obtained and until a registration statement
under the Securities Act shall have been declared effective, unless an exemption
therefrom is available.
(d) The Company covenants and agrees that it will take all
such action as may be necessary to ensure that all Preferred Shares delivered
upon exercise of Rights shall, at the time of delivery of the certificates for
such Preferred Shares (subject to payment of the Purchase Price), be duly and
validly authorized and issued and fully paid and nonassessable shares.
The Company further covenants and agrees that it will pay when
due and payable any and all federal and state transfer taxes and charges which
may be payable in respect of the issuance or delivery of the Right Certificates
or of any Preferred Shares upon the exercise of Rights. The Company shall not,
however, be required to pay any transfer tax which may be payable in respect of
any transfer or delivery of Right Certificates to a Person other than, or the
issuance or delivery of certificates or depositary receipts for the Preferred
Shares in a name other than that of, the registered holder of the Right
Certificate evidencing Rights surrendered for exercise or to issue or to deliver
any certificates or depositary receipts for Preferred Shares upon the exercise
of any Rights until any such tax shall have been paid (any such tax being
payable by the holder of such Right Certificate at the time of surrender) or
until it has been established to the Company's reasonable satisfaction that no
such tax is due.
SECTION 10. Preferred Shares Record Date. Each Person in whose
name any certificate for Preferred Shares is issued upon the exercise of Rights
shall for all purposes be deemed to have become the holder of record of the
Preferred
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Shares represented thereby on, and such certificate shall be dated, the date
upon which the Right Certificate evidencing such Rights was duly surrendered and
payment of the Purchase Price (and any applicable transfer taxes) was made;
provided, however, that if the date of such surrender and payment is a date upon
which the Preferred Shares transfer books of the Company are closed, such Person
shall be deemed to have become the record holder of such shares on, and such
certificate shall be dated, the next succeeding Business Day on which the
Preferred Shares transfer books of the Company are open. Prior to the exercise
of the Rights evidenced thereby, the holder of a Right Certificate shall not be
entitled to any rights of a holder of Preferred Shares for which the Rights
shall be exercisable, including, without limitation, the right to vote, to
receive dividends or other distributions or to exercise any preemptive rights,
and shall not be entitled to receive any notice of any proceedings of the
Company, except as provided herein.
SECTION 11. Adjustment of Purchase Price, Number and Kind of
Shares or Number of Rights. The Purchase Price, the number of Preferred Shares
or other securities or property purchasable upon exercise of each Right and the
number of Rights outstanding are subject to adjustment from time to time as
provided in this Section 11.
(a) (i) In the event the Company shall at any time after the
date of this Agreement (A) declare and pay a dividend on the Preferred Shares
payable in Preferred Shares, (B) subdivide the outstanding Preferred Shares, (C)
combine the outstanding Preferred Shares into a smaller number of Preferred
Shares or (D) issue any shares of its capital stock in a reclassification of the
Preferred Shares (including any such reclassification in connection with a
consolidation or merger in which the Company is the continuing or surviving
corporation), except as otherwise provided in this Section 11(a), the number and
kind of shares of capital stock issuable upon exercise of a Right at the time of
the record date for such dividend or of the effective date of such subdivision,
combination or reclassification, shall be proportionately adjusted so that the
holder of any Right exercised after such time shall be entitled to receive the
aggregate number and kind of shares of capital stock which, if such Right had
been exercised immediately prior to such date and at a time when the
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Preferred Shares transfer books of the Company were open, he would have owned
upon such exercise and been entitled to receive by virtue of such dividend,
subdivision, combination or reclassification; provided, however, that in no
event shall the consideration to be paid upon the exercise of one Right be less
than the aggregate par value of the shares of capital stock of the Company
issuable upon exercise of one Right.
(ii) Subject to Section 24 of this Agreement, in the event any
Person becomes an Acquiring Person, each holder of a Right, except as
otherwise provided in this Agreement, shall thereafter have a right to
receive, upon exercise thereof at a price equal to the then current
Purchase Price multiplied by the number of one one-thousandths of a
Preferred Share for which a Right is then exercisable, in accordance
with the terms of this Agreement and in lieu of Preferred Shares, such
number of Common Shares of the Company as shall equal the result
obtained by (A) multiplying the then current Purchase Price by the
number of one one-thousandths of a Preferred Share for which a Right is
then exercisable and dividing that product by (B) 50% of the then
Current Per Share Market Price of the Company's Common Shares
(determined pursuant to Section 11(d)(i) hereof) on the date of the
occurrence of such event provided, however, that the Purchase Price and
the number of Common Shares so receivable upon exercise of a Right
shall, following the time a Person becomes an Acquiring Person, be
subject to further adjustment as appropriate in accordance with Section
11(f) hereof. The Company agrees that, after the earlier of the
Distribution Date or the Shares Acquisition Date, it will not, except
as permitted by Sections 23, 24 or 27 hereof, take (or permit any
Subsidiary to take) any action if at the time such action is taken it
is reasonably foreseeable that such action will diminish substantially
or eliminate the benefits intended to be afforded by the Rights.
Notwithstanding anything in this Agreement to the contrary,
from and after the occurrence of such event, any Rights that are or were
acquired or beneficially owned by (x) any Acquiring Person (or any Associate or
Affiliate of such Acquiring Person), a transferee of any Acquiring Person
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(or any such Affiliate or Associate) who becomes a transferee after a Person
becomes an Acquiring Person or (z) a transferee of any Acquiring Person (or any
such Affiliate or Associate) who became a transferee prior to or concurrently
with a Person becoming an Acquiring Person pursuant to either (I) a transfer
from the Acquiring Person to holders of its equity securities or to any Person
with whom it has any continuing agreement, arrangement or understanding
regarding the transferred Rights or (II) a transfer which the Board of Directors
has determined is part of a plan, arrangement or understanding which has the
purpose or effect of avoiding the provisions of this paragraph, and subsequent
transferees of such Persons, shall be void and any holder of such Rights shall
thereafter have no right to exercise such Rights under any provision of this
Agreement. The Company shall use all reasonable efforts to ensure that the
provisions of this Section 11(a)(ii) are complied with, but shall have no
liability to any holder of Right Certificates or other Person as a result of its
failure to make any determinations with respect to an Acquiring Person or its
Affiliates, Associates or transferees hereunder. From and after the time a
Person becomes an Acquiring Person, no Right Certificate shall be issued
pursuant to Section 3 or Section 6 hereof that represents Rights that are or
have become void pursuant to the provisions of this paragraph, and any Right
Certificate delivered to the Rights Agent that represents Rights that are or
have become void pursuant to the provisions of this paragraph shall be canceled.
From and after the occurrence of an event specified in Section 13(a) hereof, any
Rights that theretofore have not been exercised pursuant to this Section
11(a)(ii) shall thereafter be exercisable only in accordance with Section 13 and
not pursuant to this Section 11(a)(ii).
(iii) The Company may at its option substitute for a Common
Share issuable upon the exercise of Rights in accordance with the
foregoing subparagraph (ii) a number of Preferred Shares or fraction
thereof such that the current per share market price of one Preferred
Share multiplied by such number or fraction is equal to the Current Per
Share Market Price of one Common Share. In the event that there shall
not be sufficient Common Shares issued but not outstanding or
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authorized but unissued to permit the exercise in full of the Rights in
accordance with the foregoing subparagraph (ii), the Board of Directors
shall, with respect to such deficiency, to the extent permitted by
applicable law and any material agreements then in effect to which the
Company is a party, (A) determine the excess (such excess, the
"Spread") of (1) the value of Common Shares issuable upon the exercise
of a Right in accordance with the foregoing subparagraph (ii) (the
"Current Value") over (2) the Purchase Price (as adjusted in accordance
with the foregoing subparagraph (ii)), and (B) with respect to each
Right (other than Rights which have become void pursuant to the
foregoing subparagraph (ii)), make adequate provision to substitute for
the Common Shares issuable in accordance with the foregoing
subparagraph (ii) upon exercise of the Right and payment of the
Purchase Price (as adjusted in accordance therewith), (1) cash, (2) a
reduction in such Purchase Price, (3) Preferred Shares or other equity
securities of the Company (including, without limitation, shares or
fractions of shares of preferred stock which, by virtue of having
dividend, voting and liquidation rights substantially comparable to
those of the Common Shares, are deemed in good faith by the Board of
Directors to have substantially the same value as the Common Shares
(such Preferred Shares and shares or fractions of shares of preferred
stock are hereinafter referred to as "Common Stock Equivalents")), (4)
debt securities of the Company, (5) other assets, or (6) any
combination of the foregoing, having a value which, when added to the
value of the Common Shares issued upon exercise of such Right, shall
have an aggregate value equal to the Current Value (less the amount of
any reduction in such Purchase Price), where such aggregate value has
been determined by the Board of Directors upon the advice of a
nationally recognized investment banking firm selected in good faith by
the Board of Directors; provided, however, that if the Company shall
not make adequate provision to deliver value pursuant to clause (B)
above within thirty (30) days following the time a Person becomes an
Acquiring Person (the time a Person becomes an Acquiring Person being
the "Section 11(a)(ii) Trigger Date"), then the Company shall be
obligated to deliver, to the extent permitted by applicable law and
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any material agreements then in effect to which the Company is a party,
upon the surrender for exercise of a Right and without requiring
payment of such Purchase Price of Common Shares (to the extent
available), and then, if necessary, such number or fractions of
Preferred Shares (to the extent available) and then, if necessary,
cash, which shares and/or cash have an aggregate value equal to the
Spread. If, upon the occurrence of a Person becoming an Acquiring
Person, the Board of Directors shall determine in good faith that it is
likely that sufficient additional Common Shares could be authorized for
issuance upon exercise in full of the Rights, then, if the Board of
Directors so elects, the thirty (30) day period set forth above may be
extended to the extent necessary, but not more than ninety (90) days
after the Section 11(a)(ii) Trigger Date, in order that the Company may
seek stockholder approval for the authorization of such additional
shares (such thirty (30) day period, as it may be extended, is herein
called the "Substitution Period"). To the extent that the Company
determines that some action need be taken pursuant to the second and/or
third sentence of this Section 11(a)(iii), the Company (x) shall
provide, subject to Section 11(a)(ii) hereof and the last sentence of
this Section 11(a)(iii) hereof, that such action shall apply uniformly
to all outstanding Rights and (y) may suspend the exercisability of the
Rights until the expiration of the Substitution Period in order to seek
any authorization of additional shares and/or to decide the appropriate
form of distribution to be made pursuant to such second sentence and to
determine the value thereof. In the event of any such suspension, the
Company shall issue a public announcement stating that the
exercisability of the Rights has been temporarily suspended, as well as
a public announcement at such time as the suspension is no longer in
effect. For purposes of this Section 11(a)(iii), the value of Common
Shares shall be the Current Per Share Market Price (as determined
pursuant to Section 11(d)(i)) on the Section 11(a)(ii) Trigger Date and
the per share or fractional value of any "Common Stock Equivalent"
shall be deemed to equal the current per share market price of the
Common Shares. The Board of Directors of the Company may, but shall not
be required to, establish
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procedures to allocate the right to receive Common Shares upon the
exercise of the Rights among holders of Rights pursuant to this Section
11(a)(iii).
(b) In case the Company shall fix a record date for the
issuance of rights, options or warrants to all holders of Preferred Shares
entitling them (for a period expiring within 45 calendar days after such record
date) to subscribe for or purchase Preferred Shares (or shares having the same
rights, privileges and preferences as the Preferred Shares ("equivalent
preferred shares")) or securities convertible into Preferred Shares or
equivalent preferred shares at a price per Preferred Share or equivalent
preferred share (or having a conversion price per share, if a security
convertible into Preferred Shares or equivalent preferred shares) less than the
then Current Per Share Market Price of the Preferred Shares) on such record
date, the Purchase Price to be in effect after such record date shall be
determined by multiplying the Purchase Price in effect immediately prior to such
record date by a fraction, the numerator of which shall be the number of
Preferred Shares and equivalent preferred shares outstanding on such record date
plus the number of Preferred Shares and equivalent preferred shares which the
aggregate offering price of the total number of Preferred Shares and/or
equivalent preferred shares so to be offered (and/or the aggregate initial
conversion price of the convertible securities so to be offered) would purchase
at such current market price and the denominator of which shall be the number of
Preferred Shares and equivalent preferred shares outstanding on such record date
plus the number of additional Preferred Shares and/or equivalent preferred
shares to be offered for subscription or purchase (or into which the convertible
securities so to be offered are initially convertible); provided, however, that
in no event shall the consideration to be paid upon the exercise of one Right be
less than the aggregate par value of the shares of capital stock of the Company
issuable upon exercise of one Right. In case such subscription price may be paid
in a consideration part or all of which shall be in a form other than cash, the
value of such consideration shall be as determined in good faith by the Board of
Directors, whose determination shall be described in a statement filed with the
Rights Agent and shall be binding on the Rights Agent
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and holders of the Rights. Preferred Shares and equivalent preferred shares
owned by or held for the account of the Company shall not be deemed outstanding
for the purpose of any such computation. Such adjustment shall be made
successively whenever such a record date is fixed; and in the event that such
rights, options or warrants are not so issued, the Purchase Price shall be
adjusted to be the Purchase Price which would then be in effect if such record
date had not been fixed.
(c) In case the Company shall fix a record date for the making
of a distribution to all holders of the Preferred Shares (including any such
distribution made in connection with a consolidation or merger in which the
Company is the continuing or surviving corporation) of evidences of indebtedness
or assets (other than a regular quarterly cash dividend or a dividend payable in
Preferred Shares) or subscription rights or warrants (excluding those referred
to in Section 11(b) hereof), the Purchase Price to be in effect after such
record date shall be determined by multiplying the Purchase Price in effect
immediately prior to such record date by a fraction, the numerator of which
shall be the then Current Per Share Market Price of the Preferred Shares on such
record date, less the fair market value (as determined in good faith by the
Board of Directors, whose determination shall be described in a statement filed
with the Rights Agent and shall be binding on the Rights Agent and holders of
the Rights) of the portion of the assets or evidences of indebtedness so to be
distributed or of such subscription rights or warrants applicable to one
Preferred Share and the denominator of which shall be such Current Per Share
Market Price of the Preferred Shares; provided, however, that in no event shall
the consideration to be paid upon the exercise of one Right be less than the
aggregate par value of the shares of capital stock of the Company to be issued
upon exercise of one Right. Such adjustments shall be made successively whenever
such a record date is fixed; and in the event that such distribution is not so
made, the Purchase Price shall again be adjusted to be the Purchase Price which
would then be in effect if such record date had not been fixed.
(d) (i) For the purpose of any computation hereunder, the
"Current Per Share Market Price" of any security (a "Security" for the purpose
of this
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Section 11(d)(i)) on any date shall be deemed to be the average of the daily
closing prices per share of such Security for the 30 consecutive Trading Days
immediately prior to such date; provided, however, that in the event that the
Current Per Share Market Price of the Security is determined during a period
following the announcement by the issuer of such Security of (A) a dividend or
distribution on such Security payable in shares of such Security or securities
convertible into such shares, or (B) any subdivision, combination or
reclassification of such Security and prior to the expiration of 30 Trading Days
after the ex-dividend date for such dividend or distribution, or the record date
for such subdivision, combination or reclassification, then, and in each such
case, the Current Per Share Market Price shall be appropriately adjusted to
reflect the current market price per share equivalent of such Security. The
closing price for each day shall be the last sale price, regular way, or, in
case no such sale takes place on such day, the average of the closing bid and
asked prices, regular way, in either case, as reported in the principal
consolidated transaction reporting system with respect to securities listed or
admitted to trading on the New York Stock Exchange or, if the Security is not
listed or admitted to trading on the New York Stock Exchange, as reported in the
principal consolidated transaction reporting system with respect to securities
listed on the principal national securities exchange on which the Security is
listed or admitted to trading or, if the Security is not listed or admitted to
trading on any national securities exchange, the last quoted price or, if not so
quoted, the average of the high bid and low asked prices in the over-the counter
market, as reported on the Nasdaq National Market or such other system then in
use, or, if on any such date the Security is not quoted by any such
organization, the average of the closing bid and asked prices as furnished by a
professional market maker making a market in the Security selected by the Board
of Directors. The term "Trading Day" shall mean a day on which the principal
national securities exchange on which the Security is listed or admitted to
trading is open for the transaction of business or, if the Security is not
listed or admitted to trading on any national securities exchange, a Business
Day.
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(ii) For the purpose of any computation hereunder, the
"Current Per Share Market Price" of the Preferred Shares shall be
determined in accordance with the method set forth in Section 11(d)(i).
If the Preferred Shares are not publicly traded, the "Current Per Share
Market Price" of the Preferred Shares shall be conclusively deemed to
be the Current Per Share Market Price of the Common Shares as
determined pursuant to Section 11(d)(i) (appropriately adjusted to
reflect any stock split, stock dividend or similar transaction
occurring after the date hereof), multiplied by one thousand. If
neither the Common Shares nor the Preferred Shares are publicly held or
so listed or traded, "Current Per Share Market Price" shall mean the
fair value per share as determined in good faith by the Board of
Directors, whose determination shall be described in a statement filed
with the Rights Agent and shall be binding on the Rights Agent and the
holders of the Rights.
(e) No adjustment in the Purchase Price shall be required
unless such adjustment would require an increase or decrease of at least 1% in
the Purchase Price; provided, however, that any adjustments which by reason of
this Section 11(e) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment. All calculations under this
Section 11 shall be made to the nearest cent or to the nearest one one-millionth
of a Preferred Share or one ten-thousandth of any other share or security as the
case may be. Notwithstanding the first sentence of this Section 11(e), any
adjustment required by this Section 11 shall be made no later than the earlier
of (i) three years from the date of the transaction which requires such
adjustment or (ii) the Expiration Date.
(f) If as a result of an adjustment made pursuant to Section
11(a) hereof, the holder of any Right thereafter exercised shall become entitled
to receive any shares of capital stock of the Company other than Preferred
Shares, thereafter the Purchase Price and the number of such other shares so
receivable upon exercise of any Right shall be subject to adjustment from time
to time in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to the Preferred Shares contained in Section 11(a)
through (c), inclusive, 11(h), 11(i) and 11(m)
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and the provisions of Sections 7, 9, 10, 13 and 14 with respect to the Preferred
Shares shall apply on like terms to any such other shares.
(g) All Rights originally issued by the Company subsequent to
any adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of one one-thousandths of a
Preferred Share purchasable from time to time hereunder upon exercise of the
Rights, all subject to further adjustment as provided herein.
(h) Unless the Company shall have exercised its election as
provided in Section 11(i), upon each adjustment of the Purchase Price as a
result of the calculations made in Sections 11(b) and (c), each Right
outstanding immediately prior to the making of such adjustment shall thereafter
evidence the right to purchase, at the adjusted Purchase Price, that number of
one one-thousandths of a Preferred Share (calculated to the nearest one
one-millionth of a Preferred Share) obtained by (A) multiplying (x) the number
of one one-thousandths of a share covered by a Right immediately prior to this
adjustment by (y) the Purchase Price in effect immediately prior to such
adjustment of the Purchase Price and (B) dividing the product so obtained by the
Purchase Price in effect immediately after such adjustment of the Purchase
Price.
(i) The Company may elect on or after the date of any
adjustment of the Purchase Price pursuant to Sections 11(b) or 11(c) hereof to
adjust the number of Rights in substitution for any adjustment in the number of
one one-thousandths of a Preferred Share purchasable upon the exercise of a
Right. Each of the Rights outstanding after such adjustment of the number of
Rights shall be exercisable for the number of one one-thousandths of a Preferred
Share for which a Right was exercisable immediately prior to such adjustment.
Each Right held of record prior to such adjustment of the number of Rights shall
become that number of Rights (calculated to the nearest one ten-thousandth)
obtained by dividing the Purchase Price in effect immediately prior to
adjustment of the Purchase Price by the Purchase Price in effect immediately
after adjustment of the Purchase Price. The Company shall make a public
announcement of its election to adjust the number of Rights,
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indicating the record date for the adjustment, and, if known at the time, the
amount of the adjustment to be made. This record date may be the date on which
the Purchase Price is adjusted or any day thereafter, but, if the Right
Certificates have been issued, shall be at least 10 days later than the date of
the public announcement. If Right Certificates have been issued, upon each
adjustment of the number of Rights pursuant to this Section 11(i), the Company
shall, as promptly as practicable, cause to be distributed to holders of record
of Right Certificates on such record date Right Certificates evidencing, subject
to Section 14 hereof, the additional Rights to which such holders shall be
entitled as a result of such adjustment, or, at the option of the Company, shall
cause to be distributed to such holders of record in substitution and
replacement for the Right Certificates held by such holders prior to the date of
adjustment, and upon surrender thereof, if required by the Company, new Right
Certificates evidencing all the Rights to which such holders shall be entitled
after such adjustment. Right Certificates so to be distributed shall be issued,
executed and countersigned in the manner provided for herein and shall be
registered in the names of the holders of record of Right Certificates on the
record date specified in the public announcement.
(j) Irrespective of any adjustment or change in the Purchase
Price or the number of one one-thousandths of a Preferred Share issuable upon
the exercise of the Rights, the Right Certificates theretofore and thereafter
issued may continue to express the Purchase Price and the number of one
one-thousandths of a Preferred Share which were expressed in the initial Right
Certificates issued hereunder.
(k) Before taking any action that would cause an adjustment
reducing the Purchase Price below the then par value, if any, of the fractional
Preferred Share or other shares of capital stock issuable upon exercise of the
Rights, the Company shall take any corporate action which may, in the opinion of
its counsel, be necessary in order that the Company may validly and legally
issue fully paid and nonassessable Preferred Shares or such other shares at such
adjusted Purchase Price.
(l) In any case in which this Section 11 shall require that an
adjustment in the Purchase Price be made
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effective as of a record date for a specified event, the Company may elect to
defer until the occurrence of such event the issuing to the holder of any Right
exercised after such record date of the Preferred Shares and other capital stock
or securities of the Company, if any, issuable upon such exercise over and above
the Preferred Shares and other capital stock or securities of the Company, if
any, issuable upon such exercise on the basis of the Purchase Price in effect
prior to such adjustment; provided, however, that the Company shall deliver to
such holder a due bill or other appropriate instrument evidencing such holder's
right to receive such additional shares upon the occurrence of the event
requiring such adjustment.
(m) Anything in this Section 11 to the contrary
notwithstanding, the Company shall be entitled to make such adjustments in the
Purchase Price, in addition to those adjustments expressly required by this
Section 11, as and to the extent that it, in its sole discretion, shall
determine to be advisable in order that any consolidation or subdivision of the
Preferred Shares, issuance wholly for cash of any Preferred Shares at less than
the current market price, issuance wholly for cash of Preferred Shares or
securities which by their terms are convertible into or exchangeable for
Preferred Shares, dividends on Preferred Shares payable in Preferred Shares or
issuance of rights, options or warrants referred to hereinabove in Section
11(b), hereafter made by the Company to holders of its Preferred Shares shall
not be taxable to such stockholders.
(n) Anything in this Agreement to the contrary
notwithstanding, in the event that at any time after the date of this Agreement
and prior to the Distribution Date, the Company shall (i) declare or pay any
dividend on the Common Shares payable in Common Shares, or (ii) effect a
subdivision, combination or consolidation of the Common Shares (by
reclassification or otherwise than by payment of dividends in Common Shares)
into a greater or lesser number of Common Shares, then in each such case (A) the
number of one one-thousandths of a Preferred Share purchasable after such event
upon proper exercise of each Right shall be determined by multiplying the number
of one one-thousandths of a Preferred Share so purchasable immediately prior to
such event by a fraction, the numerator of which is the
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number of Common Shares outstanding immediately before such event and the
denominator of which is the number of Common Shares outstanding immediately
after such event, and (B) each Common Share outstanding immediately after such
event shall have issued with respect to it that number of Rights which each
Common Share outstanding immediately prior to such event had issued with respect
to it. The adjustments provided for in this Section 11(n) shall be made
successively whenever such a dividend is declared or paid or such a subdivision,
combination or consolidation is effected.
SECTION 12. Certificate of Adjusted Purchase Price or Number
of Shares. Whenever an adjustment is made as provided in Section 11 or 13
hereof, the Company shall promptly (a) prepare a certificate setting forth such
adjustment, and a brief statement of the facts accounting for such adjustment,
(b) file with the Rights Agent and with each transfer agent for the Common
Shares or the Preferred Shares a copy of such certificate and (c) mail a brief
summary thereof to each holder of a Right Certificate in accordance with Section
25 hereof (if so required under Section 25 hereof).
SECTION 13. Consolidation, Merger or Sale or Transfer of
Assets or Earning Power. (a) In the event, directly or indirectly, at any time
after a Person has become an Acquiring Person, (i) the Company shall consolidate
with, or merge with and into, any other Person, (ii) any Person shall
consolidate with the Company, or merge with and into the Company and the Company
shall be the continuing or surviving corporation of such merger and, in
connection with such merger, all or part of the Common Shares shall be changed
into or exchanged for stock or other securities of any other Person (or the
Company) or cash or any other property, or (iii) the Company shall sell or
otherwise transfer (or one or more of its Subsidiaries shall sell or otherwise
transfer), in one or more transactions, assets or earning power aggregating 50%
or more of the assets or earning power of the Company and its Subsidiaries
(taken as a whole) to any other Person other than the Company or one or more of
its wholly owned Subsidiaries (except, prior to the Spinoff Date in the case of
each of (i), (ii) and (iii) above, where such other Person is a Lucent Entity),
then, and upon the first occurrence of such
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event, proper provision shall be made so that (A) each holder of a Right (except
as otherwise provided herein) shall thereafter have the right to receive, upon
the exercise thereof at a price equal to the then current Purchase Price
multiplied by the number of one one-thousandths of a Preferred Share for which a
Right is then exercisable, in accordance with the terms of this Agreement and in
lieu of Preferred Shares or Common Shares of the Company, such number of Common
Shares of such other Person (including the Company as successor thereto or as
the surviving corporation) as shall equal the result obtained by (1) multiplying
the then current Purchase Price by the number of one one-thousandths of a
Preferred Share for which a Right is then exercisable and dividing that product
by (2) 50% of the then Current Per Share Market Price of the Common Shares of
such other Person (determined pursuant to Section 11(d) hereof) on the date of
consummation of such consolidation, merger, sale or transfer, provided, however,
that the Purchase Price (as theretofore adjusted) and the number of Common
Shares of such other Person so receivable upon exercise of a Right shall be
subject to further adjustment as appropriate in accordance with Section 11(f)
hereof to reflect any events occurring in respect of the Common Shares of such
other Person after the occurrence of such consolidation, merger, sale or
transfer; (B) the issuer of such Common Shares shall thereafter be liable for,
and shall assume, by virtue of such consolidation, merger, sale or transfer, all
the obligations and duties of the Company pursuant to this Agreement; (C) the
term "Company" shall thereafter be deemed to refer to such issuer; and (D) such
issuer shall take such steps (including, but not limited to, the reservation of
a sufficient number of its Common Shares in accordance with Section 9 hereof) in
connection with such consummation as may be necessary to assure that the
provisions hereof shall thereafter be applicable, as nearly as reasonably may
be, in relation to the Common Shares thereafter deliverable upon the exercise of
the Rights; provided that, upon the subsequent occurrence of any consolidation,
merger, sale or transfer of assets or other extraordinary transaction in respect
of such other Person, each holder of a Right shall thereupon be entitled to
receive, upon exercise of a Right and payment of the Purchase Price as provided
in this Section 13(a), such cash, shares, rights, warrants and other property
which such holder would have been entitled to receive had such holder,
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at the time of such transaction, owned the Common Shares of the other Person
receivable upon the exercise of a Right pursuant to this Section 13(a), and such
other Person shall take such steps (including, but not limited to, reservation
of shares of stock) as may be necessary to permit the subsequent exercise of the
Rights in accordance with the terms hereof for such cash, shares, rights,
warrants and other property.
(b) The other Person referred to in Section 13(a) (the
"Principal Party") shall mean:
(i) in the case of any transaction described in (i) or (ii) of
the first sentence of Section 13(a) hereof: (A) the Person that is the
issuer of the securities into which the Common Shares are converted in
such merger or consolidation, or, if there is more than one such
issuer, the issuer the Common Shares of which have the greatest
aggregate market value of shares outstanding, or (B) if no securities
are so issued, (x) the Person that is the other party to the merger, if
such Person survives said merger, or, if there is more than one such
Person, the Person the Common Shares of which have the greatest
aggregate market value of shares outstanding or (y) if the Person that
is the other party to the merger does not survive the merger, the
Person that does survive the merger (including the Company if it
survives) or (z) the Person resulting from the consolidation; and
(ii) in the case of any transaction described in (iii) of the
first sentence of Section 13(a) hereof, the Person that is the party
receiving the greatest portion of the assets or earning power
transferred pursuant to such transaction or transactions, or, if each
Person that is a party to such transaction or transactions receives the
same portion of the assets or earning power so transferred or if the
Person receiving the greatest portion of the assets or earning power
cannot be determined, whichever of such Persons is the issuer of Common
Shares having the greatest aggregate market value of shares
outstanding;
provided, however, that in any such case described in the foregoing clause
(b)(i) or (b)(ii), if the Common Shares of
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such Person are not at such time or has not been continuously over the preceding
12-month period registered under Section 12 of the Exchange Act, then (1) if
such Person is a direct or indirect Subsidiary of another Person the Common
Shares of which are and have been so registered, the term "Principal Party"
shall refer to such other Person, or (2) if such Person is a Subsidiary,
directly or indirectly, of more than one Person, the Common Shares of all of
which are and have been so registered, the term "Principal Party" shall refer to
whichever of such Persons is the issuer of Common Shares having the greatest
aggregate market value of shares outstanding, or (3) if such Person is owned,
directly or indirectly, by a joint venture formed by two or more Persons that
are not owned, directly or indirectly, by the same Person, the rules set forth
in clauses (1) and (2) above shall apply to each of the owners having an
interest in the venture as if the Person owned by the joint venture was a
Subsidiary of both or all of such joint venturers, and the Principal Party in
each such case shall bear the obligations set forth in this Section 13 in the
same ratio as its interest in such Person bears to the total of such interests.
(c) The Company shall not consummate any such consolidation,
merger, sale or transfer unless prior thereto the Company and such issuer shall
have executed and delivered to the Rights Agent an agreement confirming that the
requirements of Sections 13(a) and (b) hereof shall promptly be performed in
accordance with their terms and that such consolidation, merger, sale or
transfer of assets shall not result in a default by the Principal Party under
this Agreement as the same shall have been assumed by the Principal Party
pursuant to Sections 13(a) and (b) hereof and providing that, as soon as
practicable after executing such agreement pursuant to this Section 13, the
Principal Party will:
(i) prepare and file a registration statement under the
Securities Act, if necessary, with respect to the Rights and the
securities purchasable upon exercise of the Rights on an appropriate
form, use its best efforts to cause such registration statement to
become effective as soon as practicable after such filing and use its
best efforts to cause such registration statement to remain effective
(with a prospectus at all
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times meeting the requirements of the Securities Act) until the
Expiration Date and similarly comply with applicable state securities
laws;
(ii) use its best efforts, if the Common Shares of the
Principal Party shall be listed or admitted to trading on the New York
Stock Exchange or on another national securities exchange, to list or
admit to trading (or continue the listing of) the Rights and the
securities purchasable upon exercise of the Rights on the New York
Stock Exchange or such securities exchange, or, if the Common Shares of
the Principal Party shall not be listed or admitted to trading on the
New York Stock Exchange or a national securities exchange, to cause the
Rights and the securities receivable upon exercise of the Rights to be
authorized for quotation on NASDAQ or on such other system then in use;
(iii) deliver to holders of the Rights historical financial
statements for the Principal Party which comply in all respects with
the requirements for registration on Form 10 (or any successor form)
under the Exchange Act; and
(iv) obtain waivers of any rights of first refusal or
preemptive rights in respect of the Common Shares of the Principal
Party subject to purchase upon exercise of outstanding Rights.
(d) In case the Principal Party has a provision in any of its
authorized securities or in its certificate of incorporation or by-laws or other
instrument governing its affairs, which provision would have the effect of (i)
causing such Principal Party to issue (other than to holders of Rights pursuant
to this Section 13), in connection with, or as a consequence of, the
consummation of a transaction referred to in this Section 13, Common Shares or
Common Stock Equivalents of such Principal Party at less than the then current
market price per share thereof (determined pursuant to Section 11(d) hereof) or
securities exercisable for, or convertible into, Common Shares or Common Stock
Equivalents of such Principal Party at less than such then current market price,
or (ii) providing for any special payment, tax or similar provision in
connection with the
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issuance of the Common Shares of such Principal Party pursuant to the provisions
of Section 13, then, in such event, the Company hereby agrees with each holder
of Rights that it shall not consummate any such transaction unless prior thereto
the Company and such Principal Party shall have executed and delivered to the
Rights Agent a supplemental agreement providing that the provision in question
of such Principal Party shall have been canceled, waived or amended, or that the
authorized securities shall be redeemed, so that the applicable provision will
have no effect in connection with, or as a consequence of, the consummation of
the proposed transaction. The Company shall not enter into any transaction of
the kind referred to in this Section 13(i) if at the time of or immediately
after such transaction there are any rights, warrants, instruments or other
instruments or securities outstanding or any agreements or arrangements which
would eliminate or substantially diminish the benefits intended to be afforded
by the Rights, (ii) prior to, simultaneously with or immediately after such
consolidation, merger, sale, transfer or other transaction, the stockholders of
the Person who constitutes, or would constitute, the Principal Party for
purposes of Section 13(b) hereof shall have received a distribution of Rights
previously owned by such Person or any of its Affiliates or Associates or (iii)
the form or nature of organization of the Principal Party would preclude or
limit the exercisability of the Rights. The provisions of this Section 13 shall
similarly apply to successive mergers or consolidations or sales or other
transfers.
SECTION 14. Fractional Rights and Fractional Shares. (a) The
Company shall not be required to issue fractions of Rights or to distribute
Right Certificates which evidence fractional Rights. In lieu of such fractional
Rights, there shall be paid to the registered holders of the Right Certificates
with regard to which such fractional Rights would otherwise be issuable, an
amount in cash equal to the same fraction of the current market value of a whole
Right. For the purposes of this Section 14(a), the current market value of a
whole Right shall be the closing price of the Rights for the Trading Day
immediately prior to the date on which such fractional Rights would have been
otherwise issuable. The closing price for any day shall be the last sale price,
regular way, or, in case no such sale takes place on such day, the average of
the
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closing bid and asked prices, regular way, in either case, as reported in the
principal consolidated transaction reporting system with respect to securities
listed or admitted to trading on the New York Stock Exchange or, if the Rights
are not listed or admitted to trading on the New York Stock Exchange, as
reported in the principal consolidated transaction reporting system with respect
to securities listed on the principal national securities exchange on which the
Rights are listed or admitted to trading or, if the Rights are not listed or
admitted to trading on any national securities exchange, the last quoted price
or, if not so quoted, the average of the high bid and low asked prices in the
over-the-counter market, as reported on the Nasdaq National Market or such other
system then in use or, if on any such date the Rights are not quoted by any such
organization, the average of the closing bid and asked prices as furnished by a
professional market maker making a market in the Rights selected by the Board of
Directors. If on any such date no such market maker is making a market in the
Rights, the fair value of the Rights on such date as determined in good faith by
the Board of Directors shall be used.
(b) The Company shall not be required to issue fractions of
Preferred Shares (other than fractions which are integral multiples of one
one-thousandth of a Preferred Share) upon exercise or exchange of the Rights or
to distribute certificates which evidence fractional Preferred Shares (other
than fractions which are integral multiples of one one-thousandth of a
Preferred Share). Interests on fractions of Preferred Shares in integral
multiples of one one-thousandth of a Preferred Share may, at the election of the
Company, be evidenced by depositary receipts, pursuant to an appropriate
agreement between the Company and a depositary selected by it; provided that
such agreement shall provide that the holders of such depositary receipts shall
have all the rights, privileges and preferences to which they are entitled as
beneficial owners of the Preferred Shares represented by such depositary
receipts. In lieu of fractional Preferred Shares that are not integral multiples
of one one-thousandth of a Preferred Share, the Company shall pay to the
registered holders of Right Certificates at the time such Rights are exercised
as herein provided an amount in cash equal to the same fraction of the current
market value of one Preferred Share. For the
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purposes of this Section 14(b), the current market value of a Preferred Share
shall be the closing price of a Preferred Share (as determined pursuant to the
second sentence of Section 11(d)(i) hereof) for the Trading Day immediately
prior to the date of such exercise or exchange.
(c) The Company shall not be required to issue fractional
Common Shares or to distribute certificates which evidence fractional Common
Shares upon the exercise or exchange of Rights. In lieu of such fractional
Common Shares, the Company shall pay to the registered holders of the Right
Certificates with regard to which such fractional Common Shares would otherwise
be issuable an amount in cash equal to the same fraction of the current market
value of a whole Common Share (as determined in accordance with Section 14(a)
hereof) for the Trading Day immediately prior to the date of such exercise or
exchange.
(d) The holder of a Right by the acceptance of the Right
expressly waives his right to receive any fractional Rights or any fractional
shares upon exercise or exchange of a Right (except as provided above).
SECTION 15. Rights of Action. All rights of action in respect
of this Agreement, excepting the rights of action given to the Rights Agent
under Section 18 hereof, are vested in the respective registered holders of the
Right Certificates (and, prior to the Distribution Date, the registered holders
of the Common Shares); and any registered holder of any Right Certificate (or,
prior to the Distribution Date, of the Common Shares), without the consent of
the Rights Agent or of the holder of any other Right Certificate (or, prior to
the Distribution Date, of the Common Shares), may, in his own behalf and for his
own benefit, enforce, and may institute and maintain any suit, action or
proceeding against the Company to enforce, or otherwise act in respect of, his
right to exercise the Rights evidenced by such Right Certificate (or, prior to
the Distribution Date, such Common Shares) in the manner provided in therein and
in this Agreement. Without limiting the foregoing or any remedies available to
the holders of Rights, it is specifically acknowledged that the holders of
Rights would not have an adequate remedy at law for any breach of this Agreement
and will be entitled to specific performance of the obligations under, and
injunctive relief
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against actual or threatened violations of the obligations of any Person subject
to, this Agreement.
SECTION 16. Agreement of Right Holders. Every holder of a
Right, by accepting the same, consents and agrees with the Company and the
Rights Agent and with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will be
transferable only in connection with the transfer of the Common Shares;
(b) after the Distribution Date, the Right Certificates are
transferable only on the registry books of the Rights Agent if surrendered at
the principal office of the Rights Agent, duly endorsed or accompanied by a
proper instrument of transfer; and
(c) the Company and the Rights Agent may deem and treat the
person in whose name the Right Certificate (or, prior to the Distribution Date,
the associated Common Shares certificate) is registered as the absolute owner
thereof and of the Rights evidenced thereby (notwithstanding any notations of
ownership or writing on the Right Certificate or the associated Common Shares
certificate made by anyone other than the Company or the Rights Agent) for all
purposes whatsoever, and neither the Company nor the Rights Agent, subject to
Section 7(e) hereof, shall be affected by any notice to the contrary.
SECTION 17. Right Certificate Holder Not Deemed a Stockholder.
No holder, as such, of any Right Certificate shall be entitled to vote, receive
dividends or be deemed for any purpose the holder of the Preferred Shares or any
other securities of the Company which may at any time be issuable on the
exercise or exchange of the Rights represented thereby, nor shall anything
contained herein or in any Right Certificate be construed to confer upon the
holder of any Right Certificate, as such, any of the rights of a stockholder of
the Company or any right to vote for the election of directors or upon any
matter submitted to stockholders at any meeting thereof, or to give or withhold
consent to any corporate action, or to receive notice of meetings or other
actions affecting stockholders (except as provided in this Agreement), or to
receive dividends or
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subscription rights, or otherwise, until the Right or Rights evidenced by such
Right Certificate shall have been exercised or exchanged in accordance with the
provisions hereof.
SECTION 18. Concerning the Rights Agent. The Company agrees to
pay to the Rights Agent reasonable compensation for all services rendered by it
hereunder and, from time to time, on demand of the Rights Agent, its reasonable
expenses and counsel fees and other disbursements incurred in the administration
and execution of this Agreement and the exercise and performance of its duties
hereunder. The Company also agrees to indemnify the Rights Agent for, and to
hold it harmless against, any loss, liability, or expense incurred without
negligence, bad faith or willful misconduct on the part of the Rights Agent, for
anything done or omitted by the Rights Agent in connection with the acceptance
and administration of this Agreement, including the costs and expenses of
defending against any claim of liability in the premises.
The Rights Agent shall be protected and shall incur no
liability for, or in respect of any action taken, suffered or omitted by it in
connection with, its administration of this Agreement in reliance upon any Right
Certificate or certificate for the Preferred Shares or Common Shares or for
other securities of the Company, instrument of assignment or transfer, power of
attorney, endorsement, affidavit, letter, notice, direction, consent,
certificate, statement, or other paper or document believed by it to be genuine
and to be signed, executed and, where necessary, verified or acknowledged, by
the proper Person or Persons, or otherwise upon the advice of counsel as set
forth in Section 20 hereof.
SECTION 19. Merger or Consolidation or Change of Name of
Rights Agent. Any corporation into which the Rights Agent or any successor
Rights Agent may be merged or with which it may be consolidated, or any
corporation resulting from any merger or consolidation to which the Rights Agent
or any successor Rights Agent shall be a party, or any corporation succeeding to
the stock transfer or corporate trust powers of the Rights Agent or any
successor Rights Agent, shall be the successor to the Rights Agent under this
Agreement without the execution or filing of any paper or
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any further act on the part of any of the parties hereto; provided that such
corporation would be eligible for appointment as a successor Rights Agent under
the provisions of Section 21 hereof. In case at the time such successor Rights
Agent shall succeed to the agency created by this Agreement, any of the Right
Certificates shall have been countersigned but not delivered, any such successor
Rights Agent may adopt the countersignature of the predecessor Rights Agent and
deliver such Right Certificates so countersigned; and, in case at that time any
of the Right Certificates shall not have been countersigned, any successor
Rights Agent may countersign such Right Certificates either in the name of the
predecessor Rights Agent or in the name of the successor Rights Agent; and in
all such cases such Right Certificates shall have the full force provided in the
Right Certificates and in this Agreement.
In case at any time the name of the Rights Agent shall be
changed and at such time any of the Right Certificates shall have been
countersigned but not delivered, the Rights Agent may adopt the countersignature
under its prior name and deliver Right Certificates so countersigned; and in
case at that time any of the Right Certificates shall not have been
countersigned, the Rights Agent may countersign such Right Certificates either
in its prior name or in its changed name; and in all such cases such Right
Certificates shall have the full force provided in the Right Certificates and in
this Agreement.
SECTION 20. Duties of Rights Agent. The Rights Agent
undertakes the duties and obligations imposed by this Agreement upon the
following terms and conditions, by all of which the Company and the holders of
Right Certificates, by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel (who may
be legal counsel for the Company), and the opinion of such counsel shall be full
and complete authorization and protection to the Rights Agent as to any action
taken or omitted by it in good faith and in accordance with such opinion.
(b) Whenever in the performance of its duties under this
Agreement the Rights Agent shall deem it
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necessary or desirable that any fact or matter be proved or established by the
Company prior to taking or suffering any action hereunder, such fact or matter
(unless other evidence in respect thereof be herein specifically prescribed) may
be deemed to be conclusively proved and established by a certificate signed by
any one of the Chairman of the Board, the Chief Executive Officer, the
President, any Vice President, the Treasurer or the Secretary of the Company and
delivered to the Rights Agent; and such certificate shall be full authorization
to the Rights Agent for any action taken or suffered in good faith by it under
the provisions of this Agreement in reliance upon such certificate.
(c) The Rights Agent shall be liable hereunder to the Company
and any other Person only for its own negligence, bad faith or willful
misconduct.
(d) The Rights Agent shall not be liable for or by reason of
any of the statements of fact or recitals contained in this Agreement or in the
Right Certificates (except its countersignature thereof) or be required to
verify the same, but all such statements and recitals are and shall be deemed to
have been made by the Company only.
(e) The Rights Agent shall not be under any responsibility in
respect of the validity of this Agreement or the execution and delivery hereof
(except the due execution hereof by the Rights Agent) or in respect of the
validity or execution of any Right Certificate (except its countersignature
thereof); nor shall it be responsible for any breach by the Company of any
covenant or condition contained in this Agreement or in any Right Certificate;
nor shall it be responsible for any change in the exercisability of the Rights
(including the Rights becoming void pursuant to Section 11(a)(ii) hereof) or any
adjustment in the terms of the Rights (including the manner, method or amount
thereof) provided for in Section 3, 11, 13, 23 or 24, or the ascertaining of the
existence of facts that would require any such change or adjustment (except with
respect to the exercise of Rights evidenced by Right Certificates after actual
notice that such change or adjustment is required); nor shall it by any act
hereunder be deemed to make any representation or warranty as to the
authorization or reservation of any Preferred Shares to be issued pursuant to
this Agreement or any Right Certificate or as to whether any
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Preferred Shares will, when issued, be validly authorized and issued, fully paid
and nonassessable.
(f) The Company agrees that it will perform, execute,
acknowledge and deliver or cause to be performed, executed, acknowledged and
delivered all such further and other acts, instruments and assurances as may
reasonably be required by the Rights Agent for the carrying out or performing by
the Rights Agent of the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to
accept instructions with respect to the performance of its duties hereunder from
any one of the Chairman of the Board, the Chief Executive Officer, the
President, any Vice President, the Secretary or the Treasurer of the Company,
and to apply to such officers for advice or instructions in connection with its
duties, and it shall not be liable for any action taken or suffered by it in
good faith in accordance with instructions of any such officer or for any delay
in acting while waiting for those instructions.
(h) The Rights Agent and any stockholder, director, officer or
employee of the Rights Agent may buy, sell or deal in any of the Rights or other
securities of the Company or become pecuniarily interested in any transaction in
which the Company may be interested, or contract with or lend money to the
Company or otherwise act as fully and freely as though it were not Rights Agent
under this Agreement. Nothing herein shall preclude the Rights Agent from acting
in any other capacity for the Company or for any other legal entity.
(i) The Rights Agent may execute and exercise any of the
rights or powers hereby vested in it or perform any duty hereunder either itself
or by or through its attorneys or agents, and the Rights Agent shall not be
answerable or accountable for any act, default, neglect or misconduct of any
such attorneys or agents or for any loss to the Company resulting from any such
act, default, neglect or misconduct, provided reasonable care was exercised in
the selection and continued employment thereof.
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(j) If, with respect to any Rights Certificate surrendered to
the Rights Agent for exercise or transfer, the certificate contained in the form
of assignment or the form of election to purchase set forth on the reverse
thereof, as the case may be, has not been completed to certify the holder is not
an Acquiring Person (or an Affiliate or Associate thereof) or a transferee
thereof, the Rights Agent shall not take any further action with respect to such
requested exercise or transfer without first consulting with the Company.
SECTION 21. Change of Rights Agent. The Rights Agent or any
successor Rights Agent may resign and be discharged from its duties under this
Agreement upon 30 days' notice in writing mailed to the Company and to each
transfer agent of the Common Shares or Preferred Shares by registered or
certified mail, and, following the Distribution Date, to the holders of the
Right Certificates by first-class mail. The Company may remove the Rights Agent
or any successor Rights Agent upon 30 days' notice in writing, mailed to the
Rights Agent or successor Rights Agent, as the case may be, and to each transfer
agent of the Common Shares or Preferred Shares by registered or certified mail,
and, following the Distribution Date, to the holders of the Right Certificates
by first-class mail. If the Rights Agent shall resign or be removed or shall
otherwise become incapable of acting, the Company shall appoint a successor to
the Rights Agent. If the Company shall fail to make such appointment within a
period of 30 days after giving notice of such removal or after it has been
notified in writing of such resignation or incapacity by the resigning or
incapacitated Rights Agent or by the holder of a Right Certificate (who shall,
with such notice, submit his Right Certificate for inspection by the Company),
then the registered holder of any Right Certificate may apply to any court of
competent jurisdiction for the appointment of a new Rights Agent. Any successor
Rights Agent, whether appointed by the Company or by such a court, shall be a
corporation organized and doing business under the laws of the United States or
of the State of New York (or of any other state of the United States so long as
such corporation is authorized to do business as a banking institution in the
State of New York, in good standing, having an office in the State of New York,
which is authorized under such laws to exercise corporate trust or stock
transfer powers and is subject to
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supervision or examination by federal or state authority and which has at the
time of its appointment as Rights Agent a combined capital and surplus of at
least $50 million. After appointment, the successor Rights Agent shall be vested
with the same powers, rights, duties and responsibilities as if it had been
originally named as Rights Agent without further act or deed; but the
predecessor Rights Agent shall deliver and transfer to the successor Rights
Agent any property at the time held by it hereunder, and execute and deliver any
further assurance, conveyance, act or deed necessary for the purpose. Not later
than the effective date of any such appointment, the Company shall file notice
thereof in writing with the predecessor Rights Agent and each transfer agent of
the Common Shares or Preferred Shares, and, following the Distribution Date,
mail a notice thereof in writing to the registered holders of the Right
Certificates. Failure to give any notice provided for in this Section 21,
however, or any defect therein, shall not affect the legality or validity of the
resignation or removal of the Rights Agent or the appointment of the successor
Rights Agent, as the case may be.
SECTION 22. Issuance of New Right Certificates.
Notwithstanding any of the provisions of this Agreement or of the Rights to the
contrary, the Company may, at its option, issue new Right Certificates
evidencing Rights in such form as may be approved by the Board of Directors to
reflect any adjustment or change in the Purchase Price and the number or kind or
class of shares or other securities or property purchasable under the Right
Certificates made in accordance with the provisions of this Agreement. In
addition, in connection with the issuance or sale of Common Shares following the
Distribution Date and prior to the Expiration Date, the Company may with respect
to Common Shares so issued or sold pursuant to (i) the exercise of stock
options, (ii) under any employee plan or arrangement, (iii) upon the exercise,
conversion or exchange of securities, notes or debentures issued by the Company,
or (iv) a contractual obligation of the Company, in each case existing prior to
the Distribution Date, issue Rights Certificates representing the appropriate
number of Rights in connection with such issuance or sale; provided, however,
that (i) no such Right Certificate shall be issued if, and to the extent that,
the Company shall be advised by counsel that such issuance would create a
significant risk of
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material adverse tax consequences to the Company or the Person to whom such
Right Certificate would be issued, (ii) no such Right Certificate shall be
issued if, and to the extent that, appropriate adjustment shall otherwise have
been made in lieu of the issuance thereof and (iii) no such Right Certificate
shall be issued in respect of Rights that have become void pursuant to the terms
hereof.
SECTION 23. Redemption. (a) The Board of Directors may, at its
option, at any time prior to such time as any Person becomes an Acquiring
Person, redeem all but not less than all the then outstanding Rights at a
redemption price of $.01 per Right, appropriately adjusted to reflect any stock
split, stock dividend or similar transaction occurring in respect of the Common
Shares after the date hereof (such redemption price being hereinafter referred
to as the "Redemption Price"). The redemption of the Rights may be made
effective at such time, on such basis and with such conditions as the Board of
Directors, in its sole discretion, may establish. The Redemption Price shall be
payable, at the option of the Company, in cash, Common Shares, or such other
form of consideration as the Board of Directors shall determine.
(b) Immediately upon the action of the Board of Directors
ordering the redemption of the Rights pursuant to paragraph (a) of this Section
23 (or at such later time as the Board of Directors may establish for the
effectiveness of such redemption), and without any further action and without
any notice, the right to exercise the Rights will terminate and the only right
thereafter of the holders of Rights shall be to receive the Redemption Price.
The Company shall promptly give public notice of any such redemption; provided,
however, that the failure to give, or any defect in, any such notice shall not
affect the validity of such redemption. Within 10 days after such action of the
Board of Directors ordering the redemption of the Rights (or at such later time
as the Board of Directors may establish for the effectiveness of such
redemption), the Company shall mail a notice of redemption to all the holders of
the then outstanding Rights at their last addresses as they appear upon the
registry books of the Rights Agent or, prior to the Distribution Date, on the
registry books of the transfer agent for the Common Shares. Any notice which is
mailed in
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the manner herein provided shall be deemed given, whether or not the holder
receives the notice. Each such notice of redemption will state the method by
which the payment of the Redemption Price will be made. Neither the Company nor
any of its Affiliates or Associates may redeem, acquire or purchase for value
any Rights at any time in any manner other than that specifically set forth in
this Section 23 or in Section 24 hereof, and other than in connection with the
acquisition of Common Shares prior to the Distribution Date.
SECTION 24. Exchange. (a) The Board of Directors may, at its
option, at any time after any Person becomes an Acquiring Person, exchange all
or part of the then outstanding and exercisable Rights (which shall not include
Rights that have become void pursuant to the provisions of Section 11(a)(ii)
hereof) for Common Shares at an exchange ratio of one Common Share per Right,
appropriately adjusted to reflect any stock split, stock dividend or similar
transaction occurring in respect of the Common Shares after the date hereof
(such exchange ratio being hereinafter referred to as the "Exchange Ratio").
Notwithstanding the foregoing, the Board of Directors shall not be empowered to
effect such exchange at any time after any Person (other than the Company, any
Subsidiary of the Company, any employee benefit plan of the Company or of any
Subsidiary of the Company or any entity holding Common Shares for or pursuant to
the terms of any such plan or, prior to the Spinoff Date, any Lucent Entity),
together with all Affiliates and Associates of such Person, becomes the
Beneficial Owner of 50% or more of the Common Shares then outstanding. From and
after the occurrence of an event specified in Section 13(a) hereof, any Rights
that theretofore have not been exchanged pursuant to this Section 24(a) shall
thereafter be exercisable only in accordance with Section 13 and may not be
exchanged pursuant to this Section 24(a). The exchange of the Rights by the
Board of Directors may be made effective at such time, on such basis and with
such conditions as the Board of Directors in its sole discretion may establish.
(b) Immediately upon the effectiveness of the action of the
Board of Directors ordering the exchange of any Rights pursuant to paragraph (a)
of this Section 24 and without any further action and without any notice, the
right to exercise such Rights shall terminate and the only right
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thereafter of a holder of such Rights shall be to receive that number of Common
Shares equal to the number of such Rights held by such holder multiplied by the
Exchange Ratio. The Company shall promptly give public notice of any such
exchange; provided, however, that the failure to give, or any defect in, such
notice shall not affect the validity of such exchange. The Company promptly
shall mail a notice of any such exchange to all of the holders of such Rights at
their last addresses as they appear upon the registry books of the Rights Agent.
Any notice which is mailed in the manner herein provided shall be deemed given,
whether or not the holder receives the notice. Each such notice of exchange will
state the method by which the exchange of the Common Shares for Rights will be
effected and, in the event of any partial exchange, the number of Rights which
will be exchanged. Any partial exchange shall be effected pro rata based on the
number of Rights (other than Rights which have become void pursuant to the
provisions of Section 11(a)(ii) hereof) held by each holder of Rights.
(c) The Company may at its option substitute and, in the event
that there shall not be sufficient Common Shares issued but not outstanding or
authorized but unissued to permit any exchange of Rights as contemplated in
accordance with this Section 24, the Company shall substitute to the extent of
such insufficiency, for each Common Share that would otherwise be issuable upon
exchange of a Right, a number of Preferred Shares or fraction thereof (or
equivalent preferred shares) such that the Current Per Share Market Price of one
Preferred Share (or equivalent preferred share) multiplied by such number or
fraction is equal to the Current Per Share Market Price of one Common Share as
of the date of issuance of such Preferred Shares (or equivalent preferred share)
or fraction thereof.
(d) The Company shall not be required to issue fractions of
Common Shares or to distribute certificates which evidence fractional Common
Shares. In lieu of such fractional Common Shares, the Company shall pay to the
registered holders of the Right Certificates with regard to which such
fractional Common Shares would otherwise be issuable an amount in cash equal to
the same fraction of the current market value of a whole Common Share. For the
purposes of this paragraph (d), the current market value of a whole Common Share
shall be the closing price of a Common
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Share (as determined pursuant to the second sentence of Section 11(d)(i) hereof)
for the Trading Day immediately prior to the date of exchange pursuant to this
Section 24.
SECTION 25. Notice of Certain Events. (a) In case the Company
shall at any time after the earlier of the Distribution Date or the Shares
Acquisition Date propose (i) to pay any dividend payable in stock of any class
to the holders of its Preferred Shares or to make any other distribution to the
holders of its Preferred Shares (other than a regular quarterly cash dividend),
(ii) to offer to the holders of its Preferred Shares rights or warrants to
subscribe for or to purchase any additional Preferred Shares or shares of stock
of any class or any other securities, rights or options, (iii) to effect any
reclassification of its Preferred Shares (other than a reclassification
involving only the subdivision of outstanding Preferred Shares), (iv) to effect
any consolidation or merger into or with, or to effect any sale or other
transfer (or to permit one or more of its Subsidiaries to effect any sale or
other transfer), in one or more transactions, of 50% or more of the assets or
earning power of the Company and its Subsidiaries (taken as a whole) to, any
other Person, (v) to effect the liquidation, dissolution or winding up of the
Company, or (vi) to declare or pay any dividend on the Common Shares payable in
Common Shares or to effect a subdivision, combination or consolidation of the
Common Shares (by reclassification or otherwise than by payment of dividends in
Common Shares), then, in each such case, the Company shall give to each holder
of a Right Certificate, in accordance with Section 26 hereof, a notice of such
proposed action, which shall specify the record date for the purposes of such
stock dividend, or distribution of rights or warrants, or the date on which such
reclassification, consolidation, merger, sale, transfer, liquidation,
dissolution, subdivision or winding up is to take place and the date of
participation therein by the holders of the Common Shares and/or Preferred
Shares, if any such date is to be fixed, and such notice shall be so given in
the case of any action covered by clause (i) or (ii) above at least 10 days
prior to the record date for determining holders of the Preferred Shares for
purposes of such action, and in the case of any such other action, at least 10
days prior to the date of the taking of such proposed action or the date of
participation therein by the holders of the Common Shares
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and/or Preferred Shares, whichever shall be the earlier; provided, that, prior
to the Distribution Date, any notice in regard to a declaration or payment of
any dividend on the Common Shares payable in Common Shares or to effect a
subdivision, combination or consolidation of the Common Shares (by
reclassification or otherwise than by payment of dividends in Common Shares)
shall be adequately given if given within a reasonable time after the issuance
date for such stock dividend or effective date of such subdivision, combination
or consolidation.
(b) In case the event set forth in Section 11(a)(ii) or
Section 13 hereof shall occur, then the Company shall as soon as practicable
thereafter give to each holder of a Right Certificate (or if occurring prior to
the Distribution Date, the holders of the Common Shares), in accordance with
Section 26 hereof, a notice of the occurrence of such event, which notice shall
describe such event and the consequences of such event to holders of Rights
under Section 11(a)(ii) and Section 13 hereof.
SECTION 26. Notices. Notices or demands authorized by this
Agreement to be given or made by the Rights Agent or by the holder of any Right
Certificate to or on the Company shall be sufficiently given or made if sent by
first-class mail, postage prepaid, addressed (until another address is filed in
writing with the Rights Agent) as follows:
Avaya Inc.
211 Mount Airy Road
Basking Ridge, NJ 07920
Attention: Corporate Secretary
Subject to the provisions of Section 21 hereof, any notice or demand authorized
by this Agreement to be given or made by the Company or by the holder of any
Right Certificate to or on the Rights Agent shall be sufficiently given or made
if sent by first-class mail, postage prepaid, addressed (until another address
is filed in writing with the Company) as follows:
The Bank of New York
One Wall Street
New York, NY 10286
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Attention: Corporate Secretary
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Right Certificate shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed to such holder at the address of such holder as shown on the registry
books of the Company.
SECTION 27. Supplements and Amendments. At any time prior to
the time any person becomes an Acquiring Person, and subject to the last
sentence of this Section 27, the Company may, and the Rights Agent shall if the
Company so directs, supplement or amend any provision of this Rights Agreement
in any manner which the Company may deem necessary or desirable (including the
date on which the Expiration Date or the Distribution Date shall occur, the
amount of the Purchase Price, the definition of "Acquiring Person" or the time
during which the Rights may be redeemed pursuant to Section 23) without the
approval of any holder of Rights. From and after the time any Person becomes an
Acquiring Person, and subject to applicable law and the last sentence of this
Section 27, the Company may, and the Rights Agent shall if the Company so
directs, amend this Agreement without the approval of any holders of Rights (a)
to cure any ambiguity or to correct or supplement any provision contained herein
which may be defective or inconsistent with any other provision of this Rights
Agreement or (b) to otherwise change or supplement any other provisions in this
Agreement in any matter which the Company may deem necessary or desirable and
which in each such case shall not (i) adversely affect the interests of the
holders of Rights as such (other than an Acquiring Person or an Affiliate or
Associate of an Acquiring Person) (ii) cause this Agreement again to become
amendable other than in accordance with this sentence or (iii) cause the Rights
again to become redeemable. Any supplement or amendment to this Agreement duly
approved by the Company that does not amend Section 19, 20 or 21 in a manner
adverse to the Rights Agent shall become effective immediately upon execution by
the Company, whether or not also executed by the Rights Agent. In addition,
notwithstanding anything to the contrary contained in this Rights Agreement, no
supplement or amendment to this Rights Agreement shall be made which reduces the
Redemption Price (except as required by Section 11(a)(i)).
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SECTION 28. Successors. All the covenants and provisions of
this Agreement by or for the benefit of the Company or the Rights Agent shall
bind and inure to the benefit of their respective successors and assigns
hereunder.
SECTION 29. Benefits of this Agreement. Nothing in this
Agreement shall be construed to give to any Person other than the Company, the
Rights Agent and the registered holders of the Right Certificates (and, prior to
the Distribution Date, the Common Shares) any legal or equitable right, remedy
or claim under this Agreement; but this Agreement shall be for the sole and
exclusive benefit of the Company, the Rights Agent and the registered holders of
the Right Certificates (and, prior to the Distribution Date, the Common Shares).
SECTION 30. Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated.
SECTION 31. Governing Law. This Agreement and each Right
Certificate issued hereunder shall be deemed to be a contract made under the
laws of the State of Delaware and for all purposes shall be governed by and
construed in accordance with the laws of such State applicable to contracts to
be made and performed entirely within such State.
SECTION 32. Counterparts. This Agreement may be executed in
any number of counterparts and each of such counterparts shall for all purposes
be deemed to be an original, and all such counterparts shall together constitute
but one and the same instrument.
SECTION 33. Descriptive Headings. Descriptive headings of the
several Sections of this Agreement are inserted for convenience only and shall
not control or affect the meaning or construction of any of the provisions
hereof.
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and attested, all as of the day and year first
above written.
AVAYA INC.,
by
------------------------------------
Name:
Title:
Attest:
by
---------------------------
Name:
Title:
THE BANK OF NEW YORK,
by
------------------------------------
Name:
Title:
Attest:
by
---------------------------
Name:
Title:
57
EXHIBIT A
FORM
of
CERTIFICATE OF DESIGNATIONS
of
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
of
AVAYA INC.
(Pursuant to Section 151 of the
Delaware General Corporation Law)
----------------------------
Avaya Inc., a corporation organized and existing under the
General Corporation Law of the State of Delaware (hereinafter called the
"Corporation"), hereby certifies that the following resolution was adopted by
the Board of Directors of the Corporation as required by Section 151 of the
General Corporation Law on [-], 2000:
RESOLVED, that pursuant to the authority granted to and vested
in the Board of Directors of this Corporation (hereinafter called the "Board of
Directors" or the "Board") in accordance with the provisions of the Restated
Certificate of Incorporation, the Board of Directors hereby creates a series of
Preferred Stock, par value $1.00 per share, of the Corporation (the "Preferred
Stock") and hereby states the designation and number of shares thereof and the
voting and other powers, preferences and relative, participating, optional or
other rights of the shares of such series and the qualifications, limitations
and restrictions thereof are as follows:
Series A Junior Participating Preferred Stock:
Section 1. Designation and Amount. The shares of such series
shall be designated as "Series A Junior
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2
Participating Preferred Stock" (the "Series A Preferred Stock") and the number
of shares constituting the Series A Preferred Stock shall be [ ]. Such number of
shares may be increased or decreased by resolution of the Board of Directors;
provided that no decrease shall reduce the number of shares of Series A
Preferred Stock to a number less than the number of shares then outstanding plus
the number of shares reserved for issuance upon the exercise of outstanding
options, rights or warrants or upon the conversion of any outstanding securities
issued by the Corporation convertible into Series A Preferred Stock.
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3
Section 2. Dividends and Distributions.
(A) Subject to the rights of the holders of any shares of any
series of Preferred Stock (or any similar stock) ranking prior and superior to
the Series A Preferred Stock with respect to dividends, the holders of shares of
Series A Preferred Stock, in preference to the holders of Common Stock, par
value $.01 per share (the "Common Stock"), of the Corporation, and of any other
junior stock, shall be entitled to receive, when, as and if declared by the
Board of Directors out of funds legally available for the purpose, quarterly
dividends payable in cash on the first day of March, June, September and
December in each year (each such date being referred to herein as a "Quarterly
Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date
after the first issuance of a share or fraction of a share of Series A Preferred
Stock, in an amount per share (rounded to the nearest cent) equal to the greater
of (a) $1 or (b) subject to the provision for adjustment hereinafter set forth,
1,000 times the aggregate per share amount of all cash dividends, and 1,000
times the aggregate per share amount (payable in kind) of all non-cash dividends
or other distributions, other than a dividend payable in shares of Common Stock
or a subdivision of the outstanding shares of Common Stock (by reclassification
or otherwise), declared on the Common Stock since the immediately preceding
Quarterly Dividend Payment Date or, with respect to the first Quarterly Dividend
Payment Date, since the first issuance of any share or fraction of a share of
Series A Preferred Stock. In the event the Corporation shall at any time after
[-] declare and pay any dividend on the Common Stock payable in shares of Common
Stock, or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in shares of Common Stock) into a greater or lesser number
of shares of Common Stock, then in each such case the amount to which holders of
shares of Series A Preferred Stock were entitled immediately prior to such event
under clause (b) of the preceding sentence shall be adjusted by multiplying such
amount by a fraction, the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of which is
the number of shares of Common Stock that were outstanding immediately prior to
such event.
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(B) The Corporation shall declare a dividend or distribution
on the Series A Preferred Stock as provided in paragraph (A) of this Section
immediately after it declares a dividend or distribution on the Common Stock
(other than a dividend payable in shares of Common Stock); provided that, in the
event no dividend or distribution shall have been declared on the Common Stock
during the period between any Quarterly Dividend Payment Date and the next
subsequent Quarterly Dividend Payment Date, a dividend of $1 per share on the
Series A Preferred Stock shall nevertheless be payable on such subsequent
Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on
outstanding shares of Series A Preferred Stock from the Quarterly Dividend
Payment Date next preceding the date of issue of such shares, unless the date of
issue of such shares is prior to the record date for the first Quarterly
Dividend Payment Date, in which case dividends on such shares shall begin to
accrue from the date of issue of such shares, or unless the date of issue is a
Quarterly Dividend Payment Date or is a date after the record date for the
determination of holders of shares of Series A Preferred Stock entitled to
receive a quarterly dividend and before such Quarterly Dividend Payment Date, in
either of which events such dividends shall begin to accrue and be cumulative
from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall
not bear interest. Dividends paid on the shares of Series A Preferred Stock in
an amount less than the total amount of such dividends at the time accrued and
payable on such shares shall be allocated pro rata on a share-by-share basis
among all such shares at the time outstanding. The Board of Directors may fix a
record date for the determination of holders of shares of Series A Preferred
Stock entitled to receive payment of a dividend or distribution declared
thereon, which record date shall be not more than 60 days prior to the date
fixed for the payment thereof.
Section 3. Voting Rights. The holders of shares of Series A
Preferred Stock shall have the following voting rights:
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(A) Subject to the provision for adjustment hereinafter set
forth, each share of Series A Preferred Stock shall entitle the holder thereof
to 1,000 votes on all matters submitted to a vote of the stockholders of the
Corporation. In the event the Corporation shall at any time declare or pay any
dividend on the Common Stock payable in shares of Common Stock, or effect a
subdivision or combination or consolidation of the outstanding shares of Common
Stock (by reclassification or otherwise than by payment of a dividend in shares
of Common Stock) into a greater or lesser number of shares of Common Stock, then
in each such case the number of votes per share to which holders of shares of
Series A Preferred Stock were entitled immediately prior to such event shall be
adjusted by multiplying such number by a fraction, the numerator of which is the
number of shares of Common Stock outstanding immediately after such event and
the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(B) Except as otherwise provided herein, in any other
Certificate of Designations creating a series of Preferred Stock or any similar
stock, or by law, the holders of shares of Series A Preferred Stock and the
holders of shares of Common Stock and any other capital stock of the Corporation
having general voting rights shall vote together as one class on all matters
submitted to a vote of stockholders of the Corporation.
(C) Except as set forth herein, or as otherwise provided by
law, holders of Series A Preferred Stock shall have no special voting rights and
their consent shall not be required (except to the extent they are entitled to
vote with holders of Common Stock as set forth herein) for taking any corporate
action.
(D) If, at the time of any annual meeting of stockholders for
the election of directors, the equivalent of six quarterly dividends (whether or
not consecutive) payable on any share or shares of Series A Preferred Stock are
in default, the number of directors constituting the Board of Directors of the
Corporation shall be increased by two. In addition to voting together with the
holders of Common Stock for the election of other directors of the Corporation,
the holders of record of the Series A Preferred
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6
Stock, voting separately as a class to the exclusion of the holders of Common
Stock, shall be entitled at said meeting of stockholders (and at each subsequent
annual meeting of stockholders), unless all dividends in arrears on the Series A
Preferred Stock have been paid or declared and set apart for payment prior
thereto, to vote for the election of two directors of the Corporation, the
holders of any Series A Preferred Stock being entitled to cast a number of votes
per share of Series A Preferred Stock as is specified in paragraph (A) of this
Section 3. Each such additional director shall not be classified, but shall
serve until the next annual meeting of stockholders for the election of
directors, or until his successor shall be elected and shall qualify, or until
his right to hold such office terminates pursuant to the provisions of this
Section 3(D). Until the default in payments of all dividends which permitted the
election of said directors shall cease to exist, any director who shall have
been so elected pursuant to the provisions of this Section 3(D) may be removed
at any time, without cause, only by the affirmative vote of the holders of the
shares of Series A Preferred Stock at the time entitled to cast a majority of
the votes entitled to be cast for the election of any such director at a special
meeting of such holders called for that purpose, and any vacancy thereby created
may be filled by the vote of such holders. If and when such default shall cease
to exist, the holders of the Series A Preferred Stock shall be divested of the
foregoing special voting rights, subject to revesting in the event of each and
every subsequent like default in payments of dividends. Upon the termination of
the foregoing special voting rights, the terms of office of all persons who may
have been elected directors pursuant to said special voting rights shall
forthwith terminate, and the number of directors constituting the Board of
Directors shall be reduced by two. The voting rights granted by this Section
3(D) shall be in addition to any other voting rights granted to the holders of
the Series A Preferred Stock in this Section 3.
Section 4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or
distributions payable on the Series A Preferred Stock as provided in Section 2
are in arrears, thereafter and until all accrued and unpaid dividends and
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7
distributions, whether or not declared, on shares of Series A Preferred Stock
outstanding shall have been paid in full, the Corporation shall not:
(i) declare or pay dividends, or make any other distributions,
on any shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Preferred
Stock;
(ii) declare or pay dividends, or make any other
distributions, on any shares of stock ranking on a parity (either as to
dividends or upon liquidation, dissolution or winding up) with the
Series A Preferred Stock, except dividends paid ratably on the Series A
Preferred Stock and all such parity stock on which dividends are
payable or in arrears in proportion to the total amounts to which the
holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Series
A Preferred stock, provided that the Corporation may at any time
redeem, purchase or otherwise acquire shares of any such junior stock
in exchange for shares of any stock of the Corporation ranking junior
(either as to dividends or upon dissolution, liquidation or winding up)
to the Series A Preferred Stock; or
(iv) redeem or purchase or otherwise acquire for consideration
any shares of Series A Preferred Stock, or any shares of stock ranking
on a parity with the Series A Preferred Stock, except in accordance
with a purchase offer made in writing or by publication (as determined
by the Board of Directors) to all holders of such shares upon such
terms as the Board of Directors, after consideration of the respective
annual dividend rates and other relative rights and preferences of the
respective series and classes, shall determine in good faith will
result in fair and equitable treatment among the respective series or
classes.
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8
(B) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares of
stock of the Corporation unless the Corporation could, under paragraph (A) of
this Section 4, purchase or otherwise acquire such shares at such time and in
such manner.
Section 5. Reacquired Shares. Any shares of Series A Preferred
Stock purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired promptly after the acquisition thereof. All such
shares shall upon their retirement become authorized but unissued shares of
Preferred Stock and may be reissued as part of a new series of Preferred Stock
subject to the conditions and restrictions on issuance set forth herein, in the
Restated Certificate of Incorporation, or in any other Certificate of
Designations creating a series of Preferred Stock or any similar stock or as
otherwise required by law.
Section 6. Liquidation, Dissolution or Winding Up. Upon any
liquidation, dissolution or winding up of the Corporation, no distribution shall
be made (1) to the holders of shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Series A
Preferred Stock unless, prior thereto, the holders of shares of Series A
Preferred Stock shall have received $1,000 per share, plus an amount equal to
accrued and unpaid dividends and distributions thereon, whether or not declared,
to the date of such payment, provided that the holders of shares of Series A
Preferred Stock shall be entitled to receive an aggregate amount per share,
subject to the provision for adjustment hereinafter set forth, equal to 1,000
times the aggregate amount to be distributed per share to holders of shares of
Common Stock, or (2) to the holders of shares of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or winding up) with the
Series A Preferred Stock, except distributions made ratably on the Series A
Preferred Stock and all such parity stock in proportion to the total amounts to
which the holders of all such shares are entitled upon such liquidation,
dissolution or winding up. Neither the merger or consolidation of the
Corporation into or with another entity nor the merger or consolidation of any
other entity into or with the Corporation shall be deemed to be a liquidation,
dissolution or winding up of the Corporation
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within the meaning of this Section 6. In the event the Corporation shall at any
time declare or pay any dividend on the Common Stock payable in shares of Common
Stock, or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in shares of Common Stock) into a greater or lesser number
of shares of Common Stock, then in each such case the aggregate amount to which
holders of shares of Series A Preferred Stock were entitled immediately prior to
such event under the proviso in clause (1) of the preceding sentence shall be
adjusted by multiplying such amount by a fraction the numerator of which is the
number of shares of Common Stock outstanding immediately after such event and
the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
Section 7. Consolidation, Merger, etc. In case the Corporation
shall enter into any consolidation, merger, combination or other transaction in
which the outstanding shares of Common Stock are exchanged for or changed into
other stock or securities, cash and/or any other property, then in any such case
each share of Series A Preferred Stock shall at the same time be similarly
exchanged or changed into an amount per share, subject to the provision for
adjustment hereinafter set forth, equal to 1,000 times the aggregate amount of
stock, securities, cash and/or any other property (payable in kind), as the case
may be, into which or for which each share of Common Stock is changed or
exchanged. In the event the Corporation shall at any time declare or pay any
dividend on the Common Stock payable in shares of Common Stock, or effect a
subdivision or combination or consolidation of the outstanding shares of Common
Stock (by reclassification or otherwise than by payment of a dividend in shares
of Common Stock) into a greater or lesser number of shares of Common Stock, then
in each such case the amount set forth in the preceding sentence with respect to
the exchange or change of shares of Series A Preferred Stock shall be adjusted
by multiplying such amount by a fraction, the numerator of which is the number
of shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
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Section 8. No Redemption. The shares of Series A Preferred
Stock shall not be redeemable.
Section 9. Ranking. The Series A Junior Participating
Preferred Stock shall rank junior to all other series of the Preferred Stock as
to the payment of dividends and as to the distribution of assets upon
liquidation, dissolution or winding up, unless the terms of any such series
shall provide otherwise, and shall rank senior to the Common Stock as to such
matters.
Section 10. Amendment. At any time that any shares of Series A
Preferred Stock are outstanding, the Amended and Restated Certificate of
Incorporation of the Corporation shall not be amended in any manner which would
materially alter or change the powers, preferences or special rights of the
Series A Preferred Stock so as to affect them adversely without the affirmative
vote of the holders of at least two-thirds of the outstanding shares of Series A
Preferred Stock, voting separately as a single class.
IN WITNESS WHEREOF, this Certificate of Designations is
executed on behalf of the Corporation by its and attested by its this day
of , 2000.
Attest:
67
EXHIBIT B
Form of Right Certificate
Certificate No. R- Rights
NOT EXERCISABLE AFTER SEPTEMBER 29, 2010 OR
EARLIER IF REDEMPTION OR EXCHANGE OCCURS. THE
RIGHTS ARE SUBJECT TO REDEMPTION AT $0.01 PER
RIGHT AND TO EXCHANGE ON THE TERMS SET FORTH IN
THE RIGHTS AGREEMENT.
UNDER CERTAIN CIRCUMSTANCES, AS SET FORTH IN THE
RIGHTS AGREEMENT, RIGHTS OWNED BY OR TRANSFERRED
TO ANY PERSON WHO IS OR BECOMES AN ACQUIRING
PERSON (AS DEFINED IN THE RIGHTS AGREEMENT) AND
CERTAIN TRANSFEREES THEREOF WILL BECOME NULL
AND VOID AND WILL NO LONGER BE TRANSFERABLE.
Right Certificate
AVAYA INC.
This certifies that ________________, or registered assigns,
is the registered owner of the number of Rights set forth above, each of which
entitles the owner thereof, subject to the terms, provisions and conditions of
the Rights Agreement, dated as of September 29, 2000, as the same may be amended
from time to time (the "Rights Agreement"), between Avaya Inc., a Delaware
corporation (the "Company"), and The Bank of New York (the "Rights Agent"), to
purchase from the Company at any time after the Distribution Date (as such term
is defined in the Rights Agreement) and prior to 5:00 P.M., New York time, on
September 29, 2010 at the principal office of the Rights Agent, or at the office
of its successor as Rights Agent, one one-thousandth of a fully paid
non-assessable share of Series A Junior Participating Preferred Stock, par value
$1.00 per share, of the Company (the "Preferred Shares"), at a purchase price of
$[-] per one one-thousandth of a Preferred Share (the "Purchase Price"), upon
presentation and surrender of this Right Certificate with the Form of Election
to Purchase duly executed. The number of Rights evidenced by this Right
Certificate (and the number of one one-thousandth of a Preferred Share which
may be purchased
68
2
upon exercise hereof) set forth above, and the Purchase Price set forth above,
are the number and Purchase Price as of September 29, 2000, based on the
Preferred Shares as constituted at such date. As provided in the Rights
Agreement, the Purchase Price and the number of one one-thousandths of a
Preferred Share or other securities or property which may be purchased upon the
exercise of the Rights and the number of Rights evidenced by this Right
Certificate are subject to modification and adjustment upon the happening of
certain events.
This Right Certificate is subject to all of the terms,
provisions and conditions of the Rights Agreement, which terms, provisions and
conditions are hereby incorporated herein by reference and made a part hereof
and to which Rights Agreement reference is hereby made for a full description of
the rights, limitations of rights, obligations, duties and immunities hereunder
of the Rights Agent, the Company and the holders of the Right Certificates.
Copies of the Rights Agreement are on file at the principal executive offices of
the Company and the offices of the Rights Agent. The Company will mail to the
holder of this Right Certificate a copy of the Rights Agreement without charge
after receipt of a written request therefor.
This Right Certificate, with or without other Right
Certificates, upon surrender at the principal office of the Rights Agent, may be
exchanged for another Right Certificate or Right Certificates of like tenor and
date evidencing Rights entitling the holder to purchase a like aggregate number
of Preferred Shares as the Rights evidenced by the Right Certificate or Right
Certificates surrendered shall have entitled such holder to purchase. If this
Right Certificate shall be exercised in part, the holder shall be entitled to
receive upon surrender hereof another Right Certificate or Right Certificates
for the number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, the Rights
evidenced by this Right Certificate (i) may be redeemed by the Company at a
redemption price of $0.01 per Right or (ii) may be exchanged in whole or in part
for Preferred Shares or shares of the Company's Common Stock, par value $0.01
per share.
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No fractional Preferred Shares will be issued upon the
exercise of any Right or Rights evidenced hereby (other than fractions which are
integral multiples of one one-thousandth of a Preferred Share, which may, at the
election of the Company, be evidenced by depositary receipts), but, in lieu
thereof, a cash payment will be made, as provided in the Rights Agreement.
No holder of this Right Certificate, as such, shall be
entitled to vote or receive dividends or be deemed for any purpose the holder of
the Preferred Shares or of any other securities of the Company which may at any
time be issuable on the exercise or exchange hereof, nor shall anything
contained in the Rights Agreement or herein be construed to confer upon the
holder hereof, as such, any of the rights of a stockholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting
stockholders (except as provided in the Rights Agreement), or to receive
dividends or subscription rights, or otherwise, until the Right or Rights
evidenced by this Right Certificate shall have been exercised or exchanged as
provided in the Rights Agreement.
This Right Certificate shall not be valid or obligatory for
any purpose until it shall have been countersigned by the Rights Agent.
WITNESS the facsimile signature of the proper officers of the
Company and its corporate seal. Dated as of .
AVAYA INC.,
By
-------------------------------------
Name:
Title:
ATTEST:
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4
-------------------------------
Name:
Title:
Countersigned:
THE BANK OF NEW YORK
By
--------------------------------
Name:
Title:
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5
Form of Reverse Side of Right Certificate
FORM OF ASSIGNMENT
(To be executed by the registered holder if such
holder desires to transfer the Right Certificate.)
FOR VALUE RECEIVED __________ hereby sells, assigns and
transfers unto _________________________________________________________________
________________________________________________________________________________
(Please print name and address of transferee)
_______________________________________________________________________________
this Right Certificate, together with all right, title and interest therein, and
does hereby irrevocably constitute and appoint _________________ Attorney, to
transfer the within Right Certificate on the books of the within-named Company,
with full power of substitution.
Dated: ______________, ___
____________________________________
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a registered
national securities exchange, a member of the National Association of Securities
Dealers, Inc., or a commercial bank or trust company having an office or
correspondent in the United States or by another eligible guarantor institution,
as defined in Rule 17Ad-15 under the Securities Exchange Act of 1934.
The undersigned hereby certifies that the Rights evidenced by
this Right Certificate are not beneficially owned by, were not acquired by the
undersigned from, and are not being assigned to an Acquiring Person or an
Affiliate or Associate thereof (as defined in the Rights Agreement).
____________________________________
Signature
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Form of Reverse Side of Right Certificate -- continued
FORM OF ELECTION TO PURCHASE
(To be executed if holder desires to exercise Rights
represented by the Right Certificate.)
To: AVAYA INC.
The undersigned hereby irrevocably elects to exercise
___________ Rights represented by this Right Certificate to purchase the
Preferred Shares (or other securities or property) issuable upon the exercise of
such Rights and requests that certificates for such Preferred Shares (or other
securities or property) be issued in the name of:
Please insert social security
or other identifying number
________________________________________________________________________________
(Please print name and address)
________________________________________________________________________________
If such number of Rights shall not be all the Rights evidenced by this Right
Certificate, a new Right Certificate for the balance remaining of such Rights
shall be registered in the name of and delivered to:
Please insert social security
or other identifying number
________________________________________________________________________________
(Please print name and address)
________________________________________________________________________________
Dated: ___________, ___
___________________________________
Signature
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Signature Guaranteed:
Signatures must be guaranteed by a member firm of a registered
national securities exchange, a member of the National Association of Securities
Dealers, Inc., or a commercial bank or trust company having an office or
correspondent in the United States or by another eligible guarantor institution,
as defined in Rule 17Ad-15 under the Securities Exchange Act of 1934.
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8
Form of Reverse Side of Right Certificate -- continued
____________________
The undersigned hereby certifies that the Rights evidenced by
this Right Certificate are not beneficially owned by, and were not acquired by
the undersigned from, an Acquiring Person or an Affiliate or Associate thereof
(as defined in the Rights Agreement).
____________________________________
Signature
________________________________________
NOTICE
The signature in the Form of Assignment or Form of Election to
Purchase, as the case may be, must conform to the name as written upon the face
of this Right Certificate in every particular, without alteration or enlargement
or any change whatsoever.
In the event the certification set forth above in the Form of
Assignment or the Form of Election to Purchase, as the case may be, is not
completed, the Company and the Rights Agent will deem the beneficial owner of
the Rights evidenced by this Right Certificate to be an Acquiring Person or an
Affiliate or Associate thereof (as defined in the Rights Agreement) and such
Assignment or Election to Purchase will not be honored.
75
EXHIBIT C
UNDER CERTAIN CIRCUMSTANCES, AS SET FORTH IN THE
RIGHTS AGREEMENT, RIGHTS OWNED BY OR TRANSFERRED
TO ANY PERSON WHO IS OR BECOMES AN ACQUIRING
PERSON (AS DEFINED IN THE RIGHTS AGREEMENT) AND
CERTAIN TRANSFEREES THEREOF WILL BECOME NULL AND
VOID AND WILL NO LONGER BE TRANSFERABLE.
SUMMARY OF RIGHTS TO PURCHASE
PREFERRED SHARES
On , 2000 (the "Record Date"), the Board of Directors of Avaya
Inc. (the "Company") declared a dividend of one preferred share purchase right
(a "Right") for each outstanding share of common stock, par value $0.01 per
share, of the Company (the "Common Shares"). The dividend is payable on [-],
2000 to the stockholders of record on that date. Each Right entitles the
registered holder to purchase from the Company one one-thousandth of a share of
Series A Junior Participating Preferred Stock, par value $1.00 per share, of the
Company (the "Preferred Shares") at a price of $[-] per one one-thousandth of a
Preferred Share (the "Purchase Price"), subject to adjustment. The description
and terms of the Rights are set forth in a Rights Agreement (the "Rights
Agreement") between the Company and The Bank of New York, as Rights Agent (the
"Rights Agent").
Until the earlier to occur of (i) 10 days following a public
announcement that a person or group of affiliated or associated persons (with
certain exceptions, an "Acquiring Person") have acquired beneficial ownership of
10% or more of the outstanding Common Shares or (ii) such date, if any, as may
be designated by the Board of Directors of the Company following the
commencement of, or first public disclosure of an intention to commence, a
tender or exchange offer for outstanding Common Shares which could result in
such person or group becoming the beneficial owner of more than 10% of the
outstanding Common Shares (the earlier of such dates being the "Distribution
Date"), the Rights will not be represented by a separate certificate, and will
not be transferable apart from the Common Stock, but will instead be evidenced,
(i) with respect to any of the shares of Common Stock held in uncertificated
book-entry
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form (a "Book-Entry") outstanding as of the Record Date, by such Book-Entry and
(ii) with respect to the shares of Common Stock evidenced by Common Stock
certificates outstanding as of the Record Date, by such Common Stock
certificates, together with a copy of this Summary of Rights. The Rights
Agreement contains exceptions from its operating provision for Lucent and its
affiliates and associates prior to the time it effects the distribution of all
of its shares in the Company to its stockholders.
The Rights Agreement provides that, until the Distribution
Date (or earlier redemption or expiration of the Rights), the Rights will be
transferred with and only with the Common Shares. Until the Distribution Date
(or earlier redemption or expiration of the Rights), new Common Share
certificates issued after the Record Date upon transfer or new issuance of
Common Shares will contain a notation incorporating the Rights Agreement by
reference. Until the Distribution Date (or earlier redemption or expiration of
the Rights), the surrender for transfer of any certificates for Common Shares
outstanding as of the Record Date, even without such notation or a copy of this
Summary of Rights being attached thereto, will also constitute the transfer of
the Rights associated with the Common Shares represented by such certificate.
Until the Distribution Date (or earlier redemption or expiration of the Rights),
transfer on the Company's stock ownership records of Common Stock represented by
a Book-Entry or a certificate outstanding as the Record Date, and, in each case,
with or without a copy of this Summary of Rights attached thereto, will also
constitute the transfer of the Rights associated with the Common Stock
represented by such Book-Entry or certificate. As soon as practicable following
the Distribution Date, separate certificates evidencing the Rights ("Right
Certificates") will be mailed to holders of record of the Common Shares as of
the close of business on the Distribution Date and such separate Right
Certificates alone will evidence the Rights.
The Rights are not exercisable until the Distribution Date.
The Rights will expire on September 29, 2010 (the "Final Expiration Date"),
unless the Final Expiration Date is advanced or extended or unless the Rights
are earlier redeemed or exchanged by the Company, in each case, as described
below.
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The Purchase Price payable, and the number of Preferred Shares
or other securities or property issuable, upon exercise of the Rights are
subject to adjustment from time to time to prevent dilution (i) in the event of
a stock dividend on, or a subdivision, combination or reclassification of, the
Preferred Shares; (ii) upon the grant to holders of the Preferred Shares of
certain rights or warrants to subscribe for or purchase Preferred Shares at a
price, or securities convertible into Preferred Shares with a conversion price;
less than the then-current market price of the Preferred Shares or (iii) upon
the distribution to holders of the Preferred Shares of evidences of indebtedness
or assets (excluding regular periodic cash dividends paid out of earnings or
retained earnings or dividends payable in Preferred Shares) or of subscription
rights or warrants (other than those referred to above).
The number of outstanding Rights and the number of one
one-thousandths of a Preferred Share issuable upon exercise of each Right are
also subject to adjustment in the event of a stock split of the Common Shares or
a stock dividend on the Common Shares payable in Common Shares or subdivisions,
consolidations or combinations of the Common Shares occurring, in any such case,
prior to the Distribution Date.
Preferred Shares purchasable upon exercise of the Rights will
not be redeemable. Each Preferred Share will be entitled to a minimum
preferential quarterly dividend payment of $1 per share but will be entitled to
an aggregate dividend of 1,000 times the dividend declared per Common Share. In
the event of liquidation, the holders of the Preferred Shares will be entitled
to a minimum preferential liquidation payment of $1,000 per share but will be
entitled to an aggregate payment of 1,000 times the payment made per Common
Share. Each Preferred Share will have 1,000 votes, voting together with the
Common Shares. Finally, in the event of any merger, consolidation or other
transaction in which Common Shares are exchanged, each Preferred Share will be
entitled to receive 1,000 times the amount received per Common Share. These
rights are protected by customary antidilution provisions.
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Because of the nature of the Preferred Shares' dividend,
liquidation and voting rights, the value of the one one-thousandth interest in a
Preferred Share purchasable upon exercise of each Right should approximate the
value of one Common Share.
In the event that the Company is acquired in a merger or other
business combination transaction or 50% or more of its consolidated assets or
earning power are sold after a person or group has become an Acquiring Person,
proper provision will be made so that each holder of a Right will thereafter
have the right to receive, upon the exercise thereof at the then current
exercise price of the Right, that number of shares of common stock of the
acquiring company (or its parent) which at the time of such transaction will
have a market value of two times the exercise price of the Right. In the event
that any person or group of affiliated or associated persons becomes an
Acquiring Person, each holder of a Right, other than Rights beneficially owned
by the Acquiring Person (which will thereafter be void), will thereupon have the
right to receive upon exercise that number of Common Shares having a market
value of two times the exercise price of the Right.
At any time after any person or group becomes an Acquiring
Person and prior to the acquisition by such person or group of 50% or more of
the outstanding Common Shares, the Board of Directors of the Company may
exchange the Rights (other than Rights owned by such person or group which will
have become void), in whole or in part, for shares of Common Shares or Preferred
Shares (or a series of the Company's preferred stock having equivalent rights,
preferences and privileges), at an exchange ratio of one Common Share, or a
fractional Preferred Share (or other preferred stock) equivalent in value
thereto, per Right.
With certain exceptions, no adjustment in the Purchase Price
will be required until cumulative adjustments require an adjustment of at least
1% in such Purchase Price. No fractional Preferred Shares will be issued (other
than fractions which are integral multiples of ---one one-thousandth of a
Preferred Share, which may, at the election of the Company, be evidenced by
depositary receipts) and, in lieu thereof, an adjustment in cash will be made
based on
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5
the market price of the Preferred Shares on the last trading day prior to the
date of exercise.
At any time prior to the time an Acquiring Person becomes such
the Board of Directors of the Company may redeem the Rights in whole, but not in
part, at a price of $.01 per Right (the "Redemption Price") payable, at the
option of the Company, in cash, Common Shares or such other form of
consideration as the Board of Directors of the Company shall determine. The
redemption of the Rights may be made effective at such time on such basis with
such conditions as the Board of Directors in its sole discretion may establish.
Immediately upon any redemption of the Rights, the right to exercise the Rights
will terminate and the only right of the holders of Rights will be to receive
the Redemption Price.
At any time prior to such time as there shall be an Acquiring
Person, the Company may, without the approval of any holder of the Rights,
supplement or amend any provision of the Rights Agreement (including the date on
which the Expiration Date or the Distribution Date shall occur, the amount of
the Purchase Price or the definition of "Acquiring Person"), except that no
supplement or amendment shall be made that reduces the Redemption Price of the
Rights. From and after such time as any person or group of affiliated or
associated persons becomes and Acquiring Person, and subject to applicable law,
the Company may, and the Rights Agent shall if the Company so directs, amend
this Rights Agreement without the approval of any holders of Rights (a) to cure
any ambiguity or to correct or supplement any provision contained herein which
may be defective or inconsistent with any other provision of this Rights
Agreement or (b) to otherwise change or supplement any other provisions in this
Agreement in any matter which the Company may deem necessary or desirable and
which in each such case shall not (i) adversely affect the interests of the
holders of Rights as such (other than an Acquiring Person or an Affiliate or
Associate of an Acquiring Person) (ii) cause the Rights Agreement again to
become otherwise amendable or (iii) cause the Rights again to become redeemable.
Until a Right is exercised or exchanged, the holder thereof,
as such, will have no rights as a
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6
stockholder of the Company, including, without limitation, the right to vote or
to receive dividends.
A copy of the Rights Agreement has been filed with the
Securities and Exchange Commission as an Exhibit to a Registration Statement on
Form 10 (Registration No. 1-11639). A copy of the Rights Agreement is available
free of charge from the Company. This summary description of the Rights does not
purport to be complete and is qualified in its entirety by reference to the
Rights Agreement, as the same may be amended form time to time, which is hereby
incorporated herein by reference.
1
Exhibit 10.2
================================================================================
INTERIM SERVICES AND SYSTEMS REPLICATION AGREEMENT
BY AND BETWEEN
LUCENT TECHNOLOGIES INC.
AND
AVAYA INC.
DATED AS OF OCTOBER 1, 2000
================================================================================
2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I. DEFINITIONS 2
ARTICLE II. SERVICES 3
2.1 Services 3
2.2 Term 4
2.3 Charges and Payment 4
2.4 General Obligations; Standard of Care 6
2.5 Certain Limitations 8
2.6 Confidentiality 9
2.7 Termination 10
2.8 Disclaimer of Warranties, Limitation of Liability and Indemnification 10
ARTICLE III MISCELLANEOUS 11
3.1 Taxes 11
3.2 Law and Governmental Regulations 12
3.3 Relationship of Parties 12
3.4 Incorporation of Provisions of the Contribution and Distribution Agreement 12
3.5 Expenses 13
3.6 References 13
3.7 Modification and Amendment 13
3.8 Inconsistency 13
</TABLE>
-i-
3
INTERIM SERVICES AND SYSTEMS REPLICATION AGREEMENT
THIS INTERIM SERVICES AND SYSTEMS REPLICATION AGREEMENT (this
"Agreement"), dated as of October 1, 2000 (the "Effective Date"), is by and
between LUCENT TECHNOLOGIES INC., a Delaware corporation ("Lucent"), and Avaya
Inc., a Delaware corporation ("Avaya").
R E C I T A L S
A. WHEREAS, the Board of Directors of Lucent has determined that it is
in the best interests of Lucent and its stockholders to separate Lucent's
existing businesses into two independent businesses;
B. WHEREAS, in order to effectuate the foregoing, Lucent and Avaya have
entered into a Contribution and Distribution Agreement, dated as of September
30, 2000 (the "Contribution and Distribution Agreement"), which provides, among
other things, subject to the terms and conditions thereof, for the Contribution,
the Distribution and the execution and delivery of certain other agreements in
order to facilitate and provide for the foregoing;
C. WHEREAS, in order to ensure an orderly transition under the
Contribution and Distribution Agreement it will be necessary for each of the
parties to provide to the other the Services described herein for a transitional
period; and
D. WHEREAS, capitalized terms used herein and not otherwise defined
shall have the respective meanings assigned to them in Article I hereof or in
the Contribution and Distribution Agreement.
NOW, THEREFORE, in consideration of the premises and for other good and
valid consideration, the receipt and adequacy of which are hereby acknowledged,
the parties, intending to be legally bound, agree as follows:
4
ARTICLE I.
DEFINITIONS
For the purposes of this Agreement, in addition to the words and
phrases that are defined throughout the body of this Agreement, the following
words and phrases shall have the following meanings:
1.1 ADDITIONAL SERVICES shall have the meaning set forth in Section
2.1(b).
1.2 CORPORATE SUPPORT SERVICES shall mean the Services described in
the Exhibits set forth in Section 2.1(a)(iii).
1.3 DATA PROCESSING SERVICES shall mean the Services described in the
Exhibits set forth in Section 2.1(a)(i).
1.4 EXPIRATION DATE shall have the meaning set forth in Section 2.2.
1.5 IMPRACTICABLE (and words of similar import) shall have the meaning
set forth in Section 2.5(b).
1.6 INITIAL SERVICES shall have the meaning set forth in Section
2.1(a).
1.7 PROVIDING COMPANY shall mean, with respect to any particular
Service, the entity or entities identified on the applicable Exhibit as the
party to provide such Service.
1.8 RECEIVING COMPANY shall mean, with respect to any particular
Service, the entity or entities identified on the applicable Exhibit as the
party to receive such Service.
1.9 REPRESENTATIVE of any party shall mean a managerial level employee
appointed by such party to have the responsibilities and authority for any
particular Service.
1.10 SERVICE shall have the meaning set forth in Section 2.1(b).
1.11 SYSTEM shall mean the software, hardware, data store or
maintenance and support components or portions of such components of a set of
information technology assets identified in an Exhibit hereto.
1.12 SYSTEM ERROR shall have the meaning set forth in Section
2.4(d)(iii).
1.13 SYSTEMS REPLICATION AND TRANSFER SERVICES shall mean the Services
described in the Exhibits set forth in Section 2.1(a)(iv).
1.14 TELECOMMUNICATIONS SERVICES shall mean the Services described in
the Exhibits set forth in Section 2.1(a)(ii).
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1.15 TERMINATION DATE shall have the meaning set forth in Section 2.2.
ARTICLE II.
SERVICES
2.1 SERVICES.
(a) INITIAL SERVICES. Except as otherwise provided herein,
for the term determined pursuant to Section 2.2 hereof, Providing Company shall
provide or cause to be provided to Receiving Company, in each case as identified
in the Exhibits attached hereto, the following "Initial Services":
(i) DATA PROCESSING SERVICES described in Exhibits
DP-1 through DP-3;
(ii) TELECOMMUNICATIONS SERVICES described in
Exhibits TC-1 through TC-32;
(iii) CORPORATE SUPPORT SERVICES described in
Exhibits CS-1 (CFO) through CS-24 (CFO); CS-100 (HR) through CS-165
(HR); CS-201 (GPO) through CS-202 (GPO); CS-301(GRE) through CS-303
(GRE); CS-401 (L&GA) through CS- 411 (L&GA); CS-501 (CIO) through CS-
543 (CIO); CS-701 (BL) through CS- 712 (BL); and CS-801 (GEN) through
CS-802 (GEN), as more fully identified in the list preceding each
series of Exhibits hereto; and
(iv) SYSTEMS REPLICATION AND TRANSFER SERVICES
described in Exhibits SR-1 (CFO, CIO) through SR-8 (CFO, CIO).
(b) ADDITIONAL SERVICES.
(i) From time to time after the Distribution Date,
the parties may identify additional services that one party will
provide to the other party in accordance with the terms of this
Agreement (the "Additional Services" and, together with the Initial
Services, the "Services"). The parties shall create an Exhibit for each
Additional Service setting forth the identities of Providing Company
and Receiving Company, a description of the Service, the time period
during which the Service will be provided, the charge, if any, for the
Service and any other terms applicable thereto and obtain the approval
of each party's Representative. Except as set forth in Section
2.1(b)(ii), the parties may, but shall not be required to, agree on
Additional Services during the term of this Agreement.
(ii) Except as set forth in the next sentence,
Providing Company shall be obligated to perform, at charges established
pursuant to Section 2.3(b), any Additional Service that: (A) was
provided by Providing Company immediately prior to the Effective Date
and that Receiving Company reasonably believes was inadvertently or
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6
unintentionally omitted from the list of Initial Services or (B) is
essential to effectuate an orderly transition under the Contribution
and Distribution Agreement unless such performance would significantly
disrupt Providing Company's operations or materially increase the scope
of its responsibility under this Agreement. If Providing Company
reasonably believes the performance of Additional Services required
under (A) or (B) of the immediately preceding sentence would
significantly disrupt its operations or materially increase the scope
of its responsibility under this Agreement, Providing Company and
Receiving Company shall negotiate in good faith to establish terms
under which Providing Company can provide such Additional Services, but
Providing Company shall not be obligated to provide such Additional
Services if, the following good faith negotiation, it is unable to
reach agreement on such terms.
(c) SERVICES PERFORMED BY OTHERS. At its option,
Providing Company may cause any Service it is required to provide hereunder to
be provided by another member of its Group or by any other Person that is
providing, or may from time to time provide, the same or similar services for
Providing Company. Providing Company shall remain responsible, in accordance
with the terms of this Agreement, for performance of any Service it causes to be
so provided.
2.2 TERM.
The term of this Agreement shall commence on the Effective
Date and shall remain in effect through March 31, 2001 ("Expiration Date"),
unless earlier terminated in accordance with Section 2.7 ("Termination Date").
This Agreement may be extended by the parties in writing either in whole or with
respect to one or more of the Services, provided, however, that such extension
shall only apply to the Service for which the Agreement was extended. The
parties shall be deemed to have extended this Agreement with respect to a
specific Service if the Exhibit for such Service specifies a completion date
beyond the Expiration Date. The parties may agree on an earlier expiration date
with respect to a specific Service by specifying such earlier date on the
Exhibit for that Service. Services shall be provided up to and including the
date set forth in the applicable Exhibit, subject to earlier termination as
provided herein.
2.3 CHARGES AND PAYMENT.
(a) CHARGES FOR INITIAL SERVICES. Receiving Company shall
pay Providing Company the charges, if any, set forth on the Exhibit for each of
the Services listed therein as adjusted, from time to time, in accordance with
the process and procedures established under Section 2.3(f) hereof. Wherever
practical, charges shall be based on the actual incurred costs, not budgeted or
estimated costs. The parties also intend for charges to be easy to administer
and justify and, therefore, they hereby acknowledge it may be counterproductive
to try to recover every cost, charge or expense particularly those that are
insignificant or de minimis. The parties shall use good faith efforts to discuss
any situation in which the actual charge for a Service is reasonably expected to
exceed the estimated charge, if any, set forth on an Exhibit for a particular
Service, provided, however, that the incurrence of charges in excess of any such
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estimate shall not justify stopping the provision of, or payment for, Services
under this Agreement.
(i) In the case of Data Processing Services,
Telecommunications Services or Common Support Services, except as
otherwise set forth in an Exhibit for a specific Service, the parties
intend for these charges to allow Providing Company to recover the
fully allocated direct costs of providing such Services plus all
out-of-pocket, third party costs, charges or expenses, but without any
profit. Where the number of employees assigned by each party to jointly
support an Initial Service is in proportion to the parties' historical
or expected use of such Initial Service, and each party is responsible
for the costs and expenses of its employees so assigned, recovery may
be limited to other direct costs, such as data processing and software
license fees.
(ii) In the case of Systems Replication and Transfer
Services, except as otherwise set forth in an Exhibit for a specific
Service, the parties intend that costs and expenses associated with
isolating, separating or replicating a System be borne by the parties
in proportion to their usage of the System prior to the Effective Date.
To the extent not otherwise determined prior to the Effective Date, the
parties shall determine the appropriate proportion of each party for
each Systems Replication and Transfer Service prior to the Distribution
Date. Where the number of employees assigned by each party to jointly
replicate or transfer a System is in proportion to the parties'
historical or expected use of such System, and each party is
responsible for the costs of its employees so assigned, recovery may be
limited to other direct costs such as third party contractor fees or
extraordinary data processing or networking costs. For purposes of the
foregoing, the parties acknowledge that, unless otherwise agreed in
writing, the costs of buying new hardware or obtaining new software
licenses shall be the responsibility of the party purchasing such
hardware or licensing such software.
(b) CHARGES FOR ADDITIONAL SERVICES. Receiving Company
shall pay Providing Company the charges, if any, set forth on each Exhibit
hereafter created for each of the Additional Services listed therein. Except for
Systems Replication and Transfer Services required by Section 2.1(b)(ii), costs
and expenses associated with System Replication and Transfer Additional Services
shall be borne by the party requesting such Additional Services. Charges, if
any, for other Additional Services, including those required by Section
2.1(b)(ii), shall be determined according to methods in use prior to the
Effective Date or such other method as may be mutually agreed that ensures that
Providing Company recovers costs and expenses, but without any profit, in
accordance with Section 2.3(a). Notwithstanding the foregoing, however, the
agreement of a party to provide or receive any Additional Service that is not
required pursuant to Section 2.1(b)(ii) at any given rate or charge shall be at
the sole discretion of such party.
(c) PAYMENT TERMS. Providing Company shall bill Receiving
Company monthly for all charges pursuant to this Agreement. Such bills shall be
accompanied by reasonable documentation or other reasonable explanation
supporting such charges. Receiving Company shall pay Providing Company for all
Services provided hereunder within thirty (30)
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days after receipt of an invoice therefor. Late payments shall bear interest at
the Prime Rate plus two percent (2%) per annum.
(d) PERFORMANCE UNDER ANCILLARY AGREEMENTS.
Notwithstanding anything to the contrary contained herein, Receiving Company
shall not be charged under this Agreement for any Services that are specifically
required to be performed under the Contribution and Distribution Agreement or
any other Ancillary Agreement and any such other Services shall be performed and
charged for in accordance with the terms of the Contribution and Distribution
Agreement or such other Ancillary Agreement.
(e) RECORDS. As needed from time to time during the
period during which Services are provided, and upon termination of the provision
of any Services, the parties agree to provide each other with records (in any
format, electronic or otherwise) related to the provision of Services under this
Agreement to the extent that (i) such records exist in the ordinary course, (ii)
do not involve the incurrence of any material expense and (iii) are reasonably
necessary by any such party to comply with its obligations hereunder or under
applicable law.
(f) PRICING ADJUSTMENTS. In the even of a tax audit
adjustment relating to the pricing of any or all Services provided pursuant to
this Agreement in which it is determined by a taxing authority that any of the
charges, individually or in combination, did not result in an arm's-length
payment, as determined under internationally accepted arm's-length standards,
then the parties, including a Providing Company subcontractor or a member of
Providing Company's Group providing or receiving Services hereunder, may agree
to make corresponding adjustment to the charges in question for such period to
the extent necessary to achieve arm's-length pricing. Any adjustment made
pursuant to this Section 2.3(f) shall be reflected in the parties' official
books and records, and the resulting overpayment or underpayment shall create an
obligation to be paid in the manner specified in Section 2.3(c).
2.4 GENERAL OBLIGATIONS; STANDARD OF CARE.
(a) PERFORMANCE METRICS: PROVIDING COMPANY. Subject to
Section 2.5(c), Providing Company shall maintain sufficient resources to perform
its obligations hereunder. Specific performance metrics for Providing Company
may be set forth in Exhibits. Where none is set forth for Data Processing
Services, Telecommunications Services and Common Support Services, Providing
Company shall use reasonable efforts to provide Services in accordance with the
policies, procedures and practices in effect before the date hereof and shall
exercise the same care and skill as it exercises in performing similar services
for itself. Where none is set forth for System Replication and Transfer
Services, Providing Company will use reasonable efforts to replicate and
transfer each System so that is has substantially the same functionality for
Receiving Company as it did immediately before the date hereof taking into
account changes reasonably expected and customary in a new operating
environment.
(b) PERFORMANCE METRICS: RECEIVING COMPANY. Specific
performance metrics for Receiving Company may be set forth in Exhibits. Where
none is set forth, Receiving Company shall use reasonable efforts, in connection
with receiving Services, to follow the
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policies, procedures and practices in effect before the date hereof including
providing information and documentation sufficient for Providing Company to
perform the Services as they were performed before the date hereof and making
available, as reasonably requested by Providing Company, sufficient resources
and timely decisions, approvals and acceptances in order that Providing Company
may accomplish its obligations hereunder in a timely manner.
(c) TRANSITIONAL NATURE OF SERVICES; CHANGES. The parties
acknowledge the transitional nature of the Services and that Providing Company
may make changes from time to time in the manner of performing the Services if
Providing Company is making similar changes in performing similar services for
members of its own Group and if Providing Company furnishes to Receiving Company
substantially the same notice Providing Company shall provide members of its own
Group respecting such changes. Notwithstanding the foregoing, between the date
hereof and March 31, 2001, Providing Company will not make any material change
to Systems affecting Receiving Company without first providing thirty (30) days
prior written notice and obtaining Receiving Company's prior written consent,
which consent shall not be unreasonably withheld or delayed.
(d) RESPONSIBILITY FOR ERRORS; DELAYS. Providing
Company's sole responsibility to Receiving Company:
(i) for errors or omissions in Data Processing
Services, Telecommunications Services and Common Support Services,
shall be to furnish correct information, payment and/or adjustment in
the Services, at no additional cost or expense to Receiving Company;
provided, Receiving Company must promptly advise Providing Company of
any such error or omission of which it becomes aware after having used
reasonable efforts to detect any such errors or omissions in accordance
with the standard of care set forth in Section 2.4(b);
(ii) for failure to deliver any Data Processing
Service, Telecommunications Service or Common Support Service because
of Impracticability, shall be to use reasonable efforts, subject to
Section 2.5(c), to make the Services available and/or to resume
performing the Services as promptly as reasonably practicable;
(iii) for an error, bug, fault or deficiency in a
replicated or transferred System (a "System Error") shall be to use
reasonable efforts, subject to Section 2.5(c) and taking into account
the importance of the affected System to Receiving Company's business
operations, to cooperate with Receiving Company to correct such System
Error at no additional cost or expense to Receiving Company (such
correction may take the form of new or revised software or an
appropriate work-around); provided, Receiving Company must advise
Providing Company of any such System Error within sixty (60) days after
completion of the activities set forth in (A) the Exhibit for the
System containing a System Error or (B) the Exhibit for any feeder
System that caused the System Error, whichever is later;
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(iv) for failure to complete any of the Systems
Replication or Transfer Services because of Impracticability, shall be
to use reasonable efforts, subject to Section 2.5(c), to make the
Systems available to Receiving Company from a Providing Company
facility until Providing Company can resume replication or transfer
activities or until the parties devise an appropriate alternative
approach pursuant to Section 2.4(f).
(e) GOOD FAITH COOPERATION; CONSENTS. The parties will
use good faith efforts to cooperate with each other in all matters relating to
the provision and receipt of Services. Such cooperation shall include exchanging
information, providing electronic access to Systems used in connection with
Services, performing true-ups and adjustments and obtaining all consents,
licenses, sublicenses or approvals necessary to permit each party to perform its
obligations hereunder. The costs of obtaining such consents, licenses,
sublicenses or approvals shall be allocated in accordance with Section 2.3(a).
The parties will maintain documentation supporting the information contained in
the Exhibits and cooperate with each other in making such information available
as needed in the event of a tax audit, whether in the United States or any other
country.
(f) ALTERNATIVES. If Providing Company reasonably
believes it is unable to provide any Service because of a failure to obtain
necessary consents, licenses, sublicenses or approvals pursuant to Section
2.4(e) or because of Impracticability, the parties shall cooperate to determine
the best alternative approach. Until such alternative approach is found or the
problem otherwise resolved to the satisfaction of the parties, the Providing
party shall use reasonable efforts, subject to Sections 2.5(b) and 2.5(c), to
continue providing the Service or, in the case of Systems, to support the
function to which the System relates or permit Receiving Company to have access
to the System so Receiving Company can support the function itself. To the
extent an agreed upon alternative approach requires payment above and beyond
that which is included in Providing Company's charge for the Services in
question, the parties shall share equally in making any such payment unless they
otherwise agree in writing.
2.5 CERTAIN LIMITATIONS.
(a) SERVICE BOUNDARIES. Except as provided in an Exhibit
for a specific Service: (i) Providing Company shall be required to provide the
Services only to the extent and only at the locations such Services are being
provided by Providing Company for the members of Receiving Company's Group
immediately prior to the Effective Date; and (ii) the Services will be available
only for purposes of conducting the business of Receiving Company substantially
in the manner it was conducted prior to the Effective Date.
(b) IMPRACTICABILITY. Providing Company shall not be
required to provide any Service to the extent the performance of such Service
becomes "Impracticable" as a result of a cause or causes outside the reasonable
control of Providing Company including unfeasible technological requirements, or
to the extent the performance of such Services would require Providing Company
to violate any applicable laws, rules or regulations or would result in the
breach of any software license or other applicable contract.
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(c) ADDITIONAL RESOURCES. Except as provided in an
Exhibit for a specific Service, in providing the Services, Providing Company
shall not be obligated to: (i) hire any additional employees; (ii) maintain the
employment of any specific employee; (iii) purchase, lease or license any
additional equipment or software; or (iv) pay any costs related to the transfer
or conversion of Receiving Company's data to Receiving Company or any alternate
supplier of Services.
(d) NO SALE, TRANSFER, ASSIGNMENT. Receiving Company may
not sell, transfer, assign or otherwise use the Services provided hereunder, in
whole or in part, for the benefit of any Person other than a member of Receiving
Company's Group.
2.6 CONFIDENTIALITY.
(a) INFORMATION SUBJECT TO OTHER OBLIGATIONS. Providing
Company and Receiving Company agree that all Information regarding the Services,
including, but not limited to, price, costs, methods of operation, and software,
shall be maintained in confidence and shall be subject to Article VIII, relating
to preservation and exchange of information and protection of Proprietary
Information, of the Contribution and Distribution Agreement.
(b) ALL INFORMATION CONFIDENTIAL. Providing Company's
Systems used to perform the Services provided hereunder are confidential and
proprietary to Providing Company or third parties. Receiving Company shall treat
these Systems and all related procedures and documentation as confidential and
proprietary to Providing Company or its third party vendors.
(c) INTERNAL USE; TITLE, COPIES, RETURN. Subject to the
Technology Assignment, between Lucent and Avaya (or their respective
Affiliates), relating to ownership of copyrights, and the Patent and Technology
License Agreement, relating to ownership of and rights to use technology,
Receiving Company agrees that:
(i) all Systems, procedures and related materials
provided to Receiving Company are for Receiving Company's internal use
only and only as related to the Services or any of the underlying
Systems used to provide the Services;
(ii) title to all Systems used in performing the
Services provided hereunder shall remain in Providing Company or its
third party vendors;
(iii) Receiving Company shall not copy, modify,
reverse engineer, decompile or in any way alter Systems without
Providing Company's express written consent; and
(iv) Upon the termination of any of the Services,
Receiving Company shall return to Providing Company, as soon as
practicable, any equipment or other property of Providing Company
relating to the Services which is owned or leased by it and is or was
in Receiving Company's possession or control.
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2.7 TERMINATION.
(a) RECEIVING COMPANY TERMINATION. Receiving Company may
terminate this Agreement either with respect to all, or with respect to any one
or more, of the Data Processing Services, Telecommunications Services or Common
Support Services provided hereunder at any time and from time to time, for any
reason or no reason, by giving written notice to the Providing Party at least
ninety (90) days prior to the date of such termination (which notice shall be
given, as to a particular Service, to the Representative responsible for such
Service). Receiving Company may immediately terminate this Agreement either with
respect to all, or with respect to any one or more, of the Systems Replication
and Transfer Services provided hereunder at any time and from time to time, for
any reason or no reason, by giving written notice to the Representative of the
Providing Party responsible for such Service. In the case of termination by
Receiving Company of a Systems Replication and Transfer Service, Receiving
Company shall compensate Providing Party for the costs, in accordance with
Section 2.3(a)(ii), incurred by Providing Party in performing such Service up to
the date on which Providing Party receives written notice of Receiving Company's
termination.
(b) PROVIDING COMPANY TERMINATION. Except where a longer
term is set forth in an Exhibit for any particular Service, Providing Company
may terminate this Agreement either with respect to all, or with respect to any
one or more, of the Services provided hereunder at any time after March 31,
2001, for any reason or no reason, by giving written notice to the Receiving
Company at least ninety (90) days prior to the date of such termination (which
notice shall be given, as to a particular Service, to the Representative
responsible for such Service). If Providing Company terminates this Agreement
under this Section 2.7(b), it will have a continuing obligation to transfer to
Receiving Company all Information of Receiving Company, including but not
limited to data stores for Systems, in an agreed upon format and at mutual equal
expense.
(c) TERMINATION OF LESS THAN ALL SERVICES. In the event
of any termination with respect to one or more, but less than all, Services,
this Agreement shall continue in full force and effect with respect to any
Services not terminated hereby.
(d) USER IDS, PASSWORDS. The parties shall use good faith
efforts at the termination or expiration of this Agreement or any specific
Exhibit hereto, to ensure that all user IDs and passwords are canceled and,
subject to Section 2.5(c), that any data pertaining solely to the other parties
are deleted or removed from the Systems.
2.8 DISCLAIMER OF WARRANTIES, LIMITATION OF LIABILITY AND
INDEMNIFICATION.
(a) DISCLAIMER OF WARRANTIES. PROVIDING COMPANY DISCLAIMS
ALL WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, THE IMPLIED
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, WITH RESPECT
TO THE SERVICES. PROVIDING COMPANY MAKES NO REPRESENTATIONS OR WARRANTIES AS TO
THE QUALITY, SUITABILITY OR ADEQUACY OF THE SERVICES FOR ANY PURPOSE OR USE.
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(b) LIMITATION OF LIABILITY; INDEMNIFICATION OF RECEIVING
COMPANY. Providing Company shall have no Liability to Receiving Company with
respect to its furnishing any of the Services hereunder except for Liabilities
arising out of the willful misconduct occurring after the Effective Date of
Providing Company or any member of Providing Company's Group. Providing Company
will indemnify, defend and hold harmless Receiving Company Indemnitees in
respect of all Liabilities related to, arising from, asserted against or
associated with such willful misconduct. Such indemnification obligation shall
be a Liability of Providing Company for purposes of the Contribution and
Distribution Agreement and the provisions of Article V thereof with respect to
indemnification shall govern with respect thereto. In no event shall Providing
Company or any member of Providing Company's Group have any Liability for any
incidental, indirect, special or consequential damages, whether or not caused by
or resulting from negligence or breach of obligations hereunder and whether or
not informed of the possibility of the existence of such damages.
(c) LIMITATION OF LIABILITY; INDEMNIFICATION OF PROVIDING
COMPANY. Receiving Company shall indemnify and hold harmless Providing Company's
Indemnitees in respect of all Liabilities related to, arising from asserted
against or associated with Providing Company' furnishing or failing to furnish
the Services provided for in this Agreement, other than Liabilities arising out
of the willful misconduct following the Effective Date of Providing Company or
any member of Providing Company's Group. The provisions of this indemnity shall
apply only to losses which relate directly to the provision of Services. Such
indemnification obligation shall be a Liability of Receiving Company for
purposes of the Contribution and Distribution Agreement and the provisions of
Article V thereof with respect to indemnification shall govern with respect
thereto. In no event shall Receiving Company or any member of Receiving
Company's Group have any Liability for any incidental, indirect, special or
consequential damages, whether or not caused by or resulting from negligence or
breach of obligations hereunder and whether or not informed of the possibility
of the existence of such damages.
(d) SUBROGATION OF RIGHTS VIS-A-VIS THIRD PARTY
CONTRACTORS. In the event any Liability arises from the performance of Services
hereunder by a third party contractor, Receiving Company shall be subrogated to
such rights, if any, as Providing Company may have against such third party
contractor with respect to the Services provided by such third party contractor
to or on behalf of Receiving Company.
ARTICLE III.
MISCELLANEOUS
3.1 TAXES.
Receiving Company shall bear all taxes, duties and other
similar charges (and any related interest and penalties), imposed as a result of
its receipt of Services under this Agreement, including any tax which Receiving
Company is required to withhold or deduct from payments to
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Providing Company, except (a) any tax allowable as a credit against the U.S.
Federal income tax of Providing Company, and (b) any net income tax imposed upon
Providing Company by the country of its incorporation or any governmental entity
within its country of incorporation. To assist Providing Company in obtaining
the credit identified in (b) of the immediately preceding sentence, Receiving
Company shall furnish Providing Company with such evidence as may be required by
the relevant taxing authorities to establish that any such tax has been paid.
3.2 LAW AND GOVERNMENTAL REGULATIONS.
Receiving Company shall be responsible for (a) compliance with
all laws and governmental regulations affecting its business and (b) any use
Receiving Company may make of the Services to assist it in complying with such
laws and governmental regulations. While Providing Company shall not have any
responsibility for Receiving Company's compliance with the laws and regulations
referred to above, Providing Company agrees to use reasonable efforts, subject
to Section 2.5(c), to (i) provide the Services in a manner that complies with
applicable laws and regulations and (ii) cause the Services to be designated in
such manner that such Services shall be able to assist Receiving Company in
complying with applicable legal and regulatory responsibilities. Providing
Company's charge, if any, for such Service may reflect its efforts under this
Section 3.2. In no event, however, shall Receiving Company rely solely on its
use of the Services in complying with any laws and governmental regulations.
3.3 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 of
independent contractor nor be deemed to vest any rights, interest or claims in
any third parties.
3.4 INCORPORATION OF PROVISIONS OF THE CONTRIBUTION AND
DISTRIBUTION AGREEMENT
The following provisions of the Contribution and Distribution
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 paragraphs (a) through (d) below to "Article" shall
mean Articles of the Contribution and Distribution Agreement, and except as
expressly set forth below, references in the material incorporated herein by
reference shall be references to the Contribution and Distribution Agreement):
(a) Article V, relating to mutual releases and
indemnification, including procedures;
(b) Article VIII, relating to preservation and exchange
of information and protection of proprietary information;
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(c) Article IX, relating to dispute resolution; and
(d) Article XII, miscellaneous provisions.
3.5 EXPENSES.
Except as expressly set forth herein (including in the
Exhibits hereto) or in the Contribution and Distribution Agreement or another
Ancillary Agreement, whether or not the Contribution or the Distribution is
consummated, all legal and other costs and expenses incurred in connection with
this Agreement will be paid by Lucent (in the case of costs or expenses incurred
by Lucent or any other member of the Lucent Group) or Avaya (in the case of
costs or expenses incurred by Avaya or any other member of the Avaya Group).
3.6 REFERENCES.
All reference to Sections, Articles, Exhibits or Schedules
contained herein mean Sections, Articles, Exhibits or Schedules of or to this
Agreement, as the case may be, unless otherwise stated. When a reference is made
in this Agreement to a "party" or "parties", such reference shall be to a party
or parties to this Agreement unless otherwise indicated. Whenever the words
"include", "includes" or "including" are used in this Agreement, they shall be
deemed to be followed by the words "without limitation". The use of the singular
herein shall be deemed to be or include the plural (and vice versa) whenever
appropriate. The use of the words "hereof", "herein", "hereunder", and words of
similar import shall refer to this entire Agreement, and not to any particular
article, section, subsection, clause, paragraph or other subdivision of this
Agreement, unless the context clearly indicates otherwise. The word "or" shall
not be exclusive; "may not" is prohibitive and not permissive.
3.7 MODIFICATION AND AMENDMENT.
Except for modifications to Exhibits, which may be made by
Representatives, this Agreement may not be modified or amended, or any provision
waived, except in the manner set forth in the Contribution and Distribution
Agreement.
3.8 INCONSISTENCY.
In the event of any inconsistency between the terms of this
Agreement and any of the Exhibits hereto, the terms of this Agreement, other
than charges, shall control.
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IN WITNESS WHEREOF, each of the parties hereto have caused
this Agreement to be duly executed on its behalf by its duly authorized officer
as of the date first written above.
LUCENT TECHNOLOGIES INC.
By:______________________________
Name:____________________________
Title:___________________________
AVAYA INC.
By:______________________________
Name:____________________________
Title:___________________________
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EXHIBIT 10.3
DRAFT
--------------------------------------------------------------------------------
EMPLOYEE BENEFITS AGREEMENT
by and between
LUCENT TECHNOLOGIES INC.
and
AVAYA INC.
Dated as of October 1, 2000
--------------------------------------------------------------------------------
2
TABLE OF CONTENTS
ARTICLE I DEFINITIONS
Agreement
ASO Contract
Assigned Split Dollar Policies
Auditing Party
Avaya Acquisition Loan
Avaya Entity
Avaya Individual
Avaya Master Pension Trust
Avaya Stock Value
Avaya WCP Claims
Award
CECRA
Close of the Distribution Date
COBRA
Code
Collective Bargaining Agreement
Contribution and Distribution Agreement
Covered Lucent Awards
CWA
Deferral Plan
DOL
ERISA
Executive Benefit Plans
Existing Acquisition Loan
First Transfer Date
FMLA
Group Life Program
HCFA
HCRA Plan
Health And Welfare Plans
Health Plans
HMO
HMO Agreements
IBEW
Immediately after the Distribution Date
Individual Agreement
IRS
Legally Permissible
LESOP
LESOP Trust
LRIP
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LTD VEBA
LTSSP
Lucent Acquisition Loan
Lucent Entity
Lucent Executive
Lucent Leave of Absence Programs
Lucent LTD Plans
Lucent Master Pension Trust
Lucent Pension Plan
Lucent SADBP
Lucent Stock Value
Lucent WCP
Material Feature
Medical Plans
MPA
Non-Employee Director
Non-Employee Director Plan
Non-parties
Nonrepresented Employee
Nonrepresented Transition Period
Nonrepresented Health VEBA
Non-U.S. Plan
Option
Participating Company
PBGC
Pension Plans
Pension Transfer Amount
Plan
Posretirement Health Trusts
Postretirement Life Trust
QDRO
QMCSO
Rabbi Trust
Ratio
Represented Employee
Represented Transition Period
Represented Health VEBA
RFA
Savings Plans
Second Transfer Date
Short Term Incentive Plan
Split Dollar Life Insurance
Stock Award Plan
Stock Purchase Plan
Transition Individual
Transition Period
Trust-Owned Life Insurance (VEBA)
U.S.
VEBA
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ARTICLE II GENERAL PRINCIPLES
2.1 Assumption of Liabilities
Avaya Liabilities
2.2 Avaya Participation in Lucent Health and Welfare Plans
a. Participation in Lucent Health and Welfare
b. Avaya's General Obligations as Participating Company
c. Termination of Participating Company Status
2.3 Establishment of Avaya Plans
2.4 Terms of Participation by Avaya Individuals in Avaya Plans and
Avaya Non-Employee Directors in Avaya Non-Employee Director Plan
a. Avaya Plans
Avaya Non-Employee Director Plan
2.5 Transition Individuals
a. Mandatory Portability Agreement
b. Nonrepresented Interchange Agreement
c. Represented Interchange Agreement
d. Restriction on Plan Amendments
ARTICLE III DEFINED BENEFIT PLANS
3.1 Establishment of Mirror Pension Trust
3.2 Assumption of Pension Plan Liabilities and Allocation
of Interests in the Lucent Master Pension Trust
a. Assumption of Liabilities by Avaya Pension Plan
b. Asset Allocations and Transfers
c. Pension Transfer Amount
ARTICLE IV DEFINED CONTRIBUTION PLANS
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4.1 Saving Plans
a) Nonrepresented Savings Plan Trust
b) Assumption of Liabilities and Transfer of Assets
4.2 LTSSPs and LESOPs
a) Represented Savings Plan Trust
b) Assumption of LTSSP Liabilities
c) Leveraged Stock Ownership Plan
ARTICLE V HEALTH AND WELFARE PLANS
5.1 Establishment of Mirror Health and Welfare Plan Trusts
5.2 Assumption of Health and Welfare Plan Liabilities
5.3 Postretirement Health Trust Asset Transfers
5.4 Postretirement Life Trust Asset Transfer; Transfer of Retirement
Funding Account Assets
5.5 [Reserved]
5.6 Vendor Contracts
a. Third-Party ASO Contracts
b. HMO Agreements
5.7 Sickness and Accident Dissability
5.8 Group Life Programs
5.9 COBRA
5.10 Leave of Absence Programs and FMLA
5.11 Lucent Workers' Compensation Program
a. Administration of Claims
b. Cooperation
c. AT&T Liability
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5.12 Lucent Employee Assistance Program
5.13 Unemployment Insurance Tax Management Program
5.14 Administration
a. Coordination of Benefits for Spouses, Dependents and Domestic
Partners; HCFA Data Match
b. Other Post-Distribution Transitional Rules
5.15 Application of Article V to Avaya Entities
5.16 Lucent Work and Family Programs
ARTICLE VI EXECUTIVE BENEFITS,
NON-EMPLOYEE DIRECTOR BENEFITS,
AND OTHER STOCK-BASED COMPENSATION
6.1 Assumption of Obligations
6.2 Lucent Short Term Incentive Plan
6.3 Lucent Stock Award Plans
a. Stock Options
b. Restricted Stock and Restricted Stock Units
6.4 Lucent Deferral Plan
6.5 Non-Employee Director Benefits
6.6 Rabbi Trust
a. Establishment of Mirror Rabbi Trust
b. Funding of Avaya Rabbi Trust
6.7 Lucent Split Dollar Life Insurance
ARTICLE VII MISCELLANEOUS BENEFITS
7.1 Transfer of Stock Purchase Plan Recordkeeping Accounts
7.2 Service Anniversary and Retirement Award Program
7.3 2000 Incentive Compensation Payments
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ARTICLE VIII GENERAL AND ADMINISTRATIVE
8.1 Actuarial and Accounting Methodologies and Assumptions
8.2 Sharing of Participant Information
8.3 Reporting, Disclosure and Communications to Participants
8.4 Non-Termination of Employment; No Third-Party Beneficiaries
8.5 Plan Audits
a. Audit Rights with Respect to the Allocation or Transfer of
Plan Assets
b. Audit Rights With Respect to Information Provided
c. Audits Regarding Vendor Contracts
8.6 Beneficiary Designations
8.7 Requests for IRS Rulings and DOL Opinions
a. Cooperation
b. Applications
c. Life Insurance
8.8 Fiduciary Matters
8.9 Collective Bargaining
8.10 Consent of Third Parties
8.11 Quiet Periods
8.12 Lucent's and Avaya's General Obligations as Plan Sponsors
8.13 Adjustments to Plan Transfers
ARTICLE IX MISCELLANEOUS
9.1 Non-U.S. Plans
9.2 Effect If Distribution Does Not Occur
9.3 Relationship of Parties
9.4 Affiliates
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9.5 Incorporation of Contribution and Distribution Agreement
Provisions
- vii -
9
Signatures
Schedule I Lucent Plans
Schedule II Description of Employee Allocation Principles
Schedule III Description of Lucent 2000 Incentive Compensation Commitment
Schedule IV Description of Non-U.S. Plan Treatment
Exhibit A Nonrepresented Interchange Agreement between Lucent
Technologies Inc. and Avaya Inc.
Exhibit B Represented Interchange Agreement between Lucent Technologies
Inc. and Avaya Inc.
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10
EMPLOYEE BENEFITS AGREEMENT
This EMPLOYEE BENEFITS AGREEMENT, dated as of October 1, 2000, is by
and between Lucent and Avaya. Capitalized terms used herein (other than the
formal names of Lucent Plans (as defined below) and related trusts of Lucent)
and not otherwise defined shall have the respective meanings assigned to them in
Article I hereof or as assigned to them in the Contribution and Distribution
Agreement (as defined below).
R E C I T A L S
WHEREAS, the Board of Directors of Lucent has determined that it is in
the best interests of Lucent and its stockholders to separate Lucent's existing
businesses into two independent businesses;
WHEREAS, in furtherance of the foregoing, Lucent and Avaya have entered
into a Contribution and Distribution Agreement, dated as of September 30, 2000,
(the "Contribution and Distribution Agreement") and certain other agreements
that will govern certain matters relating to the Contribution, the Distribution
and the relationship of Lucent and Avaya and their respective Subsidiaries
following the Distribution; and
WHEREAS, pursuant to the Contribution and Distribution Agreement,
Lucent and Avaya 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, in consideration of the mutual agreements, provisions
and covenants contained in this Agreement, 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:
AGREEMENT means this Employee Benefits Agreement, including all the
Schedules and Exhibits hereto.
ASO CONTRACT is defined in Section 5.6(a)(i).
ASSIGNED SPLIT DOLLAR POLICIES is defined in Section 6.7.
AUDITING PARTY is defined in Section 8.5(b)(i) .
11
AVAYA ACQUISITION LOAN is defined in Section 4.2(c)(ii).
AVAYA ENTITY means any Person that is, at the relevant time, a
Subsidiary of Avaya or is otherwise controlled, directly or indirectly, by
Avaya.
AVAYA INDIVIDUAL means any individual who, at the Close of the
Distribution Date, is either actively employed by, or on a leave of absence
from, Avaya or an Avaya Entity. Individuals who are receiving sickness or
accident benefits or benefits under a workers compensation program who have been
assigned to Avaya pursuant to the principles described in Schedule II shall be
Avaya Individuals. An alternate payee under a QDRO, an alternate recipient under
a QMCSO, a beneficiary or a covered dependent, in each case of an employee
described in the preceding sentence shall also be an Avaya Individual with
respect to that employee's benefit under the applicable Plans. Such an alternate
payee, alternate recipient, beneficiary, or covered dependent shall not
otherwise be considered an Avaya Individual with respect to his or her own
benefits under any applicable Plans unless he or she is an Avaya Individual by
virtue of the first sentence of this definition.
AVAYA MASTER PENSION TRUST is defined in Section 3.1.
AVAYA STOCK VALUE means the weighted averages of the regular way
trading prices of Avaya Common Stock as listed on the NYSE on the first trading
day after the Close of the Distribution Date.
AVAYA WCP CLAIMS is defined in Section 5.11(a).
AWARD means an award under a Stock Award Plan or a Short Term Incentive
Plan.
CECRA, when immediately preceded by "Lucent," means the Lucent
Child/Elder Care Reimbursement Account Plan. When immediately preceded by
"Avaya," CECRA means the child/elder care reimbursement account plan to be
established by Avaya pursuant to Section 2.3.
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.
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.
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.
COLLECTIVE BARGAINING AGREEMENT means the 1998 CWA/IBEW/Lucent National
Memorandum of Understanding, including all attachments, National Items and
letters included as a part thereof, between Lucent, the CWA and IBEW as of May
30, 1998, and such local
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12
collective bargaining agreements into which the CWA/IBEW/Lucent National
Memorandum of Understanding has been incorporated.
CONTRIBUTION AND DISTRIBUTION AGREEMENT is defined in the second
recital of this Agreement.
CWA means the Communications Workers of America, AFL-CIO.
DEFERRAL PLAN, when immediately preceded by "Lucent," means the Lucent
Technologies Inc. Deferred Compensation Plan. When immediately preceded by Avaya
means the deferred compensation plan to be established by Avaya.
DOL means the United States Department of Labor.
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.
EXECUTIVE BENEFIT PLANS, when immediately preceded by "Lucent," means
the executive benefit and nonqualified plans, programs, and arrangements
established, maintained, agreed upon, or assumed by Lucent or a Lucent Entity
for the benefit of employees and former employees of Lucent or a Lucent Entity
before the Close of the Distribution Date, including the plans listed in
Schedule I, but excluding the Senior Management Ground Transportation Program.
When immediately preceded by "Avaya," Executive Benefit Plans means the
executive benefit plans and programs to be established by Avaya pursuant to
Section 2.3 that correspond to the respective Lucent Executive Benefit Plans.
EXISTING ACQUISITION LOAN is defined in Section 4.2(c)(ii).
FIRST TRANSFER DATE is defined in Section 3.2(b).
FMLA means the Family and Medical Leave Act of 1993, as amended.
GROUP LIFE PROGRAM, when immediately preceded by "Lucent," means the
Lucent Dependent Accidental Loss Insurance Plan, the Lucent Dependent Group Life
Insurance Plan, the Lucent Group Life Insurance Plan, the Lucent Supplementary
Accidental Loss Insurance Plan and the Lucent Supplementary Life Insurance Plan.
When immediately preceded by "Avaya," Group Life Program means the life
insurance plans and programs to be established by Avaya pursuant to Section 2.3
that correspond to the respective Lucent Group Life Programs.
HCFA means the Health Care Financing Administration.
HCRA PLAN, when immediately preceded by "Lucent," means the Lucent
Health Care Reimbursement Account Plan. When immediately preceded by "Avaya,"
HCRA Plan means the health care reimbursement account plan to be established by
Avaya pursuant to Section 2.3.
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13
HEALTH AND WELFARE PLANS, when immediately preceded by "Lucent," means
the health and welfare plans listed on Schedule I established and maintained by
Lucent for the benefit of employees and retirees of Lucent and certain Lucent
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
"Avaya," Health and Welfare Plans means the health and welfare plans to be
established by Avaya pursuant to Section 2.3 that correspond to the respective
Lucent Health and Welfare Plans.
HEALTH PLANS, when immediately preceded by "Lucent," means the Lucent
Technologies Inc. Dental Expense Plan for Active Employees, the Lucent
Technologies Inc. Dental Expense Plan for Retired Employees, the Lucent Medical
Plans, the Lucent HCRA Plan and the Lucent Technologies Inc. Vision Care Plan.
When immediately preceded by "Avaya," Health Plans means the health plans to be
established by Avaya pursuant to Section 2.3 that correspond to the respective
Lucent Health Plans.
HMO means a health maintenance organization that provides benefits
under the Lucent Medical Plans or the Avaya Medical Plans.
HMO AGREEMENTS is defined in Section 5.6(b)(i).
IBEW means the International Brotherhood of Electrical Workers.
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.
INDIVIDUAL AGREEMENT means an individual contract or agreement (whether
written or unwritten) entered into between Lucent, a Lucent Entity, Avaya or an
Avaya Entity and a Lucent 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.
IRS means the Internal Revenue Service.
LEGALLY PERMISSIBLE is defined in Section 5.11(a).
LESOP, when immediately preceded by "Lucent," means the portion of the
Lucent LTSSP that is a leveraged employee stock ownership plan. When immediately
preceded by "Avaya," LESOP means the portion of the Avaya LTSSP that is a
leveraged employee stock ownership plan.
LESOP TRUST, when immediately preceded by "Lucent," means the trust
established by Lucent under Article 20 of the Lucent LTSSP. When immediately
preceded by "Avaya," LESOP
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14
Trust has the meaning set forth in Section 4.2(c)(i).
LRIP means the Lucent Retirement Income Plan. Unless the context
indicates otherwise, LRIP includes disability pensions payable from the Lucent
LTD VEBA.
LTSSP, when immediately preceded by "Lucent," means the Lucent
Technologies Inc. Long Term Savings and Security Plan. When immediately preceded
by "Avaya," LTSSP means the represented savings plan to be established by Avaya
pursuant to Section 2.3 that corresponds to the Lucent LTSSP.
LUCENT ACQUISITION LOAN is defined in Section 4.2(c)(ii).
LUCENT ENTITY means any Person that is, at the relevant time, an
Affiliate of Lucent, except that, after the Close of the Distribution Date, the
term "Lucent Entity" shall not include Avaya or an Avaya Entity.
LUCENT EXECUTIVE means an employee or former employee of Lucent, a
Lucent Entity, Avaya or an Avaya Entity, who immediately before the Close of the
Distribution Date is eligible to participate in or receive a benefit under any
Lucent Executive Benefit Plan.
LUCENT LEAVE OF ABSENCE PROGRAMS means the Local Leave, Disability
Leave, Educational Leave of Absence, Accompanying Lucent 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
Lucent.
LUCENT LTD VEBA means the Lucent Technologies Inc. Long Term Disability
Plans Benefit Trust.
LUCENT MASTER PENSION TRUST is defined in Section 3.2.
LUCENT PENSION PLAN means the Lucent Technologies Inc. Pension Plan.
Unless the context indicates otherwise, Lucent Pension Plan includes disability
pensions payable from the Lucent LTD VEBA and death benefits payable under the
Lucent Special Accidental Death Insurance Policy.
LUCENT SADBP means the Lucent Technologies Inc. Sickness and Accident
Disability Benefit Plan.
LUCENT STOCK VALUE means the weighted averages of the regular way
trading prices of Lucent Common Stock as listed on the NYSE on the Distribution
Date or, if the Distribution Date is not a trading day on the NYSE, on the
trading day that is immediately preceding the Distribution Date.
LUCENT WCP means the Lucent Workers' Compensation Program, comprised of
the
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15
various arrangements established by Lucent or a Lucent Entity to comply with the
workers' compensation requirements of the states in which Lucent and its
Affiliates conduct business.
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.
MEDICAL PLANS, when immediately preceded by "Lucent," means the Lucent
Technologies Inc. Medical Expense Plan for Management Employees, the Lucent
Technologies Inc. Medical Expense Plan for Represented Employees and the Lucent
Technologies Inc. Medical Expense Plan for Retired Employees. When immediately
preceded by "Avaya," Medical Plans means the medical plans to be established by
Avaya pursuant to Section 2.3 that correspond to the respective Lucent Medical
Plans.
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.
NON-EMPLOYEE DIRECTOR, when immediately preceded by "Lucent," means a
member of Lucent's Board of Directors who is not an employee of Lucent, a Lucent
Entity, Avaya, or an Avaya Entity. When immediately preceded by "Avaya,"
Non-Employee Director means a member of Avaya's Board of Directors who is not an
employee of Lucent, a Lucent Entity, Avaya or an Avaya Entity.
NON-EMPLOYEE DIRECTOR PLAN, when immediately preceded by "Lucent,"
means the 1999 Stock Compensation Plan for Non-Employee Directors. When
immediately preceded by "Avaya," Non-Employee Director Plan means the plan to be
established by Avaya pursuant to Section 2.3 that corresponds to the Lucent
Non-Employee Director Plan.
NON-PARTIES are defined in Section 8.5(b)(ii).
NONREPRESENTED EMPLOYEE means any individual who is classified by
Lucent as a Lucent Business Assistant or who is an "Employee" as defined under
the terms of the LRIP or the pension plan to be established by Avaya pursuant to
Section 2.3 that corresponds to the LRIP.
NONREPRESENTED TRANSITION PERIOD means the period beginning Immediately
after the
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Distribution Date and ending on the later of December 31, 2000 and the end of
the third calendar month that ends after the Distribution Date.
NONREPRESENTED HEALTH VEBA, when immediately preceded by "Lucent,"
means the Lucent Technologies Inc. Management and Nonrepresented Employees
Postretirement Health Benefits Trust.
NON-U.S PLAN means a Plan maintained by Lucent, a Lucent Entity, Avaya,
or an Avaya Entity for the benefit of employees outside the U.S.
OPTION, when immediately preceded by "Lucent," means an option to
purchase Lucent Common Stock. When immediately preceded by "Avaya," Option means
an option to purchase Avaya Common Stock, in each case pursuant to a Stock Award
Plan.
PARTICIPATING COMPANY means (a) Lucent, (b) any Person other than an
individual that Lucent has approved for participation in, and which is
participating in, a Plan sponsored by Lucent, 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.
PBGC means the Pension Benefit Guaranty Corporation.
PENSION PLANS, when immediately preceded by "Lucent," means the LRIP
and the Lucent Pension Plan. When immediately preceded by "Avaya," Pension Plans
means the respective nonrepresented and represented pension plans to be
established by Avaya pursuant to Section 2.3 that correspond to the Lucent
Pension Plans.
PENSION TRANSFER AMOUNT is defined in Section 3.2(c).
PLAN, when immediately preceded by "Lucent" or "Avaya," 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 Lucent or a Lucent
Entity, or Avaya or an Avaya Entity, as applicable.
POSTRETIREMENT HEALTH TRUSTS, when immediately preceded by "Lucent",
means the Lucent Nonrepresented Health VEBA and the Lucent Represented Health
VEBA. When immediately preceded by "Avaya", Postretirement Health Trusts means
the trusts to be established by Avaya pursuant to Section 5.1 that correspond to
the respective Lucent Postretirement Health Trusts.
POSTRETIREMENT LIFE TRUST, when immediately preceded by "Lucent," means
the Lucent Technologies Inc. Post Retirement Life Insurance Benefits Trust. When
immediately preceded by "Avaya," Postretirement Life Trust means the trust to be
established by Avaya that corresponds to the Lucent Postretirement Life
Insurance Benefits Trust.
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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 Lucent Pension Plans
or the Lucent Savings Plans.
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 a Lucent
Health Plan.
RABBI TRUST, when immediately preceded by "Lucent," means the Lucent
Technologies Inc. Benefits Protection Trust. When immediately preceded by
"Avaya," Rabbi Trust means the grantor trust to be established by Avaya pursuant
to Section 6.6(a) that corresponds to the Lucent Rabbi Trust.
RATIO means the amount obtained by dividing the Lucent Stock Value by
the Avaya Stock Value; provided, however, that, in determining the Ratio,
adjustments may be made to minimize the independent, determinable and verifiable
effects of events other than the Distribution on the Lucent Stock Value and the
Avaya Stock Value.
REPRESENTED EMPLOYEE means any individual, other than an individual
classified by Lucent as a Lucent Business Assistant, who is an "Employee" as
defined under the terms of the Lucent Pension Plan or the pension plan to be
established by Avaya pursuant to Section 2.3 that corresponds to the Lucent
Pension Plan.
REPRESENTED TRANSITION PERIOD means the period beginning Immediately
after the Distribution Date and ending no later than May 31, 2003, the scheduled
expiration date of the Collective Bargaining Agreement as in effect on the date
hereof.
REPRESENTED HEALTH VEBA, when immediately preceded by "Lucent," means
the Lucent Technologies Inc. Represented Employees Post-Retirement Health
Benefits Trust. When immediately preceded by "Avaya," Represented Health VEBA
means the welfare benefit fund to be established by Avaya that corresponds to
the Lucent Represented Health VEBA.
RFA means Retirement Funding Account.
SAVINGS PLANS, when immediately preceded by "Lucent," means the Lucent
Savings Plan and the Lucent Technologies Inc. Long Term Savings and Security
Plan. When immediately preceded by "Avaya," Savings Plans means the savings
plans to be established by Avaya pursuant to Section 2.3 that correspond to the
Lucent Savings Plan and the Lucent Technologies Inc.
Long Term Savings and Security Plan.
SECOND TRANSFER DATE is defined in Section 3.2(b).
SHORT TERM INCENTIVE PLAN, when immediately preceded by "Lucent," means
the Lucent
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18
Short Term Incentive Plan. When immediately preceded by "Avaya," Short Term
Incentive Plan means the short-term incentive plan to be established by Avaya
pursuant to Section 2.3.
SPLIT DOLLAR LIFE INSURANCE means the life insurance policies
purchased by Lucent on behalf of certain Lucent Executives and Lucent
Non-Employee Directors under (a) the Lucent Senior Management Individual Life
Insurance Program, (b) the Lucent Senior Management Basic Life Insurance Program
and (c) the Lucent Directors' Individual Life Insurance Program, with respect to
which such Lucent Executives or Lucent Non-Employee Directors (or their
assignees or delegates), respectively, have executed collateral assignments for
the benefit of Lucent.
STOCK AWARD PLAN, when immediately preceded by "Lucent," means any of
the Lucent Technologies Inc. Founders Grant Stock Option Plan, the Lucent
Technologies Inc. 1998 Global Stock Option Plan, the Lucent Technologies Inc.
1997 Long Term Incentive Plan, the Lucent Technologies Inc. 1996 Long Term
Incentive Program and such other stock-based incentive plans that have been
assumed by Lucent by reason of merger, acquisition, or otherwise. When
immediately preceded by "Avaya," Stock Award Plans means the stock award plans
to be established by Avaya pursuant to Section 2.3.
STOCK PURCHASE PLAN, when immediately preceded by "Lucent," means the
Lucent Technologies Inc. 1996 Employee Stock Purchase Plan. When immediately
preceded by "Avaya," Stock Purchase Plan means the stock purchase plan to be
established by Avaya pursuant to Section 2.3.
TRANSITION INDIVIDUAL means any individual who:
(a) is an Avaya Individual as of the Close of the Distribution
Date 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 a Lucent Pension Plan;
(b) is an employee or former employee of Lucent or a Lucent
Entity as of the Close of the Distribution Date who during the applicable
Transition Period becomes an employee of Avaya or an Avaya 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 a Lucent 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 Lucent or a Lucent Entity to Avaya or an Avaya Entity, or (ii) from
Avaya or an Avaya Entity to 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 a
Lucent Pension Plan.
For these purposes, the applicable Transition Period is determined by the
positions
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19
(Nonrepresented Employee or Represented 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.
TRANSITION PERIOD means the Nonrepresented Transition Period or the
Represented Transition Period, as applicable.
TRUST-OWNED LIFE INSURANCE (VEBA) means the group life insurance
policies purchased from The Prudential Insurance Company of America by the
trustee of the Lucent Nonrepresented Health VEBA.
U.S. means the 50 states comprising the United States of America and
the District of Columbia.
VEBA, when immediately preceded by "Lucent," means any voluntary
employees' beneficiary association trust sponsored by Lucent. When immediately
preceded by "Avaya," VEBA means any voluntary employees' beneficiary association
trust sponsored by Avaya.
ARTICLE II
GENERAL PRINCIPLES
2.1 ASSUMPTION OF LIABILITIES.
AVAYA LIABILITIES. Except as otherwise provided in this
Agreement, Avaya hereby assumes and agrees to pay, perform, fulfill and
discharge, or cause an Avaya Plan to pay, perform, fulfill and discharge, in
accordance with their respective terms, all Liabilities (regardless of when or
where such Liabilities arose or arise or were or are incurred) to or relating to
Avaya Individuals, and their dependents and beneficiaries, under or with respect
to employee compensation programs, plans or policies or any Plan to the extent
relating to, arising out of or resulting from future, present or former
employment with Avaya, an Avaya Entity, Lucent or a Lucent Entity (including
Liabilities under Lucent Plans and Avaya Plans). Notwithstanding the foregoing,
(i) Avaya shall not, by virtue of any provision of this Agreement or the
Contribution 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
Contribution and Distribution Agreement, and (ii) Avaya shall not, by virtue of
this Section 2.1, be deemed to have assumed a Liability that would otherwise be
the Liability of any Avaya Plan.
2.2 AVAYA PARTICIPATION IN LUCENT HEALTH AND WELFARE PLANS.
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(a) PARTICIPATION IN LUCENT HEALTH AND WELFARE PLANS.
Effective Immediately after the Distribution Date and subject to the terms and
conditions of this Agreement, Avaya shall become a Participating Company in the
Lucent Health and Welfare Plans in effect Immediately after the Distribution
Date, and Lucent hereby consents to such status. Each Avaya Entity that is, as
of the Close of the Distribution Date, a Participating Company in any of such
Lucent Plans shall continue as such. Effective Immediately after the
Distribution Date, an Avaya Entity not described in the preceding sentence may,
at its request and with the consent of Lucent (which shall not be unreasonably
withheld), become a Participating Company in any or all of the Lucent Health and
Welfare Plans. Without Lucent's consent, neither Avaya nor any Avaya Entity
shall become a Participating Company in any such Lucent Plan established after
the Distribution Date.
(b) AVAYA'S GENERAL OBLIGATIONS AS PARTICIPATING COMPANY.
Avaya shall perform with respect to its participation in the Lucent Health and
Welfare Plans, and shall cause each other Avaya Entity that is a Participating
Company in any Lucent Health and Welfare 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 Lucent Health
and Welfare Plan; (ii) cooperating fully with benefit personnel and benefit
vendors; (iii) preserving the confidentiality of all financial arrangements
Lucent has or may have with any vendors, claims administrators, trustees or any
other entity or individual with whom Lucent has entered into an agreement
relating to the Lucent Health and Welfare Plans; and (iv) preserving the
confidentiality of participant health information (including health information
in relation to FMLA leaves).
(c) TERMINATION OF PARTICIPATING COMPANY STATUS. Avaya and
each Avaya Entity shall cease to be a Participating Company in the Lucent Health
and Welfare Plans immediately before January 1, 2001.
2.3 ESTABLISHMENT OF AVAYA PLANS. Effective Immediately after the
Distribution Date, Avaya shall adopt, or cause to be adopted, the Avaya Pension
Plans, the Avaya Savings Plans, THE Avaya Stock Purchase Plan, the Avaya Stock
Awards Plans, the Deferral Plan, and the Avaya Executive Benefit Plans for the
benefit of Avaya Individuals and other current and future employees of Avaya and
the Avaya Entities. Effective January 1, 2001, Avaya shall adopt, or cause to be
adopted, the Avaya Health and Welfare Plans for the benefit of the Avaya
Individuals and other current, future, and former employees of Avaya and the
Avaya Entities. Except for the Avaya Stock Award Plans and the Avaya Stock
Purchase Plan, the foregoing Avaya Plans as in effect Immediately after the
Distribution Date, or as in effect as of January 1, 2001 for the Avaya Health
and Welfare Plans, respectively, shall be substantially similar in all Material
Features to the corresponding Lucent Plans as in effect as of the Close of the
Distribution Date or December 31, 2000, respectively. The Avaya Stock Purchase
Plan shall be adopted by Avaya and approved by Lucent as sole shareholder of
Avaya, before the Distribution Date, to become effective Immediately after the
Distribution Date. Effective as of the Distribution Date, Avaya shall adopt, or
cause to be adopted, the Avaya Non-Employee Director Plan, for the benefit of
Avaya Non-Employee Directors who were, immediately before the Distribution Date,
Lucent Non-Employee
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21
Directors. The Avaya Non-Employee Director Plan shall be substantially similar
in all Material Features to the corresponding Lucent Non-Employee Director Plan
as in effect on the Distribution Date, except that it need not provide for the
accrual of additional benefits after the Distribution Date. In addition, before
the Distribution Date, Avaya may adopt a plan or other arrangement for the
payment of compensation of the Avaya Non-Employee Directors in Avaya Common
Stock after the Distribution Date.
2.4 TERMS OF PARTICIPATION BY AVAYA INDIVIDUALS IN AVAYA PLANS AND
AVAYA NON-EMPLOYEE DIRECTORS IN AVAYA NON-EMPLOYEE DIRECTOR PLAN.
(a) AVAYA PLANS. The Avaya Plans shall be, with respect to
Avaya Individuals, in all respects the successors in interest to, and shall not
provide benefits that duplicate benefits provided by, the corresponding Lucent
Plans. Lucent and Avaya shall agree on methods and procedures to prevent Avaya
Individuals from receiving duplicative benefits from the Lucent Plans and the
Avaya Plans. With respect to Avaya Individuals, each Avaya 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 Lucent Plan shall, as of Immediately after the
Distribution Date, receive full recognition, credit, and validity and be taken
into account under such Avaya Plan to the same extent as if occurred under such
Avaya 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 Lucent Plans (including Non-U.S. Plans) to the corresponding trusts
relating to Avaya Plans (including Non-U.S. Plans) are based upon the
understanding of the parties that each such Avaya Plan will assume all
Liabilities of the corresponding Lucent Plan to or relating to Avaya
Individuals, as provided for herein. If any such Liabilities are not effectively
assumed by the appropriate Avaya Plan, then the amount of assets transferred to
the trust relating to such Avaya Plan from the trust relating to the
corresponding Lucent Plan shall be recomputed, ab initio, as set forth below but
taking into account the retention of such Liabilities by such Lucent Plan, and
assets shall be transferred by the trust relating to such Avaya Plan to the
trust relating to such Lucent 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) AVAYA NON-EMPLOYEE DIRECTOR PLAN. The Avaya Non-Employee
Director Plan shall be, with respect to the Avaya Non-Employee Directors who
participated in the corresponding Lucent Non-Employee Director Plan, in all
respects the successor in interest to, and shall not provide benefits that
duplicate benefits provided by, such Lucent Plan.
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. Prior to the Distribution
Date, Lucent shall designate Avaya as, and Avaya shall become, an Interchange
Company under the MPA, with all the applicable rights and obligations of such an
Interchange Company. Each Avaya 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 Distribution Date, any other Avaya Entity that becomes a
- 12 -
22
Participating Company in the Lucent Pension Plans pursuant to Section 2.2 may,
at its request and with the consent of Lucent (which shall not be unreasonably
withheld), become an Interchange Company. Effective Immediately after the
Distribution Date, the Avaya Pension Plans shall be "Interchange Company Pension
Plans" under, and subject to the terms of, the MPA.
(b) NONREPRESENTED INTERCHANGE AGREEMENT. Effective on the
Distribution Date, Lucent and Avaya shall enter into a Nonrepresented
Interchange Agreement in the form attached hereto as Exhibit A.
(c) REPRESENTED INTERCHANGE AGREEMENT. Effective on the
Distribution Date, Lucent and Avaya shall enter into a Represented Interchange
Agreement in the form attached hereto as Exhibit B.
(d) RESTRICTION ON PLAN AMENDMENTS. During the Nonrepresented
Transition Period, neither Lucent nor Avaya shall adopt any amendment, or allow
any amendment to be adopted, to any of their respective Pension Plans or Savings
Plans 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 TRUST. Effective Immediately after
the Distribution Date, Avaya 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), and forming part of the Avaya Pension
Plans (the "Avaya Master Pension Trust").
3.2 ASSUMPTION OF PENSION PLAN LIABILITIES AND ALLOCATION OF INTERESTS
IN THE LUCENT MASTER PENSION TRUST.
(a) ASSUMPTION OF LIABILITIES BY AVAYA PENSION PLANS.
Immediately after the Distribution Date, all Liabilities to or relating to Avaya
Individuals under the LRIP or the Lucent Pension Plan, as applicable, shall
cease to be Liabilities of the LRIP or the Lucent Pension Plan, as applicable,
and shall be assumed by the corresponding Avaya Pension Plan.
(b) ASSET ALLOCATIONS AND TRANSFERS. On or about September 1,
2000, Lucent established subaccounts (the "Transfer Subaccounts") of the
following accounts of the Lucent Technologies Inc. Master Pension Trust (the
"Lucent Master Pension Trust") in the approximate amounts, as of September 1,
2000, set forth below:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
Title of Account; Account Number Amount to be transferred (in millions)
----------------------------------------------------------------------------------------------------------------------
<S> <C>
DFA - Dimensional Fund Advisors, Inc. 6-10 Subtrust $333
Account; 22-04909
----------------------------------------------------------------------------------------------------------------------
</TABLE>
- 13 -
23
<TABLE>
<S> <C>
----------------------------------------------------------------------------------------------------------------------
State Street Global Advisors EAFE Index Account; 22-04911 $499.5
----------------------------------------------------------------------------------------------------------------------
Barclays Global Investors, N.A. US Passive Fixed Income $832.5
Account; 22-04910
----------------------------------------------------------------------------------------------------------------------
State Street Global Advisors S & P 500 Index Account; $1,665
22-04908
----------------------------------------------------------------------------------------------------------------------
</TABLE>
On the first day after the Distribution Date on which the New
York Stock Exchange is open for business (the "First Transfer Date"), Lucent
shall transfer or cause to be transferred from the Lucent Master Pension Trust
to the Avaya Master Pension Trust the assets of the LRIP and the Lucent Pension
Plan then in the Transfer Subaccounts.
On a date agreed upon by Lucent and Avaya that is no later
than six months after the Distribution Date, or on such later date as they may
agree (the "Second Transfer Date"), Lucent shall transfer or cause to be
transferred from the Lucent Master Pension Trust to the Avaya Master Pension
Trust assets of the Lucent Pension Plans, or Avaya shall transfer or cause to be
transferred from the Avaya Master Pension Trust to the Lucent Master Pension
Trust assets of the Avaya Pension Plans, in an amount equal to the difference
between the Pension Transfer Amount and the amount transferred on the First
Transfer Date, plus earnings or minus losses equal to the amount that would have
been earned or lost if such balance had been invested in the Lucent Master
Pension Trust SSGA S&P 500 account (Account No. 22-01150) from the First
Transfer Date to, but not including, the Second Transfer Date. The amount to be
transferred as of the Second Transfer Date shall be adjusted by the aggregate
amount of any pension benefit payments made by the Lucent Master Pension Trust
on behalf of the Avaya Master Pension Trust (and by the aggregate amount of any
pension benefit payments made by the Avaya Master Pension Trust on behalf of the
Lucent Master Pension Trust) prior to the Second Transfer Date, and to reflect
data corrections and computational refinements. The amounts to be transferred on
the Second Transfer Date will be transferred, at Lucent's election, in the form
of cash or an approximately pro-rata portion of publicly traded securities from
the Lucent Master Pension Trust SSGA S & P 500 account (Account No. 22-01150),
or a combination of both. In the event the amount to be transferred on the
Second Transfer Date is a negative amount, then Avaya shall transfer or cause to
be transferred from the Avaya Master Pension Trust back to the Lucent Master
Pension Trust such amount in cash.
On or prior to the Second Transfer Date, Lucent shall provide
Avaya with a copy of the actuarial reports relating to the determination of the
Pension Transfer Amount, together with a written certification of the Pension
Transfer Amount prepared by the enrolled actuary for the Lucent plans.
(c) PENSION TRANSFER AMOUNT.
(i) For purposes of this Section 3.2, "Pension Transfer Amount" shall
mean the
- 14 -
24
lesser of (A) and (B), where (A) shall be an amount equal to the fair market
value of the Lucent Master Pension Trust in the LRIP or the Lucent Pension Plan,
respectively, as of the Distribution Date multiplied by a fraction, the
numerator of which shall be the projected benefit obligation for Avaya
Individuals under each such plan as of the Distribution Date (using the
actuarial methods and assumptions utilized by Lucent in accordance with FAS 87
reporting for determining the disclosure of the projected benefit obligation as
of September 30, 2000), and the denominator of which shall be such projected
benefit obligation in respect of all participants (including Avaya Individuals)
under each such plan (using the same actuarial methods and assumptions), and (B)
shall be an amount such that the projected net pension and other postretirement
health benefit income to Avaya under FAS 87 and 106 for its fiscal year 2001
based on the assumptions set forth in the remainder of this Section 3.2(c) is
$8.5 million.
(ii) Notwithstanding the foregoing provisions of this paragraph 3.2(c),
in no event shall the Pension Transfer Amount be less than the minimum required
transfer amount for Avaya Individuals determined in accordance with the terms of
the LRIP and the Lucent Pension Plan and the requirements of Section 414(l) of
the Code, utilizing the "safe harbor" rates and assumptions set forth in the
regulations promulgated by the PBGC under Section 4044 of ERISA as of the
Distribution Date except that no expense load, including any loading charge
determined under the Loading Assumptions set forth in Appendix C to Part 4044 of
the PBGC Regulations, shall be charged.
(iii) The amount specified in clause (B) of Section 3.2(c)(i) shall be
determined on a pro-forma basis as of the Distribution Date using the actuarial
methods and assumptions utilized by Lucent in accordance with its FAS 87 and 106
reporting as of September 30, 2000 and after giving effect to the estimated
amounts of the transfers described in Sections 5.3, 5.4, and 6.6. In making such
determinations, unrecognized accounting items will be allocated between Avaya
and Lucent pursuant to Question and Answer 81 contained in the Implementation
Guidelines of Statement of Financial Accounting Standards No. 87.
(iv) For purposes of determining all actuarial liabilities required
under this Section 3.2(c), active and inactive employee data shall be based on
the census data as of the Distribution Date. To the extent that there are
transfers of pension assets with respect to participants relating to
pre-Distribution Date transactions and/or obligations, the following principles
shall apply: (A) with respect to MPA transfers, transfers of pension assets into
the Lucent pension plans with respect to employees covered by the MPA for whom
pension assets had not transferred as of the Distribution Date shall be
allocated to the respective pension plan wherein the participant is assigned as
of the Distribution Date; and transfers of pension assets from the Lucent
pension plans (without regard to the Avaya pension plans' assets) with respect
to employees covered by the MPA for whom pension assets had not transferred as
of the Distribution Date shall be transferred from the respective Lucent pension
plans; (B) with respect to internal transfers (LRIP to Pension Plans, or
reverse), the audited pension asset transfer
- 15 -
25
amounts shall be adjusted to reflect the internal transfers between the LRIP and
the Lucent Pension Plan between the first day of 2000 and the Distribution Date;
and (C) any other pension asset transfers not described above will be treated in
a manner consistent with the principles underlying the methodologies described
in items (A) and (B) above.
ARTICLE IV
DEFINED CONTRIBUTION PLANS
4.1 SAVINGS PLANS.
(a) NONREPRESENTED SAVINGS PLAN TRUST. Effective Immediately
after the Distribution Date, Avaya shall establish, or cause to be established,
a separate trust qualified under Code Section 401(a), exempt from taxation under
Code Section 501(a), and forming part of the Avaya Savings Plan.
(b) ASSUMPTION OF LIABILITIES AND TRANSFER OF ASSETS.
Effective Immediately after the Distribution Date: (i) the Avaya Savings Plan
shall assume and be solely responsible for all Liabilities to or relating to
Avaya Individuals under the Lucent Savings Plan and (ii) Lucent shall cause the
accounts of the Avaya Individuals under the Lucent Savings Plan which are held
by its related trust as of the Close of the Distribution Date to be transferred
to the Avaya Savings Plan and its related trusts, and Avaya shall cause such
transferred accounts to be accepted by such plans and trusts. Effective no later
than Immediately after the Distribution Date, Avaya shall use its reasonable
best efforts to enter into agreements satisfactory to Avaya to accomplish such
assumptions and transfers, the maintenance of the necessary participant records,
the appointment of Fidelity Management Trust Company as initial trustee under
the Avaya Savings Plan, and the engagement of Fidelity Institutional Retirement
Services Company as initial recordkeeper under such plans. The 2000 variable
match for Avaya Individuals who are participants in the Avaya Savings Plan will
be funded by Avaya in the amount that would have been provided under the Lucent
Savings Plan had the assumption of liabilities and transfer of assets described
herein not occurred.
4.2 LTSSPS AND LESOPS.
(a) REPRESENTED SAVINGS PLAN TRUST. Effective Immediately after
the Distribution Date, Avaya 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), and forming part of the Avaya LTSSP.
(b) ASSUMPTION OF LTSSP LIABILITIES. Effective Immediately
after the Distribution Date: (i) the Avaya LTSSP shall assume and be solely
responsible for all Liabilities to or relating to Avaya Individuals under the
Lucent LTSSP and (ii) Lucent shall cause the
- 16 -
26
accounts of the Avaya Individuals under the Lucent LTSSP which are held by its
related trust as of the Close of the Distribution Date to be transferred to the
Avaya LTSSP and its related trust, and Avaya shall cause such transferred
accounts to be accepted by such plans and trusts. Effective no later than
Immediately after the Distribution Date, Avaya shall use its reasonable best
efforts to enter into agreements satisfactory to Avaya to accomplish such
assumption and transfer, the maintenance of the necessary participant records,
the appointment of Fidelity Management Trust Company as initial trustee under
the Avaya LTSSP, and the engagement of Fidelity Institutional Retirement
Services Company as initial recordkeeper under such plans.
(c) LEVERAGED STOCK OWNERSHIP PLAN.
(i) Effective Immediately after the Distribution
Date, Avaya shall establish, or cause to be established, a separate trust (the
"Avaya LESOP Trust"), qualified in accordance with Code Section 401(a), exempt
from taxation under Code Section 501(a), and forming part of the Avaya LTSSP.
(ii) Lucent and Avaya shall use their reasonable best
efforts to renegotiate the Amended and Restated ESOP Loan Agreement between
Fidelity Management Trust Company, as trustee of the Lucent LESOP, and Lucent
dated June 30, 1999 (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 Avaya LESOP Trust pursuant
to Section 4.2(c)(iii) (the "Avaya Acquisition Loan") and the principal amount
of the other being attributable to the accounts remaining in the Lucent LESOP
(the "Lucent Acquisition Loan"). The principal amount of the Avaya 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). Lucent and Avaya shall use their reasonable best efforts to
cause the terms of the Lucent Acquisition Loan and the Avaya Acquisition Loan to
be as favorable to Avaya and Lucent, respectively, as the terms of the Existing
Acquisition Loan, and, to the extent permitted by applicable law, the terms of
the Avaya Acquisition Loan to be no less favorable to Avaya and the Avaya LESOP
Trust than the terms of the Lucent Acquisition Loan are to Lucent and the Lucent
LESOP Trust. 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 Avaya Acquisition Loan exceeds the interest rate payable pursuant to the
Lucent Acquisition Loan or vice versa, then Avaya and Lucent 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 Avaya Acquisition Loan and the Lucent Acquisition Loan, taking into account
any tax benefits realized or tax detriments suffered in connection therewith.
(iii) Effective Immediately after the Distribution
Date: (A) the Avaya LTSSP shall assume and be solely responsible for all
Liabilities relating to Avaya Individuals under the Lucent LTSSP that relate to,
arise out of or result from the Lucent LESOP; (B) Lucent shall cause the
accounts of the Avaya Individuals under the Lucent LTSSP which are held by the
Lucent LESOP Trust as of the Close of the Distribution Date to be transferred to
the Avaya LTSSP and the Avaya LESOP Trust; (C) if the Existing Acquisition Loan
has been restructured into, and subject to the terms of, the Lucent Acquisition
Loan and the Avaya Acquisition Loan,
- 17 -
27
Lucent shall cause the trustee of the Lucent LESOP Trust to transfer to the
Avaya LESOP Trust a portion of the assets held in the "Suspense Account" (as
defined in Article 17 of the Lucent LTSSP) attributable to the Avaya
Individuals, determined by multiplying the number of shares of Lucent 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 of employer matching contributions attributable to Avaya
Individuals and other employees of Avaya and the Avaya Entities for the latest
calendar month that ends on or before the Distribution Date, and the denominator
of which is the total amount of employer matching contributions for all
participants in the Lucent LTSSP for such calendar month; and (D) Avaya 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, Avaya shall use its reasonable best efforts to enter into agreements
acceptable to Avaya to accomplish such assumption and transfers, the maintenance
of the necessary participant and suspense account records, the appointment of
Fidelity Management Trust Company as initial trustee of the Avaya LESOP Trust,
and the engagement of Fidelity Institutional Retirement Services Company as
initial recordkeeper of the Avaya 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 Lucent Acquisition Loan and Avaya
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 Lucent LESOP and the Avaya LESOP will, after the Close of the Distribution
Date, hold shares of both Lucent Common Stock and Avaya 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,
Lucent and Avaya shall each request the IRS to grant an extension of such
holding period as their financial advisors shall deem prudent to allow the
Lucent LESOP to dispose of the shares of Avaya Common Stock received by it as a
result of the Distribution and to allow the Avaya LESOP to dispose of the shares
of Lucent 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 participants.
In furtherance of such dispositions and reinvestments, Lucent and Avaya shall
take all actions necessary or appropriate to permit the exchange of shares of
Avaya Common Stock held by the Lucent LESOP Trust for shares of Lucent Common
Stock held by the Avaya LESOP Trust, including the engagement of a fiduciary not
affiliated with either Lucent or Avaya to advise the parties regarding the time
and manner (including the exchange ratio) of such exchange.
ARTICLE V
HEALTH AND WELFARE PLANS
- 18 -
28
5.1 ESTABLISHMENT OF MIRROR HEALTH AND WELFARE PLAN TRUSTS. On or before
January 1, 2001, Avaya shall establish, or cause to be established the following
trusts, if assets will be transferred from the corresponding Lucent trusts
pursuant to Sections 5.3 and 5.4: (a) the Avaya Postretirement Health Trusts,
for the purpose of funding claims for post-retirement benefits under the Avaya
Health Plans, and (b) the Avaya Postretirement Life VEBA, for the purpose of
funding claims for post-retirement life insurance benefits. Such trusts shall
meet the requirements of Code Sections 419, 419A, 501(a), and 501(c)(9).
Avaya shall use its reasonable best efforts to enter into agreements
satisfactory to Avaya for the appointment as initial trustee under each such
trust of the trustee of the corresponding Lucent trust.
5.2 ASSUMPTION OF HEALTH AND WELFARE PLAN LIABILITIES.
(a) Effective January 1, 2001, all Liabilities to or relating to Avaya
Individuals under the Lucent Health and Welfare Plans shall cease to be
Liabilities of the Lucent Health and Welfare Plans and shall be assumed by the
corresponding Avaya Health and Welfare Plans.
(b) Notwithstanding Section 5.2(a), all treatments which are being provided
to an Avaya Individual as of December 31, 2000 by a provider that is not
participating in any Avaya Health and Welfare Plan shall be provided without
interruption under the appropriate Lucent Health and Welfare Plan until such
treatment is concluded or discontinued pursuant to applicable plan rules and
limitations, but Avaya shall continue to be responsible for all Liabilities
relating to, arising out of or resulting from such on-going treatments as of
January 1, 2001.
(c) Avaya shall assume, effective January 1, 2001, all Liabilities relating
to, arising out of or resulting from special commitments made by Lucent before
January 1, 2001 to provide benefits to or with respect to Avaya Individuals for
custodial care or other services not covered by any Lucent Health and Welfare
Plans. Before January 1, 2001, Lucent shall transfer to Avaya copies of any
documentation, and a complete written description, of the terms of all such
special commitments to Avaya Individuals.
(d) Avaya shall not be required to make any contributions to a Lucent VEBA.
5.3 POSTRETIREMENT HEALTH TRUST ASSET TRANSFERS.
(a) This Section 5.3 shall govern the transfer of assets from the Lucent
Postretirement Health Trusts to the corresponding Avaya Postretirement Health
Trusts. As soon as practicable after the Distribution Date, Lucent shall
determine the aggregate value, as of the close of the Distribution Date, of the
accumulated postretirement benefit obligations of each Lucent Plan funded by a
Lucent Postretirement Health Trust, with respect to all Avaya Individuals. As
soon as practicable after such determination is made and as of the last business
day of a month, and subject (to the extent determined by Lucent) to Lucent's
receipt of favorable rulings from the Internal Revenue Service with respect to
such transfers, there shall be transferred from each such Lucent Postretirement
Health Trust to the corresponding Avaya Postretirement Health Trust an amount of
assets determined as set forth below. Assets of the Lucent Represented
-19-
29
Health VEBA, equal to the fair market value as of the close of the Distribution
Date of the assets of the plan funded by such Lucent VEBA multiplied by a
fraction (the numerator of which shall be the accumulated postretirement health
benefit obligation under FAS 106 for Avaya Individuals whose postretirement
health benefit is funded by such VEBA, and the denominator of which shall be the
accumulated postretirement health benefit obligation under FAS 106 for all
participants and dependents whose postretirement health benefit is funded by
such VEBA) shall be transferred to the Avaya Represented Health VEBA. Assets of
the Lucent Nonrepresented Health VEBA attributable to Avaya Individuals,
determined by allocating assets using principles consistent with Section 4044 of
ERISA and the regulations thereunder, shall be transferred to the Avaya
Nonrepresented Health VEBA.
(b) For purposes of Section 5.3(a), all determinations shall be made as of
the Distribution Date, based on the active and inactive census data as of the
Distribution Date. For purposes of determining the accumulated postretirement
benefit obligation, the assumptions and methods used by Lucent in determining
the disclosure of accumulated postretirement benefit obligation under FAS 106 as
of September 30, 2000 shall be used. The amounts to be transferred as described
above shall be adjusted by the aggregate amount of any payments made by the
Lucent Postretirement Health Trust for Avaya Individuals (and by the aggregate
amount of any payments made by the Avaya Postretirement Health Trust on behalf
of the Lucent Postretirement Health Trust) prior to such transfer, and increased
by actual earnings or decreased by actual losses on such amounts (net of
expenses and applicable unrelated business income tax) from the Distribution
Date through the date of such transfer. The assets to be transferred pursuant to
this Section 5.3 shall be in the form of publicly traded securities as may be
agreed by the parties. Nothing in this Agreement shall be interpreted to provide
that any assets so transferred have reverted to Lucent or Avaya.
5.4 POST-RETIREMENT LIFE TRUST ASSET TRANSFER; TRANSFER OF RETIREMENT
FUNDING ACCOUNT ASSETS. This Section 5.4 shall govern the transfer of assets
from the Lucent Postretirement Life Trust to the corresponding Avaya
Postretirement Life Trust. The Lucent Postretirement Life Trust has a group term
life insurance policy with an RFA 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 Distribution Date and as of the last business day of a month, and subject
(to the extent determined by Lucent) to Lucent's receipt of favorable rulings
from the Internal Revenue Service with respect to such transfers, Lucent shall
take such steps as may be necessary to create a second group life insurance
policy within the Lucent Postretirement Life Trust and shall cause to be
transferred to the corresponding Avaya Postretirement Life Trust a group life
insurance policy with an RFA in an amount equal to the product of (a) and (b)
below, adjusted by the aggregate amount of any payments made by the Lucent
Postretirement Life Trust for Avaya Individuals (and by the aggregate amount of
any payments made by the Avaya Postretirement Life Trust on behalf of the Lucent
Postretirement Life Trust) prior to such transfer, and increased by actual
earnings or decreased by actual losses on such amount (net of expenses and
applicable unrelated business income tax) from the
-20-
30
Distribution Date through the date of such transfer. For purposes of the
immediately preceding sentence, (a) shall be a fraction (the "Life VEBA Ratio")
the numerator of which shall be the accumulated postretirement life insurance
benefit obligation under FAS 106 for Avaya Individuals as of the Distribution
Date (determined in accordance with the assumptions and methods used by Lucent
in determining the disclosure of accumulated postretirement benefit obligations
under FAS 106 as of September 30, 2000), and the denominator of which shall be
the accumulated postretirement life insurance benefit obligation under FAS 106
as of the Distribution Date for all participants under the Lucent Plan funded by
the Postretirement Life Trust (determined in accordance with such assumptions
and methods), and (b) shall be the fair market value of all Lucent
Postretirement Life Trust assets as of the Distribution Date. Lucent and Avaya
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. The parties agree that the amount
of assets of the Lucent Postretirement Life VEBA attributable to contributions
made to the RFA (or predecessor RFAs) before January 1, 1986 (the "Pre-DEFRA
Reserves") to be transferred to the Avaya Postretirement Life VEBA shall be
equal to the Pre-DEFRA Reserves of the Lucent Postretirement Life VEBA
multiplied by the Life VEBA Ratio. Nothing in this Agreement shall be
interpreted to provide that any assets so transferred have reverted to Lucent or
Avaya.
5.5 [RESERVED]
5.6 VENDOR CONTRACTS.
(a) THIRD-PARTY ASO CONTRACTS.
(i) At Avaya's request, Lucent shall use its reasonable best
efforts to amend each administrative services only contract with a third-party
administrator that relates to any of the Lucent Health and Welfare Plans (an
"ASO Contract") in existence as of the date of this Agreement to permit Avaya to
participate in the terms and conditions of such ASO Contract from January 1,
2001 until the expiration of the financial fee guarantees in effect under such
ASO Contract as of the Close of the Distribution Date.
(b) HMO AGREEMENTS.
(i) Lucent shall use its reasonable best efforts to amend all
letter agreements with HMOs that provide medical services under the Lucent
Medical Plans for 2000 ("HMO Agreements") in existence as of the date of this
Agreement to permit Avaya to participate in the terms and conditions of such HMO
Agreements, in each case, from January 1, 2001 until December 31, 2001.
(ii) Lucent shall have the right to determine, and shall promptly
notify Avaya of, the manner in which Avaya's participation in the terms and
conditions of all HMO Agreements as set forth above shall be effectuated. The
permissible ways in which Avaya's participation may be effectuated include
automatically making Avaya a party to the HMO
-21-
31
Agreements or obligating the HMOs to enter into letter agreements with Avaya
which are similar to the HMO Agreements. Such terms and conditions shall include
the financial and termination provisions of the HMO Agreements. Avaya hereby
authorizes Lucent to act on its behalf to extend to Avaya the terms and
conditions of the HMO Agreements. Avaya shall fully cooperate with Lucent in
such efforts, and Avaya shall not perform any act, including discussing any
alternative arrangements with any third-party that would prejudice Lucent's
efforts.
(iii) Notwithstanding anything in this Article V to the contrary,
Avaya shall have the sole discretion to determine which HMOs to offer to the
participants in the Avaya Medical Plans for 2001 and subsequent years.
5.7 SICKNESS AND ACCIDENT DISABILITY. Lucent shall transfer to Avaya,
effective Immediately after the Distribution Date, responsibility for
administering all claims incurred under the Lucent SADBP by Avaya Individuals
before the Close of the Distribution Date that are administered by Lucent as of
the Close of the Distribution Date. Avaya shall have sole discretionary
authority to make any necessary determinations with respect to such claims,
including entering into settlements with respect to such claims.
5.8 GROUP LIFE PROGRAMS. Effective as of the Close of the Distribution
Date, Lucent 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 Lucent Group Life Program to: (a) perform an experience rating; (b)
allocate the applicable premium stabilization reserves between Lucent and Avaya
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.
5.9 COBRA. Through December 31, 2000, Lucent shall be responsible for
administering compliance with the health care continuation coverage requirements
of COBRA and the Lucent Health and Welfare Plans with respect to Avaya
Individuals and beneficiaries and dependents thereof and Avaya and the Avaya
Entities shall be responsible for filing all necessary employee change notices
with respect to their respective employees in accordance with applicable Lucent
policies and procedures. Effective January 1, 2001, Avaya shall solely be
responsible for administering compliance with the health care continuation
coverage requirements of COBRA and the Avaya Health and Welfare plans, and, with
respect to Avaya Individuals, the Lucent Health and Welfare Plans.
5.10 LEAVE OF ABSENCE PROGRAMS AND FMLA.
(a) Effective Immediately after the Distribution Date: (i) Avaya shall
honor, and shall cause each Avaya Entity to honor, all terms and conditions of
leaves of absence which have been granted to any Avaya Individual under a Lucent
Leave of Absence Program or FMLA before the Close of the Distribution Date by
Lucent, Avaya, or an Avaya Entity, including such leaves that are to commence
after the Distribution Date; (ii) Avaya and each Avaya Entity shall be solely
responsible for administering leaves of absence and compliance with FMLA with
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respect to their employees; and (iii) Avaya and each Avaya Entity shall
recognize all periods of service of Avaya Individuals with Lucent or a Lucent
Entity, as applicable, to the extent such service is recognized by Lucent for
the purpose of eligibility for leave entitlement under the Lucent Leave of
Absence Programs and FMLA; provided, that no duplication of benefits shall be
required by the foregoing.
(b) As soon as administratively possible after the Close of the
Distribution Date, Lucent shall provide to Avaya copies of all records
pertaining to the Lucent Leave of Absence Programs and FMLA with respect to all
Avaya Individuals to the extent such records have not been provided previously
to Avaya or an Avaya Entity.
5.11 LUCENT WORKERS' COMPENSATION PROGRAM.
(a) ADMINISTRATION OF CLAIMS. Effective Immediately after the
Distribution Date, Avaya shall be responsible for the administration of all
claims that are, or have been, incurred under the Lucent WCP before the Close of
the Distribution Date by Avaya Individuals ("Avaya WCP Claims"). Avaya shall
discharge its responsibility by securing insurance coverage or, to the extent
Legally Permissible (as defined below), securing a self-insurance certificate in
one or more states. For purposes of this Section 5.11(a), "Legally Permissible"
shall be determined on a state-by-state basis, and shall mean that
administration of Avaya WCP Claims by Avaya is permissible under the applicable
state's workers' compensation laws (taking into account all relevant facts,
including that Avaya may have a self-insurance certificate in that state).
(b) COOPERATION. Each party shall fully cooperate with the other with
respect to the administration and reporting of Avaya WCP Claims and the transfer
of the administration of any Avaya WCP Claims to Avaya as determined under this
Section 5.11. Upon the request of Avaya, Lucent will make reasonable efforts to
support any application Avaya may make for a self-insurance certificate in one
or more states.
(c) AT&T LIABILITY. Avaya shall protect and hold Lucent harmless from
and against all Liabilities Lucent may incur to AT&T Corp. in respect of Avaya
WCP Claims.
5.12 LUCENT EMPLOYEE ASSISTANCE PROGRAM. Effective Immediately after the
Distribution Date, Avaya shall contract with an employee assistance program
vendor to provide employee assistance program services to Avaya Individuals. As
of the Close of the Distribution Date, the Lucent Employee Assistance Program
shall cease to have any responsibility to provide employee assistance services
for any Avaya Individuals. Lucent shall make reasonable transitional
arrangements to provide adequately for the continuation of services for Avaya
Individuals who are in an active treatment program as of the Distribution Date
through December 31, 2000.
5.13 UNEMPLOYMENT INSURANCE TAX MANAGEMENT PROGRAM.
Lucent shall use its reasonable best efforts to cause its agreement with
its unemployment
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insurance tax management vendor and any successor thereto to permit Avaya to
participate in the terms and conditions of such agreements from Immediately
after the Distribution Date through December 31, 2000. These efforts shall
substantially conform to the guidelines set forth in Section 5.6(a) as if such
agreements were ASO Contracts. Lucent shall use its reasonable best efforts to
cause such agreements to provide that Avaya's participation shall include
administration of all unemployment compensation claims of Avaya Individuals and
other employees and former employees of Avaya and the Avaya Entities, regardless
of whether such claims were filed before, on, or after the Distribution Date.
5.14 ADMINISTRATION.
(a) (i) COORDINATION OF BENEFITS FOR SPOUSES, DEPENDENTS AND DOMESTIC
PARTNERS. Effective as of January 1, 2001, Avaya shall cause the Avaya Health
and Welfare Plans to permit eligible Avaya Individuals to cover their lawful
spouses and their domestic partners as dependents if such lawful spouses and
domestic partners are active or retired Lucent employees. 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 Lucent and Lucent Entity
employees to cover their lawful spouses or their domestic partners as dependents
if such lawful spouses or domestic partners are active or retired Avaya
employees. All benefits provided under either the Avaya Health and Welfare Plans
or the Lucent Health and Welfare Plans to a lawful spouse or domestic partner
dependent of the other company's plans shall be coordinated pursuant to the
terms and conditions of the applicable Health and Welfare Plans as in effect
from time to time.
(ii) HCFA DATA MATCH. Immediately after the Distribution Date,
Avaya shall assume all Liabilities relating to, arising out of or resulting from
claims verified by Lucent or Avaya under the HCFA data match reports that relate
to Avaya Individuals. Avaya and Lucent shall share all information necessary to
verify HCFA data match reports regarding Avaya Individuals. Avaya shall not
change any employee identification numbers assigned by Lucent without notifying
Lucent of the change and the new Employee Identification Number. To the extent
that Lucent enters into any settlement negotiations between its health plan
carriers or claims administrators and HCFA before the end of the Represented
Transition Period, Avaya shall have the right to participate in such
negotiations.
(b) OTHER POST-DISTRIBUTION TRANSITIONAL RULES.
(i) HEALTH AND WELFARE PLANS SUBROGATION RECOVERY. After December
31, 2000, Lucent shall pay to Avaya or the Avaya Nonrepresented Health VEBA (as
appropriate) any amounts Lucent recovers from time to time through subrogation
or otherwise for claims incurred by or reimbursed to any Avaya Individual. If
Avaya recovers any amounts through subrogation or otherwise for claims incurred
by or reimbursed to employees and former employees of Lucent or a Lucent Entity
and their respective beneficiaries and dependents (other than Avaya
Individuals), Avaya shall pay such amounts to Lucent or the Lucent
Nonrepresented Health VEBA (as appropriate).
(ii) EXCHANGE OF HISTORICAL DATA. Lucent acknowledges that Lucent
shall
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have access to medical claims and eligibility data for Avaya employees from the
Medstat System 2 through December 31, 2000. Lucent will allow Avaya to make
written requests for this historical data until June 30, 2001. Lucent will use
its best efforts to respond to complete requests. If any Avaya request must be
referred to Medstat programmers because the request is outside the capabilities
of System 2 or otherwise cannot be completed by Lucent, then any Medstat charges
for such services will be paid by Avaya.
5.15 APPLICATION OF ARTICLE V TO AVAYA ENTITIES. Any reference in this
Article V to "Avaya" shall include a reference to an Avaya Entity when and to
the extent Avaya has caused the Avaya Entity to (a) become a party to a vendor
contract, group insurance contract, or HMO letter agreement associated with an
Avaya Health and Welfare Plan, (b) become a self-insured entity for the purposes
of one or more Avaya 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 a Lucent Health and Welfare Plan
and which were expressly assumed by Avaya 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 Avaya 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 an Avaya
Entity. In all such instances in which a reference in this Article V to "Avaya"
includes a reference to an Avaya Entity, Avaya shall be responsible to Lucent
for ensuring that the Avaya Entity complies with the applicable terms of this
Agreement and the Avaya Individuals allocated to such Avaya Entity shall have
the same rights and entitlements to benefits under the applicable Avaya Health
and Welfare Plans that the Avaya Individual would have had if he or she had
instead been allocated to Avaya.
5.16 LUCENT WORK & FAMILY PROGRAMS. Effective Immediately after the
Distribution Date, Avaya shall contract with a national dependent care resource
and referral vendor to provide a family resource program to Avaya Individuals.
In addition, Immediately after the Distribution Date, Avaya shall provide an
adoption reimbursement program to Avaya Individuals and shall assume
responsibility for any claims of Avaya Individuals that relate to any adoption
not finalized prior to the Close of the Distribution Date. As of the Close of
the Distribution Date, the Lucent Technologies Inc. Work and Family Program
shall no longer have any responsibility to provide the Lucent Technologies Inc.
Family Resource Program or coverage under the Lucent Technologies Inc. Adoption
Assistance Plan for any Avaya Individuals; provided, however, that any case that
was opened by an Avaya Individual under the Lucent Technologies Inc. Family
Resource Program prior to the Close of the Distribution Date shall continue to
be covered under the Lucent Technologies Inc. Family Resource Program until
December 31, 2001.
ARTICLE VI
EXECUTIVE BENEFITS, NON-EMPLOYEE DIRECTOR BENEFITS, AND OTHER
STOCK-BASED COMPENSATION
6.1 ASSUMPTION OF OBLIGATIONS. Effective Immediately after the Distribution
Date,
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Avaya and the Avaya Entities shall assume and be solely responsible for all
Liabilities to or relating to Avaya Individuals under all Lucent Executive
Benefit Plans.
6.2 LUCENT SHORT TERM INCENTIVE PLAN. Lucent and Avaya shall cooperate in
determining, with respect to all Officer Awards that would otherwise be payable
under the Lucent Short Term Incentive Plan to Avaya Individuals for the 2000
performance year, (a) the extent to which established performance criteria (as
interpreted by Lucent and Avaya, in their discretion, after taking into account
the effects of the Distribution) have been met and (b) the payment level for
each such Avaya Individual. Avaya shall be responsible for paying such Officer
Awards in an aggregate amount at least equal to the portion of the Lucent
commitment, as described on Schedule III hereto, attributable to Avaya
Individuals. Avaya shall make such payment prior to December 15, 2000.
6.3 LUCENT STOCK AWARD PLANS. Lucent and Avaya shall use their reasonable
best efforts to take all actions necessary or appropriate so that each
outstanding Award granted under any Lucent Stock Award Plan held by any Avaya
Individual shall be replaced as set forth in this Section 6.3 with an Award
under the Avaya Stock Award Plan.
(a) STOCK OPTIONS. The Compensation Committee of Lucent's Board of
Directors shall cause each Award consisting of a Lucent Option that is
outstanding and not vested as of the Close of the Distribution Date and is held
by an Avaya Individual to be replaced, effective Immediately after the
Distribution Date, with an Avaya Option under an Avaya Stock Award Plan. Such
Avaya Option shall provide for the purchase of a number of shares of Avaya
Common Stock equal to the number of shares of Lucent Common Stock subject to
such Lucent Option as of the Close of the Distribution Date, multiplied by the
Ratio, with fractional shares rounded down to the nearest whole share. The
per-share exercise price of such Avaya Option shall equal the per-share exercise
price of such Lucent Option as of the Close of the Distribution Date divided by
the Ratio. Each such Avaya Option shall otherwise have the same terms and
conditions as were applicable to the corresponding Lucent Option as of the Close
of the Distribution Date, except that references to Lucent and its Affiliates
shall be amended to refer to Avaya and its Affiliates. Subject to applicable law
in non-U.S. jurisdictions, outstanding unvested Substitute Awards under Lucent
Stock Award Plans shall be adjusted with the aim of achieving equivalent
treatment as described above.
The Compensation Committee of Lucent's Board of Directors shall cause each
Award consisting of a Lucent Option that is outstanding and vested as of the
Close of the Distribution Date and is held by an Avaya Individual to be
adjusted in the same manner as Lucent Options held by optionees who will remain
Lucent employees Immediately after the Distribution Date. For purposes of such
vested options, the Distribution shall not be treated as a termination of
employment of Avaya Individuals, and employment with Avaya and its Affiliates
will be treated as employment with Lucent. Subject to applicable law in
non-U.S. jurisdictions, outstanding vested Substitute Awards under Lucent Stock
Award Plans shall be adjusted with the aim of achieving equivalent treatment as
described above.
(b) RESTRICTED STOCK AND RESTRICTED STOCK UNITS. The Compensation Committee
of Lucent's Board of Directors shall cause each Award that consists of
non-vested restricted shares of Lucent Common Stock or restricted stock units
relating to shares of Lucent Common Stock that is outstanding as of the Close of
the Distribution Date and is held by an Avaya Individual to be replaced,
effective Immediately after the Distribution Date, with a new Award under an
Avaya Stock Award Plan consisting of a number of non-vested restricted shares of
Avaya Common Stock and/or restricted stock units relating to shares of Avaya
Common Stock equal to the number of non-vested restricted shares or restricted
stock units of Lucent Common Stock constituting such Award as of the Close of
the Distribution Date multiplied by the Ratio, with fractional shares rounded
down. Each such replacement Award shall otherwise have the same terms and
conditions as were applicable to the corresponding Lucent Award as of the Close
of
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the Distribution Date, except that references to Lucent and its Affiliates shall
be amended to refer to Avaya and its Affiliates and dividend equivalent
payments, if any, shall be payable after the Distribution Date with reference to
dividends on Avaya Common Stock.
(c) Lucent, in its sole discretion, shall determine the amount of any
Performance Share payments to be made to Avaya Individuals for the 1998 through
2000 cycle. Lucent shall provide information to Avaya regarding the accrual of
any Performance Share payments for the 1999 through 2001 cycle and Avaya, in its
sole discretion, shall determine the amount of any Performance Share payments
for such individuals for the 1999 through 2001 cycle. Avaya shall be responsible
for making such Performance Share payments for Avaya Individuals for both the
1998 through 2000 and the 1999 through 2001 Performance Share cycles.
6.4 LUCENT DEFERRAL PLAN. Each Avaya Individual and any Avaya Nonemployee
Director who has a deferred Lucent share unit account under the Lucent 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 Lucent Deferral Plan, which election shall be made in accordance with
procedures established by Lucent, in its sole discretion, before and effective
as of the Close of the Distribution Date. Immediately after the Distribution
Date, the balance of any Avaya Individual in either a Lucent share unit account
or a cash account under the Lucent Deferral Plan as of the Close of the
Distribution Date shall be transferred to a Avaya share unit account or cash
account, respectively, under the Avaya Deferral Plan, with a number of Avaya
share units equal to the number of Lucent share units under the Lucent Deferral
Plan as of the Close of the Distribution Date multiplied by the Ratio.
6.5 NON-EMPLOYEE DIRECTOR BENEFITS. As of the Distribution Date, Avaya
shall assume and be solely responsible for all Liabilities under the
Non-Employee Director Plan to or relating to Avaya Non-Employee Directors.
6.6 RABBI TRUST.
(a) ESTABLISHMENT OF MIRROR RABBI TRUST. Effective no later than
Immediately after the Distribution Date, Avaya shall establish, or cause to be
established, the Avaya Rabbi Trust as a grantor trust subject to Code
Sections 671 et seq., which shall be substantially similar in all Material
Features to the Lucent Rabbi Trust, other than the definitions of the terms
"potential change in control" and "change in control." Avaya shall appoint as
trustee under the Avaya Rabbi Trust the then-current trustee of the Lucent Rabbi
Trust.
(b) FUNDING OF AVAYA RABBI TRUST.
(i) As soon as practicable after the Close of the Distribution Date, Lucent
shall determine the amount of the liabilities under the Lucent Executive
Benefits Plans that are payable from the Lucent Rabbi Trust as of the
Distribution Date and the amount of such liabilities attributable to Avaya
Individuals. Lucent shall then cause the trustee of the Lucent Rabbi Trust to
transfer to the trustee of the Avaya Rabbi Trust an amount in cash equal to the
present value of liabilities attributable to Avaya Individuals, to the extent
such liabilities are funded under the Lucent Rabbi
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Trust as of the Distribution Date. For purposes of this Section 6.6(b)(i),
liabilities shall be determined based upon the "Full Funding Amount" as defined
in Section 2.5 of the Lucent Rabbi Trust.
(ii) As of the Distribution Date, Avaya and Lucent shall identify the Avaya
Individuals and other individuals insured by trust-owned life insurance polices
held by the trustee of the Lucent Rabbi Trust and (after any transfers described
in Section 6.6(b)(i)) the trustee of the Avaya 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.
6.7 LUCENT SPLIT DOLLAR LIFE INSURANCE. Lucent and Avaya shall take all
actions necessary or appropriate to assign to Avaya, effective as of the
Distribution Date, Lucent's rights and interests, to the extent attributable to
Avaya Individuals, in (a) the split dollar life insurance policies under the
Executive Life Insurance Program issued by Metropolitan Life Insurance
Company,(b) any additional split dollar life insurance program that may be
implemented by Lucent before the Close of the Distribution Date, with respect to
Avaya Individuals, effective Immediately after the Distribution Date, and (c)
under the Lucent Non-Employee Director Plan issued by Hartford Life Insurance
Company effective as of the Distribution Date (such policies, the "Assigned
Split Dollar Policies"). Such actions shall include Avaya's acceptance of any
collateral assignments, policy endorsements or such other documentation executed
by or on behalf of Avaya Individuals and Avaya 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
Avaya's entering into such agreements as may be necessary to fulfill any
obligations of Lucent 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 Avaya, Avaya shall assume and
be solely responsible for all Liabilities, and shall be entitled to all
benefits, of Lucent under such policy and under the Executive Life Insurance
Program, the Lucent Non-Employee Director Plan and any additional split dollar
life insurance program that may be implemented by Lucent before the Close of the
Distribution Date, as the case may be, with respect to such policies, and any
related agreements entered into by Avaya Individuals or Avaya Non-Employee
Directors. This Section 6.7 shall not apply to the split dollar life insurance
policies purchased under the Lucent Technologies Inc. Voluntary Life Insurance
Plan, which shall be retained by Lucent.
ARTICLE VII
MISCELLANEOUS BENEFITS
7.1 TRANSFER OF STOCK PURCHASE PLAN RECORDKEEPING ACCOUNTS. Lucent shall
cause the recordkeeping accounts under the Lucent Stock Purchase Plan of all
Avaya Individuals to be transferred, as of the Close of the Distribution Date or
as soon as practicable thereafter, to, and Avaya shall cause the accounts to be
accepted by, the recordkeeper for the Avaya Stock Purchase Plan. Avaya shall use
its reasonable best efforts to enter into agreements satisfactory to Avaya
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with the recordkeeper of the Lucent Stock Purchase Plan to ensure the transfer
and maintenance of the participant records. Through the end of the Represented
Transition Period, Avaya shall use a recordkeeper and an enrollment vendor under
the Avaya Stock Purchase Plan compatible with the recordkeeper and enrollment
vendor under the Lucent Stock Purchase Plan.
7.2 SERVICE ANNIVERSARY AND RETIREMENT AWARD PROGRAM.
(a) Before the Close of the Distribution Date, at the request of Avaya,
Lucent 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 Lucent Service Anniversary and Retirement Award Program to permit
Avaya and the Avaya 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 5.6(a) as if the
service anniversary merchandise vendor contract were an ASO Contract.
(b) Avaya and the Avaya Entities may provide to their employees service
anniversary merchandise bearing the name and/or logo of Lucent ordered by Lucent
before the date of this Agreement and delivered under the Avaya Service
Anniversary and Retirement Award Program to Avaya Individuals and other
employees and former employees of Avaya and the Avaya Entities whose service
anniversary occurs on or before December 31, 2000, subject to the terms and
conditions of any separate agreement between Lucent and Avaya regarding the use
of the corporate names, logos, service marks and other intellectual property of
Lucent and a Lucent Entity. No service anniversary merchandise bearing the
corporate name and/or logo of Lucent shall be delivered to any Avaya Individuals
or other employees and former employees of Avaya and the Avaya Entities with
respect to a service anniversary on or after January 1, 2001, without the
express written consent of Lucent.
7.3 2000 INCENTIVE COMPENSATION PAYMENTS. Avaya shall be responsible for
paying 2000 short term incentive compensation payments to Avaya Individuals in
an amount at least equal to the portion of the Lucent commitment, as described
on Schedule III hereto, attributable to Avaya Individuals. Avaya shall be
responsible for making such payment prior to December 15, 2000. Lucent and Avaya
shall cooperate in determining the extent to which performance awards shall be
paid to Represented Employees for the 2000 performance year and Avaya shall make
such payment prior to December 15, 2000.
ARTICLE VIII
GENERAL AND ADMINISTRATIVE
8.1 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 Lucent and Avaya 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 2000, or, if such Plan is not subject to such minimum
funding requirements, used
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to determine Lucent's deductible contributions under Code Section 419A or, if
such Plan is not subject to Code Section 419A, the assumptions used to prepare
Lucent's audited financial statements for 2000, 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. Avaya Liabilities relating to,
arising out of or resulting from the status of Avaya and the Avaya Entities as
Participating Companies in Lucent Health and Welfare Plans, as provided for in
Section 2.2 and all accruals relating thereto shall be determined by Lucent
using actuarial assumptions and methodologies (including with respect to
demographics, medical trends and other relevant factors) determined by Lucent in
a manner consistent with Lucent's practice as in effect on the Distribution 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 Lucent
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 Lucent Plan (whether or not such
assets are being transferred to an Avaya Plan) shall be made pursuant to
procedures to be established by the parties before the Distribution Date.
8.2 SHARING OF PARTICIPANT INFORMATION. Lucent and Avaya shall share,
Lucent shall cause each applicable Lucent Entity to share, and Avaya shall cause
each applicable Avaya 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 Lucent
Plans and the Avaya Plans during the respective Transition Periods applicable to
such Plans, and with respect to each of the Lucent Health and Welfare Plans and
Avaya Health and Welfare Plans, Lucent and Avaya 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.
8.3 REPORTING, DISCLOSURE AND COMMUNICATIONS TO PARTICIPANTS. While Avaya
is a Participating Company in the Lucent Health and Welfare Plans, Avaya shall
take, and shall cause each other applicable Avaya Entity to take, all actions
necessary or appropriate to facilitate the distribution of all Lucent Health and
Welfare Plan-related communications and materials to employees, participants and
beneficiaries, including summary plan descriptions and related summaries of
material modification, summary annual reports, and notices for the Lucent Plans.
Avaya shall pay Lucent the cost relating to the copies of all such documents
provided to Avaya, except to the extent such costs are charged pursuant to an
Ancillary Agreement. Avaya shall assist, and Avaya shall cause each other
applicable Avaya Entity to assist, Lucent in complying with all reporting and
disclosure requirements of ERISA, including the preparation of Form 5500 annual
reports for the Lucent Health and Welfare Plans, where applicable.
8.4 NON-TERMINATION OF EMPLOYMENT; NO THIRD-PARTY BENEFICIARIES. No
provision of this Agreement or the Contribution and Distribution Agreement shall
be construed to create any right, or accelerate entitlement, to any compensation
or benefit whatsoever on the part of any Avaya Individual or other future,
present or former employee of Lucent, a Lucent
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Entity, Avaya, or an Avaya Entity under any Lucent Plan or Avaya Plan or
otherwise. Without limiting the generality of the foregoing: (i) neither the
Distribution nor the termination of the Participating Company status of Avaya or
an Avaya Entity shall cause any employee to be deemed to have incurred a
termination of employment or layoff which entitles such individual to the
commencement of benefits under any of the Lucent Plans, any of the Avaya Plans,
or any of the Individual Agreements; and (ii) except as expressly provided in
this Agreement, nothing in this Agreement shall preclude Avaya, at any time
after the Close of the Distribution Date, from amending, merging, modifying,
terminating, eliminating, reducing, or otherwise altering in any respect any
Avaya Plan, any benefit under any Plan or any trust, insurance policy or funding
vehicle related to any Avaya Plan.
8.5 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 Lucent VEBAs pursuant to Sections 5.3
and 5.4, the transfer of RFA assets pursuant to Section 5.4 and the transfer of
assets from the Lucent Rabbi Trust pursuant to Section 6.6 shall be audited on
behalf of both Lucent and Avaya by the consulting firm of William M. Mercer,
Incorporated. The scope of such audit shall be limited to the accuracy of the
final data relied upon 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 8.5(a), such audit shall not be binding on the parties.
The auditing firm shall provide its report to both Lucent and Avaya. No other
audit shall be conducted with respect to the transfer or allocation of Plan
assets. The costs of such audit shall be shared proportionately to the asset
split between Lucent and Avaya, 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 any Avaya Plan of
less than 0.25 % of the amount originally determined by Lucent's actuaries under
each of Sections 3.2, 5.3, 5.4, and 6.6, as applicable to each transfer, the
original determination shall be binding on the parties and shall not be subject
to the dispute resolution process provided under the Contribution 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 Contribution and Distribution
Agreement.
(b) AUDIT RIGHTS WITH RESPECT TO INFORMATION PROVIDED.
(i) Each of Lucent and Avaya, 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 8.5(b); provided, that audits with respect to
the allocation or transfer of Plan assets and liabilities shall be subject only
to Section 8.5(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 Contribution and Distribution Agreement, which are incorporated by reference
herein. The party being audited shall provide the Auditing Party's
representatives with
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reasonable access during normal business hours to its operations, computer
systems and paper and electronic files, and 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 ten business days after receiving such draft.
(ii) The Auditing Party's audit rights under this Section 8.5(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, 2000, Lucent and Avaya and their duly
authorized representatives shall have the right to conduct joint audits with
respect to any vendor contracts that relate to 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. Lucent and Avaya shall agree on the performance
standards, audit methodology, auditing policy and quality measures and reporting
requirements relating to the audits described in this Section 8.5 and the manner
in which costs incurred in connection with such audits will be shared.
8.6 BENEFICIARY DESIGNATIONS. All beneficiary designations made by Avaya
Individuals for Lucent Plans shall be transferred to and be in full force and
effect under the corresponding Avaya Plans until such beneficiary designations
are replaced or revoked by the Avaya Individual who made the beneficiary
designation.
8.7 REQUESTS FOR IRS RULINGS AND DOL OPINIONS.
(a) COOPERATION. Avaya shall cooperate fully with Lucent on any issue
relating to the transactions contemplated by this Agreement for which Lucent
elects to seek a determination letter or private letter ruling from the IRS or
an advisory opinion from the DOL. Lucent shall cooperate fully with Avaya 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 Avaya Plans
relating to the transactions contemplated by this Agreement.
(b) APPLICATIONS. (I) Lucent and Avaya shall make such applications to
regulatory agencies, including the IRS and DOL, as may be necessary to ensure
that any transfers
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of assets from the Lucent Nonrepresented Health VEBA and the Lucent
Postretirement Life Trust to the Avaya Nonrepresented Health VEBA and the Avaya
Postretirement Life Trust will neither (i) result in any adverse tax, legal or
fiduciary consequences to Lucent and Avaya, the Lucent Nonrepresented Health
VEBA and the Lucent Postretirement Life Trust, the Avaya Nonrepresented Health
VEBA and the Avaya Postretirement Life Trust, or any participant therein or
beneficiaries thereof, or any successor welfare benefit funds established by or
on behalf of Avaya, or the trustees of such trusts, nor (ii) contravene any
statute, regulation or technical pronouncement issued by any regulatory agency.
Within 60 days after the Close of the Distribution Date, Avaya shall prepare and
file all forms required to obtain favorable tax-exempt determination letters
from the IRS for the Avaya Postretirement Health and Postretirement Life Trusts.
Avaya and Lucent agree to cooperate with each other to fulfill any filing and/or
regulatory reporting obligations with respect to such transfers.
(ii) Promptly after the Distribution Date, Avaya will submit its
Pension and Savings Plans to the IRS for favorable determination letters as to
their qualified status under section 401(a) of the Code and the tax-exempt
status of the trusts under such Plans under section 501(a) of the Code, and will
make such changes as may be reasonably required by the IRS as a condition to the
grant of favorable determination letters.
(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 Lucent or Avaya (or their respective trusts, if
any), or (ii) multiple claims for insurance proceeds, Lucent and Avaya 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, Lucent and Avaya 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.
8.8 FIDUCIARY MATTERS. Lucent and Avaya 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.
8.9 COLLECTIVE BARGAINING.
(a) Lucent and Avaya are parties to a National Memorandum of Understanding
("MOU") with the Communications Workers of America (CWA) and the International
Brotherhood of Electrical Workers (IBEW), dated May 30, 1998. The National MOU
settles certain terms and conditions of employment for represented occupational
employees of Lucent and Avaya. The National MOU, and the local collective
bargaining agreements (CBAs) which it amends and supplements, expire on May 31,
2003.
(b) The parties agree that for the life of the National MOU, it shall
continue to
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apply to both companies according to its terms and that no changes may be made
to it without the consent of both Lucent and Avaya. The parties further agree
that for the life of any CBA covering a bargaining unit of represented
occupational employees of both Lucent and Avaya, any proposed changes to the
CBA(s) other than those contained in the National MOU shall require reasonable
advance notice to the other party, and the opportunity to participate in any
bargaining that may occur with the union(s).
(c) To the extent that any provisions of this Agreement are inconsistent
with the National MOU or any CBA which covers a bargaining unit of represented
occupational employees of both Lucent and Avaya, the provisions of the National
MOU and/or the CBA(s) prevail.
(d) In the event of a force surplus declaration by either party affecting
represented occupational employees in a bargaining unit containing both Lucent
and Avaya employees, resulting in the involuntary separation of one or more
employees from the rolls of the party not declaring the surplus, the party
declaring the surplus shall bear the cost of any severance payable to such
employee(s).
8.10 CONSENT OF THIRD PARTIES. If any provision of this Agreement is
dependent on the consent of any third party (such as a vendor) and such consent
is withheld, Lucent and Avaya 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, Lucent and Avaya 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.
8.11 QUIET PERIODS. Avaya shall take such action as is necessary to ensure
that participants in the Avaya LTSSP, the Avaya Savings Plan, and the Stock
Award Plans are notified that a quiet period will occur beginning on or about
the Distribution Date, during which changes in investment direction,
withdrawals, exercises and other activity with respect to participants' accounts
and Awards generally will not be permitted.
8.12 LUCENT'S AND AVAYA'S GENERAL OBLIGATIONS AS PLAN SPONSORS. Lucent and
Avaya, respectively, shall continue to administer, or cause to be administered,
in accordance with their terms and applicable law, the Deferral Plan, the
Executive Benefit Plans, the Non-U.S. Plans, the HCRA, the Health and Welfare
Plans, the LESOP, the Pension Plans, the Savings Plans, the Stock Award Plans,
and any other Plan, and shall have the sole discretion and authority to
interpret such Plans as set forth therein.
8.13 ADJUSTMENTS TO PLAN TRANSFERS. In the event of transfers of employment
status, or corrections to data, calculations or methods used to calculate any
Liabilities or assets transferred to the trust relating to an Avaya Plan from
the trust relating to the corresponding Lucent Plan that occur prior to May 31,
2003, such Liabilities and assets shall be recomputed, ab initio, so as to place
each such trust in the position it would have been in, had the initial asset
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transfer been made in accordance with such recomputed amount of assets. Any such
adjustments to amounts transferred pursuant to this Agreement from a Lucent Plan
or trust thereunder to an Avaya Plan or a trust thereunder shall be made between
such Plans or trusts. If an employee assigned to either Avaya or Lucent is not
correctly reported on the records of any Plan, any Liability arising from such
error shall be the responsibility of the employer of the individual on the date
such error is identified, or of a Plan sponsored by such employer.
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.
ARTICLE IX
MISCELLANEOUS
9.1 NON-U.S. PLANS. Schedule IV sets forth the principles that will govern
Lucent and Avaya's treatment of Non-U.S. Plans.
9.2 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 Avaya and
Lucent.
9.3 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.
9.4 AFFILIATES. Each of Lucent and Avaya 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 Lucent Entity or an Avaya
Entity, respectively.
9.5 INCORPORATION OF CONTRIBUTION AND DISTRIBUTION AGREEMENT PROVISIONS.
The following provisions of the Contribution 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 9.5 to an "Article" or "Section" shall mean Articles
or Sections of the Contribution and Distribution Agreement, and, except as
expressly set forth below, references in the material incorporated herein by
reference shall be references to the Contribution and Distribution Agreement):
Article V (relating to Mutual Releases and Indemnification); Article VIII
(relating to Exchange of Information and Confidentiality); Article IX (relating
to 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).
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IN WITNESS WHEREOF, the parties have caused this Employee Benefits Agreement to
be duly executed as of the day and year first above written.
LUCENT TECHNOLOGIES INC.
By: ______________________________
Name:
Title:
AVAYA INC.
By: ______________________________
Name:
Title:
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Lucent Technologies Final of July 28, 2000
EXHIBIT 10.4
TAX SHARING AGREEMENT
BY AND BETWEEN
LUCENT TECHNOLOGIES INC.
AND
AVAYA INC.
DATED AS OF
OCTOBER 1, 2000
2
Lucent Technologies Final of July 28, 2000
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS
<S> <C> <C>
1.1 ADJUSTMENT 1
1.2 AGREEMENT 1
1.3 ASCEND GROUP 2
1.4 AT&T RESTRUCTURING ADJUSTMENT 2
1.5 AVAYA TAX ADJUSTMENT 2
1.6 AVAYA TAX BENEFIT 2
1.7 COLI 2
1.8 CONSOLIDATION 2
1.9 CONSOLIDATED RETURN 2
1.10 CONTRIBUTION AND DISTRIBUTION AGREEMENT 2
1.11 CONTROLLING PARTY 2
1.12 CORRELATIVE ADJUSTMENT 3
1.13 DISPUTED ADJUSTMENT 3
1.14 FEDERAL TAX ALLOCATION AGREEMENT 3
1.15 FINAL DETERMINATION 3
1.16 INDEPENDENT THIRD PARTY 4
1.17 INDEMNIFIED PARTY 4
1.18 INDEMNIFYING PARTY 4
1.19 INITIAL DETERMINATION 4
1.20 INTERESTED PARTY 4
1.21 INTERESTED PARTY NOTICE 4
1.22 LUCENT TAX ADJUSTMENT 4
1.23 LUCENT TAX BENEFIT 4
1.24 NET TAX LIABILITY PAYABLE 4
1.25 NET TAX REFUND RECEIVABLE 4
1.26 NON-LINE OF BUSINESS ADJUSTMENT 4
1.27 RESTRUCTURING ADJUSTMENT 5
1.28 RESTRUCTURING TAX 5
1.29 RESTRUCTURING TRANSACTION 5
1.30 RETURN 5
1.31 RULING 5
1.32 RULING DOCUMENTS 5
1.33 SEPARATE RETURN 5
1.34 SERVICE 5
1.35 SIGNIFICANT OBLIGATION 5
1.36 STATE AND LOCAL INCOME TAX ALLOCATION AGREEMENT 5
1.37 SUPPLEMENTAL RULING 5
1.38 SUPPLEMENTAL RULING DOCUMENTS 5
1.39 TAX 5
1.40 TAX ADJUSTMENTS 5
1.41 TAX BENEFIT 5
</TABLE>
3
Lucent Technologies Final of July 28, 2000
<TABLE>
<CAPTION>
<S> <C> <C>
1.42 TAX CONTEST 5
1.43 TAXING AUTHORITY 5
1.44 ULTIMATE DETERMINATION 5
ARTICLE II TAX ADJUSTMENTS/BENEFITS
2.1 IN GENERAL 7
2.2 TAX ADJUSTMENTS AND BENEFITS 7
2.3 RESTRUCTURING ADJUSTMENTS 9
2.4 NON-LINE OF BUSINESS ADJUSTMENTS 10
ARTICLE III TAX CONTESTS
3.1 NOTIFICATION OF TAX CONTESTS 12
3.2 TAX CONTEST SETTLEMENT RIGHTS 12
3.3 TAX CONTEST PARTICIPATION 12
3.4 TAX CONTEST WAIVER 14
3.5 TAX CONTEST DISPUTE RESOLUTION 15
ARTICLE IV PROCEDURE AND PAYMENT
4.1 PROCEDURE 17
4.2 PAYMENT 18
4.3 INTEREST 19
ARTICLE V ALLOCATION OF CURRENT TAXES INCURRED AS A
RESULT OF RESTRUCTURING ACTIVITIES
5.1 GENERAL 19
5.2 ALLOCATION OF RESTRUCTURING TAXES 19
5.3 PAYMENT OF RESTRUCTURING TAXES 19
5.4 TREATMENT OF LOSSES 19
5.5 TREATMENT OF CERTAIN FOREIGN TAX CREDITS 19
ARTICLE VI OTHER TAX MATTERS
6.1 TAX POLICIES AND PROCEDURES DURING CONSOLIDATION 20
6.2 COOPERATION 20
6.3 FILING OF RETURNS 21
6.4 TAX CHARACTERIZATION OF PAYMENTS 21
6.5 LIABILITY FOR ACTIONS EFFECTING
TAX-FREE NATURE OF THE DISTRIBUTION 21
ARTICLE VII MISCELLANEOUS
7.1 GOVERNING LAW 23
7.2 AFFILIATES 23
</TABLE>
4
Lucent Technologies Final of July 28, 2000
<TABLE>
<CAPTION>
<S> <C> <C>
7.3 INCORPORATION OF CONTRIBUTION AND
DISTRIBUTION AGREEMENT PROVISIONS 23
7.4 NOTICES 23
7.5 CONFLICTING OR INCONSISTENT PROVISIONS 24
7.6 DURATION 24
7.7 TAX ALLOCATION AGREEMENTS 24
7.8 NO-FAULT AGREEMENT 24
</TABLE>
5
TAX SHARING AGREEMENT
THIS TAX SHARING AGREEMENT, dated as of October 1, 2000, is by
and between Lucent and Avaya. Capitalized terms used herein shall have the
respective meanings assigned to them in the Contribution and Distribution
Agreement unless otherwise defined in Article I hereof.
WHEREAS, Lucent and Avaya have executed the Contribution and
Distribution Agreement pursuant to which Lucent's existing enterprise business
will be contributed to Avaya, after which the stock of Avaya will be distributed
to Lucent's stockholders; and
WHEREAS, it is appropriate and desirable to set forth the
principles and responsibilities of the parties to this Agreement regarding (i)
future Adjustments with respect to Taxes, Tax Contests and other related Tax
matters and (ii) current Tax liabilities that arise as a result of restructuring
activities undertaken to implement the Distribution.
NOW, THEREFORE, in consideration of the mutual agreements,
provisions and covenants contained in this Agreement, the parties, intending to
be legally bound, hereby 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. For purposes of this Agreement,
Adjustment also means any Adjustment as defined in the Tax Sharing Agreement by
and among AT&T Corp., Lucent and NCR Corporation, dated as of February 1, 1996.
1.2. AGREEMENT means this Tax Sharing Agreement, including any
schedules, exhibits and appendices attached hereto.
6
2
1.3. ASCEND GROUP means any and all legal entities acquired by Lucent
as a result of the acquisition of Ascend Communications, Inc. on June 23, 1999.
1.4. AT&T 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 that give rise to a
Restructuring Adjustment as defined in and under the terms of the Tax Sharing
Agreement by and among AT&T Corp., Lucent and NCR Corporation, dated as of
February 1, 1996.
1.5. AVAYA 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 Avaya Business (including Agile); provided, however, that any Adjustment
comprising a Restructuring Adjustment shall not be considered in determining the
amount of any Avaya Tax Adjustment.
1.6. AVAYA 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 Avaya Business (including Agile); provided, however, that any Adjustment
comprising a Restructuring Adjustment shall not be considered in determining the
amount of any Avaya Tax Benefit.
1.7. COLI has the meaning set forth in Section 2.2(c) hereof.
1.8. CONSOLIDATION means, as appropriate, any Taxable period or any
portion of a Taxable period during which one or more members of the Avaya Group
are members of a Lucent Consolidated Return.
1.9. CONSOLIDATED RETURN means 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
Lucent Group and/or one or more members of the Avaya Group.
1.10. CONTRIBUTION AND DISTRIBUTION AGREEMENT means the Contribution
and Distribution Agreement, dated as of September 30, 2000, by and between
Lucent Technologies Inc. and Avaya Inc..
1.11. CONTROLLING PARTY means Lucent or any other member of the Lucent
Group, or Avaya or any other member of the Avaya 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
7
3
Consolidated Return, the Person that actually filed such Consolidated Return (or
any successor and/or assign of such Person) will be the Controlling Party.
1.12. CORRELATIVE ADJUSTMENT means, in the case of an Adjustment
comprising a Non-Line of Business Adjustment or a Restructuring 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 Lucent
or any other member of the Lucent Group, or Avaya or any other member of the
Avaya 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 on or before the date on which the Final
Determination which contains the subject Non-Line of Business Adjustment or
Restructuring Adjustment is issued by the applicable Taxing Authority; 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
clause (a) of the preceding sentence, any such future increases or decreases to
a Tax that relate to an allowance for depreciation or amortization shall be
deemed to begin to take effect either (i) on the date prescribed by applicable
law; or (ii) on a date that is otherwise mutually agreed in good faith by the
parties to this Agreement. 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 Non-Line of Business Adjustment or
Restructuring 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 Non-Line of
Business Adjustment or Restructuring 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 Non-Line of
Business Adjustment or Restructuring 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.
1.13. DISPUTED ADJUSTMENT has the meaning set forth in Section 3.4(b)
hereof.
1.14. FEDERAL TAX ALLOCATION AGREEMENT means the Federal Tax Allocation
Agreement, effective as of October 1, 1996, by and among Lucent and each of its
subsidiaries.
1.15. 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.
8
4
1.16. 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; Deloitte & Touche; and PricewaterhouseCoopers.
1.17. INDEMNIFIED PARTY has the meaning set forth in Section 4.1(c)
hereof.
1.18. INDEMNIFYING PARTY has the meaning set forth in Section 4.1(c)
hereof.
1.19. INITIAL DETERMINATION has the meaning set forth in Section
3.5(b)(i) hereof.
1.20. INTERESTED PARTY means Lucent or any other member of the Lucent
Group, or Avaya or any other member of the Avaya 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 Lucent Group or the Avaya
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.
1.21. INTERESTED PARTY NOTICE has the meaning set forth in Section
3.4(b) hereof.
1.22. 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
the Lucent Business (including the Ascend Group); provided, however, that any
Adjustment comprising a Restructuring Adjustment shall not be considered in
determining the amount of any Lucent Tax Adjustment.
1.23. 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
the Lucent Business (including the Ascend Group); provided, however, that any
Adjustment comprising a Restructuring Adjustment shall not be considered in
determining the amount of any Lucent Tax Benefit.
1.24. NET TAX LIABILITY PAYABLE has the meaning set forth in Section
2.2(d) hereof.
1.25. NET TAX REFUND RECEIVABLE has the meaning set forth in Section
2.2(d) hereof.
1.26. 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
9
5
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.
1.27. 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 a Restructuring Transaction.
Notwithstanding the foregoing Restructuring Adjustments shall not include any
Adjustments which are covered under Section 5.4 and Section 5.5 of this
Agreement.
1.28. RESTRUCTURING TAX has the meaning set forth in Section 5.1
hereof.
1.29. RESTRUCTURING TRANSACTION means, any transactions undertaken to
effectuate the separation of Lucent's existing businesses into two independent
businesses as contemplated under the Contribution and Distribution Agreement
including, but not limited to, any transactions undertaken pursuant to or
relating to the Contribution, the Distribution and the Non-U.S. Plan.
1.30. 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.
1.31. RULING means (a) the initial private letter ruling, if any,
issued by the Service in connection with the Contribution and the Distribution
(and any related transactions) or (b) any similar ruling issued by any Tax
Authority other than the Service in connection with the Contribution and the
Distribution (and any related transactions).
1.32. RULING DOCUMENTS means (a) the request for the Ruling submitted
to the Service, together with the appendices and exhibits thereto and any
supplemental filings or other materials subsequently submitted to the Service,
in connection with the Contribution and the Distribution (and any related
transactions) or (b) any similar ruling submitted to any other Tax Authority in
connection with the Contribution and the Distribution (and any related
transactions).
1.33. SEPARATE RETURN means any Return other than a Consolidated
Return.
1.34. SERVICE means the U.S. Internal Revenue Service or any successor
agency or authority.
1.35. 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
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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.
1.36. STATE AND LOCAL INCOME TAX ALLOCATION AGREEMENT means the State
and Local Income Tax Allocation Agreement, dated as of October 1, 199_, by and
among Lucent and each of its subsidiaries.
1.37. SUPPLEMENTAL RULING means (a) any private letter ruling (other
than the Ruling) issued by the Service in connection with the Contribution and
the Distribution (and any related transactions) or (b) any similar ruling issued
by any Tax Authority other than the Service in connection with the Contribution
and the Distribution (and any related transactions).
1.38. SUPPLEMENTAL RULING DOCUMENTS has the meaning set forth in
Section 6.5(e) of this Agreement.
1.39. 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.
1.40. TAX ADJUSTMENT means any Avaya Tax Adjustment or any Lucent Tax
Adjustment, as the case may be.
1.41. TAX BENEFIT means any Avaya Tax Benefit or any Lucent Tax
Benefit, as the case may be.
1.42. 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.
1.43. 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.
1.44. ULTIMATE DETERMINATION has the meaning set forth in Section
3.5(b)(iii) hereof.
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ARTICLE II
TAX ADJUSTMENTS/BENEFITS
2.1. IN GENERAL. (a) In determining Avaya'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 Avaya 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) Any Adjustment relating to or arising out of the
employment of employees or former employees the Liabilities with respect to
which are assumed by Avaya pursuant to Section 2.1 of the Employee Benefits
Agreement shall be deemed to be Adjustments that are clearly attributable to the
Avaya Business and shall be deemed to comprise an Avaya Tax Adjustment or Avaya
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 Lucent Business and shall be
deemed to comprise a Lucent Tax Adjustment or Tax Benefit as the case may be.
2.2. TAX ADJUSTMENTS AND BENEFITS. (a) Avaya shall be liable for, and
shall indemnify and hold harmless, subject to Section 3.4 and Section 3.5
hereof, any member of the Lucent Group, against any and all Avaya 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 Avaya Group or the Lucent Group. Avaya shall be
entitled to receive, and shall be paid, subject to Section 3.4 and Section 3.5
hereof, by Lucent, the amount of any Avaya 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.
(b) Lucent shall be liable for, and shall indemnify and hold
harmless, as appropriate, and subject to Section 3.4 and Section 3.5 hereof, any
member of the Avaya Group 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 with respect to any Return of any member of the
Lucent Group or the Avaya Group. Lucent shall be entitled to receive, and shall
be paid, subject to Section 3.4 and Section 3.5 hereof, by Avaya, 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 Avaya Group.
(c) Notwithstanding anything in this Section 2.2 or elsewhere
in this Agreement to the contrary, Lucent and Avaya shall share any Tax
Adjustment or Tax Benefit for any Taxable period ending or deemed to end on or
before the Distribution Date relating to corporate-owned life insurance ("COLI")
in the following proportions: 100% to Lucent and 0% to Avaya.
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(d) Notwithstanding anything in this Section 2.2 to the
contrary, in the case of any Tax Adjustment or Tax Benefit for any Taxable
period ending or deemed to end on or before the Distribution Date relating to
any state, local, or municipal income or franchise Tax that is filed or required
to be filed on a separate, combined, consolidated or nexus consolidated Return
basis, Lucent's and Avaya's liability for, and/or right to receive, the amount
of any such Tax Adjustment or Benefit, as the case may be, shall be determined
on a jurisdiction-by-jurisdiction basis as follows:
(i) Such Tax Adjustment or Tax Benefit, as the case may be,
shall be divided into two segments in proportion to Lucent's and Avaya's
relative contribution, if any, to the apportionment factor relevant to such Tax
Adjustment or Tax Benefit, as the case may be, with each such segment being
hereinafter referred to as the "Lucent segment" and the "Avaya segment" for
purposes of this Section 2.2(d). For purposes of this Section 2.2(d), each of
Lucent's and Avaya's relative contribution, if any, to an apportionment factor
shall be determined (A) in a manner that is consistent with the past practices
of Lucent and Avaya, as the case may be, that have been used in determining
apportionment factors; and (B) by taking into account and giving effect to all
Adjustments reflected in a Final Determination with respect to the relevant
state, local or municipal income or franchise Tax for the Taxable period or
portion thereof that is at issue. Accordingly, the apportionment factor
allocation methodology will be applied to the Net Tax Liability Payable or the
Net Tax Refund Receivable as determined by the applicable state, local or
municipal Taxing Authority whether as a result of audit, refund claim or
otherwise. For purposes of the preceding sentence, Net Tax Liability Payable or
Net Tax Refund Receivable shall mean the amount specified in the Final
Determination issued by the applicable state, local or municipal Taxing
Authority after both giving effect to utilization of tax credits and net
operating losses and taking into account any Adjustments to apportionment
factors, Federal taxable income and state modifications to Federal taxable
income. In the event that the Final Determination reflects both Adjustments to
the overall apportionment factor and to state taxable income, Lucent's and
Avaya's respective share, if any, of the Net Tax Liability Payable or the Net
Tax Refund Receivable would be calculated as follows:
(a) First, by taking the revised state tax liability
as reflected in the Final Determination (i.e., the state tax
liability as originally filed (including any prior revisions)
modified by all of the Adjustments reflected in the Final
Determination) and multiplying it by the respective Lucent and
Avaya share of the overall apportionment factor as revised per
such Final Determination in order to determine Lucent's and
Avaya's revised share of the state tax liability (for purposes
of this calculation, Lucent's and Avaya's share of the revised
overall apportionment factor will be a percentage determined
by dividing each company's revised individual factor by the
revised overall apportionment factor);
(b) Second, by taking the state tax liability prior
to revision by the Final Determination and multiplying it by
the respective Lucent and Avaya share of the overall
apportionment factor prior to revision by such Final
Determination in order to determine Lucent's and Avaya's share
of the state tax liability prior to the revisions made by such
Final Determination (for purposes of this calculation,
Lucent's and Avaya's share of the overall apportionment factor
prior to its
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revision by the Final Determination will be a percentage
determined by dividing each company's individual factor prior
to the Final Determination by the overall apportionment factor
prior to its revision by the Final Determination); and
(c) Third, the difference between Items (a) and (b)
above shall constitute Lucent's and/or Avaya's share of the
Net Tax Liability Payable or Net Tax Refund Receivable
resulting for the Adjustments made in the Final Determination.
(ii) Avaya's liability for any state, local or municipal
income or franchise Tax Adjustment and/or right to receive any state, local or
municipal income or franchise Tax Benefit relating to each such separate,
combined, consolidated or nexus consolidated Return that is the subject of this
Section 2.2(d), if any, shall be equal to the amount of the Avaya segment.
(iii) Lucent's liability for any state, local or municipal
income or franchise Tax Adjustment and/or right to receive any state, local or
municipal income or franchise Tax Benefit relating to each such separate,
combined, consolidated or nexus consolidated Return that is the subject of this
Section 2.2(d), if any, shall be equal to the amount of the Lucent segment.
2.3. RESTRUCTURING ADJUSTMENTS AND AT&T RESTRUCTURING ADJUSTMENTS.
(a) Avaya shall be solely liable for, and shall indemnify and
hold harmless, as appropriate, any member of the Lucent Group against 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
Avaya Group or the Lucent Group, up to a cumulative amount equal to $75 Million.
(b) Restructuring Adjustments in excess of a cumulative amount
of $75 Million will be shared in the following proportions: 50% to Lucent and
50% to Avaya.
(c) Lucent and Avaya shall share the amount of Lucent's share
of any AT&T Restructuring Adjustment in proportion to the Shared Lucent
Percentage and the Shared Avaya Percentage, respectively.
(d) Restructuring Adjustments shall be allocated between Avaya
and Lucent as indicated in Section 2.3(a) and (b) provided, however, that if
there is a Correlative Adjustment with respect to a Restructure Adjustment then
Lucent and Avaya share such Restructure Adjustment in the following manner:
(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);
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(ii) second, the Net Restructuring Adjustment shall be
allocated between Lucent and Avaya, in the same manner as a Restructuring
Adjustment under Section 2.3(a) and (b).
(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.
(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 of the Tax Contest to which
such Restructuring Adjustment relates shall (i) be entitled to reimbursement
from Lucent or Avaya 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 Lucent or Avaya, 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) Avaya shall be liable for,
and shall indemnify and hold harmless, as appropriate, any member of the Lucent
Group against Avaya's share, as determined in Section 2.4(c) 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 Avaya Group or the Lucent Group. Avaya shall be entitled to
receive, and shall be paid by Lucent, Avaya's share, as determined in Section
2.4(c) 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.
(b) Lucent shall be liable for, and shall indemnify and hold
harmless, as appropriate, (i) any member of the Avaya Group against Lucent's
share, as determined in Section 2.4(c) 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
with respect to any Return of any member of the Lucent Group or the Avaya Group.
Lucent shall be entitled to receive, and shall be paid by Avaya, Lucent's share,
as determined in Section 2.4(c) 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 Avaya Group.
(c) Lucent and Avaya 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 Lucent
Percentage and the Shared Avaya 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 Lucent and Avaya 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
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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(c);
(ii) second, the Net Non-Line of Business Adjustment shall be
allocated between Lucent and Avaya in proportion to the Shared Lucent Percentage
and the Shared Avaya 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(c) 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.
(d) Following the determination of a party's share of a
Non-Line of Business Adjustment pursuant to Section 2.4(c) above, and subject to
Section 3.4 and 3.5 hereof, the Controlling Party of the Tax Contest to which
such Non-Line of Business Adjustment relates shall (i) be entitled to
reimbursement from Lucent or Avaya 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 Lucent or Avaya, 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,
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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) timely 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 actually 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, (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, and (z) the costs of any
legal or other representatives retained by the Controlling Party in connection
with any Tax Contest that is subject to the provisions of this Agreement, shall
(i) in the case of a Tax Contest relating to a proposed Non-Line of Business
Adjustment or a Restructuring Adjustment, be borne by each party in proportion
to each of their respective Shared Percentage, and (ii) in the case of a Tax
Contest relating to any other proposed Tax Adjustment, be borne by the party
that would bear the Tax Adjustment under Section 2.2 of this Agreement.
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 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 actually prejudiced by such
failure,
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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 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 actually 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 its right to a determination by an Independent
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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 its 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:
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(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 respect 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
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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
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Independent 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 clauses (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 actually 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
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receipt of the written notice specified in the preceding sentence; provided,
however, that, in the case of any Final Determination of a Tax Contest involving
a state, local or municipal Tax in which the Indemnifying Party is also the
Controlling Party with respect to such Tax Contest and, as Controlling Party, is
entitled to receive an overall net refund from the applicable state, local or
municipal Taxing Authority with respect to such state, local or municipal Tax,
then the Indemnifying Party shall be required to make such indemnity payment,
reimbursement or other payment to the Indemnified Party within thirty (30) days
from the date the Indemnifying Party actually receives payment of or obtains the
benefit of the net refund due from the applicable state, local or municipal
Taxing Authority.
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; provided, however, that, in
the case of any Final Determination of a Tax Contest involving a state, local or
municipal Tax in which the Controlling Party is entitled to receive an overall
net refund from the applicable state, local or municipal Taxing Authority with
respect to such state, local or municipal Tax, such indemnity payment,
reimbursement or other payment to be made by the Controlling Party shall bear
interest at the Prime Rate plus 2%, per annum, from the date the Controlling
Party actually receives payment of or obtains the benefit of the net refund due
from the applicable state, local or municipal Taxing Authority.
ARTICLE V
ALLOCATION OF CURRENT TAXES INCURRED
AS A RESULT OF RESTRUCTURING ACTIVITIES
5.1. GENERAL. This Article V governs the allocation of Taxes incurred
as a result of restructuring activities undertaken to implement the Distribution
("Restructuring Taxes") which in the judgement of the parties are currently
required to be taken into account in determining Taxable income for any Taxable
period or portion of a Taxable period that includes the Distribution Date.
Article II of this Agreement sets forth the principles and responsibilities of
the parties to this Agreement regarding future adjustments with respect to Taxes
as a result of audits, refund claims, or otherwise. The parties acknowledge that
the provisions of this Article V override any contrary provisions in the Federal
Tax Allocation Agreement and the State and Local Income Tax Allocation
Agreement.
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5.2. ALLOCATION OF RESTRUCTURING TAXES. Avaya shall bear sole
responsibility for any Restructuring Tax unless Lucent is able to record a tax
asset on its books due to the Restructuring Tax, in which case Lucent shall bear
such Restructuring Tax.
5.3. PAYMENT OF RESTRUCTURING TAXES. The party liable for a
Restructuring Tax under Section 5.2 hereof shall pay such tax to the other party
at least five business days prior to the date that the party responsible to pay
such Restructuring Tax to the relevant Taxing Authority is required to make a
Tax payment (whether estimated Tax or otherwise) to the relevant Taxing
Authority with respect to such Restructuring Tax.
5.4. TREATMENT OF LOSSES. Any loss, capital or otherwise, incurred as a
result of restructuring activities undertaken to implement the Distribution
shall remain with the legal entity recognizing such loss; and notwithstanding
any other provision of this Agreement any Adjustment with respect to such loss
will be for the account of the entity recognizing such loss.
5.5. TREATMENT OF CERTAIN FOREIGN TAX CREDITS. Notwithstanding any
other provision of this Agreement, solely to the extent that as a result of a
Restructuring Transaction in a particular country, Lucent realized a net tax
decrease solely resulting from a foreign tax credit and any corresponding income
inclusion on its taxable year 2000 United States Federal income tax return, as
originally filed or subsequently amended, any Adjustment with respect to such
net tax decrease will be for the account of Lucent.
ARTICLE VI
OTHER TAX MATTERS
6.1. TAX POLICIES AND PROCEDURES DURING CONSOLIDATION. It is understood
and agreed that during Consolidation:
(a) Members of the Avaya Group shall each adopt and follow the
Tax policies and procedures that have been established by Lucent and
communicated to Avaya unless, Lucent shall otherwise consent, as provided
herein. In the event that a member of the Avaya Group desires to adopt and
follow a Tax policy or procedure that is different from that established by
Lucent, Avaya shall, in writing, (i) request Lucent's consent to do so; and (ii)
provide Lucent with the reasons for the request to adopt and follow such
different Tax policy or procedure. If Lucent determines in its good faith
judgment that it would be reasonable and appropriate from the perspective of the
Lucent Group for such member of the Avaya Group to adopt and follow such
different Tax policy or procedure, Lucent shall provide its written consent
thereto.
(b) Lucent shall provide to Avaya timely written notice of any
material proposed change in established Tax policies or procedures.
(c) Lucent shall establish all Return positions and make all
Tax elections relating to a Consolidated Return. Members of the Avaya Group
shall take such Consolidated Return positions and make such Tax elections
relating to a Consolidated Return as may be taken or made by Lucent, or as
reasonably requested by Lucent to be taken or made by any member of the Avaya
Group unless Lucent shall otherwise consent, as provided herein. In the event
that Avaya
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determines that it would be reasonable and appropriate for any member of the
Avaya Group to take positions or make elections relating to a Consolidated
Return that are different from those taken or made by Lucent (or reasonably
requested by Lucent of any member of the Avaya Group) Avaya shall, in writing,
(i) request Lucent's consent to do so; and (ii) provide Lucent with the reasons
for the request to take such different positions or make such different
elections. If Lucent determines in its good faith judgment that it would be
reasonable and appropriate from the perspective of the Lucent Group for such
member of the Avaya Group to take such different positions or make such
different elections, Lucent shall provide its written consent thereto.
6.2. COOPERATION. Except as otherwise provided in this Agreement, and
without limiting the provisions contained in Article VIII of the Contribution
and Distribution Agreement which are incorporated herein by reference pursuant
to Section 7.3(a) hereof, each member of the Lucent Group and the Avaya 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 Lucent'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 Lucent
Group or the Avaya Group, as the case may be.
6.3. 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 Avaya Liabilities pursuant to Section 2.3(a)(ii) of the
Contribution and Distribution Agreement if Lucent or any other member of the
Lucent Group is required pursuant to this Agreement to file such Return and pay
the Taxes shown as due thereon, Avaya will pay to Lucent, in advance of the date
on which Lucent must pay such Taxes, an amount equal to the amount of such Taxes
which are Liabilities of Avaya. 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 6.1 (c) hereof (relating to Consolidated Returns),
such Person shall establish all Return positions and make all Tax elections
relating to such Returns.
6.4. TAX CHARACTERIZATION OF PAYMENTS. For all Tax purposes and
notwithstanding any other provision of this Agreement, to the extent permitted
by applicable law, the parties hereto shall treat any payment made pursuant to
this Agreement (other than any payment made in satisfaction of an intercompany
obligation) as a capital contribution or dividend distribution, as the case may
be, immediately prior to the Distribution Date and, accordingly, as not
includible in the taxable income of the recipient. If, as a result of a Final
Determination, it is determined that the receipt or accrual of any payment made
under this Agreement is taxable to the recipient
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of such payment, the party making such payment shall pay to the recipient an
amount equal to any increase in the income Taxes of the recipient as a result of
receiving the payment (grossed up to take into account such payment, if
applicable).
6.5 LIABILITY FOR ACTIONS EFFECTING TAX FREE NATURE OF THE
DISTRIBUTION.
(a) The provisions of this Section 6.5 override any contrary
provisions in this Agreement, the Contribution and Distribution Agreement, or
any other agreements between Lucent and Avaya. (b) Avaya agrees that it will not
take or fail to take, or permit any Avaya Affiliate to take or fail to take, any
action where such action or failure to act would be inconsistent with any
material, information, covenant or representation in the Ruling Documents,
Supplemental Ruling Documents, Ruling or Supplemental Ruling.
(c) Avaya and each Avaya Affiliate shall be responsible for
one hundred percent (100%) of any Restructuring Adjustments that are
attributable to, or result from, any act or failure to act described in Section
6.5(b) of this Agreement by Avaya or any Avaya Affiliate. Avaya and each Avaya
Affiliate shall jointly and severally indemnify Lucent, each Lucent Affiliate
and their directors, officers and employees and hold them harmless from and
against such Restructuring Adjustments.
(d) Lucent and each Lucent Affiliate shall be responsible for
one hundred percent (100%) of any Restructuring Adjustments that are
attributable to, or result from, any act or failure to act where such act or
failure to act would be inconsistent with any material, information, covenant or
representation in the Ruling Documents, Supplemental Ruling Documents, Ruling or
Supplemental Ruling by Lucent or any Lucent Affiliate. Lucent and each Lucent
Affiliate shall jointly and severally indemnify Avaya, each Avaya Affiliate and
their directors, officers and employees and hold them harmless from and against
such Restructuring Adjustments.
(e) Lucent agrees that at the reasonable request of Avaya,
Lucent shall cooperate with Avaya and use its reasonable best efforts to seek to
obtain, as expeditiously as possible, a Supplemental Ruling or other guidance
from the Service or any other Tax Authority for purposes of confirming (i) the
continuing validity of (A) the Ruling or (B) any Supplemental Ruling issued
previously, and (ii) compliance on the part of Avaya or any Avaya Affiliate with
its obligations under Section 6.5 of this Agreement. Further, in no event shall
Lucent file any Supplemental Ruling at the reasonable request of Avaya under
this Section 6.5(e) unless Avaya represents that (1) it has read the request for
the Supplemental Ruling and any materials, appendices and exhibits submitted or
filed therewith (the "Supplemental Ruling Documents") and (2) all information
and representations, if any, relating to Avaya and any Avaya Affiliate contained
in the Supplemental Ruling Documents are true, correct and complete in all
material respects. Avaya shall reimburse Lucent for all reasonable costs and
expenses incurred by Lucent in obtaining a Supplemental Ruling requested by
Avaya. Avaya hereby agrees that Lucent shall have sole and exclusive control
over the process of obtaining a Supplemental Ruling, and that only Lucent shall
apply for a Supplemental Ruling. Avaya further agrees that it shall not seek any
guidance from the Service or any other Tax Authority concerning the
Distribution.
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(f) In the case of any Adjustment comprising a Restructuring
Adjustment that relates to the Distribution and arises as a result of (i) the
acquisition of all or a portion of the Avaya stock and/or its assets by any
means whatsoever by any Person other than an Affiliate of Avaya following such
Distribution or (ii) any negotiations, agreements or arrangements by Avaya with
respect to transactions or events (including, without limitation, stock
issuances, pursuant to the exercise of stock options or otherwise, option
grants, capital contributions or acquisitions, or a series of such transactions
or events) that cause the Distribution to be treated as part of a plan pursuant
to which one or more persons acquire directly or indirectly stock of Avaya
representing a "50-percent or greater interest" therein within the meaning of
Section 355(d)(4) of the Code, then the Shared Lucent Percentage with respect to
such Adjustment shall be 0% and the Shared Avaya Percentage shall be 100%.
ARTICLE VII
MISCELLANEOUS
7.1. 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.
7.2. 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.
7.3. INCORPORATION OF CONTRIBUTION AND DISTRIBUTION AGREEMENT
PROVISIONS. The following provisions of the Contribution and Distribution
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 7.3 to an "Article" shall mean Articles
of the Contribution and Distribution Agreement):
(a) Article VIII (relating to Exchange of Information and
Confidentiality); and
(b) Article XII (relating to Miscellaneous Provisions, except
as otherwise specified herein).
7.4. NOTICES. Except for any notice or other communication required to
be given by a Controlling Party under this Agreement, Lucent and Avaya (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 be deemed to be duly given when (a) delivered in person, or
(b) sent by facsimile; or (c)
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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:
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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 Avaya Group, to:
Avaya Inc.
211 Mt. Airy Road
Basking Ridge, NJ
Attn: Vice President - Tax
Facsimile: 908-
Any party may, by written notice to the other parties, change the address to
which such notices are to be given.
7.5. CONFLICTING OR INCONSISTENT PROVISIONS. With respect to the
subject matter hereof, 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 Lucent or any other member of the Lucent Group and Avaya or any
other member of the Avaya 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.
7.6. DURATION. Notwithstanding anything in this Agreement or the
Contribution and Distribution 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).
7.7. TAX ALLOCATION AGREEMENTS. Avaya hereby assumes and agrees
faithfully to perform and fulfill all obligations and other Liabilities of any
member of the Avaya Group under the Federal Tax Allocation Agreement and the
State and Local Income Tax Allocation Agreement, in accordance with each of
their respective terms.
7.8. NO-FAULT AGREEMENT. The parties agree that the provisions of this
Agreement operate without regard to whether a Tax Liability is incurred as a
result of a mistake made by either party, and the parties agree that they intend
to avoid review by an Independent Third Party. The parties acknowledge that this
Agreement may not cover every possible factual scenario, and, if required, they
agree to negotiate amendments to the Agreement in good faith to address
situations not addressed in this Agreement, such amendments to be consistent
with the spirit of this Agreement.
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IN WITNESS WHEREOF, the parties hereto have caused this Tax Sharing
Agreement to be executed by their duly authorized representatives.
LUCENT TECHNOLOGIES INC.
By:______________________________
Name:
Title:
AVAYA INC.
By: ______________________________
Name:
Title:
1
EXHIBIT 10.5
AYAVA
SHORT TERM INCENTIVE PLAN
Effective October 1, 2000
1. PURPOSE. The purpose of the Ayava Short Term Incentive Plan (the
"Plan") is to provide Officers of Avaya Inc. (the "Company") and its affiliates
with incentive compensation based upon the level of achievement of financial and
other performance criteria. The Plan will enhance the ability of the Company and
its affiliates to attract individuals of exceptional managerial talent upon
whom, in large measure, the sustained progress, growth and profitability of the
Company depends.
2. DEFINITIONS. As used in the Plan, the following terms shall have the
meanings set forth below:
(a) "AWARD" shall mean a cash payment.
(b) "BOARD" shall mean the Board of Directors of the Company.
(c) "CODE" shall mean the Internal Revenue Code of 1986, as amended
from time to time and any successor thereto.
(d) "COMMITTEE" shall mean the Corporate Governance and Compensation
Committee of the Board (or any successor committee).
(e) "COVERED EMPLOYEE" shall mean a "covered employee" within the
meaning of Section 162(m) of the Code.
(f) "NET INCOME" shall mean the net income of the Company as determined
under generally accepted accounting principles, excluding (a) extraordinary
items (net of applicable taxes); (b) cumulative effects of changes in accounting
principles; (c) securities gains and losses (net of applicable taxes); and (d)
nonrecurring items (net of applicable taxes) including, but not limited to,
gains or losses on asset dispositions and sales of divisions, business units or
subsidiaries, restructuring charges, gains and losses from qualified benefit
plan curtailments and settlements, and income or expenses related to deferred
tax assets.
(g) "OFFICER" shall mean any manager of the Company or any affiliate
holding a position above the executive ("E Band") level or any salary grade
level that the Committee determines, in its sole discretion, is the equivalent
thereof.
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(h) "OUTSIDE DIRECTORS" shall mean those members of the Board who are
"outside directors" within the meaning of Section 162(m) of the Code.
(i) "PARTICIPANT" shall mean any person selected by the Committee to
participate in the Plan.
(j) "PERFORMANCE YEAR" shall mean the fiscal year in which a
Participant provides services on account of which the Award is made.
(k) "PERSON" shall mean any individual, corporation, partnership,
association, joint-stock company, trust, unincorporated organization, or
government or political subdivision thereof.
(l) "TARGET AWARD" shall mean an Award level that may be paid if
certain performance criteria are achieved in the Performance Year.
3. ELIGIBILITY. Persons employed by the Company or any of its
affiliates during a Performance Year in active service at an Officer level are
eligible to be Participants under the Plan for such Performance Year (whether or
not so employed or living at the date an Award is made) and may be considered by
the Committee for an Award. An Officer is not rendered ineligible to be a
Participant by reason of being a member of the Board.
4. AWARDS-GENERAL. The Committee will establish Target Awards for
Participants at the beginning of each Performance Year and the performance
criteria to be applicable to Awards for such Performance Year. The performance
criteria utilized by the Committee may be based on individual performance,
earnings per share, other Company and business unit financial objectives,
customer satisfaction indicators, operational efficiency measures, and other
measurable objectives tied to the Company's success or such other criteria as
the Committee shall determine. Awards will be made by the Committee following
the end of each Performance Year. Awards shall be paid as soon as practicable
after the Performance Year, except to the extent that a Participant has made an
election to defer the receipt of such Award pursuant to the Avaya Inc. Deferred
Compensation Plan or any successor plan having a similar function. The Award
amount with respect to a Participant shall be determined in the sole discretion
of the Committee, or, in the case of an Award to a Participant who is not a
Covered Employee, in the sole discretion of such person or committee empowered
by the Committee or Board. The determination of the Award amount for each
Participant shall be made at the end of each Performance Year and may be less
than (including no Award) or, in the case of a Participant who is not a Covered
Employee, greater than the Target Award.
5. AWARDS TO COVERED EMPLOYEES. (a) If the Committee determines at the
time a Target Award is established for a Participant that such Participant is,
or may be as of the end of the tax year for which the Company would claim a tax
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deduction in connection with such Award, a Covered Employee, then the Committee
may provide that this Section 5 is applicable to such Award under such terms as
the Committee shall determine.
(b) If an Award is subject to this Section 5, then the payment of cash
pursuant thereto shall be subject to the Company having a level of Net Income
for the applicable Performance Year set by the Committee within the time
prescribed by Section 162(m) of the Code or the regulations thereunder in order
for the level to be considered "pre-established". The Committee may, in its
discretion, reduce the amount of such an Award at any time prior to payment
based on such criteria as it shall determine, including but not limited to
individual merit and the attainment of specified levels of one or any
combination of the following: net cash provided by operating activities,
earnings per share from continuing operations, operating income, revenues, gross
margin, return on operating assets, return on equity, economic value added,
stock price appreciation, total shareowner return (measured in terms of stock
price appreciation and dividend growth), or cost control, of the Company or the
affiliate or division of the Company for or within which the Participant is
primarily employed.
(c) Notwithstanding any contrary provision of this Plan, the Committee
may not adjust upwards the amount payable pursuant to any Award subject to this
Section 5, nor may it waive the achievement of the Net Income requirement
contained in Section 5(b), except in the case of the death or disability of the
Participant.
(d) Prior to the payment of any Award subject to this Section 5, the
Committee shall certify in writing that the Net Income requirement applicable to
such Award was met.
(e) The Committee shall have the power to impose such other
restrictions on Awards subject to this Section 5 as it may deem necessary or
appropriate to ensure that such Awards satisfy all requirements for
"performance-based compensation" within the meaning of Section 162(m)(4)(C) of
the Code, the regulations promulgated thereunder, and any successors thereto.
6. OTHER CONDITIONS. (a) No person shall have any claim to an Award
under the Plan and there is no obligation for uniformity of treatment of
Participants under the Plan. Awards under the Plan may not be assigned or
alienated.
(b) Neither the Plan nor any action taken hereunder shall be construed
as giving to any Participant the right to be retained in the employ of the
Company or any affiliate.
(c) The Company or any affiliate shall have the right to deduct from
any Award to be paid under the Plan any federal, state or local taxes required
by law to be withheld with respect to such payment.
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(d) Awards under the Plan will, to the extent provided therein, be
included in base compensation or covered compensation under the retirement
programs of the company for purposes of determining pensions, retirement and
death related benefits.
(e) In the event an Award under the Plan is deferred under the Avaya
Deferred Compensation Plan or any successor thereto, it will be reflected in the
calculations of the above benefit plans as if it had been paid as scheduled and
not deferred.
(f) Notwithstanding any contrary provision of the Plan, the maximum
amount which may be paid to a Participant in any Performance Year is $9 million.
7. DESIGNATION OF BENEFICIARIES. A Participant may, if the Committee
permits, designate a beneficiary or beneficiaries to receive all or part of the
Award which may be made to the Participant, or may be payable, after such
Participant's death. A designation of beneficiary shall be made in accordance
with procedures specified by the Company and may be replaced by a new
designation or may be revoked by the Participant at any time. In case of the
Participant's death, an Award with respect to which a designation of beneficiary
has been made (to the extent it is valid and enforceable under applicable law)
shall be paid to the designated beneficiary or beneficiaries. Any Award granted
or payable to a Participant who is deceased and not subject to such a
designation shall be distributed to the Participant's estate. If there shall be
any question as to the legal right of any beneficiary to receive an Award under
the Plan, the amount in question may be paid to the estate of the Participant,
in which event the Company or its affiliates shall have no further liability to
anyone with respect to such amount.
8. PLAN ADMINISTRATION. (a) The Committee shall have full
discretionary power to administer and interpret the Plan and to establish rules
for its administration (including the power to delegate authority to others to
act for and on behalf of the Committee) subject to such resolutions, not
inconsistent with the Plan, as may be adopted by the Board, except that the
Committee (or any subcommittee thereof) shall have the exclusive authority to
exercise any such power with respect to Awards to which Section 5 is applicable.
In making any determinations under or referred to in the Plan, the Committee
(and its delegates, if any) shall be entitled to rely on opinions, reports or
statements of employees of the Company and its affiliates and of counsel, public
accountants and other professional or expert persons.
(b) The Plan shall be governed by the laws of the State of Delaware
and applicable Federal law.
9. MODIFICATION OR TERMINATION OF PLAN. The Board may modify or
terminate the Plan at any time, effective at such date as the Board may
determine. The Vice President - Human Resources of the Company or his delegate
with the concurrence of the General Counsel of the Company or his delegate (or,
in each case,
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any successor to either of such officer's responsibilities), shall be authorized
to make minor or administrative changes in the Plan or changes required by or
made desirable by law or government regulation. Such a modification may affect
present and future Participants. For purposes of this Section, a change to the
Plan that affects any Award to a Covered Employee shall not be a minor or
administrative change.
IN WITNESS WHEREOF, the Company has caused this Plan to be executed as of this
1st day of October, 2000.
AVAYA INC.
By:______________________________
Attest:__________________________
1
EXHIBIT 10.6
DRAFT
AVAYA INC.
2000 LONG TERM INCENTIVE PLAN
2
ARTICLE 1 - BACKGROUND AND PURPOSE
The purpose of the Avaya Inc. 2000 Long Term Incentive Plan is to enhance
shareholder value by reinforcing the Company's efforts to motivate Employees to
contribute to the Company's growth and performance, and enabling the Company to
attract and retain individuals of exceptional talent upon whom, in large
measure, the sustained progress, growth and profitability of the Company depend.
ARTICLE 2 - DEFINITIONS
For the purposes of this Plan, the following words shall have the meanings
ascribed to them below:
(a) AWARD
Any Option, Stock Appreciation Right, Restricted Stock Award,
Performance Award, Dividend Equivalent, Other Stock Unit Award,
Substitute Award or any other right, interest, or option relating to
Shares or other securities of the Company granted pursuant to the
provisions of the Plan.
(b) AWARD AGREEMENT
The written agreement, contract, or other instrument or document
provided by the Company to evidence an Award and signed by both the
Company and the Participant.
(c) BOARD
The Board of Directors of the Company.
(d) CHANGE IN CONTROL
The happening of any of the following events:
(i) An acquisition by any individual, entity or group (within
the meaning of Section 13 (d)(3) or 14 (d)(2) of the Exchange Act) (an
"Entity") of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 20% or more of either (A) the
then outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (B) the combined voting power of
the then outstanding voting securities of the Company entitled to vote
generally in the election of directors (the "Outstanding Company Voting
Securities"); excluding, however, the following: (1) any acquisition
directly from the Company, other than an acquisition by virtue of the
exercise of a conversion privilege unless the security so being
converted was itself acquired directly from the Company, (2) any
acquisition by the Company, (3) any acquisition by any employee benefit
plan (or related trust) sponsored or maintained by the Company or any
corporation controlled by the Company, or (4) any acquisition by any
corporation pursuant to a transaction which complies with clauses (A),
(B) and (C) of subsection (iii) of this Article 2(c); or
(ii) A change in the composition of the Board such that the
individuals who, as of the Effective Date, constitute the Board (such
Board shall be hereinafter referred to as
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AVAYA INC. 2000 LONG TERM INCENTIVE PLAN
the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that for purposes of this
definition, that any individual who becomes a member of the Board
subsequent to the Effective Date, whose election, or nomination for
election by the Company's stockholders, was approved by a vote of at
least a majority of those individuals who are members of the Board and
who were also members of the Incumbent Board (or deemed to be such
pursuant to this proviso) shall be considered as though such individual
were a member of the Incumbent Board; and provided, further however,
that any such individual whose initial assumption of office occurs as a
result of or in connection with either an actual or threatened election
contest (as such terms are used in Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act) or other actual or threatened
solicitation of proxies or consents by or on behalf of an Entity other
than the Board shall not be so considered as a member of the Incumbent
Board; or
(iii) The approval by the stockholders of the Company of a
merger, reorganization or consolidation or sale or other disposition of
all or substantially all of the assets of the Company (each, a
"Corporate Transaction") or, if consummation of such Corporate
Transaction is subject, at the time of such approval by stockholders,
to the consent of any government or governmental agency, the obtaining
of such consent (either explicitly or implicitly by consummation);
excluding however, such a Corporate Transaction pursuant to which (A)
all or substantially all of the individuals and entities who are
beneficial owners, respectively, of the Outstanding Company Stock and
Outstanding Company Voting Securities immediately prior to such
Corporate Transaction will beneficially own, directly or indirectly,
more than 60% of, respectively, the outstanding shares of common stock,
and the combined voting power of the then outstanding voting securities
entitled to vote generally in the election of directors, as the case
may be, of the corporation resulting from such Corporate Transaction
(including, without limitation, a corporation or other Person which as
a result of such transaction owns the Company or all or substantially
all of the Company's assets either directly or through one or more
subsidiaries (a "Parent Company")) in substantially the same
proportions as their ownership, immediately prior to such Corporate
Transaction, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities, as the case may be, (B) no Entity (other
than the Company, any employee benefit plan (or related trust) of the
Company, such corporation resulting from such Corporate Transaction or,
if reference was made to equity ownership of any Parent Company for
purposes of determining whether clause (A) above is satisfied in
connection with the applicable Corporate Transaction, such Parent
Company) will beneficially own, directly or indirectly, 20% or more of,
respectively, the outstanding shares of common stock of the corporation
resulting from such Corporate Transaction or the combined voting power
of the outstanding voting securities of such corporation entitled to
vote generally in the election of the directors unless such ownership
resulted solely from ownership of securities of the Company prior to
the Corporate Transaction, and (C) individuals who were members of the
Incumbent Board will immediately after the consummation of the
Corporate Transaction constitute at least a majority of the members of
the board of directors of the corporation resulting from such Corporate
Transaction (or, if reference was made to equity ownership of any
Parent Company for purposes of determining whether clause (A) above is
satisfied in connection with the applicable Corporate Transaction, of
the Parent Company); or
(iv) The approval by the stockholders of the Company of a
complete liquidation or dissolution of the Company.
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AVAYA INC. 2000 LONG TERM INCENTIVE PLAN
(e) CODE
The Internal Revenue Code of 1986, as amended.
(f) COMMITTEE
The Corporate Governance and Compensation Committee (or any successor
committee) of the Board.
(g) COMPANY
Avaya Inc., a Delaware corporation.
(h) COMPANY ACTION
A Company or Subsidiary declared or initiated (i) termination from
service under a force management program, (ii) sale of a unit or
portion of a unit, (iii) transfer of a Participant to a corporation,
partnership, limited liability company or other business entity in
which the Company has an equity interest and which does not constitute
a Subsidiary or (iv) placement of the job function of a Participant
with an outsourcing contractor [unless the Committee determines that
any successor employer has made appropriate provision for the
assumption and continuation of Awards of Employees who are employed by
the successor employer after an event described in (ii), (iii) or
(iv).].
(i) COVERED EMPLOYEE
A "covered employee" within the meaning of Section 162(m)(3) of the
Code.
(j) DIVIDEND EQUIVALENT
Has the meaning assigned in Article 6(b).
(k) DELEGATE
The person or committee authorized by the Committee or the Board to
exercise specified authority under this Plan.
(l) DISABILITY OR DISABLED
Termination of employment under circumstances where the Participant
qualifies for benefits under a long-term disability pay plan as
provided in the Participant's Award Agreement.
(m) EMPLOYEE
Any employee of the Company or any Subsidiary, excluding leased
employees within the meaning of Section 414(n) of the Code.
(n) EXCHANGE ACT
The Securities Exchange Act of 1934, as amended.
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AVAYA INC. 2000 LONG TERM INCENTIVE PLAN
(o) EXPIRATION DATE
The date specified in the Award Agreement after which rights under the
Award expire.
(p) FAIR MARKET VALUE
The average of the high and low sales prices of a Share as reported on
the New York Stock Exchange on the Grant Date, or if no sales of Shares
were reported on such date, the average of the high and low prices of a
Share on the next preceding day on which sales were reported.
(q) GRANT DATE
The Grant Date shall be the date an Award is granted as set forth in
the Award Agreement.
(r) INCENTIVE OPTION
An Option granted under Article 7 that is intended to meet the
requirements of Section 422 of the Code or any successor provision
thereto.
(s) NONSTATUTORY OPTION
An Option granted under Article 7 that is not intended to be an
Incentive Option.
(t) OPTION
An Award described in Article 7.
(u) OTHER STOCK UNIT AWARD
An Award described in Article 11.
(v) PARTICIPANT
An Employee who is selected by the Committee to receive an Award under
the Plan.
(w) PERFORMANCE AWARD
An Award described in Article 10.
(x) PERFORMANCE PERIOD
That period, established by the Committee at or after the time any
Performance Award is granted, during which any performance goals
specified by the Committee with respect to such Award are to be
measured.
(y) PERSON
Any individual, corporation, partnership, association, joint-stock
company, trust, unincorporated organization, limited liability company,
other entity or government or political subdivision.
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AVAYA INC. 2000 LONG TERM INCENTIVE PLAN
(z) PARTICIPANT
An Employee of the Company or any Subsidiary to whom an Award is
granted under the Plan.
(aa) PLAN
The Avaya Inc. 2000 Long Term Incentive Plan.
(bb) RESTRICTED STOCK
An Award described in Article 9.
(cc) RETIREMENT
Termination of the employment of a Participant with the Company or any
Subsidiary under circumstances where the Participant qualifies for
benefits under a retirement plan as provided in the Participant's Award
Agreement.
(dd) SHARE
A share of the common stock of the Company, par value $.01 per share.
(ee) STOCK APPRECIATION RIGHT
An Award described in Article 8.
(ff) STOCK AWARD COMMITTEE
A committee of one or more directors appointed by the Committee
pursuant to Article 4.
(gg) SUBSIDIARY
A "subsidiary corporation" of the Company as defined in Section 424(f)
of the Code, an entity in which the Company directly or indirectly owns
50% or more of the voting interests or an entity in which the Company
has a significant equity interest, as determined by the Committee.
(hh) SUBSTITUTE AWARD
An Award granted in lieu of an Option or Stock Appreciation Right
pursuant to Article 17.
(ii) TERM
The period beginning on October 1, 2000, and ending on October 1, 2005.
ARTICLE 3 - SHARES AVAILABLE FOR OPTION; ADJUSTMENTS
(a) Subject to adjustment as provided in Article 3(b), the aggregate number of
Shares which may be made subject to Awards granted under this Plan during
each fiscal year shall not exceed [insert % limit as applicable] of the
Shares issued and outstanding on the last day of the
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AVAYA INC. 2000 LONG TERM INCENTIVE PLAN
immediately preceding fiscal year; provided that such number shall, except
as may otherwise be determined by the Committee, be increased in any year
by the number of Shares available for grant under the Plan in previous
years but not covered by Awards granted under the Plan in such years;
provided, further, that if any Shares are subject to an Award that is
forfeited, settled in cash, expires, or is otherwise terminated without
issuance of Shares, such Shares shall again be available for Awards under
the Plan if no Participant shall have received any benefits of ownership in
respect thereof; provided, further, that no more than [] Shares shall be
available for the grant of Incentive Options under the Plan during the
Term; and provided, further, that no more than [insert limit ] Shares shall
be available for the grant of Awards in the form of Stock Appreciation
Rights pursuant to Article 8 (excluding for this purpose any Stock
Appreciation Right granted in relation to an Incentive Option or a
Nonstatutory Option), Restricted Stock pursuant to Article 9, Performance
Awards pursuant to Article 10, and Other Stock Unit Awards pursuant to
Article 11 that are valued by reference to Shares during the Term. In
addition, the number of Shares available for grants under the Plan [or to a
Participant] in any fiscal year shall not be reduced by Awards granted or
Shares issued by the Company through the assumption of, or in substitution
or exchange for awards or the right or obligation to make future grants of
awards in connection with the acquisition of another corporation or
business entity [or in connection with the assumption of any Award granted
by Lucent Technologies Inc. ("Lucent") to an Employee who becomes an Avaya
Individual as defined in the Employee Benefits agreement dated as of
October 1, 2000 between the Company and Lucent. Any Shares issued under the
Plan may consist, in whole or in part, of authorized and unissued Shares,
Shares purchased in the open market or otherwise, treasury Shares, or any
combination of the foregoing, as the Board or the Committee may from time
to time determine.
(b) In the event of any merger, reorganization, consolidation, recapitalization,
stock dividend, stock split, reverse stock split, spin off or similar
transaction or other change in corporate structure affecting the Shares, such
adjustments and other substitutions shall be made to the Plan, and to Awards as
the Committee in its sole discretion deems equitable or appropriate, including:
such adjustments in the aggregate number, class and kind of Shares or other
consideration which may be delivered under the Plan, in the aggregate or to any
one Participant; in the number, class, kind and option or exercise price of
Shares subject to outstanding Awards granted under the Plan; and in the number,
class and kind of Shares subject to Awards granted under the Plan (including, if
the Committee deems appropriate, the substitution of similar options to purchase
the shares of, or other awards denominated in the shares of, another company)
provided, however, that the number of Shares or other securities subject to any
Award shall always be a whole number.
(c) Except as provided in Article 20, the Committee shall be authorized to make
adjustments in Performance Award criteria or in the terms and conditions of
other Awards in recognition of unusual or nonrecurring events affecting the
Company or its financial statements, or changes in applicable laws, regulations
or accounting principles. The Committee may correct any defect, supply any
omission or reconcile any inconsistency in the Plan or any Award in the manner
and to the extent it shall deem desirable. In the event the Company shall assume
outstanding employee benefit awards or the right or obligation to make future
such awards in connection with the acquisition of another corporation or
business entity, the Committee may, in its discretion, make such adjustments in
the terms of Awards under the Plan as it shall deem appropriate.
ARTICLE 4 - ADMINISTRATION
The Plan shall be administered by the Committee. The Committee shall be
responsible to the Board for the operation of the Plan. The Committee may
appoint one or more Directors to serve as the Stock Award Committee to make
grants of Options, administer the Plan, discharge the
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AVAYA INC. 2000 LONG TERM INCENTIVE PLAN
duties of the Committee under Articles 5, 6, 7, 8, 9, 10,11, 12 and 17 with
respect to Employees other than officers and directors of the Company, and adopt
rules and regulations under the Plan and make interpretations of the Plan with
respect to such Employees. If the Committee does not appoint a Stock Award
Committee, the Plan shall be administered by the Committee. The Committee or the
Stock Award Committee may appoint a Delegate to administer and interpret the
provisions of the Plan, promulgate rules and regulations under the Plan,
discharge the duties of the Committee under Articles 12 and 17, designate
employees to perform ministerial functions under this Plan and execute documents
on behalf of the Company; provided, however, that any Delegate appointed
pursuant to this Article 4 who is a Participant in the Plan shall not
participate in making any decision that would benefit such Delegate, except to
the extent such decision would only incidentally benefit the Delegate and would
also generally benefit a larger class of Employees.
The interpretations and construction of any provision of the Plan by the
Committee, the Stock Award Committee, or the Delegate, as the case may be, as
well as any factual determinations, shall be final, unless otherwise determined
by the Board. No member of the Board, the Committee, the Stock Award Committee
or any Delegate shall be liable for any action or determination made by him or
her in good faith.
ARTICLE 5 - ELIGIBILITY
(a) The Committee, in its sole discretion, may grant an Award to any Employee
who is actively employed by the Company or a Subsidiary. The adoption of this
Plan shall not be deemed to give any Employee any right to be granted an Award,
except and to the extent and upon such terms and conditions as may be determined
by the Committee.
(b) Neither this Plan nor any Award shall be construed as giving any person the
right to be retained in the employ of the Company or any Subsidiary. No Employee
or Participant shall have any claim to be granted any Award under the Plan, and
there is no obligation of uniformity of treatment of Employees or Participants
under the Plan. This Plan creates no ongoing obligation of the Company to
provide any future benefit of similar value. The provisions of any Award need
not be the same with respect to each recipient of an Award of the same type.
ARTICLE 6 - AWARDS -- GENERAL
(a) Awards may be granted to Participants either alone or in addition to any
other type of Award granted under the Plan. Awards may be granted for no
consideration, for such minimum consideration as is required by applicable law
or for such other consideration as the Committee may determine. Any Award
granted under the Plan shall be evidenced by an Award Agreement in such form as
the Committee may from time to time approve. The prospective recipient of any
Award shall not, with respect to such Award, be deemed to have become a
Participant, or to have any rights with respect to such Award, until and unless
such recipient shall have executed and delivered to the Company an Award
Agreement evidencing the Award, and otherwise complied with the then applicable
terms and conditions. The term of each Award shall be for such period of months
or years from the date of its grant as may be determined by the Committee;
provided that in no event shall the term of any Incentive Option or any Stock
Appreciation Right related to any Incentive Option exceed a period of ten (10)
years from its Grant Date. The Committee may impose such conditions on the
exercise or vesting of any Award as it shall deem appropriate.
(b) Subject to the provisions of this Plan and any Award Agreement, the
recipient of an Award (including, without limitation, any deferred Award) may,
if so determined by the Committee, be
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AVAYA INC. 2000 LONG TERM INCENTIVE PLAN
entitled to receive, currently or on a deferred basis, interest or dividends, or
interest or dividend equivalents (collectively, "Dividend Equivalents"), with
respect to the number of Shares covered by the Award, as determined by the
Committee, in its sole discretion, and the Committee may provide that such
amounts (if any) shall be deemed to have been reinvested in additional Shares or
otherwise reinvested.
ARTICLE 7 - OPTIONS
An Option is a right to purchase Shares subject to the following terms
and conditions and to such additional terms and conditions, not inconsistent
with the provisions of the Plan, as the Committee shall deem desirable:
(a) OPTION PRICE. The exercise price per Share under an Option shall be
determined by the Committee in its sole discretion; provided that except in the
case of an Option pursuant to a Substitute Award, such exercise price shall not
be less than the Fair Market Value of a Share on the date of the grant of the
Option.
(b) EXERCISABILITY. Options shall be exercisable at such time or times
as determined by the Committee at or subsequent to grant. Unless otherwise
determined by the Committee at or subsequent to grant, no Incentive Option shall
be exercisable during the year ending on the day before the first anniversary
date of the granting of the Incentive Option.
(c) METHOD OF EXERCISE. Subject to the other provisions of the Plan and
any applicable Award Agreement, any Option may be exercised by the Participant
in whole or in part at such time or times, and the Participant may make payment
of the option price in such form or forms, including, without limitation,
payment by delivery of cash, Shares or other consideration (including, where
permitted by law and the Committee, Awards) having a fair market value on the
exercise date equal to the total option price, or by any combination of cash,
Shares and other consideration as the Committee may specify in the applicable
Award Agreement.
(d) INCENTIVE OPTIONS. In accordance with rules and procedures
established by the Committee, the aggregate Fair Market Value (determined as of
the time of grant) of the Shares with respect to which Incentive Options held by
any Participant which are exercisable for the first time by such Participant
during any calendar year under the Plan (and under any other benefit plans of
the Company or of any parent or Subsidiary of the Company) shall not exceed
$100,000 or, if different, the maximum limitation in effect at the time of grant
under Section 422 of the Code, or any successor provision, and any regulations
promulgated thereunder. The terms of any Incentive Option shall comply in all
respects with the provisions of Section 422 of the Code, or any successor
provision, and any regulations promulgated thereunder.
(e) FORM OF SETTLEMENT. In its sole discretion, the Committee may
provide, at the time of grant, that the Shares to be issued upon an Option's
exercise shall be in the form of Restricted Stock or other similar securities,
or may reserve the right so to provide after the time of grant.
ARTICLE 8 - STOCK APPRECIATION RIGHTS
A Stock Appreciation Right is a right to receive in cash the difference
between the Fair Market Value of a Share on the exercise date and the Grant
Date. A Stock Appreciation Right shall otherwise have the same terms and
conditions as an Option. Any Stock Appreciation Right related to a Nonstatutory
Option may be granted at the same time such Option is granted or at any time
thereafter before exercise or expiration of such Option. Any Stock Appreciation
Right related to an Incentive Option must be granted at the same time such
Option is granted. In the case of any Stock Appreciation Right related to any
Option, the Stock Appreciation Right or
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AVAYA INC. 2000 LONG TERM INCENTIVE PLAN
applicable portion thereof shall terminate and no longer be exercisable upon the
termination or exercise of the related Option, except that a Stock Appreciation
Right granted with respect to less than the full number of Shares covered by a
related Option shall not be reduced until the exercise or termination of the
related Option exceeds the number of Shares not covered by the Stock
Appreciation Right. Any Option related to any Stock Appreciation Right shall no
longer be exercisable to the extent the related Stock Appreciation Right has
been exercised.
ARTICLE 9 - RESTRICTED STOCK
Restricted Stock is an Award in the form of Shares issued with the
restriction that the Participant may not sell, transfer, pledge or assign the
Shares and with any other restrictions that the Committee may impose (including
restrictions on the right to vote or receive cash dividends on the Shares) which
restrictions may lapse separately or in combination at such time or times, in
installments or otherwise, as the Committee shall determine. A Restricted Stock
Award may be evidenced in such manner as the Committee in its sole discretion
shall deem appropriate, including, without limitation, book-entry registration
or issuance of a stock certificate or certificates. In the event any stock
certificate is issued in respect of a Restricted Stock Award, such certificate
shall be registered in the name of the Participant, and shall bear an
appropriate legend referring to the terms, conditions, and restrictions
applicable to such Award.
ARTICLE 10 - PERFORMANCE AWARDS
A Performance Award is an Award of Performance Units or Performance
Shares which vests and becomes non-forfeitable based on performance criteria
determined by the Committee to be achieved over a prescribed Performance Period.
An Award of Performance Shares is a number of units valued by reference to a
designated number of Shares, and an Award of Performance Units is a number of
units valued by reference to a designated amount of property other than Shares.
The performance criteria to be achieved during any Performance Period and the
length of the Performance Period shall be determined by the Committee upon the
grant of each Performance Award or at any time thereafter. Except as provided in
Articles 12 and 14, Performance Awards will be distributed only after the end of
the relevant Performance Period. Performance Awards may be paid in cash, Shares,
other property or any combination of the foregoing, in the sole discretion of
the Committee [upon the grant of the Performance Award] [at the time of
payment]. The performance levels which have been achieved for each Performance
Period and the amount of the Award to be distributed shall be conclusively
determined by the Committee. Performance Awards may be paid in a lump sum or in
installments following the close of the Performance Period.
ARTICLE 11 - OTHER STOCK UNIT AWARDS
Other Awards of Shares and other Awards that are valued in whole or in
part by reference to, or are otherwise based on, Shares ("Other Stock Unit
Awards") may be paid in Shares, other securities of the Company, cash or any
other form of property as the Committee shall determine [upon the grant of the
Other Stock Unit Award]. Other Stock Unit Awards may be issued with such
restrictions that the Committee may impose which restrictions may lapse
separately or in combination at such time or times, in installments or
otherwise, as the Committee shall determine. Shares purchased pursuant to other
Stock Unit Awards shall be purchased for such consideration as the Committee
shall in its sole discretion determine, which shall not be less than the Fair
Market Value of such Shares as of the date such Award is granted.
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11
AVAYA INC. 2000 LONG TERM INCENTIVE PLAN
ARTICLE 12 - TERMINATION OF EMPLOYMENT
[Except as shall otherwise be provided in an Award Agreement, the provisions of
this Article 12 shall govern rights of Participants to exercise Options
following termination of employment. If a Participant terminates employment for
any reason other than Retirement, Disability or death (i) any portion of the
Participant's Options which are exercisable on the date employment terminates
may be exercised until the earlier of ninety days following termination of
employment or the original Expiration Date of the Option, and (ii) any portion
of an Option that is not exercisable on the date employment terminates shall be
forfeited and canceled, except that if the reason for the termination of
employment is a Company Action, then the Option shall become immediately
exercisable for the period specified in clause (i) with respect to the number of
Shares determined by the following formula, and shall be forfeited and canceled
with respect to the remaining Shares:
<TABLE>
<S> <C> <C>
Shares Original Shares Number of Completed Months Prior to
Termination of Employment Since
Exercisable = Granted X Granted
-----------------------------------
Number of Months from Grant Date to
Full Exercisability of Option
Minus: Number of Shares Exercisable or
Exercised Prior to Termination of Employment
</TABLE>
Upon termination of employment by reason of Retirement or Disability, any
portion of a Participant's Option that is then outstanding shall, to the extent
not then exercisable, be immediately, forfeited and canceled in its entirety. To
the extent that an Option is exercisable on the date of a Participant's
Retirement or Disability, the Option will remain exercisable until the original
Expiration Date of the Option. Notwithstanding the foregoing, if a Participant
terminates employment pursuant to a Company Action under circumstances that also
constitute Retirement for such Participant, then any portion of any Option of
the Participant which becomes exercisable by reason of this Article 12 along
with any portion of any Option of the Participant which is exercisable on the
date of termination of employment shall be exercisable, until the original
Expiration Date of the relevant Option. Upon the death of a Participant, the
outstanding portion of such Participant's Option shall, to the extent not then
exercisable, become immediately exercisable in full and the Option shall remain
exercisable until the original Expiration Date of the Option. The Committee or
its Delegate may, in its sole discretion, waive or modify the application of
this Article 12 in the case of any individual Participant. This Article 12
applies only to Options; however the Committee may provide for similar treatment
of other forms of Awards at the time that the Award is granted.
ARTICLE 13 - NONASSIGNABILITY
No award granted under the Plan shall be assigned or transferred by the
Participant otherwise than by will or by the laws of descent and distribution,
and such Award shall be exercisable, during the Participant's lifetime, only by
the Participant.
ARTICLE 14 - CHANGE IN CONTROL PROVISIONS
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AVAYA INC. 2000 LONG TERM INCENTIVE PLAN
Notwithstanding any other provision of the plan to the contrary, unless the
Committee shall determine otherwise at the time of grant with respect to a
particular Award, in the event of a Change in Control any Options and Stock
Appreciation Rights outstanding as of the date such Change in Control is
determined to have occurred, and which are not then exercisable and vested,
shall become fully exercisable and vested to the full extent of the original
grant and any Restricted Stock or Other Stock Unit Awards which are not then
vested shall become vested and non-forfeitable to the full extent of the
Original Grant. If a Change in Control occurs or is to occur during a
Performance Period, the Committee shall determine the extent to which
Performance Awards shall vest or shall be adjusted in accordance with Article
3(c) in the event of a Change in Control. This determination shall be made by
individuals who are members of the Incumbent Board as defined in the definition
of a Change in Control in Article 1(d).
ARTICLE 15 - RESERVATION OF SHARES
The Company, during the term of this Plan, will at all times reserve and keep
available, and will seek or obtain from any regulatory body having jurisdiction
any requisite authority necessary to issue and to sell, the number of Shares
that shall be sufficient to satisfy the requirements of this Plan. The inability
of the Company to obtain from any regulatory body having jurisdiction the
authority deemed necessary by counsel for the Company for the lawful issuance
and sale of Shares shall relieve the Company of any liability in respect of the
failure to issue or sell Shares as to which the requisite authority has not been
obtained.
ARTICLE 16 - TAXES
The Company and any Subsidiary shall have the right to condition the grant or
exercise of any Award on a Participant's payment of any applicable amounts
required by a governmental agency to be withheld from payment to the Participant
or paid or deducted by the Company or a Subsidiary in connection with an Award
("withholding tax"). The Company and any Subsidiary shall also have the right to
deduct any withholding tax from a Participant's other compensation or to make
any other arrangements to satisfy withholding tax obligations, including
arrangements with one or more brokerage firms pursuant to cashless exercise
procedures. The Company and any Subsidiary shall further have the right to
deduct from any payment under an Award under the Plan or from a Participant's
other compensation any tax or social insurance payment imposed on the Company or
Subsidiary in connection with such Award.
ARTICLE 17 - EMPLOYEES BASED OUTSIDE OF THE UNITED STATES
Notwithstanding any provision of the Plan to the contrary, in order to foster
and promote achievement of the purposes of the Plan or to comply with the
provisions of laws in other countries in which the Company and its Subsidiaries
operate or have Employees, the Committee or its Delegate, in its sole
discretion, shall have the power and authority to (1) determine which Employees
that are subject to the tax laws of nations other than the United States are
eligible to participate in the Plan, (2) modify the terms and conditions of any
Awards granted to such Employees (including the grant of Stock Appreciation
Rights or some other comparable form of award ("Substitute Award") in lieu of
Options, and (3) establish subplans, modified Option exercise procedures and
other terms and procedures to the extent such actions may be necessary or
advisable provided, however, that the Committee may not grant such Awards that
do not comply with the limitations of Article 3. Any subplans established under
this Article 17 by the Committee shall be attached to this Plan as appendices.
The terms of this Plan applicable to Options shall apply with like effect to
Stock Appreciation Rights, Restricted Stock Awards,
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AVAYA INC. 2000 LONG TERM INCENTIVE PLAN
Performance Awards, Other Stock Unit Awards and Substitute Awards to the extent
legally permissible.
ARTICLE 18 - AMENDMENT OF PLAN
The Board may amend the Plan at any time and from time to time. The Board may,
at any time or from time to time, suspend or terminate this Plain in whole or in
part.
No such amendment, suspension or termination of the Plan may, however, impair
any Award granted prior to such amendment, suspension or termination, without
the written consent of the affected Participant.
ARTICLE 19 - TERM OF PLAN
The Plan shall become effective as of October 1, 2000.
The Plan shall terminate on October 1, 2005 or at such earlier date as may be
determined by the Board of Directors. Termination of the Plan, however, shall
not affect the rights of Participants under Awards previously granted to them,
and all unexpired Awards shall continue in force and operation after termination
of the Plan except as they may lapse or be terminated pursuant to this Plan.
ARTICLE 20 - CODE SECTION 162(m) PROVISIONS
(a) Notwithstanding any other provision of this Plan, if the Committee
determines at the time Restricted Stock, a Performance Award or an Other Stock
Unit Award is granted to a Participant that such Participant is, or may be as of
the end of the tax year for which the Company would claim a tax deduction in
connection with such Award, a Covered Employee, then the Committee may provide
that this Article 24 is applicable to such Award under such terms as the
Committee shall determine.
(b) If an Award is subject to this Article 24, then the lapsing of
restrictions thereon and the distribution of cash, Shares or other property
pursuant thereto, as applicable, shall be subject to the Company having a level
of Net Income for the fiscal year preceding lapse or distribution set by the
Committee within the time prescribed by Section 162(m) of the Code or the
regulations thereunder in order for the level to be considered
"pre-established". The Committee may, in its discretion, reduce the amount of
any Performance Award or Other Stock Unit Award subject to this Article 24 at
any time prior to payment based on such criteria as it shall determine,
including but not limited to individual merit and the attainment of specified
levels of one or any combination of the following: net cash provided by
operating activities, earnings per Share from continuing operations, operating
income, revenues, gross margin, return on operating assets, return on equity,
economic value added, stock price appreciation, total shareowner return
(measured in terms of stock price appreciation and dividend growth), or cost
control, of the Company or the Subsidiary or division of the Company for or
within which the Participant is primarily employed.
(c) Notwithstanding any contrary provision of the Plan other than
Article 14, the Committee may not adjust upwards the amount payable pursuant to
any Award subject to this Article 24, nor may it waive the achievement of the
Net Income requirement contained in Article 24(b), except in the case of the
death or disability of a Participant.
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AVAYA INC. 2000 LONG TERM INCENTIVE PLAN
(d) Prior to the payment of any Award subject to this Article 24, the
Committee shall certify in writing that the Net Income requirement applicable to
such Award was met.
(e) The Committee shall have the power to impose such other
restrictions on Awards subject to this Article 24 as it may deem necessary or
appropriate to ensure that such Awards satisfy all requirements for
"performance-based compensation" within the meaning of Section 162(m)(4)(C) of
the Code, the regulations promulgated thereunder, and any successors thereto.
ARTICLE 21 - GOVERNING LAW
The Plan, and the validity and construction of any Awards granted hereunder
shall be governed by the laws of the State of Delaware.
IN WITNESS WHEREOF, the Company has caused this Plan, as amended, to be executed
on this ___ day of ________, 2000.
For Avaya Inc.
By: __________________________
Attest: __________________________
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1
DRAFT
EXHIBIT 10.7
AVAYA INC. 2000 LONG TERM INCENTIVE PROGRAM ("PLAN")
RESTRICTED STOCK UNIT AWARD AGREEMENT
<TABLE>
<CAPTION>
NAME SOCIAL SECURITY NO. GRANT DATE
<S> <C> <C>
<<FIRST_NAME>> <<LAST_NAME>> <<SSN>> <<GRANT_DATE>>
</TABLE>
Capitalized terms not otherwise defined herein shall have the same meanings as
in the Plan.
You have been granted as of the Grant Date set forth above, <<GRANT>> restricted
stock units ("Restricted Stock Units"). Upon termination of the restrictions
related thereto each Restricted Stock Unit will be converted into one common
share par value $.01 of Avaya ("Shares").
1. VESTING OF AWARD. The Restricted Stock Units shall vest and become
nonforfeitable on the following schedule; <<M_1st_vesting>> on
<<M_1st_Vest_Date>> AND <<M_2nd_Vesting>> on <<M_2nd_Vest_Date>> (the date on
which any Restricted Stock Unit vests being the "Vesting Date" for such
Restricted Stock Unit). The period beginning on the Grant Date hereof and ending
on the day prior to the Vesting Date for a Restricted Stock Unit is herein
referred to as the "Restriction Period" with respect to such Restricted Stock
Unit.
2. TERMINATION OF EMPLOYMENT. Upon termination of your employment for any reason
other than death or disability as described below, including without limitation,
retirement and termination as a result of your employer ceasing to be either
Avaya or an Affiliate, any Restricted Stock Units that are not vested shall be
forfeited. Transfer to or from Avaya and any Affiliate shall not be considered a
termination of employment for purposes of this Agreement. Nor shall it be
considered a termination of employment for purposes of this Agreement if you are
placed on a military leave or other approved leave of absence, unless the
Committee shall otherwise determine.
(a) DEATH - If you die during the Restriction Period, the Restricted Stock
Units will become nonforfeitable, the Restriction Period will end and the award
will be paid at time of termination as specified in Section 3.
(b) DISABILITY - Upon termination of your employment prior to the Vesting
Date as a result of your Disability (as defined below) this award will become
nonforfeitable, the Restriction Period will end and the award will be paid at
time of termination as specified in Section 3. "Disability" means termination of
employment under circumstances entitling you to one of the follow:
(i) Disability Pension under Avaya's Retirement Income Plan;
(ii) Disability Benefit under the Long Term Disability Plan for
Management Employees of Avaya;
(iii) Similar disability benefits under any plan of Avaya that is a
successor to or offered in substitution for one or more of the
foregoing plans; or
(iv) Disability benefits of a type similar to those described in (i)
through (iii) under any plan of an Affiliate that adopts
reasonable standards and criteria for benefit entitlement.
3. PAYMENT OF SHARES. As soon as practicable after termination of the
Restriction Period, the Company will deliver a certificate representing the
Shares being distributed to you or to your legal representative.
4. TRANSFERABILITY. You may not transfer, pledge, assign, sell or otherwise
alienate your Restricted Stock Units.
5. NO RIGHT OF EMPLOYMENT. Neither the Plan nor this Restricted Stock Unit Award
shall be construed as giving you the right to be retained in the employ of Avaya
or any Affiliate.
6. TAXES. Avaya shall deduct or cause to be deducted from, or collect or cause
to be collected with respect to, any distribution hereunder any federal, state,
or local taxes required by law to be withheld or paid with respect to such
distribution, and you or your legal representative or beneficiaries shall be
required to pay any such amounts. Avaya shall have the right to take such action
as may be necessary, in Avaya's opinion, to satisfy such obligations.
2
7. BENEFICIARY. You may, in accordance with procedures established by the
Committee, designate one or more beneficiaries to receive all or part of this
award in case of your death, and you may change or revoke such designation at
any time. Such designation shall not be effective unless and until the Senior
Vice President-
Human Resources shall determine, on advice of counsel, that resale of Shares by
your beneficiary(ies) does not require any registration, qualification, consent
or approval of any securities exchange or governmental or regulatory agency or
authority. In the event of your death, any portion of this Award that is subject
to such a designation (to the extent such designation is valid, effective and
enforceable under this Agreement and applicable law) shall be distributed to
such beneficiary or beneficiaries in accordance with this Agreement. Any other
portion of this Award shall be distributed to your estate. If there shall be any
question as to the legal right of any beneficiary to receive a distribution
hereunder, or to the extent your designation is not effective, such portion will
be delivered to your estate, in which event neither Avaya nor any Affiliate
shall have any further liability to anyone with respect to such award.
8. GOVERNING LAW. The validity, construction and effect of this Agreement shall
be determined in accordance with the laws of the State of Delaware without
giving effect to principles of conflicts of law.
Please indicate your acceptance of terms 1-8, and acknowledge that you have
received a copy of the Plan, as currently in effect, by signing at the place
provided and returning the original of this Agreement.
ACCEPTED AND AGREED: AVAYA INC.
--------------------------------------------------------------------------------
SIGNATURE BY
--------------------------------------------------------------------------------
SENIOR VICE PRESIDENT
1
EXHIBIT 10.8
DRAFT
AVAYA INC. 2000 LONG TERM INCENTIVE PLAN ("PLAN")
STOCK OPTION AGREEMENT
<TABLE>
<CAPTION>
Name Date of Grant
<S> <C>
<<First_Name>> <<Last_Name>> <<Grant_Date>>
</TABLE>
Capitalized terms not otherwise defined herein shall have the same meanings as
in the Plan.
Pursuant to the Plan, you have been granted as of the date hereof an option (the
"Option") to purchase from Avaya Inc. ("Avaya") <<Shares>> common shares, par
value $.01 of Avaya ("Shares") at the price of <<Grant_Price>> per Share,
subject to the terms and conditions of the Plan and to this agreement.
1. EXERCISABILITY OF OPTION. This Option may be exercised at any time prior to
its Expiration Date or cancellation as follows:
(a) 1/4th of the shares covered by this Option shall become exercisable on
the first anniversary of the Grant Date. 1/48th of the shares covered
by this Option shall become exercisable each month thereafter. The
number of shares that becomes exercisable on any date will be rounded
down to the next lowest whole number, and any fraction of a share
shall be added to the portion of the Option becoming exercisable the
following month.
(b) Upon the termination of your employment by reason of Retirement or
Disability, any portion of this Option which is then exercisable will
remain exercisable until the Expiration Date and any portion of this
Option which is not then exercisable will be canceled.
(c) Upon the termination of your employment by reason of death, any
portion of this Option which is not then exercisable will become
exercisable and, along with any portion of this Option which is then
exercisable, will remain exercisable until the Expiration Date.
(d) Upon the termination of your employment for Cause, this Option will be
canceled.
(e) Upon the termination of your employment as a result of a Company
Action, any portion of this Option equal to the greater of the portion
of the Option that is outstanding and exercisable without regard to
this clause (1)(e) or the Company Action Vesting Portion shall not be
forfeited and canceled and shall become immediately exercisable until
the earlier of the ninetieth day after termination of employment or
the original Expiration Date. The Company Action Vesting Portion shall
be determined by multiplying the number of shares of this Option by a
fraction, the numerator of which shall be equal to the completed
months since the date of the grant, and the denominator of which shall
be equal to the number of complete months in the vesting period of
this Option, and by subtracting from this product the number of shares
of this Option that were previously exercised, if any.
(f) Upon the termination of your employment for any reason other than
Retirement, death, Disability, Cause or Company Action, any portion of
this Option which is then exercisable will remain exercisable until
the earlier of the ninetieth day after termination of employment or
the original Expiration Date and any portion of this Option which is
not then exercisable will be canceled.
(g) It will not be considered a termination of your employment if you (i)
transfer to or from Avaya and any Affiliate or (ii) are placed on an
approved leave of absence. Unless otherwise determined by the
Committee, it will be considered a termination of employment if your
employer ceases to be Avaya or a Subsidiary.
2
2. DEFINITIONS.
(a) RETIREMENT. "Retirement" means termination of employment with Avaya or
any of its Affiliates under any of the following circumstances or
entitlements:
(i) Service Pension under the Avaya Retirement Income Plan as
defined in such plan;
(ii) Similar pension under any comparable plan or arrangement
with the Company or a Subsidiary; or
(iii) The sum of your years of service with the Company and your
age at retirement equals or exceeds seventy-five.
(b) DISABILITY. "Disability" means termination of employment under
circumstances where you qualify for and receive payments under a
long-term disability pay plan maintained by the Company or any
Subsidiary or as required by or available under applicable local law.
(c) CAUSE. "Cause" means:
(i) violation of Avaya's code of conduct;
(ii) conviction of (including a plea of guilty or nolo
contendere) of a felony or any crime of theft, dishonesty
or moral turpitude, or
(iii) gross omission or gross dereliction of any statutory or
common law duty of loyalty to Avaya.
3. TERM OF OPTION. The last day ("Expiration Date") you can exercise this
Option is the day preceding the tenth anniversary of the Date of Grant,
except as provided in Section 1 above.
4. EXERCISE PROCEDURE. You may exercise this Option only by delivering to
Avaya a notice in the form prescribed for this purpose. In order to
exercise the Option, or any portion thereof, you must also pay to Avaya the
exercise price in full, together with applicable withholding and/or other
taxes, in accordance with the operating rules of the Plan. Exercise of the
Option shall take effect on the date the notice of exercise is actually
received in accordance with procedures specified by Avaya.
5. ISSUANCE OF AVAYA SHARES. Following exercise of the Option, Avaya will
issue to you or your legal representative the number of Shares you
purchased under the Option. Neither you nor your legal representative shall
be, or have any of the rights and privileges of, a shareholder of Avaya in
respect of any Shares purchasable upon the exercise of this Option, in
whole or in part, unless and until such Shares shall have been issued.
6. REGULATORY APPROVALS. If the Senior Vice President - Human Resources or the
Vice President of Compensation, Benefits and Health Service of the Company,
or their successor, determines, on advice of counsel, that the listing,
registration or qualification of the Shares upon any securities exchange or
under any law, or the consent or approval of any governmental or regulatory
agency or authority, is necessary or desirable as a condition of, or in
connection with, the exercise of the Option, no portion of the Option may
be exercised until or unless such listing, registration, qualification,
consent or approval shall have been effected or obtained. The foregoing
shall not be construed as requiring any such listing, registration,
qualification, consent or approval.
7. GOVERNING LAW. The validity, construction and effect of this Agreement and
the Plan shall be determined in accordance with the laws of the State of
Delaware without giving effect to principles of conflicts of laws.
8. VALUE OF OPTION. Avaya makes no representation as to the value of this
Option or whether you will be able to realize any profit out of it.
Please indicate your acceptance of terms 1-8 hereof, and acknowledge that you
have received a copy of the Plan, as currently in effect, by signing at the
place provided and returning the original of this Agreement.
ACCEPTED AND AGREED: AVAYA INC.
--------------------------------------------------------------------------------
SIGNATURE SOCIAL SECURITY NO. BY:
--------------------------------------------------------------------------------
VICE PRESIDENT
1
EXHIBIT 10.9
AVAYA DEFERRED COMPENSATION PLAN
Effective October 1, 2000
Preamble
The Avaya Deferred Compensation Plan is intended to
constitute an unfunded, deferred compensation plan maintained primarily for a
select group of management or highly compensated employees and for members of
the Board of Directors who are not employees of the Company. The purpose of the
Plan is to provide a means by which eligible employees and non-employee
Directors may defer the receipt of certain forms of compensation while at the
same time giving the Company the present use of the compensation so deferred.
The Plan is intended to be an employee pension benefit plan within the meaning
of Section 3(2) of the Employee Retirement Income Security Act of 1974, as
amended. The Plan is not a qualified plan under Section 401(a) of the Internal
Revenue Code of 1986, as amended. Benefits under the Plan are paid directly by
the Company out of its general assets when due. The Plan is effective as of
October 1, 2000, and is a successor plan to the Lucent Technologies Inc.
("Lucent") Deferred Compensation Plan for the benefit of Eligible Members whose
employment was transferred from Lucent to the Company in connection with the
spinoff of the Company from Lucent, and for non-employee Directors of the
Company who were non-employee directors of Lucent prior to the spinoff of the
Company.
SECTION 1. DEFINITIONS.
As used in the Plan, the following terms shall have the
meanings set forth below:
(a) "Account" shall mean, for each Participant, such
Participant's Deferred Cash Equivalent Account and Deferred Share Equivalent
Account.
(b) "Administrator" shall mean the Vice President of Human
Resources of the Company.
(c) "Affiliate" shall mean (i) any Person that directly, or
through one or more intermediaries, controls, or is controlled by, or is under
common control with, the Company or (ii) any entity in which the Company has a
significant equity interest, as determined by the Committee.
(d) "Beneficiary Election" shall mean a written instrument, in
a form prescribed by the Administrator, relating to elections under Section 5.
2
AVAYA DEFERRED COMPENSATION PLAN
(e) "Board" shall mean the Board of Directors of the Company.
(f) "Change in Control" shall mean the happening of any of the
following events:
(1) An acquisition by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2)
of the Exchange Act) (an "Entity") of beneficial
ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 20% or more of
either (A) the then outstanding shares of common
stock of the Company (the "Outstanding Company Common
Stock") or (B) the combined voting power of the then
outstanding voting securities of the Company entitled
to vote generally in the election of directors (the
"Outstanding Company Voting Securities"); excluding,
however, the following: (1) any acquisition directly
from the Company, other than an acquisition by virtue
of the exercise of a conversion privilege unless the
security being so converted was itself acquired
directly from the Company, (2) any acquisition by the
Company, (3) any acquisition by any employee benefit
plan (or related trust) sponsored or maintained by
the Company or any corporation controlled by the
Company, or (4) any acquisition by any corporation
pursuant to a transaction which complies with clauses
(A), (B) and (C) of subsection (3) of this Section
1(f); or
(2) A change in the composition of the Board during any
two year period such that the individuals who, as of
the beginning of such two year period, constitute the
Board (such Board shall be hereinafter referred to as
the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board;
provided, however, that for purposes of this
definition, any individual who becomes a member of
the Board subsequent to the beginning of the two year
period, whose election, or nomination for election by
the Company's shareowners, was approved by a vote of
at least a majority of those individuals who are
members of the Board and who were also members of the
Incumbent Board (or deemed to be such pursuant to
this proviso) shall be considered as though such
individual were a member of the Incumbent Board; and
provided, further however, that any such individual
whose initial assumption of office occurs as a result
of or in connection with either an actual or
threatened election contest (as such terms are used
in Rule 14a-11 of Regulation 14A promulgated under
the Exchange Act) or other actual or threatened
solicitation of proxies or consents by or
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3
AVAYA DEFERRED COMPENSATION PLAN
on behalf of an Entity other than the Board shall not
be so considered as a member of the Incumbent Board;
or
(3) The approval by the shareowners of the Company of a
merger, reorganization or consolidation or sale or
other disposition of all or substantially all of the
assets of the Company (each, a "Corporate
Transaction") or, if consummation of such Corporate
Transaction is subject, at the time of such approval
by shareowners, to the consent of any government or
governmental agency, the obtaining of such consent
(either explicitly or implicitly by consummation);
excluding however, such a Corporate Transaction
pursuant to which (A) all or substantially all of the
individuals and entities who are the beneficial
owners of the Outstanding Company Common Stock and
Outstanding Company Voting Securities immediately
prior to such Corporate Transaction will beneficially
own, directly or indirectly, more than 60% of the
outstanding shares of common stock, and the combined
voting power of the then outstanding voting
securities entitled to vote generally in the election
of directors of the corporation resulting from such
Corporate Transaction (including, without limitation,
a corporation or other Person which as a result of
such transaction owns the Company or all or
substantially all of the Company's assets either
directly or through one or more subsidiaries (a
"Parent Company")) in substantially the same
proportions as their ownership, immediately prior to
such Corporate Transaction, of the Outstanding
Company Common Stock and Outstanding Company Voting
Securities, (B) no Entity (other than the Company,
any employee benefit plan (or related trust) of the
Company, such corporation resulting from such
Corporate Transaction or, if reference was made to
equity ownership of any Parent Company for purposes
of determining whether clause (A) above is satisfied
in connection with the applicable Corporate
Transaction, such Parent Company) will beneficially
own, directly or indirectly, 20% or more of the
outstanding shares of common stock of the corporation
resulting from such Corporate Transaction or the
combined voting power of the outstanding voting
securities of such corporation entitled to vote
generally in the election of directors unless such
ownership resulted solely from ownership of
securities of the Company prior to the Corporate
Transaction, and (C) individuals who were members of
the Incumbent Board will immediately after the
consummation of the Corporate Transaction constitute
at least a majority of the members of the board of
directors of the corporation resulting from such
Corporate Transaction (or, if reference was made to
equity ownership of any Parent Company for purposes
of
-3-
4
AVAYA DEFERRED COMPENSATION PLAN
determining whether clause (A) above is satisfied in
connection with the applicable Corporate Transaction,
of the Parent Company); or
(4) The approval by the shareowners of the Company of a
complete liquidation or dissolution of the Company.
(g) "Change in Control Election" shall mean a written
instrument, in a form prescribed by the Administrator, relating to elections
under Section 7.
(h) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(i) "Committee" shall mean the Corporate Governance and
Compensation Committee of the Board (or any successor committee).
(j) "Company" shall mean Avaya Inc.
(k) "Deferral Election" shall mean a written election, in a
form prescribed by the Administrator, to defer receipt of Incentive Awards,
Retainer Payments or salary otherwise payable to a Participant.
(l) "Deferred Cash Equivalent Account" shall mean a book-entry
account in the name of a Participant maintained in the Company's records with
entries denominated in dollars.
(m) "Deferred Share Equivalent Account" shall mean a
book-entry account in the name of a Participant maintained in the Company's
records with entries denominated in Share equivalents.
(n) "Director" shall mean any non-employee member of the
Board.
(o) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
(p) "Eligible Member" shall mean an Officer, a Director, Other
Participant or a participant in either Predecessor Plan or another person or
group of employees who is designated by the Administrator as an Eligible Member.
(q) "Fiscal Year" shall mean the period commencing October 1
and ending on the next succeeding September 30, or such other period as the
Company may from time to time adopt as its fiscal year.
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AVAYA DEFERRED COMPENSATION PLAN
(r) "Incentive Award" shall mean any award under the Short
Term Plan, any other bonus payment, any performance awards, stock unit awards or
other awards under the 1996 Program (other than options) and any dividend
equivalent payment under the 1996 Program.
(s) "NYSE" shall mean the New York Stock Exchange, Inc.
(t) "Officer" shall mean any employee of the Company or any of
its Affiliates holding a position evaluated or classified above the executive
("E-band") level or its equivalent, and identified in the Company's records as
an officer of the Company (including an Officer who was a participant in any
Predecessor Plan).
(u) "Other Participant" shall mean any employee of the Company
or any of its Affiliates (1) holding a position evaluated or classified at or
above the "D-Band" level or its equivalent, and identified in the Company's
records as affected by the limitations on covered compensation described in
Section 401(a)(17) of the Code or the limitations on benefits described in
Section 415 of the Code or who has an Account with a positive balance, or (2)
holding a position evaluated or classified at or above the "E-Band" level or its
equivalent, in either case, only if the Administrator determines that such group
of employees shall be eligible to participate in the Plan.
(v) "Participant" shall mean an Eligible Member who delivers a
Deferral Election to the Company or who received a Savings Plan Make-Up Credit
under a Predecessor Plan. A person shall not cease being a Participant if the
person ceases being an Eligible Member, if the person has an Account with a
positive balance.
(w) "Participating Company" shall mean the Company and any of
its Affiliates.
(x) "Payment Election" shall have the meaning set forth in
Section 6(a).
(y) "Person" shall mean any individual, corporation,
partnership, association, joint-stock company, trust, unincorporated
organization, limited liability company, other entity or government or political
subdivision thereof.
(z) "Plan" shall mean this Avaya Deferred Compensation Plan.
(aa) "Plan Year" shall mean each twelve (12) consecutive month
period commencing January 1 and ending on December 31 of the same calendar year.
(bb) "Potential Change in Control" shall mean:
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AVAYA DEFERRED COMPENSATION PLAN
(1) the commencement of a tender or exchange offer by any
third person which, if consummated, would result in a
Change in Control;
(2) the execution of an agreement by the Company, the
consummation of which would result in the occurrence
of a Change in Control;
(3) the public announcement by any person (including the
Company) of an intention to take or to consider
taking actions which if consummated would constitute
a Change in Control other than through a contested
election for directors of the Company; or
(4) the adoption by the Board, as a result of other
circumstances, including, without limitation,
circumstances similar or related to the foregoing, of
a resolution to the effect that a Potential Change in
Control has occurred.
A Potential Change in Control shall be deemed to be pending until the earliest
of (i) the second anniversary thereof, (ii) the occurrence of a Change in
Control and (iii) the occurrence of a subsequent Potential Change in Control.
(cc) "Predecessor Plans" shall mean the Lucent Technologies
Inc. Deferred Compensation Plan, the Lucent Technologies Inc. Officer Incentive
Award Deferral Plan and the Lucent Technologies Inc. Deferred Compensation Plan
for Non-Employee Directors.
(dd) "Retainer Payments" shall mean any amounts payable to a
Director for service as a Director.
(ee) "Savings Plan" shall mean the Lucent Savings Plan.
(ff) "Savings Plan Make-Up Credit" shall mean, for any
Eligible Member, and for any Plan Year ended before January 1, 2000, an amount
equal to the excess, if any, of the value of the contribution that would have
been made by the Company for the applicable Plan Year on behalf of the Eligible
Member under Section 4.4 of the Savings Plan or any similar provision under any
similar plan of Lucent, without regard to any limitation imposed by Sections
401(a)(17), 401(m)(2)(A) or 415 of the Code, over the contribution actually made
to the Savings Plan pursuant to such Section 4.4, or to such other plan pursuant
to such similar provision, for the applicable Plan Year.
(gg) "Shares" shall mean the shares of common stock, $.01 par
value, of the Company.
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AVAYA DEFERRED COMPENSATION PLAN
(hh) "Short Term Plan" shall mean the Avaya Short Term
Incentive Plan.
SECTION 2. DEFERRAL ELECTIONS.
(a) DELIVERY AND EFFECTIVENESS OF DEFERRAL ELECTIONS. A
Participant may elect to defer receipt of Incentive Awards, Retainer Payments or
salary otherwise payable to the Participant in future Fiscal Years by delivering
a Deferral Election to the Participant's employing Participating Company not
later than June 30 preceding the Fiscal Year in which the Deferral Election is
to become effective or such other time as the Administrator shall determine. A
Deferral Election shall become irrevocable for a Fiscal Year at the end of the
last day of the preceding Fiscal Year or, if later, on the date made. A deferral
election under a Predecessor Plan that has not been terminated shall be deemed a
Deferral Election for purposes of the Plan. During the period that a Deferral
Election is effective, the Participant shall not be entitled to receive
currently payments covered by such Deferral Election. The Company shall instead
make credits to the Participant's Account in accordance with Section 3.
(b) CONTENTS OF DEFERRAL ELECTIONS. Each Deferral Election
shall specify the types of compensation which shall be subject to such Deferral
Election and the effective date of the Deferral Election and shall contain the
Participant's Payment Election. A Deferral Election may also contain the date on
which the Deferral Election is to terminate.
(c) MODIFICATION AND RENEWAL OF DEFERRAL ELECTIONS. A Deferral
Election shall remain effective until the Participant terminates or modifies
such election by written notice to the Company. Any such termination or
modification shall become effective immediately following the end of the Fiscal
Year in which such notice is given. A Participant who has terminated a Deferral
Election may, so long as such Participant remains an Eligible Member or has an
Account with a positive balance, thereafter file a new Deferral Election in
accordance with Section 2(a).
(d) DEFERRAL OF INCENTIVE AWARDS. A Deferral Election may
relate to all or any portion of the Incentive Awards otherwise payable to a
Participant. If the amount of the part of any Incentive Award (other than
dividend equivalent payments) subject to a Deferral Election is less than $1,000
(based on a valuation at the time the award would otherwise be paid), that
Incentive Award will be paid currently and no credit relating to such Incentive
Award will be made under the Plan.
(e) DEFERRAL OF SALARY. A Deferral Election may relate to all
or part of a Participant's salary; provided, however, that a Participant may not
elect to defer salary in any Fiscal Year unless the Participant has elected to
defer all of his or her awards under the Short Term Plan and any other bonus
payments for such Fiscal Year.
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AVAYA DEFERRED COMPENSATION PLAN
(f) DEFERRAL OF RETAINER PAYMENTS. A Director's Deferral
Election may relate to all or part of the Retainer Payments otherwise payable to
the Director. Notwithstanding Section 2(a), a newly-elected Director may deliver
a Deferral Election to the Company within 30 days after his or her election,
which Deferral Election shall be effective for all Retainer Payments after the
date on which the Deferral Election is delivered to the Company.
SECTION 3. PARTICIPANT ACCOUNTS.
(a) DEFERRED CASH EQUIVALENT ACCOUNT. (i) There shall be
credited to a Participant's Deferred Cash Equivalent Account the following:
(A) portions of Incentive Awards otherwise payable in
cash and for which a Deferral Election specifies
crediting under the Plan;
(B) that portion of a Director's Retainer Payment for
which a Deferral Election specifies crediting to the
Participant's Deferred Cash Equivalent Account;
(C) amounts related to salary for which a Deferral
Election specifies crediting under the Plan;
(D) amounts previously deferred into cash equivalent
accounts under the Predecessor Plans and credited
under this Plan, and
(E) Savings Plan Make-Up Credits made for periods ended
before January 1, 2000. No Savings Plan Make-Up
Credit shall be made for any period beginning after
December 31, 1999.
(ii) Amounts credited to the Participant's Deferred Cash
Equivalent Account shall bear interest as provided in Section 4 from the date
the Incentive Award, Retainer Payment, salary or Savings Plan Make-Up Credits
would otherwise have been paid to the Participant or paid or credited to the
Savings Plan, as applicable. Interest shall be credited to Deferred Cash
Equivalent Accounts at the end of each fiscal quarter of the Company.
(b) DEFERRED SHARE EQUIVALENT ACCOUNT. (i) There shall be
credited to a Participant's Deferred Share Equivalent Account the following:
(A) portions of Incentive Awards otherwise payable in
Shares and for which a Deferral Election specifies
crediting under the Plan;
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AVAYA DEFERRED COMPENSATION PLAN
(B) that portion of a Director's Retainer Payment for
which a Deferral Election specifies crediting to the
Participant's Deferred Share Equivalent Account; and
(C) amounts previously deferred into share equivalent
accounts under the Predecessor Plans and credited
under this Plan.
(ii) Cash amounts credited to a Participant's Deferred Share
Equivalent Account shall be converted to the number of Share equivalents
determined by dividing such cash amount by the Conversion Price. In addition,
the Participant's Deferred Share Equivalent Account shall be credited on each
dividend payment date for Shares, with an amount equal to the number of Shares
that could be purchased at the Conversion Price with dividends that would have
been payable on the number of Shares equal to the number of Share equivalents in
the Participant's Deferred Share Equivalent Account on the record date for such
dividend. "Conversion Price" means the average of the daily high and low sale
prices of Shares on the NYSE for the period of five trading days ending on the
date such amount otherwise would have been paid to the Participant or, in the
case of a dividend equivalent, on the dividend payment date, or the period of
five trading days immediately preceding such applicable date if the NYSE is
closed on such applicable date.
(iii) In the event of any change in outstanding Shares by
reason of any stock dividend or stock split, recapitalization, merger,
consolidation, combination or exchange of shares or other similar corporate
change, the Board shall make such adjustments, if any, that it deems appropriate
in the number of Share equivalents then credited to Participants' Deferred Share
Equivalent Accounts. Any and all such adjustments shall be within the sole
discretion of the Board and its decision in regard to such adjustments shall be
conclusive, final and binding upon all parties concerned.
SECTION 4. DEFERRED CASH EQUIVALENT ACCOUNT INTEREST RATE.
(a) INTEREST RATE GENERALLY. The interest rate to be accrued
on a Participant's Deferred Cash Equivalent Account shall be such rate as is
determined, from time to time, by the Board. Such rate may be applied by the
Board to a Participant's existing balance in a Deferred Cash Equivalent Account
or to amounts subsequently credited to such Participant's Account. The
determination by the Board pursuant to this Section 4 shall be within its sole
discretion and its decision shall be conclusive, final and binding upon all
parties concerned.
(b) INTEREST RATE FOLLOWING TERMINATION WITHOUT THE COMPANY'S
CONSENT. Notwithstanding Section 4(a), with respect to amounts credited to the
Deferred Cash Equivalent Accounts of Officers and Other Participants who
terminate employment (other than by death or disability) under circumstances
that the
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AVAYA DEFERRED COMPENSATION PLAN
Administrator determines are not in the interests of the Company, the effective
annual rate of interest following the date of such termination of employment
shall be the one-year U.S. Treasury note rate.
SECTION 5. PAYMENTS FOLLOWING DEATH.
(a) FORM OF PAYMENT. A Participant may deliver a Beneficiary
Election to the Administrator electing that, in the event the Participant should
die before full payment of all amounts credited to the Participant's Account,
the balance of the Account shall be distributed in one payment or in some other
number of approximately equal annual installments (not exceeding five (5)) to
the person(s) designated in the Beneficiary Election. In the event that a
Participant fails to designate such a beneficiary, or the beneficiary(ies)
predecease(s) him, payment following the death of the Participant shall be made
to the Participant's surviving spouse or, if there is no surviving spouse, to
the Participant's estate. The first installment (or the single payment if the
Participant has so elected) shall be paid on the first day of the calendar
quarter next following the month of death; provided, however, that the
Administrator may, in his or her sole discretion, direct that the first
installment (or the single payment) shall be paid on the first day of the Fiscal
Year next following the date of death.
(b) CHANGE OF BENEFICIARY DESIGNATION. The elections referred
to in Section 5(a), including the designation of a beneficiary or beneficiaries,
may be changed by a Participant at any time by delivering a new Beneficiary
Election to the Administrator.
SECTION 6. PAYMENTS.
(a) COMMENCEMENT OF BENEFITS. (i) At the time a Participant
makes a Deferral Election, the Participant shall also make an election under
Section 6(a)(ii) with respect to the distribution of the amounts credited to
such Participant's Account pursuant to such Deferral Election (each such
election, a "Payment Election"). Any similar election related to the
distribution of deferred amounts under the Predecessor Plans which has not been
modified or terminated shall be deemed a Payment Election under this Plan. A
Participant may, at any time earlier than twelve (12) months prior to the date
on which a distribution of a portion (or all) of a Participant's Account would
commence under the terms of such Payment Election, submit a written election to
the Company (hereinafter a "Redeferral Election") requesting that (A) the
initial distribution date be further deferred, (B) the type of payment initially
elected under Section 6(c)(i) be changed from a lump sum to annual installments,
or (C) the payment period initially elected be extended (but not beyond the
period permitted in Section 6(c)(i).). With respect to each Payment Election, a
participant may make a single Redeferral Election addressing one or more of the
initial distribution date, the type of payment, or the
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AVAYA DEFERRED COMPENSATION PLAN
payment period, and the Redeferral Election shall supersede the Payment Election
and be irrevocable upon delivery to the Administrator.
(ii) Each Payment Election shall specify whether payments
related to Account balances other than Savings Plan Make-Up Credits shall
commence (i) on the first day of the calendar quarter next following the month
in which the Participant attains the age specified in such election, which age
shall not be earlier than 55 or later than 70, (ii) on the first day of the
calendar quarter next following the month in which the Participant retires from
a Participating Company or otherwise terminates employment (including
termination of service as a member of the Board) with any Participating Company
(except for a transfer to another Participating Company); provided, however,
that the Administrator may, in his or her sole discretion, direct that the
Participant's benefits shall commence on the first day of the Fiscal Year next
following the date of retirement or other termination of employment, or (iii) on
the first day (the "First Day") of the calendar year next following the calendar
year in which the Participant retires from a Participating Company or otherwise
terminates employment (including termination of service as a member of the
Board) with any Participating Company (except for a transfer to another
Participating Company) ; provided, however, that the Administrator may, in his
or her sole discretion, direct that the Participant's benefits shall commence on
the first day of the Fiscal Year next following the First Day.
(iii) Notwithstanding the foregoing, amounts credited to a
Participant's Account as Savings Plan Make-Up Credits or earnings thereon shall
be distributed in one payment following the Participant's termination of
employment.
(b) FORM OF DISTRIBUTIONS. Amounts credited to a Participant's
Deferred Cash Equivalent Account shall be distributed in cash. Amounts credited
to a Participant's Deferred Share Equivalent Account as Share equivalents shall
be distributed in the form of an equal number of Shares, with fractional shares
being paid in cash.
(c) PAYMENT PERIOD. (i) A Participant may elect in a Payment
Election to receive the amounts credited to the Participant's Account other than
Savings Plan Make-Up Credits in one payment or in some other number of
approximately equal annual installments (not exceeding ten (10) or such longer
period as approved by the Committee, in individual cases), provided, however,
that the number of annual installments may not extend beyond the life expectancy
of the Participant, determined as of the date the first installment is paid.
(ii) Installments subsequent to the first installment to the
Participant, or to a beneficiary or to the Participant's estate, shall be paid
on the first day of the applicable calendar quarter in each succeeding calendar
year until the entire amount credited to the Participant's Account shall have
been paid. Prior to distribution, Accounts shall continue to receive credits
under Section 3(a)(ii) and Section 3(b)(ii).
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AVAYA DEFERRED COMPENSATION PLAN
(d) ACCELERATION OF PAYMENT FOR SEVERE FINANCIAL HARDSHIP. In
the event a Participant, or the Participant's beneficiary after the
Participant's death, incurs a severe financial hardship, the Administrator may,
in his or her sole discretion, accelerate or otherwise revise the payment
schedule for the Participant's Account to the extent reasonably deemed necessary
to eliminate or alleviate the severe financial hardship. For the purpose of this
Section 6(d) a severe financial hardship must have been caused by an accident,
illness or other event beyond the control of the Participant or, if applicable,
the beneficiary.
(e) IMMEDIATE DISTRIBUTION OF DEFERRED CASH EQUIVALENT ACCOUNT
BALANCE. A Participant may at any time elect to receive a distribution of all or
any portion of the balance in his or her Deferred Cash Equivalent Account.
Amounts credited to Deferred Share Equivalent Accounts shall not be available
for distribution under this Section 6(e). Requests for distributions shall be
submitted in writing (on a form prescribed by the Administrator for such
purpose) to the Administrator. Distributions from the Participant's Deferred
Cash Equivalent Account pursuant to this Section 6(e) will at all times be
subject to (i) reduction for applicable tax withholdings pursuant to Section
9(h), and (ii) a reduction in the amount paid equal to six percent (6%) of the
amount requested. Distributions pursuant to this Section 6(e) shall be payable
in a single lump sum, in cash, within thirty (30) days of submission of the
completed form.
(f) IMMEDIATE DISTRIBUTION OF ACCOUNT BALANCE FOLLOWING
CERTAIN TERMINATIONS OF EMPLOYMENT. Notwithstanding any contrary election
pursuant to this Section 6, the entire amount then credited to a Participant's
Account shall be paid immediately in a single payment (A) if the Participant is
discharged for cause by his or her Participating Company, (B) if the
Administrator determines that the Participant engaged in misconduct in
connection with the Participant's employment with the Participating Company, (C)
if the Participant terminates employment under circumstances that the
Administrator determines are not in the interest of the Company, or (D) if the
Participant without the consent of the board of directors of his or her
Participating Company, during either the Participant's period of employment with
a Participating Company or the nine (9) month period following termination for
any reason of the Participant's employment with a Participating Company, on
behalf of any competitor of the Company (x) renders any services relating to:
(1) strategic planning, research and development, manufacturing, marketing, or
selling with respect to any product, process, material or service which
resembles, competes with, or is the same as a product, process, material or
service of the Company about which the Participant gained any proprietary or
confidential information or on which the Participant worked during the three (3)
years prior to termination of employment, or (2) any actual or potential
customer of Lucent about whom the Participant gained any proprietary or
confidential knowledge or with whom the Participant worked during the three (3)
years
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AVAYA DEFERRED COMPENSATION PLAN
prior to termination of employment, or (y) solicits or offers, or induces or
encourages others to solicit or offer, employment to any employee of the
Company.
SECTION 7. CHANGE IN CONTROL.
(a) Notwithstanding any Payment Election, the aggregate amount
credited to a Participant's Account shall be paid in one lump-sum payment as
soon as practicable following a Change in Control, but in no event later than 90
days after such Change in Control.
(b) A Participant may, prior to the beginning of the Fiscal
Year in which a Change in Control happens, deliver an election to the
Administrator specifying that the aggregate amount credited to the Participant's
Account be paid in accordance with the Participant's Payment Election or
Redeferral Election in effect as of the date of such Change in Control.
SECTION 8. ADMINISTRATION.
(a) ADMINISTRATION. The Administrator shall have the authority
to administer and to interpret the Plan.
(b) RESPONSIBILITIES AND POWERS OF THE ADMINISTRATOR. In
administering the Plan, the Administrator shall have the following
responsibilities:
(1) To administer the Plan in accordance with the terms
hereof, and to exercise all powers specifically
conferred upon the Administrator hereby or necessary
to carry out the provisions hereof;
(2) To construe this Plan, which construction shall be
conclusive, correct any defects, supply omissions,
and reconcile inconsistencies to the extent necessary
to effectuate the Plan;
(3) To determine in his or her sole discretion the amount
of benefits payable to Participants under the Plan.
Any interpretation or determination made by the Plan
Administrator pursuant to its discretionary authority
shall be final and binding on the Company, any
Participant, and any other affected party; and
(4) To keep all records relating to Participants and such
other records as are necessary for proper operation
of the Plan.
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AVAYA DEFERRED COMPENSATION PLAN
(c) ACTIONS OF THE ADMINISTRATOR. In carrying out the
responsibilities set forth in Section 8(b):
(1) The Administrator may adopt rules and regulations
necessary for the administration of the Plan which
are consistent with the provisions hereof.
(2) All acts and decisions of the Administrator shall
apply uniformly to all Participants in like
circumstances. Written records shall be kept of all
acts and decisions.
(3) The Administrator may delegate, in writing, any of
his or her responsibilities and powers with respect
to the Plan to another individual or individuals.
(d) PROFESSIONAL ASSISTANCE. The Administrator shall have the
right to hire, at the expense of the Company, such professional assistants and
consultants as he or she, in his or her sole discretion, deems necessary or
advisable, including but not limited to accountants, actuaries, consultants,
counsel and such clerical assistance as is necessary for proper discharge of his
or her duties hereunder.
SECTION 9. MISCELLANEOUS.
(a) BENEFITS PAYABLE BY THE COMPANY. All benefits payable
under this Plan constitute an unfunded obligation of the Company. Payments shall
be made, as due, from the general funds of the Company or, in the case of Share
payments, from newly issued Shares, Shares purchased in the market, treasury
Shares or otherwise. The Company may, at its option, maintain one or more
bookkeeping reserve accounts to reflect its obligations under the Plan and may
make such investments as it may deem desirable to assist it in meeting its
obligations. Any such investments shall be assets of the Company subject to the
claims of its general creditors. No person eligible for a benefit under this
Plan shall have any right, title to, or interest in any such investments.
Nothing contained in this Section 9(a) shall limit the ability of the Company to
pay benefits through one or more grantor trusts as provided in Section 9(b).
Participants are general, unsecured creditors of the Company. This Plan
constitutes a mere promise to pay benefits in the future.
(b) GRANTOR TRUSTS. (i) The Company shall create a grantor
trust or utilize an existing grantor trust to assist it in accumulating the
shares of Common Stock and cash needed to fulfill its obligations under this
Plan to Directors (including former Directors), to which it shall be obligated
to make contributions, no later than the date upon which any Potential Change in
Control occurs, of a number of Shares and an amount of cash such that the assets
of such trust are sufficient to discharge all of the
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AVAYA DEFERRED COMPENSATION PLAN
Company's obligations under this Plan to Directors (including former Directors)
accrued as of the date of the Potential Change in Control. While a Potential
Change in Control is pending and after any Change in Control, the Company shall
be obligated to make additional contributions at least once each fiscal quarter
to the extent necessary to ensure that the assets of such trust remain
sufficient to discharge all such obligations accrued as of the last day of such
fiscal quarter. If a Potential Change in Control occurs but ceases to be pending
without the occurrence of a Change in Control or a subsequent Potential Change
in Control then the Company shall be permitted (but not required) to cause the
trustee of such trust to distribute any or all of the assets of the Trust to the
Company.
(ii) The Company may create a grantor trust or utilize an
existing grantor trust to assist it in accumulating the Shares and cash needed
to fulfill its obligations under this Plan to Participants who are not Directors
(or former Directors). The Board shall determine whether it is necessary or
desirable to create such a trust and to deposit Shares and cash in such trust to
enable the Company to meets its obligations under this Plan and the extent of
any such deposit to such trust.
(iii) Participants shall have no beneficial or other interest
in any trust referred to in this Section 9(b) and the assets thereof, and their
rights under the Plan shall be as general creditors of the Company, unaffected
by the existence of any trust, except that payments to Participants from any
such trust shall, to the extent thereof, be treated as satisfying the Company's
obligations under this Plan.
(c) OBLIGATION FOR PAYMENT OF BENEFITS. The obligation to make
a distribution of amounts credited to a Participant's Account shall be borne by
the Participating Company which otherwise would have paid such amounts
currently. However, the obligation to make a distribution with respect to
Accounts which are related to amounts credited under a Predecessor Plan, and
with respect to which no Participating Company would otherwise have paid the
related award or deferred amount currently, shall be borne by the Participating
Company to which the Participant was assigned on October 1, 2000.
(d) AMENDMENT OR TERMINATION. (i) The Board may amend the Plan
or terminate the Plan at any time, but such amendment or termination shall not
adversely affect the rights of any Participant, without his or her consent, to
any benefit under the Plan to which such Participant may have previously become
entitled prior to the effective date of such amendment or termination. The
Administrator with the concurrence of the General Counsel of the Company or his
delegate shall be authorized to make minor or administrative changes to the
Plan, as well as amendments required by applicable federal or state law (or
authorized or made desirable by such statutes). Any amendment to the Plan by the
Board shall be made in writing, with or without a meeting, or shall be made in
writing by the Administrator, to the extent of the aforementioned authorization.
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AVAYA DEFERRED COMPENSATION PLAN
(ii) If the Plan is terminated, a valuation shall be made of
each Participant's Account balance as of the Plan termination date. The amount
of such Account balance shall be payable to the Participant at the time it would
have been payable under Section 5 and Section 6 had the Plan not been
terminated; provided, however, that the Committee may elect instead to
immediately distribute all Participants' Account balances in lump sums upon
termination of the Plan.
(e) ENTIRE AGREEMENT. This Plan constitutes the entire
agreement of the Company with respect to the benefits provided herein and cannot
be modified orally or in any writing other than as set forth in Section 9(d).
(f) PAYMENTS TO INCOMPETENTS. If a Participant entitled to
receive any benefits hereunder is adjudged to be legally incapable of giving
valid receipt and discharge for such benefits, they will be paid to the duly
appointed guardian of such Participant or to such other legally appointed person
as the Administrator may designate. Such payment shall, to the extent made, be
deemed a complete discharge of any liability for such payment under the Plan.
(g) BENEFITS NOT TRANSFERABLE. The right of any person to any
benefit or payment under the Plan shall not be subject to voluntary or
involuntary transfer, alienation or assignment and, to the fullest extent
permitted by law, shall not be subject to attachment, execution, garnishment,
sequestration or other legal or equitable process. In the event a person who is
receiving or is entitled to receive benefits under the Plan attempts to assign,
transfer or dispose of such right, or if an attempt is made to subject said
right to such process, such assignment, transfer, or disposition shall be null
and void.
(h) TAX WITHHOLDING. The Company is authorized to withhold
from any Account or payment due under the Plan the amount of applicable
withholding taxes in respect of such payment or Account and to take such other
action as may be necessary in the opinion of the Company to satisfy all
obligations for the payment of such federal, state or other governmental entity
tax obligation.
(i) GOVERNING LAW. The provisions of the Plan shall be
construed in accordance with the laws of the State of Delaware.
IN WITNESS WHEREOF, the Company has caused this Plan, as
amended, to be executed effective the 1st day of October, 2000.
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AVAYA DEFERRED COMPENSATION PLAN
AVAYA INC.
By: __________________________
Attest: __________________________
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1
EXHIBIT 10.10
August 8, 1995
Mr. Donald K. Peterson
11 Breckenridge
Nashville, TN 37215
Dear Don,
This offer letter completely replaces my offers of employment dated July
28 and August 2, 1995 and supersedes all other oral and written communications
on this subject.
It gives me great pleasure to offer you a Senior Management position
within AT&T (the Company). In addition to confirming my offer, this letter will
detail the terms and conditions of your employment and outline the current
major features of AT&T's compensation and benefit plans and practices.
Assumption of Duties: Effective on or about September 1, 1995, you will
assume the position of CFO within the Communications Services with a dual
reporting relationship to Alex Mandl, Executive Vice President AT&T and CEO
Communications Services Group and to Rick Miller, Executive Vice President AT&T
and Chief Financial Officer.
Base Salary: Your initial base salary will be $325,000 per year. This rate
will increase annually to reflect individual performance and base salary
structure changes applicable to similarly situated Senior Managers. Your first
review for your base salary level will be effective January 1996.
2
Annual Incentive: The annual incentives for Senior Managers currently
take the form of (1) AT&T Performance Award (APA), (2) Merit Award (MA), and (3)
Unit Performance Award (UPA).
(1) AT&T Performance Award (APA) is predicated on corporate
performance.
(2) Merit Award (MA) is driven by individual and team
contributions.
(3) Unit Performance Award (UPA) is predicated on your
organization meeting its financial targets.
Except as reflected below in the "Guaranteed 1995 Annual Incentive"
provision, the Company cannot make any definitive representations regarding the
continuation of the APA/MA/UPA format or the size of individual awards under
these plans. The following information, however, will provide a frame of
reference regarding the potential size of your annual incentive. Based on your
initial base salary, your 1995 target (not actual) APA/MA is $113,000 and your
target (not actual) UPA is $61,000. These awards are payable in the first
quarter of 1996 and will be prorated to reflect partial 1995 service.
Guaranteed 1995 Annual Incentive Amount: In the event that your earned prorated
1995 APA/MA/UPA (see above provision) is less than $58,000 (assuming a September
1, 1995 start date), you will be provided a lump sum that, when combined with
your actual earned APA/MA/UPA, will total $58,000. In the event that your earned
prorated 1995 APA/MA/UPA is higher than $58,000, you would receive that higher
amount and no lump sum would be payable under this Guaranteed 1995 Annual
Incentive Amount provision.
It is understood that this minimum guaranteed incentive award for performance
year 1995 shall not in any way be construed as a precedent for future
performance years.
AT&T Long Term Incentives:
--AT&T Performance Shares: Effective on your date of hire, you will receive
2,366 AT&T Performance Shares covering the 1995-97 performance period (payout,
if any, is in the first quarter of 1998). This is the 1995 standard grant for
your Senior Management position. Historically, such awards have been made
annually. Performance shares, which are equivalent in value to AT&T common
shares, are awarded based on position rate at the beginning of a three-year
performance period. Payout of from 0% to 150% of such Performance Shares is made
in the form of cash and/or AT&T shares at
3
the end of the performance period based on the Company's return to equity
performance as approved annually by the Board of Directors. Dividend equivalents
are paid quarterly on all undistributed Performance Shares.
--AT&T Stock Options: Effective on the date of your hire, you will be awarded
8,256 AT&T Stock Options. This is the 1995 standard grant for your Senior
Management position. Historically, standard stock option grants have been made
in
January of each year to Senior Managers. Currently, the term of the stock
option grant is ten years. Assuming continued Company employment, stock
options vest as follows: one-third of the options will vest on the first
anniversary of the date of grant, one-third on the second anniversary,
and
one-third on the third anniversary of the date of grant. The option price
is 100% of market price on date of grant, e.g., your date of hire for the
1995 award. As with the Annual Incentive Awards, Long Term Incentives are
closely liked with the Company's strategy to meet the challenges of an ever
changing marketplace. Accordingly, other than the initial grant, 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.
Hiring Bonus: In order to address certain forfeitures, (e.g., Stock Options)
prompted by leaving your current employer and to incent you to join AT&T, the
Company will provide you with the following:
(I) You will be granted the following "Seasoned" AT&T Performance Shares under
the Company's Long Term Incentive Program:
-- 2,366 AT&T Performance Shares (1993-95 Performance Period, payable in 1996)
-- 2,366 AT&T Performance Shares (1994-96 Performance Period, payable in 1997)
Dividend equivalent payments will be made on the above Performance Share awards.
(II) You will be provided a one-time cash hiring bonus of $111,000 payable
within 30 days of your date of hire.
(III) You will receive a one-time "extra" (over and above the standard annual
award) grant of 24,100 AT&T Stock Options. These "extra" Stock Options will
cliff vest at the end of three years of employment with the Company.
(IV) In the event you forfeit your 1995 annual bonus (payable in 1996) from your
current employer, you will receive a one-time cash payment related to the amount
forfeited, (where the amount forfeited is based on the actual months of
employment at this employer during 1995). Based on
4
an August 31, 1995 termination from your current employer, and an above target
payout of $166,000, this cash payment would be $111,000. Such amount will be
payable within 30 days of your date of hire.
(V) The Company will provide you a housing loan up to $250,000 on terms which
are generally comparable to those provided by your current employer.
(VI) In the event you are prevented from exercising your vested stock options
(or are required to repay to your current employer the bargain spread on such
options), the Company will reimburse you up to $89,000 for such forfeiture.
Severance Benefit: In the event of any Company initiated termination other than
for disability or for "cause" (as defined below), within 36 months from the
effective date of your employment you will be entitled to a payment equal to the
higher of (1) $650,000 or (2) 200% of your annual base salary in effect on the
date of such termination, such payment to be made in the month following the
month of termination.
Such payment as described above in this Severance Benefit provision as well as
any "DCA" benefits payable to you under the "Special Deferred Compensation
Account" provision (below) related to a Company initiated termination, will be
conditioned upon you signing a release and agreement not to sue the Company. The
form of this release and agreement will be that then in use for AT&T Senior
Managers.
For purposes of this employment letter, "cause" shall be defined as follows: (1)
your conviction (including a plea of guilty to nolo contendere) of a felony or
any crime of theft, dishonesty or moral turpitude; or (2) gross omission or
gross dereliction of any statutory or common law duty of loyalty to the Company,
or (3) violation of the Company's Code of Conduct.
Senior Management Employee Benefit Plans: Attachment A outlines the benefits
available to you under various Senior Management, mid-career and employee
benefit plans, programs and practices. In addition, under the provisions of the
Mid-Career Hire Program you will be eligible for the following benefits:
Mid-Career Pension: Managers hired at age thirty-five and over at salary band D
and above who retire or terminate employment at Executive level or above will be
eligible for supplemental pension benefits from the AT&T Mid-Career Hire Pension
Plan provided they have at least five years service credited while at or above
Executive level. (The Senior Management position you would be hired into is
above the Executive level). These supplemental pension payments are in addition
to those provided by other
5
existing plans. For example: under the Plan's current terms and conditions, a
participant hired at age 46 and retired at age 65 would receive extra pension
credit for 16 years at approximately one half the rate under the AT&T Management
Pension Plan.
Special Deferred Compensation Account: Beginning on your date of hire, $190,000
will be credited in your name in an individual Deferred Compensation Account
(DCA). You will have no ownership interest in the DCA nor in any asset of the
Company and you may not assign or pledge the DCA. You will have no right to
receive any part of the DCA except as provided below under the "Vesting,
Forfeiture, and Distribution of DCA" paragraphs. Such credited DCA shall bear
interest from the first day following the effective date of your AT&T
employment. The interest credited thereon will be compounded as of the end of
each calendar quarter for as long as any sums remain in the DCA, and the
quarterly rate of interest applied at the end of any calendar quarter shall be
one-quarter of the average 30-year Treasury Note rate for the previous quarter.
Vesting, Forfeiture, and Distribution of DCA: In the event of your
termination of employment prior to August 13, 2009, for any reason other than
death, "long term disability" (as defined below), or Company initiated
termination for other than "cause" (as defined below), all amounts credited to
your DCA will be canceled, and you will not receive any distribution from the
DCA.
In the event of your termination of employment, prior to August 13,
2009, because of death or "long term disability," the amount credited to your
DCA as of such termination will become vested. Your DCA balance as of your date
of death or termination will be distributed to you, or in the case of death, to
your designated beneficiary (or to your estate if no beneficiary has
designated), within 30 business days after your termination or death.
In the event of your termination of employment from your date of hire
to August 13, 2009, as a result of a Company initiated termination for other
than "cause" (as defined below), your DCA will vest in full at such date and all
amounts credited to the DCA as of your termination of employment will be
distributed to you within 30 business days after your termination of employment.
As of August 13, 2009, all amounts then credited to your DCA will vest in full,
assuming your continued employment to such date with the Company or any
affiliate of the Company. Any amounts credited to your DCA subsequent to August
13, 2009 will vest as credited.
6
In the event of your termination of employment on or subsequent to
August 13, 2009, because of death all amounts credited to your DCA as of your
date of death will be distributed to your designated beneficiary (or to your
estate if no beneficiary has been designated), within 30 business days after
your death.
In the event of your termination of employment on or subsequent to
August 13, 2009, for any reason other than for death, then all amounts credited
to your DCA as of your termination of employment will be distributed to you in
ten approximately equal annual installments. Interest will continue to be
credited on the outstanding balance in your DCA.
Notwithstanding any other provision of this Special Deferred
Compensation Account, in the event of your termination of employment for
"cause", at any time from your date of hire to August 13, 2009, all amounts
credited to your DCA will be canceled and forfeited in their entirety, and you
will not receive any distribution from the DCA. For purposes of this DCA
provision, "cause" shall be as defined in the Severance Benefit provision above.
For purposes of this DCA provision, "long term disability" will mean your
termination of Company employment with eligibility to receive long term
disability benefits under the AT&T Long Term Disability Plan for Salaried
Employees or a replacement or comparable affiliate plan.
The payments from the DCA are in addition to and not in lieu of any
pension, savings or other defined benefit or defined contribution type
retirement plans of the Company in which you would be eligible to participate as
an AT&T employee or AT&T Senior Manager. Accordingly, the DCA will not affect
your participation or potential participation in such plans. The DCA, however,
is not includable in the base for calculating any AT&T employee or Senior
Manager benefits.
Payout of the DCA, when payable in ten installments, will commence on
the first day of the calendar quarter next following the end of the month in
which you terminate employment.
Relocation Plan: You will be eligible for the same AT&T Management
Relocation Plan (AT&TMRP) benefits accorded to other management employees
(Attachment B). It is understood that your family will be remaining in
Tennessee through June 1996. Therefore, effective with your month of
hire, you will be paid a monthly amount of $6,000 (100% taxable). These monthly
payments will cease after the earlier of (1) July 31, 1996 or (2) the month
you relocate to your New Jersey residence. It is understood and agreed that
these monthly payments will be made in lieu of the Lump Sum Payment
7
(for interim living, home search, etc.) provided for in the AT&TMRP (see
Attachment B).
It is agreed and understood that you will not talk about, write about
or otherwise disclose the terms of existence of this employment letter or any
fact concerning its negotiation or implementation. You may, however, discuss the
contents of this letter with your spouse, legal and/or financial counselor.
As indicated in the attached AT&T Non-Competition Guideline
(Attachment C), a number of AT&T incentive arrangements and non-qualified
pension and benefit plans are subject to non-competition constraints.
This offer is contingent upon successful completion of AT&T's
pre-employment medical review process. This letter reflects the entire agreement
regarding the terms and conditions of your employment. Accordingly, it
supersedes and completely replaces any prior oral or written communication on
this subject.
This letter is not an employment D.K. Peterson - Page 7 contract and
should not be construed or interpreted as containing any guarantee of continued
employment. The employment relationship at AT&T is by mutual consent
("Employment-At-Will"). This means that managers have the right to terminate
their employment at any time and for any reason. Likewise, the Company reserves
the right to discontinue your employment with or without cause at any time and
for any reason.
The incentive plans as well as the employee and Senior Management
benefit plans, programs and practices as briefly outlined in this letter,
reflect their current provisions. Payments and benefits under these plans and
programs, as well as other payments referred to in this letter, are subject to
IRS rules and regulations with respect to withholding, reporting, and taxation,
and will not be grossed-up unless specifically stated. The Company reserves the
right to discontinue or modify any such plans, programs and practices. Moreover,
the summaries contained herein are subject to the terms of such plans, programs
and practices.
For purposes of the Senior Management and employee benefits 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 reflected in this offer, e.g., hiring bonus, relocation, long term
incentives, are not included in the calculation of any employee or Senior
Management benefits (except for the AT&T Incentive Deferral Award Plan, which
currently permits the deferral of annual incentives and Performance Shares).
8
By acceptance of this offer, you agree that (1) no trade secret or
proprietary information belonging to your previous employer will be disclosed or
used by you at AT&T, and that no such information, whether in the form of
documents, memoranda, software, drawings, etc., will be retained by you or
brought with your to AT&T, and (2) you have brought to AT&T's attention and
provided it with a copy of any agreement which may impact your future employment
at AT&T, including non-disclosure, non-competition, invention assignment
agreements or agreements containing future work restrictions.
Don, I feel the package we have developed for you is attractive and
anticipates that you will make a critical contribution to the business as it
develops over the coming years. We look forward to having you join us. If you
have any questions, please don't hesitate to call me or Marty O'Donnell on
(908) 221-3596.
If you agree with the foregoing, and affirm that there are no
agreements or other impediments not disclosed to AT&T that would prevent you
from providing exclusive service to the Company, please sign this letter by
August 11, 1995 in the space provided below and return the original executed
copy to me.
Sincerely,
----------------------------------------------------
Acknowledged and Agreed to Date
Donald K. Peterson
Attachments
1
EXHIBIT 10.11
AVAYA
SUPPLEMENTAL PENSION PLAN
Avaya
and
Such of its Subsidiary Companies which are
Participating Companies
Effective October 1, 2000
2
AVAYA SUPPLEMENTAL PENSION PLAN
AVAYA
SUPPLEMENTAL PENSION PLAN
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. INTRODUCTION AND PURPOSE ............................................... 3
2. DEFINITIONS ............................................................ 4
ADMINISTRATOR ........................................................ 4
AFFILIATED CORPORATION ............................................... 4
ANNUAL BASIC PAY ..................................................... 4
BENEFIT LIMITATION ................................................... 4
BOARD ................................................................ 4
CODE ................................................................. 4
COMMITTEE ............................................................ 5
COMPANY .............................................................. 5
COMPENSATION ......................................................... 5
COMPENSATION LIMITATION .............................................. 5
DISABILITY ........................................................... 5
ERISA ................................................................ 5
INTERCHANGE AGREEMENT ................................................ 5
INTERCHANGE COMPANY .................................................. 5
LAWFUL SPOUSE ........................................................ 5
LONG TERM PLAN ....................................................... 5
MPA .................................................................. 6
NORMAL RETIREMENT AGE ................................................ 6
OFFICER .............................................................. 6
OFFICERS LONG TERM DISABILITY PLAN ................................... 6
PARTICIPANT .......................................................... 6
PARTICIPATING COMPANY ................................................ 6
PENSION PLAN ......................................................... 6
PLAN ................................................................. 6
RETIREMENT INCOME PLAN ............................................... 6
SERVICE-BASED PROGRAM ............................................ 6
SHORT TERM AWARD ................................................. 7
SHORT TERM PLAN ...................................................... 7
SUBSIDIARY ........................................................... 7
SURVIVING SPOUSE ..................................................... 7
TERM OF EMPLOYMENT ................................................... 7
TRANSFERRED INDIVIDUAL ............................................... 7
3. EXCESS RETIREMENT BENEFIT .............................................. 8
3.1. PARTICIPATION ................................................... 8
3.2. AMOUNT OF EXCESS RETIREMENT BENEFIT ............................. 8
3.3. NO SURVIVING SPOUSE OR DESIGNATED BENEFICIARY ................... 8
3.4. FUTURE BENEFIT ADJUSTMENTS ...................................... 9
3.5. DETERMINATION OF BENEFIT ........................................ 9
3.6. RELATIONSHIP TO OTHER PLANS ..................................... 9
4. MINIMUM RETIREMENT OR SURVIVOR BENEFIT.................................. 10
</TABLE>
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3
AVAYA SUPPLEMENTAL PENSION PLAN
<TABLE>
<S> <C>
4.1. PARTICIPATION ................................................... 11
4.2. MINIMUM RETIREMENT BENEFIT ...................................... 11
4.3. SURVIVOR BENEFIT ................................................ 11
5. BENEFIT PAYMENTS ....................................................... 13
5.1. COMMENCEMENT AND FORM OF BENEFITS ............................... 13
5.2. FUTURE INCREASES ................................................ 13
5.3. TREATMENT DURING SUBSEQUENT EMPLOYMENT .......................... 13
5.4. MANDATORY PORTABILITY AGREEMENT ................................. 14
5.5. FORFEITURE OF BENEFITS .......................................... 14
6. DISPOSITION OF PARTICIPATING COMPANY ................................... 15
6.1. SALE, SPIN-OFF, OR OTHER DISPOSITION OF PARTICIPATING COMPANY ... 15
7. SOURCE OF PAYMENT ...................................................... 16
7.1. SOURCE OF PAYMENTS .............................................. 16
7.2. UNFUNDED STATUS ................................................. 16
7.3. FIDUCIARY RELATIONSHIP .......................................... 16
8. ADMINISTRATION OF THE PLAN ............................................. 17
8.1. ADMINISTRATION .................................................. 17
8.2. INDEMNIFICATION ................................................. 17
8.3. CLAIMS PROCEDURE ................................................ 17
8.4. NAMED FIDUCIARIES ............................................... 18
8.5. ROLE OF THE COMMITTEE ........................................... 18
8.6. ALLOCATION OF RESPONSIBILITIES .................................. 18
8.7. MULTIPLE CAPACITIES ............................................. 18
9. AMENDMENT AND TERMINATION .............................................. 19
9.1. AMENDMENT AND TERMINATION ....................................... 19
10. GENERAL PROVISIONS .................................................... 20
10.1. BINDING EFFECT ................................................. 20
10.2. NO GUARANTEE OF EMPLOYMENT ..................................... 20
10.3. TAX WITHHOLDING ................................................ 20
10.4. ASSIGNMENT OF BENEFITS ......................................... 20
10.5. FACILITY OF PAYMENT ............................................ 20
10.6. SEVERABILITY ................................................... 21
10.7. PLAN YEAR ...................................................... 21
10.8. HEADINGS ....................................................... 21
10.9. GOVERNING LAW .................................................. 21
10.10. ENTIRE PLAN ................................................... 21
APPENDIX A MID-CAREER PENSION BENEFIT ..................................... 22
</TABLE>
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4
AVAYA SUPPLEMENTAL PENSION PLAN
AVAYA
SUPPLEMENTAL PENSION PLAN
ADOPTED EFFECTIVE JANUARY 1, 1998, As Amended and Restated Effective
January 1, 2000
ARTICLE
1.
INTRODUCTION AND PURPOSE
The Avaya Supplemental Pension Plan (the "Plan") is intended to
constitute both (i) an unfunded "excess benefit plan" as defined in ERISA
Section 3(36), and (ii) an unfunded plan primarily for the purpose of providing
deferred compensation and pension benefits for a select group of management or
highly compensated employees for purposes of Title I of the Employee Retirement
Income Security Act of 1974, as amended.
The Plan is intended to reward participants who have provided the
Company with dedicated service during their employment and who, after
termination of employment with the Company, continue to acknowledge a duty of
loyalty to the Company and refrain from engaging in activities that are in
conflict with or adverse to the interests of the Company. Such restrictions are
necessary and reasonable to protect the Company's highly confidential and
proprietary information, valuable goodwill, customer relationships and
competitive position.
The Plan is a successor to, and a restatement of, the Lucent
Technologies Inc. Supplemental Pension Plan.
The Plan applies only to Participants who terminate employment on or
after January 1, 2000.
Participation in the Mid-Career Pension Benefit described in Appendix A
as a continuation of the Mid-Career Pension Plan shall be limited to these
individuals categorized by the Company as Participants and Employees, within the
meaning of Appendix A, as of December 31, 2000.
-3-
5
AVAYA SUPPLEMENTAL PENSION PLAN
ARTICLE
2.
DEFINITIONS
Unless the context clearly indicates otherwise, the following terms
have the meanings described below when used in this Plan and references to a
particular Article or Section shall mean the Article or Section so delineated in
this Plan.
ACCOUNT BALANCE PROGRAM
The account balance program provisions of the Retirement Income Plan,
applicable generally to eligible employees hired after December 31, 1998.
ADMINISTRATOR
The Pension Plan Administrator under the Retirement Income Plan, or
such other person or entity designated by the Company.
AFFILIATED CORPORATION
Any corporation of which more than 50 percent of the voting stock is
owned directly or indirectly by the Company.
ANNUAL BASIC PAY
The annual base salary rate on the last day the Participant was on the
active payroll plus an amount determined with reference to the Short Term Plan
as described in the following sentence, but excluding all differentials regarded
as temporary or extra payments and all awards and distributions under the Long
Term Plan. For purposes of determining the Minimum Retirement and Survivor
Benefit under Article 4, the amounts determined with reference to the Short Term
Plan shall be the Participant's Target Award, as determined under the Short Term
Plan, in effect at the time of the Participant's retirement, termination of
employment or death.
BENEFIT LIMITATION
The maximum benefit payable to a Participant under the Retirement
Income Plan or the Pension Plan in accordance with Code Sections 415(b) and (e),
but after application of the Compensation Limitation, if any, under the
Retirement Income Plan or the Pension Plan.
BOARD
The Board of Directors of the Company.
CODE
The Internal Revenue Code of 1986, as amended from time to time. Any
reference to a particular section of Code includes any applicable regulations
promulgated under that section.
COMMITTEE
The Avaya Employee Benefits Committee.
-4-
6
AVAYA SUPPLEMENTAL PENSION PLAN
COMPANY
Avaya, a Delaware Corporation, or its successor.
COMPENSATION
"Compensation" shall have the meaning set forth in the Retirement
Income Plan or the Pension Plan, as applicable, modified as set forth in this
Plan.
COMPENSATION LIMITATION
The maximum amount of annual compensation under Code Section 401(a)(17)
that may be taken into account in any Plan Year for benefit accrual purposes
under the Retirement Income Plan or the Pension Plan.
DISABILITY or DISABLED
"Disability" or "Disabled" shall have the meaning set forth in the
Avaya Long Term Disability Plan for Management Employees.
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.
INTERCHANGE AGREEMENT
"An Interchange Agreement" within the meaning of the Retirement Income
Plan and the Pension Plan.
INTERCHANGE COMPANY
An "Interchange Company" within the meaning of the Retirement Income
Plan and the Pension Plan.
LAWFUL SPOUSE
A person who is recognized as the lawful husband or lawful wife of a
Participant under the laws of the state of the Participant's domicile, and who
is a person whose consent is required pursuant to Section 417(a)(2)(A)(i) of the
Code for purposes of an election under Section 417(a)(1)(A)(i) of the Code.
LONG TERM PLAN
The Avaya 2000 Long Term Incentive Program, the Avaya 2000 Long Term
Incentive Plan for Management Employees, any other Avaya stock option plan
sponsored as a result of a merger or acquisition, or a predecessor long term
incentive plan.
MPA
The Mandatory Portability Agreement, effective January 1, 1985, between
and among AT&T, Former Affiliates and certain other companies and which, in
accordance with section
-5-
7
AVAYA SUPPLEMENTAL PENSION PLAN
559 of the Tax Reform Act of 1984, provides for the mutual recognition of
service credit and the transfer of benefit obligations for specified employees
who terminate employment with one company signatory to such agreement and
subsequently commence employment with another company signatory to such
agreement.
NORMAL RETIREMENT AGE
"Normal Retirement Age" shall have the meaning set forth in the
Retirement Income Plan or the Pension Plan, as applicable.
OFFICER
An employee of a Participating Company holding a position evaluated or
classified above the "Executive" level by the Company, except that no employee
who is assigned to such a position on a temporary basis after being notified in
writing of the temporary status of such assignment shall be an "Officer" for any
purpose under this Plan.
OFFICERS LONG TERM DISABILITY PLAN
The Lucent Technologies Inc. Officers Long Term Disability and Survivor
Protection Plan, as amended from time to time.
PARTICIPANT
An individual who qualifies for an Excess Retirement Benefit under
Article 3, a Minimum Retirement or Survivor Benefit under Article 4, or a
Mid-Career Pension Benefit under Appendix A.
PARTICIPATING COMPANY
The Company and each of its subsidiaries that is a Participating
Company for purposes of the Retirement Income Plan or the Pension Plan.
PENSION PLAN
The Avaya Pension Plan, as amended from time to time.
PLAN
This Avaya Supplemental Pension Plan.
RETIREMENT INCOME PLAN
The Avaya Retirement Income Plan, as amended from time to time,
including the Service-Based Program and the Account Balance Program thereunder.
SERVICE-BASED PROGRAM
The service-based program provisions of the Retirement Income Plan,
applicable generally to eligible employees hired before January 1, 1999.
-6-
8
AVAYA SUPPLEMENTAL PENSION PLAN
SHORT TERM AWARD
The actual amount awarded (including any amounts deferred pursuant to
the Avaya Deferred Compensation Plan) annually to a Participant pursuant to the
Avaya Short Term Incentive Plan or predecessor short term incentive plans.
Notwithstanding any other provision in this paragraph to the contrary, Short
Term Awards, for purposes of the Plan, shall not include any amount paid or
credited to a Participant in January, 1999. Furthermore, such awards shall not
include any payments paid to a Participant in the form of Compensation or in
lieu of Compensation after termination of employment except that the Committee
may make reasonable assumptions, to be applied uniformly, regarding the amount
of such payments to be included in the Short Term Award. Once made, any such
decision of the Committee shall be conclusive and not subject to further review.
SHORT TERM PLAN
The Avaya Short Term Incentive Plan or predecessor short term incentive
plans covering Officers.
SUBSIDIARY
Any corporation as to which more than 80% of the voting stock is owned
directly or indirectly by the Company.
SURVIVING SPOUSE
A deceased Participant's surviving Lawful Spouse who is eligible to
receive a survivor annuity benefit under the Retirement Income Plan or the
Pension Plan.
TERM OF EMPLOYMENT
"Term of Employment" shall have the meaning set forth in the Retirement
Income Plan or the Pension Plan, as applicable, except that for all purposes
under the Mid-Career Pension Benefit, "Term of Employment" shall have the
meaning set forth in Appendix A.
TRANSFERRED INDIVIDUAL
A "Transferred Individual" within the meaning of the Employee Benefits
Agreement between Lucent and the Company dated as of October 1, 2000.
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9
AVAYA SUPPLEMENTAL PENSION PLAN
ARTICLE
3.
EXCESS RETIREMENT BENEFIT
3.1. PARTICIPATION
"Participant" for purposes of the Excess Retirement Benefit under this
Article 3 shall mean an individual who is a Participant, Surviving Spouse or
designated beneficiary under either the Retirement Income Plan or the Pension
Plan if such individual's benefit payable under the Retirement Income Plan or
the Pension Plan is limited by reason of the application of the Benefit
Limitation and/or the Compensation Limitation.
3.2. AMOUNT OF EXCESS RETIREMENT BENEFIT
(a) The amount, if any, of the Excess Retirement Benefit payable to a
Participant, Surviving Spouse or designated beneficiary shall be equal to the
excess of (i) over (ii), where:
(i) is the Participant's, Surviving Spouse's or designated
beneficiary' pension benefit determined in accordance with the
provisions of the Retirement Income Plan or the Pension Plan, except
that for purposes of determining the Excess Retirement Benefit, the
Benefit Limitation and the Compensation Limitation shall be disregarded
and the amount of the Short Term Award and any deferrals of salary or
Short Term Award made under the Avaya Deferred Compensation Plan shall
be included in Compensation; and
(ii) is the amount of the pension benefit actually payable to
such Participant, Surviving Spouse or designated beneficiary under the
Retirement Income Plan or the Pension Plan.
(b) The amount of the Excess Retirement Benefit payable as a result of
the application of the Benefit Limitation under the Retirement Income Plan or
the Pension Plan shall be determined based upon the Retirement Income Plan or
the Pension Plan formula, as applicable, in effect (i) as of the date when
benefits are to commence; or (ii) for benefits payable in the form of an
annuity, as of the effective date of any subsequent increases or decreases in
the Benefit Limitation, and 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 Retirement Income Plan or the 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 the
date when the sum of the Participant's completed years and months of age and
Term of Employment is less than 75 years and/or for the cost of the survivor
annuity, if any, in the same manner as is set forth in the Retirement Income
Plan or the Pension Plan, as applicable.
3.3. NO SURVIVING SPOUSE OR DESIGNATED BENEFICIARY
If a Participant dies before the date as of which his or her benefit
commences under the Service-Based Program or the Pension Plan, and he or she
does not have a Surviving Spouse or designated beneficiary on his or her date of
death, no Excess Retirement Benefit shall be paid with respect to such
Participant. If the Participant dies before the date as of which his or her
benefit commences under the Account Balance Program, the Excess Retirement
Benefit shall be
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AVAYA SUPPLEMENTAL PENSION PLAN
paid to the surviving spouse, if any; if there is no surviving spouse such
benefit shall be paid to the beneficiary or beneficiaries designated under the
Retirement Income Plan or, if there is no such designated beneficiary, to the
Participant's estate.
3.4. FUTURE BENEFIT ADJUSTMENTS
If a Participant has commenced receiving a service or disability
pension under the Retirement Income Plan or the Pension Plan in the form of a
joint and survivor annuity and his or her designated annuitant subsequently
predeceases him or her, the Participant's Excess Retirement Benefit under this
Article 3 shall be calculated in accordance with Section 3.2 and thereafter
paid, prospectively, by restoring the original cost of the joint and survivor
annuity form of benefit under the Retirement Income Plan or the Pension Plan,
whichever is applicable. Such adjustment shall be effective as of the first day
of the first month following the death of the designated annuitant.
3.5. DETERMINATION OF BENEFIT
Excess Retirement Benefit payments under this Article 3 shall be
calculated in accordance with the rules, procedures, and assumptions utilized
under the Retirement Income Plan or the Pension Plan, whichever is applicable.
Thus, whenever it is necessary to determine whether one benefit is less than,
equal to, or larger than another, or to determine the equivalent actuarial value
of any benefit, whether or not such form of benefit is provided under this Plan,
such determination shall be made, at the Administrator's discretion, by the
Company's enrolled actuary, using mortality, interest and other assumptions
normally used at the time in determining actuarial equivalence under the
Retirement Income Plan or Pension Plan, whichever is applicable.
3.6. RELATIONSHIP TO OTHER PLANS
The Excess Retirement Benefit payable under this Article 3 shall be in
addition to any other benefits provided, directly or indirectly, to a
Participant, Surviving Spouse or designated beneficiary by any Participating
Company. Participation in the Plan shall not preclude or limit the participation
of the Participant in any other benefit plan sponsored by a Participating
Company for which such Participant would otherwise be eligible. The Excess
Retirement Benefit payable to a Participant, Surviving Spouse or designated
beneficiary under this Plan shall not duplicate benefits payable to such
Participant, Surviving Spouse or designated beneficiary under any other plan or
arrangement of a Participating Company or any Affiliated Corporation.
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AVAYA SUPPLEMENTAL PENSION PLAN
ARTICLE
4.
MINIMUM RETIREMENT OR SURVIVOR BENEFITS
4.1. PARTICIPATION
"Participant" for purposes of the Minimum Retirement Benefit under
Section 0 shall mean (1) an Officer or a former employee of a Participating
Company who was an Officer on the last day of employment, if such individual is
retired on a service pension under the Retirement Income Plan, (2) an Officer
whose Term of Employment has been five years or more, is not Disabled, and who
terminates employment on or after his or her sixty-second birthday.
"Participant" for purposes of the Survivor Benefit under Section 0
shall mean an Officer, or a former employee of a Participating Company who was
an Officer on the last day of employment, if such former employee (1) is
Disabled or (2) is eligible to receive a Minimum Retirement Benefit under this
Article 4 of the Plan.
4.2. MINIMUM RETIREMENT BENEFIT
A Participant shall be eligible to receive an annual minimum retirement
benefit payable monthly, equal to 15% of the Participant's Annual Basic Pay 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 Section 4.2: a service pension
or deferred vested pension under the Retirement Income Plan or Pension Plan, an
Excess Retirement Benefit under Article 3, a Mid-Career Pension Benefit under
Appendix A, and by any other retirement income payments received by the
Participant from his or her Participating Company or from a Successor or
Predecessor Plan Sponsor. However, no reduction shall be made on account of any
pension under the Retirement Income 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 an Excess Retirement Benefit under Article 3, or a Mid-Career Pension
Benefit under Appendix A, at a rate greater than the rate of such benefit, as of
first date the Participant was entitled to receive such benefit after his or her
retirement or other termination of employment.
4.3. SURVIVOR BENEFIT
In the event of the death of a Participant, the Surviving Spouse or
designated beneficiary of such Participant shall be eligible to receive an
annual benefit, payable monthly, equal to 15 percent of the Participant's Annual
Basic Pay 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 Spouse or designated beneficiary on account of the death
of the Participant and which are attributable to the period for which benefits
are provided under this Section 4.3: an annuitant's pension under the Retirement
Income Plan or Pension Plan, an annuitant's Excess Retirement Benefit under
Article 3, a Mid-Career Pension Benefit under Appendix A, and any other lifetime
payments to such Surviving Spouse or designated beneficiary 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
Retirement
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AVAYA SUPPLEMENTAL PENSION PLAN
Income Plan, or on account of an annuitant's Excess Retirement Benefit under
Article 3 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.
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AVAYA SUPPLEMENTAL PENSION PLAN
ARTICLE
5.
BENEFIT PAYMENTS
5.1. COMMENCEMENT AND FORM OF BENEFITS
Any benefit provided under this Plan payable to a Participant,
Surviving Spouse or designated beneficiary (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 Participant's, Surviving Spouse's or beneficiary's benefits are paid
under the Retirement Income Plan or the 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 under
Article 3 payable to the Participant. In addition, the joint and survivor
annuity benefit option form shall not be available to Participants eligible for
a Mid-Career Pension Benefit under Appendix A for that portion of the benefit
under this Plan.
5.2. FUTURE INCREASES
If an amendment to the Retirement Income Plan in respect of a
Participant who did not elect a lump sum payment under the Retirement Income
Plan or to provide for an increase in the service pensions of previously retired
employees or an increase in the survivor annuities payable under the Retirement
Income Plan, then a Participant's, Surviving Spouse's or designated
beneficiary's benefit under this Plan, as applicable, shall be increased
pursuant to the same terms and conditions as are set forth in such Retirement
Income Plan amendment, except that no such increase shall apply to the Surviving
Spouse or designated beneficiary benefit related to a deceased Participant who
had not terminated employment or died prior to the effective date of such
amendment.
5.3. TREATMENT DURING SUBSEQUENT EMPLOYMENT
Notwithstanding any other provision of the Plan, a Participant's
employment or reemployment 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 a benefit under the Plan shall result in the permanent
suspension of payment of such 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
Retirement Income Plan or the Pension Plan, whichever is applicable. A
Participant's benefit shall recommence simultaneously with the recommencement of
his or her benefits under the Retirement Income Plan or the Pension Plan. The
amount of the Participant's benefit upon recommencement shall be adjusted to
reflect adjustments, if any, in the amount of the Participant's pension benefit
under the Retirement Income Plan or the Pension Plan resulting from the period
of reemployment. Following recommencement of payment, the Participant, Surviving
Spouse or designated beneficiary shall not be eligible to receive any benefit
payments that would otherwise have been payable but for the suspension.
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AVAYA SUPPLEMENTAL PENSION PLAN
5.4. MANDATORY PORTABILITY AGREEMENT
A Participant (i) who is employed by an "Interchange Company," as that
term is defined under the MPA, subsequent to retirement or termination of
employment from the Company, its subsidiaries or any Affiliated Corporation,
(ii) who is covered under the terms and conditions of the MPA, and (iii) for
whom assets and liabilities are transferred from the Retirement Income Plan or
the Pension Plan, shall forfeit his rights to a benefit under the Plan,
including the rights of the Participant's Surviving Spouse and beneficiaries to
a benefit under this Plan.
5.5. FORFEITURE OF BENEFITS
Notwithstanding any eligibility or entitlement to benefits of a
Participant arising or conferred under any other provision or paragraph of this
Plan, all benefits for which a Participant would otherwise be eligible hereunder
shall be forfeited under the following circumstances:
(a) (i) the Participant is discharged by a Participating Company
for cause. For purposes of this Plan, cause shall mean:
(A) the Participant'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
Participant engaged in misconduct in connection with the Participant's
employment with a Participating Company or with any other entity of which the
Company has an ownership interest; or
(b) the Participant without the Company's consent both during and after
termination for any reason of employment with a Participating Company, on behalf
of any competitor of the Company (A) renders any service relating to (1)
strategic planning, research and development, manufacturing, marketing, or
selling with respect to any product, process, material or service which
resembles, competes with, or is the same as a product, process, material or
service of the Company about which such Participant gained any proprietary or
confidential information or on which such Participant worked prior to his
termination of employment, or (2) any actual or potential customer of the
Company about whom the Participant gained any proprietary or confidential
knowledge or with whom such Participant worked prior to his termination of
employment; and (B) solicits or offers, or induces or encourages others to
solicit or offer, employment to any employee of the Company, provided, however,
that the portion of the Excess Retirement Benefit accrued prior to December 31,
1997 shall not be subject to the provisions of this Section 5.5(b).
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AVAYA SUPPLEMENTAL PENSION PLAN
ARTICLE
6.
DISPOSITION OF PARTICIPATING COMPANY
6.1. SALE, SPIN-OFF, OR OTHER DISPOSITION OF PARTICIPATING COMPANY
(a) Subject to Section 10.1, in the event the Company sells, spins off,
or otherwise disposes of a Subsidiary or an Affiliated Corporation, or disposes
of all or substantially all of the assets of a Subsidiary or an Affiliated
Corporation such that one or more Participants terminate employment for the
purpose of accepting employment with the purchaser of such stock or assets, any
person employed by such Subsidiary or Affiliated Corporation who ceases to be an
employee as a result of the sale, spin-off, or disposition shall be deemed to
have terminated his or her employment with a Participating Company and be
eligible for a benefit under this Plan commencing at the same time as his or her
benefit, if any, commences under the Retirement Income Plan or the Pension Plan.
(b) Notwithstanding the foregoing provisions of this Section 6.1, and
subject to Section 10.1, 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 any of the benefits under
this Plan to which the Participant, Surviving Spouse and/or designated
beneficiary would have been entitled under the Plan but for such sale, spin-off,
or other disposition, then the entitlement of the Participant, his or her
Surviving Spouse or beneficiary to any such benefits under this Plan shall
terminate. Any subsequent entitlement of the former Participant, his or her
Surviving Spouse or beneficiary to such benefits shall be the sole
responsibility of the assuming party.
(c) Upon the assumption of the liability for the payment of an Excess
Retirement Benefit or 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 Avaya, the entitlement of a Transition
Individual (as defined in Section 1.38(a) or (d) of the Management Interchange
Agreement or Section 1.30(a) or (d) of the Occupational Interchange Agreement),
and/or his or her Surviving Spouse or Beneficiary, to an Excess Retirement
Benefit or a Mid-Career Pension Benefit under this Plan shall terminate.
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AVAYA SUPPLEMENTAL PENSION PLAN
ARTICLE
7.
SOURCE OF PAYMENT
7.1. SOURCE OF PAYMENTS
Benefits arising under this Plan and all costs, charges, and expenses
relating thereto will be payable from the Company's general assets. The Company
may, however, establish a trust to pay such benefits and related expenses,
provided such trust does not cause the Plan to be "funded" within the meaning of
ERISA. To the extent trust assets are available, they may be used to pay
benefits arising under this Plan and all costs, charges, and expenses relating
thereto. To the extent that the funds held in the trust, if any, are
insufficient to pay such benefits, costs, charges and expenses, the Company
shall pay such benefits, costs, charges, and expenses from its general assets.
7.2. 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 Company which invested the funds. The Plan constitutes a mere
promise by the Company and the Participating Companies to make benefit payments,
if any, in the future. No Participant, Surviving 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 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.
7.3. FIDUCIARY RELATIONSHIP
Nothing contained in the Plan, and no action taken pursuant to the
provisions of the Plan, shall create or be construed to create a trust or a
fiduciary relationship between or among the Company, any other Participating
Company, the Board, the Administrator, the Committee, any Participant, any
Surviving Spouse, beneficiary or any other person, except as provided in Section
8.4.
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AVAYA SUPPLEMENTAL PENSION PLAN
ARTICLE
8.
ADMINISTRATION OF THE PLAN
8.1. ADMINISTRATION
The Company shall be the "plan administrator" of the Plan as that term
is defined in ERISA.
8.2. INDEMNIFICATION
Neither the Administrator, any member of the Board or of the Committee,
nor each other officer to whom any duty or power relating to the administration
or interpretation of the Plan may be allocated or delegated, shall be personally
liable by reason of any contract or other instrument executed by such individual
or on his or her behalf in his or her capacity as the Administrator or as a
member of the Board or of the Committee, nor for any mistake of judgment made in
good faith, and the Company shall indemnify and hold harmless the Administrator,
each member of the Board, each member of the Committee, and each other employee
or officer to whom any duty or power relating to the administration or
interpretation of the Plan may be allocated or delegated, against any cost or
expense (including attorneys' fees) or liability (including any sum paid in
settlement of a claim) arising out of any act or omission to act in connection
with the Plan unless arising out of such person's own fraud or bad faith.
8.3. 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 this Section 8.3),
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
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AVAYA SUPPLEMENTAL PENSION PLAN
thereby.
Any Claimant whose claim for benefits has been denied shall have such
further rights of review as are provided in ERISA Section 503, and the Committee
and Administrator shall retain such right, authority, and discretion as is
provided in or not expressly limited by ERISA Section 503.
(c) The Committee shall serve as the final review committee, under the
Plan and ERISA, for the review of all appeals by Claimants whose initial claims
for benefits have been denied, in whole or in part, by the Administrator. The
Committee shall have the authority to determine conclusively for all parties any
and all questions arising from administration of the Plan, and shall have sole
and complete discretionary authority and control to manage the operation and
administration of the Plan, including, but not limited to, authorizing
disbursements according to the Plan, the determination of all questions relating
to eligibility for participation and benefits, interpretation of all Plan
provisions, determination of the amount and kind of benefits payable to any
Participant, Surviving Spouse or Beneficiary, and the construction of disputed
and doubtful terms. Such decisions by the Committee shall be conclusive and
binding on all parties and not subject to further review.
8.4. NAMED FIDUCIARIES
The Company, the Committee, the Pension Plan Administrator(s) and each
Participating Company is each a named fiduciary as that term is used in ERISA
with respect to the particular duties and responsibilities herein provided to be
allocated to each of them.
8.5. ROLE OF THE COMMITTEE
(a) The Committee shall have the specific powers elsewhere herein
granted to it and shall have such other powers as may be necessary in order to
enable it to administer the Plan, except for powers herein granted or provided
to be granted to others.
(b) The procedures for the adoption of by-laws and rules of procedure
and for the employment of a secretary and assistants shall be the same as are
set forth in the Retirement Income Plan or the Pension Plan.
8.6. 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.
8.7. MULTIPLE CAPACITIES
Any person or group of persons may serve in more than one fiduciary
capacity with respect to the Plan.
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AVAYA SUPPLEMENTAL PENSION PLAN
ARTICLE
9.
AMENDMENT AND TERMINATION
9.1. AMENDMENT AND TERMINATION
Pursuant to ERISA Section 402(b)(3), the Board or its delegate (acting
pursuant to the Board's delegations of authority then in effect) may from time
to time amend, suspend, or terminate the Plan at any time. Plan amendments may
include, but are not limited to, elimination or reduction in the level or type
of benefits provided prospectively to any class or classes of Participants (and
any Surviving Spouse or designated beneficiary). Any and all Plan amendments may
be made without the consent of any Participant, Surviving Spouse or designated
beneficiary. Notwithstanding the foregoing, no such amendment, suspension, or
termination shall retroactively impair or otherwise adversely affect the rights
of any Participant, Surviving Spouse, beneficiary or other person to benefits
under the Plan, the Retirement Income Plan or the Pension Plan which have arisen
prior to the date of such action.
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AVAYA SUPPLEMENTAL PENSION PLAN
ARTICLE
10.
GENERAL PROVISIONS
10.1. BINDING EFFECT
The Plan shall be binding upon and inure to the benefit of each
Participating Company and its successors and assigns, and to each Participant,
his or her successors, designees, Beneficiaries, designated annuitants, and
estate. The Plan shall also be binding upon any successor corporation or
organization succeeding to substantially all of the assets and business of the
Company. Nothing in the Plan shall preclude the Company from merging or
consolidating into or with, or transferring all or substantially all of its
assets to, another corporation which assumes the Plan and all obligations of the
Company hereunder. The Company agrees that it will make appropriate provision
for the preservation of the rights of Participants, Surviving Spouses and
beneficiaries under the Plan in any agreement or plan or reorganization into
which it may enter to effect any merger, consolidation, reorganization, or
transfer of assets. Upon such a merger, consolidation, reorganization, or
transfer of assets, the term "Participating Company" shall refer to such other
corporation and the Plan shall continue in full force and effect.
10.2. 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.
10.3. TAX WITHHOLDING
The Company or a Participating Company, as applicable, shall withhold
all federal, state, local, or other taxes required by law to be withheld from
all benefit payments under the Plan.
10.4. ASSIGNMENT OF BENEFITS
No benefits under the Plan or any right or interest in such benefits
shall be assignable or subject in any manner to anticipation, alienation, sale,
transfer, claims of creditors, garnishment, pledge, execution, attachment or
encumbrance of any kind, including, but not limited to, pursuant to any domestic
relations order (within the meaning of ERISA Section 206(d)(3) and Code Section
414(p)(1)(B)) or judgment or claims for alimony, support, separate maintenance,
and claims in bankruptcy proceedings, and any such attempted disposition shall
be null and void.
10.5. FACILITY OF PAYMENT
If the Administrator shall find that any person to whom any amount is
or was payable under the Plan is unable to care for his or her affairs because
of illness or accident, then any payment, or any part thereof, due to such
person (unless a prior claim therefor has been made by a duly appointed legal
representative), may, if the Administrator so directs the Company, be paid to
the same person or institution that the benefit with respect to such person is
paid or to be paid under the Retirement Income Plan or Pension Plan, if
applicable, or the Participant's Lawful
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AVAYA SUPPLEMENTAL PENSION PLAN
Spouse, a child, a relative, an institution maintaining or having custody of
such person, or any other person deemed by the Administrator to be a proper
recipient on behalf of such person otherwise entitled to payment. Any such
payment shall be in complete discharge of the liability of the Company, the
Board, the Committee, the Administrator, and the Participating Company therefor.
If any payment to which a Participant, Surviving Spouse or beneficiary is
entitled under this Plan is unclaimed or otherwise not subject to payment to the
person or persons so entitled, such amounts representing such payment or
payments shall be forfeited after a period of two years from the date the first
such payment was payable and shall not escheat to any state or revert to any
party; provided, however, that any such payment or payments shall be restored if
any person otherwise entitled to such payment or payments makes a valid claim.
10.6. 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.
10.7. PLAN YEAR
For purposes of administering the Plan, each plan year shall begin on
January 1 and end on December 31.
10.8. 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.
10.9. 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.
10.10. 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 8. Unless otherwise authorized by the Board or its
delegate, no amendment or modification to this Plan shall be effective until
reduced to writing and adopted pursuant to Section 9.1.
IN WITNESS WHEREOF, the Company has caused this Plan to be executed on
this ___ day of ___________, 2000.
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AVAYA SUPPLEMENTAL PENSION PLAN
By:__________________________
Attest:________________________
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AVAYA SUPPLEMENTAL PENSION PLAN
APPENDIX
A.
MID-CAREER PENSION BENEFIT
(A) PARTICIPATION
An individual is a Participant for purposes of the Mid-Career Pension
Benefit if (a) the individual was hired or rehired by a Participating Company
(or, with respect to Transferred Individuals, a "Participating Company" under a
predecessor plan) on or before July 16, 1997 and at age 35 or older, and (b) the
individual was hired or rehired by a Participating Company (or, with respect to
Transferred Individuals, a "Participating Company" under the Predecessor Plan)
at D-band or above, and (c) the individual's Term of Employment includes at
least one year of continuous employment for a Participating Company (or, with
respect to Transferred Individuals, a "Participating Company" under the
Predecessor Plan) at D-band or above, provided, however, that if an individual
was hired or rehired by a Participating Company (or, with respect to Transferred
Individuals, a "Participating Company" under a predecessor plan) on or after
November 18, 1981, such continuous employment was on a full-time basis (as
classified by the Company), and (d) the individual terminates employment at
Executive level or above; provided that "Participant" shall be limited to
Participants identified in the records of the Company as of December 31, 2000.
"Executive level," formerly E-Level, E-band, Fifth level and SG-12
through SG-14, shall mean the level directly above Director level, formerly
D-band, or any equivalent salary grade or level as determined by the Company.
(B) ELIGIBILITY
(1) EMPLOYEE
The word "Employee" shall mean for purposes of the Mid-Career Pension
Benefit a Participant, as defined above, (a) who was hired or rehired on or
after November 18, 1981, and (b) who has completed a term of employment of at
least five years, classified by the Company as full-time, for one or more
Participating Companies (including, with respect to term of employment before
October 1, 1996, with "Participating Companies" under a predecessor plan) at
Executive level or above, prior to the last day of the month in which he or she
reaches Normal Retirement Age, provided, however, that unless approved by the
Board, or its delegate, an individual is not an Employee if:
(i) the individual (ineligible to participate in this Plan because he
or she was hired before 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
-22-
24
AVAYA SUPPLEMENTAL PENSION PLAN
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 Lucent
non-Controlled Group company or the nonparticipating Controlled Group company;
or
(iv) the individual is employed by a company which is acquired by a
Participating Company.
(2) SERVICE AND DISABILITY BENEFIT
Any Employee shall be eligible for a service benefit or a
disability benefit if he or she is eligible for a service or a disability
pension pursuant to the Service-Based Provisions of the Retirement Income 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
Retirement Income Plan.
(3) DEFERRED BENEFIT
Any Employee is eligible for a deferred benefit if the
Employee is vested under the Retirement Income Plan or the Pension Plan but is
not eligible for either a service or a disability pension under the
Service-Based Provisions of the Retirement Income Plan or under the Pension
Plan.
(C) CALCULATION OF MID-CAREER PENSION BENEFIT AMOUNT
The annual benefit amount will equal:
A x B x C
Where:
A = Mid-Career Pension Credits;
B = One-half of the Retirement Income Plan Base Formula
Multiplier; and
C = The sum of Average Base Period Compensation and Post-Base
Period Compensation divided by total Term of Employment.
(I) MID-CAREER PENSION CREDITS
For purposes of determining A above, "Mid-Career Pension Credits" is
defined as:
(i) For those employees hired or rehired at Executive level or above,
and all of whose Term of Employment is at Executive level or above, Mid-Career
Pension Credits is the difference between 35 years and the Term of Employment
that could accrue if the employee
-23-
25
AVAYA SUPPLEMENTAL PENSION PLAN
worked to the later of Normal Retirement Age, retirement or termination of
employment, provided that the Mid-Career Pension Credits shall not exceed the
actual Term of Employment and shall not include any part-time service if the
employee was hired by the Company on or after November 18, 1981.
(ii) For those employees hired or rehired at D-band or above, and whose
Term of Employment includes service at D-band or below, Mid-Career Pension
Credits is computed by multiplying the employee's Mid-Career Pension Credits as
defined in (i) above, by a fraction, the numerator of which shall be the number
of years and months of service completed with a Participating Company (or, with
respect to Transferred Individuals, a "Participating Company" under any
predecessor plan) at Executive level and above, and the denominator of which
shall be the actual Term of Employment at termination of employment, provided,
however, that for any Transferred Individual on the active roll of AT&T as of
August 29, 1991, his or her benefit under this Plan shall equal the greater of
the benefit calculated under the definition of Mid-Career Pension Credits in
this subsection (ii) as of the Transferred Individual's retirement or
termination of employment or the benefit accrued under a predecessor plan as of
August 29, 1991;
(II) RETIREMENT INCOME PLAN BASE FORMULA MULTIPLIER
For purposes of determining B above, the "Management 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 Retirement Income Plan.
"Base Period" shall mean the pay base averaging period used to
calculate the Employee's benefit under the Retirement Income Plan.
(III) AVERAGE BASE PERIOD COMPENSATION
For purposes of determining C above, "Average Base Period Compensation"
shall be the Employee's average annual Compensation for the Base Period used in
the calculation of the Employee's accrued benefit under the Retirement Income
Plan, except that for purposes of determining the benefit amount hereunder, the
Compensation Limitation shall be disregarded and the amount of the Short Term
Award and any salary deferrals made under the Avaya Deferred Compensation Plan
shall be included in Compensation.
(IV) POST-BASE PERIOD COMPENSATION
For purposes of determining C above, "Post-Base Period Compensation"
shall be the Employee's Compensation after the Base Period used in the
calculation of the Employee's accrued benefit under the Retirement Income Plan,
except that for purposes of determining the benefit amount hereunder, the
Compensation Limitation shall be disregarded and the amount of the Short Term
Award and any salary deferrals made under the Avaya Deferred Compensation Plan
shall be included in Compensation.
-24-
1
EXHIBIT 10.12
AVAYA 2000
STOCK COMPENSATION PLAN
FOR NON-EMPLOYEE DIRECTORS
EFFECTIVE OCTOBER 1, 2000
2
AVAYA 2000 STOCK COMPENSATION PLAN FOR NON-EMPLOYEE DIRECTORS
ARTICLE 1. PURPOSE.
The purpose of the Avaya 2000 Stock Compensation Plan for
Non-Employee Directors (the "Plan") is to enable Avaya Inc., a Delaware
corporation (the "Company"), to attract and retain qualified persons to serve as
directors, to enhance the equity interest of directors in the Company, and to
solidify the common interests of its directors and shareholders in enhancing the
value of the Company's common stock. The Plan seeks to encourage the highest
level of director performance by providing directors with a proprietary interest
in the Company's performance and progress.
ARTICLE 2. DEFINITIONS.
As used in the Plan, the following terms shall have the meanings set
forth below:
"Affiliate" shall mean (i) any Person that directly, or through one or
more intermediaries, controls, or is controlled by, or is under common control
with, the Company or (ii) any entity in which the Company has a significant
equity interest, as determined by the Committee.
"Annual Meeting" shall mean the Company's annual, general meeting of
shareholders.
"Annual Term" shall mean each twelve calendar-month period beginning on
October 1, 2000 and each October 1 thereafter.
"Board" shall mean the Board of Directors of the Company.
"Business Day" means any day on which the New York Stock Exchange is
open for transaction of business.
"Change in Control" shall mean the happening of any of the following
events:
(i) An acquisition by any individual, entity or group (within
the meaning of Article 13(d)(3) or 14(d)(2) of the Exchange Act) (an "Entity")
of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 20% or more of either (A) the then outstanding shares of common
stock of the Company (the "Outstanding Company Common Stock") or (B) the
combined voting power of the then outstanding voting securities of the Company
entitled to vote generally in the election of directors (the "Outstanding
Company Voting Securities"); excluding, however, the following: (1) any
acquisition directly from the Company, other than an acquisition by virtue of
the exercise of a conversion privilege unless the security being so converted
was itself acquired directly from the Company, (2) any acquisition by the
Company, (3)
2
3
AVAYA 2000 STOCK COMPENSATION PLAN FOR NON-EMPLOYEE DIRECTORS
any acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company, or (4)
any acquisition by any corporation pursuant to a transaction which complies with
clauses (A), (B) and (C) of section (iii) of this sentence; or
(ii) A change in the composition of the Board during any two
year period such that the individuals who, as of the beginning of such two year
period, constitute the Board (such Board shall be hereinafter referred to as the
"Incumbent Board") cease for any reason to constitute at least a majority of the
Board; provided, however, that for purposes of this definition, any individual
who becomes a member of the Board subsequent to the beginning of the two year
period, whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of those individuals
who are members of the Board and who were also members of the Incumbent Board
(or deemed to be such pursuant to this proviso) shall be considered as though
such individual were a member of the Incumbent Board; and provided further,
however, that any such individual whose initial assumption of office occurs as a
result of or in connection with either an actual or threatened election contest
(as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act) or other actual or threatened solicitation of proxies or consents
by or on behalf of an Entity other than the Board shall not be so considered as
a member of the Incumbent Board; or
(iii) The approval by the shareholders of the Company of a
merger, reorganization or consolidation or sale or other disposition of all or
substantially all of the assets of the Company (each, a "Corporate Transaction")
or, if consummation of such Corporate Transaction is subject, at the time of
such approval by shareholders, to the consent of any government or governmental
agency, the obtaining of such consent (either explicitly or implicitly by
consummation); excluding however, such a Corporate Transaction pursuant to which
(A) all or substantially all of the individuals and entities who are the
beneficial owners of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such Corporate Transaction will
beneficially own, directly or indirectly, more than 60% of the outstanding
shares of common stock, and the combined voting power of the then outstanding
voting securities entitled to vote generally in the election of directors of the
corporation resulting from such Corporate Transaction (including, without
limitation, a corporation or other Person which as a result of such transaction
owns the Company or all or substantially all of the Company's assets either
directly or through one or more subsidiaries (a "Parent Company")) in
substantially the same proportions as their ownership, immediately prior to such
Corporate Transaction, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities, (B) no Entity (other than the Company, any employee
benefit plan (or related trust) of the Company, such corporation resulting from
such Corporate Transaction or, if reference was made to equity ownership of any
Parent Company for purposes of determining whether clause (A) above is satisfied
in connection with the applicable Corporate Transaction, such Parent Company)
will beneficially own, directly or indirectly, 20% or more of, respectively, the
outstanding shares of common stock of the corporation resulting from
3
4
AVAYA 2000 STOCK COMPENSATION PLAN FOR NON-EMPLOYEE DIRECTORS
such Corporate Transaction or the combined voting power of the outstanding
voting securities of such corporation entitled to vote generally in the election
of directors unless such ownership resulted solely from ownership of securities
of the Company prior to the Corporate Transaction, and (C) individuals who were
members of the Incumbent Board will immediately after the consummation of the
Corporate Transaction constitute at least a majority of the members of the board
of directors of the corporation resulting from such Corporate Transaction (or,
if reference was made to equity ownership of any Parent Company for purposes of
determining whether clause (A) above is satisfied in connection with the
applicable Corporate Transaction, of the Parent Company); or
(iv) The approval by the shareholders of the Company of a
complete liquidation or dissolution of the Company.
"Committee" shall mean the Corporate Governance and Compensation
Committee of the Board (or any successor committee consisting of two or more
members of the Board).
"Company" shall mean Avaya Inc., a Delaware corporation.
"Deferral Plan" shall mean the Company's Deferred Compensation Plan, as
amended, and any successor or replacement plan then in effect with respect to
Participants.
"Exercise Date" shall have the meaning prescribed by Article 6.
"Fair Market Value" shall mean, with respect to Shares, the average of
the highest and lowest reported sales prices, regular way, of Shares in
transactions reported on the New York Stock Exchange on the date of
determination of Fair Market Value, or if no sales of Shares are reported on the
New York Stock Exchange for that date, the comparable average sales price for
the last previous day for which sales were reported on the New York Stock
Exchange.
"Grant Date" means the date on which an Option or Stock Retainer is
granted under the Plan.
"Option" shall mean a non-statutory stock option granted under Article
6 of the Plan.
"Participant" shall mean each member of the Board from time to time who
is not a full-time employee of the Company or any of its Affiliates.
"Person" shall mean any individual, corporation, partnership,
association, joint-stock company, trust, unincorporated organization, limited
liability company, other entity or government or political subdivision thereof.
4
5
AVAYA 2000 STOCK COMPENSATION PLAN FOR NON-EMPLOYEE DIRECTORS
"Retainer" shall mean the retainer paid to each Participant as
compensation for services as a member of the Board or any committee of the Board
with respect to each Annual Term, but shall not include any reimbursement for
expenses.
"Shares" shall mean the shares of common stock, $.01 par value, of the
Company.
"Stock Retainer" shall mean that portion of a Participant's Retainer
which, pursuant to Article 5 of this Plan, such Participant has elected, or is
required, to receive in Shares.
ARTICLE 3. ADMINISTRATION.
The Plan shall be administered by the Committee. The Committee shall
have full power and authority, subject to such resolutions not inconsistent with
the provisions of the Plan as may from time to time be adopted by the Board, to
(i) interpret and administer the Plan and any instrument or agreement entered
into under the Plan; (ii) establish such rules and regulations and appoint such
agents as it shall deem appropriate for the proper administration of the Plan;
and (iii) make any other determination and take any other action that the
Committee deems necessary or desirable for administration of the Plan. Decisions
of the Committee shall be final, conclusive and binding upon all Persons,
including the Company, any Participants or any shareholder.
ARTICLE 4. SHARES SUBJECT TO THE PLAN.
(a) Subject to adjustment as provided in Article 4(b), the total number
of Shares available for Options and Stock Retainers granted under the Plan on
and after October 1, 2000 and on or prior to October 1, 2010 shall be
[_____________insert number] Shares; provided, that if any Shares are subject to
an Option that is forfeited, expires, or otherwise is terminated without
issuance of Shares, the Shares subject to such Option shall again be available
for Options and Stock Retainers under the Plan.
(b) In the event of any merger, reorganization, consolidation,
recapitalization, stock dividend, stock split, reverse stock split, spin-off or
similar transaction or other change in corporate structure affecting the Shares,
such adjustments and other substitutions shall be made to the Plan and to
Options as the Committee in its sole discretion deems equitable or appropriate,
including without limitation such adjustments in the aggregate number, class and
kind of Shares which may be delivered under the Plan, and in the number, class,
kind and option or exercise price of Shares subject to outstanding Options as
the Committee may determine to be appropriate in its sole discretion to prevent
dilution or enlargement of rights; provided that the number of Shares or other
securities subject to any Option shall always be a whole number.
ARTICLE 5. STOCK RETAINER.
5
6
AVAYA 2000 STOCK COMPENSATION PLAN FOR NON-EMPLOYEE DIRECTORS
(a) Commencing with the Annual Term beginning October 1, 2000, each
Participant will receive fifty percent (50%) of his or her Retainer for each
Annual Term in the form of a Stock Retainer and may elect to receive all or any
portion of the remaining fifty percent (50%) of such Retainer in the form of
either a Stock Retainer or in cash; provided, that each Participant may elect to
receive in lieu of any or all of any amount to be paid as a Stock Retainer a
payment in the form of an Option for the number of Shares determined pursuant to
Article 6(b).
(b) If any Participant fails to notify the Secretary of the Company in
writing by December 31 of the preceding Annual Term of the desired form of
payment of the Retainer for the next Annual Term, then such Participant shall be
deemed to have elected a Stock Retainer for fifty percent (50%) of the value of
such Retainer, with the remaining 50% in cash. Any such election shall be filed
on a form prescribed by the Company for this purpose and such election (or
failure to elect) shall be irrevocable as of the last date by which such
election was due to be filed with the Company.
(c) Any Shares constituting a Stock Retainer shall be payable
automatically on October 1 of each Annual Term (or, if October 1 is not a
Business Day, on the next succeeding Business Day), commencing October 1, 2000.
Payments for the cash portion, if any, of the Annual Retainer shall be made on
the same day. A Participant's Stock Retainer shall consist of the largest number
of whole Shares having a Fair Market Value, as of the date of payment, equal to
the portion of the Retainer to be paid in Shares. The Fair Market Value of any
fractional share shall be paid in cash. A Participant may elect to have all or a
portion of the Shares or cash otherwise deliverable under this Article 5
credited to the deferred compensation account of such Participant under the
Deferral Plan to be held in, respectively, the Company Shares and cash portions
of such account.
(d) This Article 5 shall apply to any person who becomes a Participant
other than at the beginning of an Annual Term (or the immediately preceding
Annual Meeting) with respect to the Retainer determined by the Committee to be
payable for such portion of such Annual Term which follows his or her
appointment to the Board. Such person shall make the election prescribed by
Article 5(a) no later than the 30th day following the effective date of his or
her appointment to the Board. The payment date for any cash portion of the
Retainer and the Grant Date for any Option or Stock Retainer shall be the first
Business Day which occurs at least fifteen (15) calendar days after receipt by
the Company of such election.
ARTICLE 6. OPTIONS.
(a) Commencing with the Annual Term beginning October 1, 2000, there
shall be granted on October 1 of each Annual Term (or, if October 1 is not a
Business Day, on the next succeeding Business Day) to each Participant who has
elected, pursuant to Article 5, payment of all or any portion of the Retainer in
the form of an
6
7
AVAYA 2000 STOCK COMPENSATION PLAN FOR NON-EMPLOYEE DIRECTORS
Option, an Option, on the terms and conditions described in this Plan, to
purchase the largest number of whole Shares obtained by applying the following
formula:
Number of Shares = 3 X Dollar Amount of Retainer to be paid as an Option
-------------------------------------------------
Fair Market Value of a Share on October 1*
*or, if October 1 is not a Business Day, on the next succeeding
Business Day.
The value of any fractional share shall be paid in cash.
(b) Options shall be subject to the terms and conditions set forth in
this Plan and to such additional terms and conditions, not inconsistent with the
provisions of this Plan, as the Committee shall deem desirable.
(c) The exercise price per Share under an Option shall be the Fair
Market Value of a Share on the Grant Date, subject to adjustment as prescribed
in Article 4(b).
(d) The term of each Option shall be ten years from the Grant Date.
(e) Options shall be vested and non-forfeitable on the Grant Date and
be fully exercisable on the earliest of (i) the date which is six (6) months
after the Grant Date, (ii) the occurrence of a Change in Control and (iii) the
death of a Participant (any of the foregoing the "Exercise Date").
(f) Except as provided in this Article 6(f), an Option is not
transferable other than by will or the laws of descent and distribution, and
during the lifetime of the Participant may be exercised only by such Participant
or his or her guardian or legal representative. The Option may be transferred by
the Participant, in accordance with rules established by the Company, to one or
more members of the Participant's immediate family, to a partnership of which
the only partners are members of such immediate family or to a trust established
by the Participant for the benefit of one or more members of such immediate
family (each such transferee a "Permitted Transferee"). For purposes of this
Article 6(f), "immediate family" means a Participant's spouse, parents,
children, grandchildren and spouses of children and grandchildren (including
adopted children and grandchildren, as the case may be). A Permitted Transferee
may not further transfer the Option. An Option transferred pursuant to this
Article 6(f) shall remain subject to all of the provisions of the Plan and any
Agreement with respect to such Option and may not be exercised by a Permitted
Transferee unless and until all legal or regulatory approvals, listings,
registrations, qualifications or other clearances as determined by the Company
to be required or appropriate have been obtained.
(g) A Participant may, in accordance with procedures established by the
Company, designate one or more beneficiaries to receive all of his or her rights
to any unexercised Option and may change or revoke such designation at any time.
In the
7
8
AVAYA 2000 STOCK COMPENSATION PLAN FOR NON-EMPLOYEE DIRECTORS
event of the death of the Participant, any Option or portion thereof which is
subject to such a designation shall be exercisable (to the extent such
designation is determined by the Company to be valid, effective and enforceable)
by the designated person or persons in accordance with this Plan and any
Agreement. Such determination by the Company shall be final and binding on all
Persons, and the Company shall have no liability with respect to any Person with
respect to such determination.
(h) Any Option may be exercised by the Participant in whole or in part
at any time on or after the Exercise Date and before the expiration of such
Option. The Participant shall make payment of the Option price in cash or in
Shares with a Fair Market Value equivalent to the exercise price for all of the
Shares to be purchased upon exercise of the Option.
ARTICLE 7. AMENDMENTS AND TERMINATION.
The Board may amend, alter or discontinue the Plan, but no amendment,
alteration, or discontinuation shall be made that would impair the rights of a
Participant under an Option theretofore granted, without the Participant's
consent, or that without the approval of the shareholders would:
(a) except as is provided in Article 4(b) of the Plan, increase the
total number of shares reserved for the purpose of the Plan; or
(b) change the Participants eligible to participate in the Plan.
ARTICLE 8. GENERAL PROVISIONS.
(a) Nothing in the Plan shall be deemed to create any obligation on the
part of the Board to nominate any director for reelection by the Company's
shareholders or to limit the rights of the shareholders to remove any director.
(b) The Company shall have the right to require, prior to the issuance
or delivery of any Shares pursuant to the Plan, payment by a Participant to the
Company of any taxes required by law to be withheld with respect to the issuance
or delivery of such Shares.
(c) Shares issued or delivered under the Plan shall be in either book
entry form or in certificate form pursuant to instructions given by the
Participant to the Company. All Shares delivered under the Plan shall be subject
to such stop-transfer orders and other restrictions as the Company may deem
advisable under the rules, regulations, and other requirements of the Securities
and Exchange Commission, any stock exchange upon which the Shares are then
listed, and any applicable Federal or state securities law, and the Company may
cause a legend or legends to be put on any such certificates to make appropriate
reference to such restrictions.
8
9
AVAYA 2000 STOCK COMPENSATION PLAN FOR NON-EMPLOYEE DIRECTORS
(d) The issuance or delivery of any Shares under this Plan may be
postponed by the Company for such period as may be required to comply with any
applicable requirements under the Federal securities laws, any applicable
listing requirements of any national securities exchange and requirements under
any other law or regulation applicable to the issuance or delivery of such
Shares, and the Company shall not be obligated to issue or deliver any Shares if
the issuance or delivery of such Shares shall constitute a violation of any
provision of any law or of any regulation of any governmental authority or any
national securities exchange.
(e) The validity, construction, and effect of the Plan and any rules
and regulations relating to the Plan shall be determined in accordance with the
laws of the State of Delaware without regard to principles of conflicts of laws.
(f) If any provision of this Plan is or becomes or is deemed invalid,
illegal or unenforceable in any jurisdiction, or would disqualify the Plan or
any Award under any law deemed applicable by the Company, such provision shall
be construed or deemed amended to conform to applicable laws or if it cannot be
construed or deemed amended without, in the determination of the Company,
materially altering the intent of the Plan, it shall be stricken and the
remainder of the Plan shall remain in full force and effect.
ARTICLE 9. EFFECTIVE DATE OF PLAN.
The Plan first becomes effective on October 1, 2000.
ARTICLE 10. TERM OF PLAN.
No Option or Stock Retainer shall be granted pursuant to the Plan after
October 1, 2010, but any Option theretofore granted may extend beyond that date.
IN WITNESS WHEREOF, the undersigned have executed the Avaya 2000 Stock
Compensation Plan for Non-Employee Directors effective as of October 1, 2000.
AVAYA INC. Attested to:
By: ____________________________ By:_________________________
9
1
EXHIBIT 10.13
=====================================================================
TRADEMARK LICENSE AGREEMENT
BY AND BETWEEN
LUCENT TECHNOLOGIES INC.
AND
AVAYA INC.
Dated as of October 1, 2000
=====================================================================
2
TRADEMARK LICENSE AGREEMENT
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I. DEFINITIONS
1.1 AFFILIATE
1.2 AUTHORIZED DEALERS
1.3 COMPOUND MARKS
1.4 CONTROL SPECIFICATIONS
1.5 CORPORATE IDENTIFICATION MARK
1.6 AVAYA COMPANIES
1.7 AVAYA PRODUCTS
1.8 AVAYA PRODUCT MARKS
1.9 GOVERNMENTAL AUTHORITY
1.10 LICENSED MARKS
1.11 LICENSEE
1.12 LICENSOR
1.13 MARK
1.14 PERSON
1.15 SUBSIDIARY
1.16 TRANSITION LOGOS
ARTICLE II. LICENSE GRANT
2.1 AVAYA PRODUCTS
2.2 COMPOUND MARKS
2.3 LIMITATIONS ON GRANT
2.4 NO USE IN LICENSEE'S NAME
2.5 NO OTHER MARKS TO BE USED
2.6 MODIFICATION OF LICENSED MARKS
ARTICLE III. AGREEMENT PERSONAL
3.1 PERSONAL NATURE OF AGREEMENT
3.2 SUBLICENSING/ASSIGNMENT
3.3 AUTHORIZED DEALERS
3.4 BUSINESS PARTNERS
</TABLE>
i
3
<TABLE>
<S> <C>
ARTICLE IV. LICENSES TO OTHERS AND OWNERSHIP
4.1 EXCLUSIVE LICENSE
4.2 RETENTION OF RIGHTS BY LICENSOR
4.3 RETENTION OF RIGHTS BY LICENSEE
ARTICLE V. LICENSED TERRITORY
ARTICLE VI. QUALITY CONTROL
6.1 GENERAL
6.2 CONTROL AND TRADEMARK USE SPECIFICATIONS
6.3 CUSTOMER CARE PROVISIONS
6.4 QUALITY CONTROL REVIEWS; RIGHT OF INSPECTION
6.5 SPONSORSHIP
6.6 DISCONTINUATION
6.7 REFURBISHED PRODUCT
6.8 COSTS
ARTICLE VII. REMEDIES FOR NONCOMPLIANCE WITH
CONTROL AND TRADEMARK USE SPECIFICATIONS
7.1 CURE PERIOD
7.2 FAILURE TO CURE
ARTICLE VIII. PROTECTION OF LICENSED SERVICE MARKS
AND THE TRANSITION LOGOS
8.1 OWNERSHIP AND RIGHTS
8.2 SIMILAR MARKS
8.3 INFRINGEMENT
8.4 COMPLIANCE WITH LAWS
ARTICLE IX. TERMINATION
9.1 BREACH BY LICENSEE
9.2 TERMINATION OBLIGATIONS
ARTICLE X. INDEMNITIES
10.1 LICENSEE'S INDEMNIFICATION
10.2 NOTICE
ARTICLE XI. NOTICES
</TABLE>
ii
4
<TABLE>
<S> <C>
ARTICLE XII. COMPLIANCE WITH LAW
12.1 GENERAL
12.2 GOVERNMENTAL LICENSES, PERMITS AND APPROVALS
ARTICLE XIII. MEDIATION AND DISPUTE RESOLUTION
13.1 DISPUTES
13.2 ESCALATION; MEDIATION
13.3 COURT ACTIONS
ARTICLE XIV. MISCELLANEOUS
14.1 COUNTERPARTS; ENTIRE AGREEMENT; CORPORATE POWER
14.2 GOVERNING LAW
14.3 ASSIGNABILITY; SUCCESSORS
14.4 RELATIONSHIP OF THE PARTIES; THIRD PARTY BENEFICIARIES
14.5 SEVERABILITY
14.6 FORCE MAJEURE
14.7 PUBLICITY
14.8 HEADINGS
14.9 WAIVERS OF DEFAULT
14.10 INJUNCTIVE RELIEF
14.11 AMENDMENTS
14.12 INTERPRETATION
</TABLE>
iii
5
TRADEMARK LICENSE AGREEMENT
THIS TRADEMARK LICENSE AGREEMENT (this "Agreement"), dated as
of October 1, 2000 (the "Effective Date"), is by and between Lucent Technologies
Inc., a Delaware corporation, with offices at 600 Mountain Avenue, Murray Hill,
New Jersey 07974 ("Lucent"), and Avaya Inc., a Delaware corporation, with
offices at 211 Mount Airy Road, Basking Ridge, New Jersey 07920 ("Avaya").
RECITALS
WHEREAS, the Board of Directors of Lucent has determined that
it is in the best interests of Lucent and its stockholders to separate Lucent's
existing businesses into two independent businesses.
WHEREAS, in order to effectuate the foregoing, Lucent and Avaya
have entered into a Contribution and Distribution Agreement, which provides,
among other things, subject to the terms and conditions thereof for the
contribution by Lucent of the former Enterprise Networks Group of Lucent ("EN")
assets to Avaya and the assumption by Avaya of the EN liabilities and the
execution and delivery of certain other agreements in order to facilitate and
provide for the foregoing; and
WHEREAS, this Agreement is to allow Avaya's business units to
create consumer awareness that they are the successors to Lucent's former
business units and to minimize customer confusion that might otherwise arise as
a result of the foregoing transactions and the immediate loss of use of the
Lucent name, marks, logos and trade dress.
NOW, THEREFORE, in consideration of the premises and for other
good and valid consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties, intending to be legally bound, agree as follows:
ARTICLE I
DEFINITIONS
For the purpose of this Agreement, in addition to the words and phrases
that are defined throughout the body of this Agreement, the following words and
phrases shall have the following meanings:
1.1 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, or 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.
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1.2 AUTHORIZED DEALERS means EN's existing dealers, distributors,
agents, resellers and Business Partners that are authorized to use any Lucent
marks pursuant to existing agreements.
1.3 COMPOUND MARKS means any mark that consists of the mark Lucent
immediately followed by another mark which is in use or applied for on the date
of this Agreement; the entire set of Compound Marks is set forth in Schedule E
hereto.
1.4 CONTROL SPECIFICATIONS means standards of quality (including
performance parameters) applicable to the fabrication, performance, design, use,
provision, and support of an Avaya Product under the Licensed Marks, as set
forth or referenced in Schedule B, and the standards applicable to the
marketing, advertising, and promotion of an Avaya Product under the Licensed
Marks as set forth or referenced in Schedule C.
1.5 CORPORATE IDENTIFICATION MARK means the Licensee's house mark
and related trade dress used to identify and distinguish Licensee from other
Persons, as identified in Schedule D hereto.
1.6 AVAYA COMPANIES means EN, Mosaix Inc., Octel Communications
Inc., Lannet Ltd., SDX Business Systems plc., Agile Networks Inc., Cursor
Computers Inc., dba CCOM Information Systems, Prominet Corporation and each of
their respective Subsidiaries in existence prior to the Effective Date. Avaya
may add additional companies to the definition of "Avaya's Companies" subject to
Lucent's prior written consent which will not be unreasonably withheld.
1.7 AVAYA PRODUCTS means products created, manufactured or
marketed by Avaya's Companies but not products newly designed or created by them
after the Effective Date.
1.8 AVAYA PRODUCT MARKS means those trademarks, servicemarks and
trade dress to be assigned from Lucent to Avaya on or before the Effective Date.
1.9 GOVERNMENTAL AUTHORITY means any federal, state, local,
foreign or international court, government, department, commission, board,
bureau, agency, official or other regulatory, administrative or governmental
authority.
1.10 LICENSED MARKS means the marks LUCENT, LUCENT TECHNOLOGIES and
the INNOVATION RING LOGO as identified in Schedule A hereto (and as such marks
may be modified or supplemented as contemplated by Article II hereof).
1.11 LICENSEE means Avaya, the Avaya Companies, each Subsidiary of
Avaya, and each other Person that is an Affiliate of Avaya, but only for so long
as such Person is an Affiliate or Subsidiary of Avaya.
1.12 LICENSOR means Lucent.
1.13 MARK means any word, name, symbol or device, or any
combination thereof, used or intended to be used by a Person to identify and
distinguish the products or services of that
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Person from the products or services of others and to indicate the source of
such goods or services even if that source is unknown.
1.14 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.
1.15 SUBSIDIARY means a company, corporation or other legal entity
(i) the majority of whose shares or other securities entitled to vote for
election of directors (or other managing authority) is now or hereafter
controlled by such company either directly or indirectly; or (ii) which does not
have outstanding shares or securities but the majority of whose ownership
interest representing the right to manage such corporation or other legal entity
is now or hereafter owned and controlled by such company either directly or
indirectly; but any such corporation or other legal entity shall be deemed to be
a Subsidiary of such company only as long as such control or ownership and
control exists.
1.16 TRANSITION LOGOS means the Licensed Marks used in combination
with Licensee's Corporate Identification Mark as identified on Schedule F hereto
(and as such Transition Logos may be modified in accordance with this
Agreement).
ARTICLE II
LICENSE GRANT
2.1 AVAYA PRODUCTS
(a) INITIAL PERIOD. (i) Subject to the terms and
conditions of this Agreement, Licensor grants Licensee a royalty free, personal,
non-transferable, non-sublicensable, non-exclusive license to use the Licensed
Marks in connection with the manufacture, marketing, promotion, distribution and
sale of Avaya Products which have been manufactured prior to, or are being
manufactured as of, the Effective Date, and continuing until April 1, 2001.
(ii) Licensee may not affix the Licensed Marks to
Avaya Products, or to any packaging, instructions, or marketing materials
manufactured after April 1, 2001; provided, however, that Avaya Products,
packaging, instructions and promotional materials with the Licensed Marks in
inventory as of April 1, 2001, may be marketed, distributed, promoted and sold
after that date and until the inventory of such Avaya Products packaging or
other materials is depleted.
(iii) When Licensee travels to a customer's premises
or takes possession of a previously installed product to make a repair or
perform a service, Licensee agrees to make reasonable efforts with regard to
labels for large equipment that are visible to either replace the product
housing to remove any reference to the Licensed Marks or affix labels with the
Corporate Identification Mark to the product in a manner that obscures the
Licensed Marks.
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(iv) Licensee may not affix the Licensed Marks to
products other than Avaya Products.
(v) No right is granted to Licensee to use the
Licensed Marks alone on any new stationery, new business cards, new building
signage, new building flags, new employee badges, or new vehicle markings after
the Effective Date.
(vi) Licensee will cease to use the Licensed Marks
alone on stationery, business cards, building flags, and employee badges on or
before December 31, 2000.
(vii) Licensee will make reasonable efforts to cease
use of the Licensed Marks on vehicle markings and on building signage on or
before December 31, 2000, however, under no circumstances may such use continue
later than June 1, 2001, unless required sooner by applicable State or Federal
laws.
(b) TRANSITION PERIOD. (i) Subject to the terms and
conditions of this Agreement, and to the guidelines governing use of the
Transition Logos attached as Schedule F hereto, Licensor grants Licensee a
royalty free, personal, non-transferable, non-sublicensable, exclusive license
to use the Transition Logos in connection with the manufacture, marketing,
promotion, distribution and sale of any Avaya Products commencing on the
Effective Date, as follows:
Transition Logo A - includes Avaya name and the
descriptive phrase "The former Enterprise Networks Group of Lucent Technologies"
but will not include the Innovation Ring Logo, as set forth in Schedule F. This
may only be used as follows:
- On new products, packaging and labeling - until
September 30, 2001.
- On stationery, business cards and website - for
one (1) year from Effective Date.
- On advertising and promotional materials - for
twelve (12) months in the US and eighteen (18)
months outside the US, from Effective Date.
Transition Logo B - includes Avaya name and logo plus
the Lucent name and the Innovation Ring Logo with the descriptive phrase "The
former Enterprise Networks Group of Lucent Technologies", as set forth in
Schedule F. This may only be used as follows:
- On new products, packaging and labeling - until
December 31, 2000.
- On stationery, business cards and website - for
one (1) year from the Effective Date.
- On advertising and promotional materials - for
six (6) months in the US and one (1) year outside
the US, from Effective Date.
(ii) Avaya Products, packaging, instructions and
promotional material with the Transition Logos in inventory after the Effective
Date may be marketed, distributed, promoted and sold after that date and until
the inventory of such Avaya Products and materials is depleted, subject to other
applicable terms and conditions of this Agreement.
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2.2 COMPOUND MARKS. (i) To the extent that Licensee is using a
Compound Mark as of the date of this Agreement, it may continue to use the
Licensed Marks in the Compound Mark during the Initial Period hereunder
applicable to the Avaya Products with respect to which such Compound Mark is
used. After the Initial Period, Licensee shall, if it desires to continue to use
the Compound Mark, use the Corporate Identification Mark in lieu of the Licensed
Marks to create a new Compound Mark, ownership of which shall belong exclusively
to Avaya and Lucent will have no rights therein. At the end of the Initial
Period hereunder, Licensee shall cease all use of the Licensed Marks in the
Compound Mark, subject to the inventory depletion rules set forth herein.
(ii) Lucent shall maintain the registrations or pending applications
for the Compound Marks until Avaya has filed for the new Compound Marks, but,
following written notification from Avaya, shall allow the respective
registrations or pending applications to lapse or be abandoned after Avaya has
filed for the new Compound Mark. Lucent shall grant to Avaya any consents to
registration for the new Compound Marks, which may be needed. Lucent shall not
continue to use the Compound Marks after September 30, 2000.
2.3 LIMITATIONS ON GRANT. The Licensed Marks and the Transition Logos
may not be used by Licensee in connection with any product or service except as
expressly set forth in this Agreement.
2.4 NO USE IN LICENSEE'S NAME. Except as set forth herein, Licensee
shall cease using the Licensed Marks in Licensee's corporate, partnership, doing
business as, or fictitious name as of the Effective Date.
2.5 NO OTHER MARKS TO BE USED. Except for the Avaya Product Marks,
Licensee shall not use any other name, mark, indication of origin, trade dress
or logo of Licensor in connection with the manufacture, marketing, promotion,
distribution, sale or lease of any product or service without Licensor's express
prior written consent.
2.6 MODIFICATION OF LICENSED MARKS. If, as a result of governmental
regulation or court order, Licensor must modify or replace the Licensed Marks as
used in any substantial portion of Licensor's business, Licensee shall within
sixty (60) days adopt and use such modified or replaced Licensed Marks or this
Agreement will terminate. If Licensor voluntarily modifies or replaces the
Licensed Marks, Licensee shall not be obligated to adopt such modified or
replaced Licensed Marks and Licensor will honor the terms of this Agreement.
ARTICLE III
AGREEMENT PERSONAL
3.1 PERSONAL NATURE OF AGREEMENT. In recognition of the goodwill
contributed to the Licensed Marks and the Transition Logos by Licensee prior to
the Separation, and the unique nature of Licensee (including without limitation
the quality of the products and services that it provides, its reputation, and
its goodwill among its customers), the parties agree that the rights,
obligations and benefits of this Agreement shall be personal to Licensee, and
Licensor shall not
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be required to accept performance from, or render performance to an entity other
than Licensee. Pursuant to 11 U.S.C. Section 365 (c) (1) (A) (as it may be
amended from time to time, and including any successor to such provision), in
the event of the bankruptcy of Licensee, this Agreement may not be assigned or
assumed by any successor of Licensee, and Licensor shall be excused from
rendering performance to, or accepting performance from any such successor.
3.2 SUBLICENSING/ASSIGNMENT. Except as expressly provided herein with
respect to Authorized Dealers, Licensee may not sublicense or assign the rights
and obligations of this Agreement without Licensor's express written consent.
3.3 AUTHORIZED DEALERS. (a) Subject to the terms and conditions of
this Agreement, including all applicable Control and Trademark Use
Specifications, Authorized Dealers may use the Licensed Marks or the Transition
Logos on any Lucent or Avaya products, packaging. Marketing or other materials
supplied by Lucent or Avaya. Other than as set forth hereinabove, Authorized
Dealers may only use the relevant Lucent or Avaya BusinessPartner Logo in
accordance with the terms of this Agreement. Licensee shall take all appropriate
steps to restrain any Authorized Dealer from violating the terms and conditions
of this Agreement, including but not limited to termination of Licensee's
agreement with any such Authorized Dealer, or commencement of legal action
against any such Authorized Dealer. Licensee shall provide a list of all
existing Authorized Dealers to Licensor by October 1, 2000.
(b) Licensee may submit a written request, at any time (in
accordance with the notice provisions of Article XI below), for Licensor's
consent to add an Existing Authorized Dealer that was inadvertently omitted from
the list provided pursuant to Section 3.3(a) or to add a New Authorized Dealer
to such list. Licensor shall have thirty (30) days to approve or disapprove of
the proposed Authorized Dealer or New Authorized Dealer. If Licensor does not
respond to Licensee within such thirty (30) days, the New Authorized Dealer
shall be deemed approved by Licensor. A New Authorized Dealer shall satisfy the
guidelines attached as Schedule H hereto, and is subject to the terms and
conditions of this Agreement.
3.4 BUSINESSPARTNERS. Subject to the contractual obligations under
the existing agreements with BusinessPartners, neither Licensee nor any of its
BusinessPartners may continue to use the Lucent BusinessPartner logo set forth
in Schedule I after July 1, 2001. Thereafter, only the Avaya BusinessPartner
Logo may be used.
ARTICLE IV
LICENSES TO OTHERS AND OWNERSHIP
4.1 EXCLUSIVE LICENSE. Licensor agrees that it will not license the
Lucent Marks or the Transition Logos to third parties.
4.2 RETENTION OF RIGHTS BY LICENSOR. Except as otherwise expressly
provided in this Agreement, Licensor shall retain all rights in and to the
Licensed Marks, alone and as used in the Transition Logos, including without
limitation:
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(a) All rights of ownership in and to the Licensed Marks;
(b) The right to use (including the right of Licensor's
Affiliates and Subsidiaries to use) the Licensed Marks, either alone or in
combination with other marks, in connection with the marketing, offer or
provision of any product or service, including any product or service which
competes with Avaya Products; and
(c) The right to license others to use the Licensed Marks.
4.3 RETENTION OF RIGHTS BY LICENSEE. Except as otherwise expressly
provided in this Agreement, Licensee shall retain all rights in and to the
Corporate Identification Mark, alone and as used in the Transition Logos,
including without limitation:
(a) All rights of ownership in and to the Corporate
Identification Mark;
(b) The right to use (including the right of Licensee's
Affiliates to use) the Corporate Identification Mark, either alone or in
combination with other marks, in connection with the marketing, offer or
provision of any product or service, including any product or service which
competes with Lucent products; and
(c) The right to license others to use the Corporate
Identification Mark.
ARTICLE V
LICENSED TERRITORY
5.1 The Licensed Territory for the licenses granted in Article II of
this Agreement shall include the world, but such licenses do not authorize the
marketing, offering or sale of Avaya Products under the Licensed Marks or the
Transition Logos in any country in which no Avaya Products were being marketed,
offered or sold as of the Effective Date, except:
(a) If a contract with an Existing Authorized Dealer grants
rights to commence marketing an Avaya Product in a new country, then that new
country shall be included in the Licensed Territory with respect to that
particular Avaya Product; and
(b) Licensee may use the Licensed Marks or the Transition Logos
subject to the terms and conditions of this Agreement, in countries where, as of
the date hereof, it had developed bona-fide, good faith plans to commence
marketing an Avaya Product, which countries are identified in Schedule K hereto.
Schedule K shall in all events be completed to the mutual satisfaction of
Licensor and Licensee no later than December 31, 2000.
ARTICLE VI
QUALITY CONTROL
6.1 GENERAL. Licensee acknowledges that the Avaya Products covered by
this
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Agreement must continue to be of sufficiently high quality as to provide maximum
enhancement to and protection of the Licensed Marks and the Transition Logos and
the goodwill they symbolize. Licensee further acknowledges that the maintenance
of high quality Avaya Products is of the essence of this Agreement and that it
will utilize only marketing materials which do not disparage Licensor or place
in disrepute, its businesses or its business reputation, or adversely affect or
detract from Licensor's goodwill.
6.2 CONTROL AND TRADEMARK USE SPECIFICATIONS. (a) Licensee shall use
the Licensed Marks and the Transition Logos only in connection with the
manufacture, marketing, distribution, promotion, and sale of Avaya Products that
meet the Control and Trademark Use Specifications. The Control and Trademark Use
Specifications shall consist of Technical Performance, Customer Service, and
Customer Satisfaction Specifications attached or referenced in Schedule B hereto
and the Trademark Use Specifications referenced in Schedule C hereto. The
Control and Trademark Use Specifications shall be treated as proprietary
information and shall be subject to the confidentiality provisions of Article I
of the Contribution and Distribution Agreement.
(b) Licensee shall not offer any Avaya Product under the
Licensed Marks or the Transition Logos unless it meets each of the relevant
Control and Trademark Use Specifications. Licensee shall not provide to any
third party any product which does not meet the Control and Trademark Use
Specifications without first obliterating the Licensed Marks or the Transition
Logos.
6.3 CUSTOMER CARE PROVISIONS. If Licensor receives a customer
complaint regarding an Avaya Product branded under this Agreement, it will
promptly notify Licensee and Licensee will use reasonable commercial efforts to
resolve any such complaints or any other complaints received for products
branded under this Agreement as it would for complaints received for products
branded under the Avaya mark.
6.4 QUALITY CONTROL REVIEWS; RIGHT OF INSPECTION. Licensor shall have
the right to designate from time to time, one or more Quality Control
Representatives, who shall have the right from time to time, but no more than
once per calendar quarter, upon ten (10) days' notice to Licensee, to conduct
during regular business hours an inspection, test, survey and review of
Licensee's facilities and the facilities of Licensee's Authorized Dealers, if
any, and otherwise to determine compliance with the applicable Control and
Trademark Use Specifications. At Licensor's request, Licensee agrees to furnish
or make available for inspection to the Quality Control Representatives: (i)
samples of any Avaya Product that is marketed or provided under the Licensed
Marks or the Transition Logos for inspections, surveys, tests and reviews to
assure conformance with the applicable Control and Trademark Use Specifications;
(ii) performance data in its control relating to the conformance of Avaya
Products with the applicable Control and Trademark Use Specifications, and (iii)
samples of marketing materials, product packaging labels, instruction and
warranty materials that use the Licensed Marks or the Transition Logos. Any such
data provided to Licensor shall be treated as proprietary information subject to
the confidentiality provisions of Article I of the Contribution and Distribution
Agreement. Licensor may independently, and at its own expense, conduct
continuous customer satisfaction surveys to determine if Licensee and its
Authorized Dealers are meeting the Control and Trademark Use
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Specifications. Licensee shall cooperate with Licensor fully in the distribution
of such surveys. Licensor shall, at the request of Licensee, provide Licensee
with copies of customer surveys used by Licensor to determine if Licensee is
meeting the Control and Trademark Use Specifications. If Licensee learns that it
or any of its Authorized Dealers is not complying with any Control and Trademark
Use Specifications, it shall notify Licensor and the provisions of Article VII
(and of Section 3.3(a) in the case of Authorized Dealers) shall apply to such
noncompliance.
6.4 SPONSORSHIP. Beginning three months from the Effective Date,
Licensee shall not use the Licensed Marks to sponsor, endorse, or claim
affiliation with any event, meeting, charitable endeavor or any other
undertaking without obtaining the express written permission of Licensor. Any
breach of this provision shall be deemed a Significant Breach by Licensee.
6.5 DISCONTINUATION. If, during the term of this Agreement, Licensee
discontinues the retail provision of an Avaya Product that has been sold under
the Licensed Marks or the Transition Logos, Licensee shall comply with an "End
of Life" plan that satisfies the requirements of Schedule H hereto. Licensee
shall consult with Licensor prior to finalizing any End of Life Plan required by
this Section and submit an advance copy of such plan to Licensor.
6.6 REFURBISHED PRODUCT. Licensee shall not sell, convey, assign its
interest in or otherwise transfer to any refurbisher or reconditioner any
Product bearing the Licensed Marks without first obliterating the Licensed Marks
and any other reference to Licensor from all products, packaging, instruction
and warranty materials provided to such refurbisher or reconditioner.
6.7 COSTS. All reasonable costs associated with monitoring compliance
with and enforcing these quality control provisions, and with administering this
Agreement, shall be borne by Licensee. Licensor shall provide to Licensee a
quarterly invoice itemizing with reasonable specificity the costs incurred
during the prior quarter, which shall be due and payable by Licensee within
thirty (30) days of receipt.
ARTICLE VII
REMEDIES FOR NONCOMPLIANCE WITH CONTROL AND TRADEMARK USE SPECIFICATIONS
7.1 CURE PERIOD. If Licensor becomes aware that Licensee or any
Authorized Dealer is not complying with any provision of the Control and
Trademark Use Specifications, Licensor shall notify Licensee in writing, setting
forth in reasonable detail, a written description of the noncompliance and any
suggestions for curing such noncompliance. Licensee shall then have forty five
(45) days after receipt of such notice (the "Cure Period") to correct or submit
to Licensor a written plan, reasonably acceptable to Licensor, to correct such
noncompliance.
7.2 FAILURE TO CURE. If the noncompliance with the Control and
Trademark Use Specifications identified pursuant to Section 7.1 continues beyond
the Cure Period, Licensee shall: (i) cease offering such Avaya Products under
the Licensed Marks or the Transition Logos until it can comply with the Control
and Trademark Use Specifications; or (ii) be deemed to be
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in Significant Breach of this Agreement.
ARTICLE VIII
PROTECTION OF LICENSED SERVICE MARKS AND THE TRANSITION LOGOS
8.1 OWNERSHIP AND RIGHTS. (a) Licensee admits the validity of, and
agrees not to challenge the ownership or validity of, the Licensed Marks alone
and in the Transition Logos. Licensee shall not disparage, dilute or adversely
affect the validity of the Licensed Marks or the Transition Logos. Licensee
agrees that any and all goodwill and other rights that Licensee may acquire by
the use of the Licensed Marks alone and in the Transition Logos shall inure to
the sole benefit of Licensor. Licensee will not grant or attempt to grant a
security interest in the Licensed Marks or Transition Logos, or this Agreement,
or to record any such security interest in the United States Patent and
Trademark Office or elsewhere, against any trademark application or registration
belonging to Licensor. To the extent necessary, Licensee agrees to execute all
documents reasonably requested by Licensor to effect further registration of,
maintenance and renewal of the Licensed Marks and recordal of the license
relationship between Licensor and Licensee and recordal of Licensee as a
Registered User. For purposes of this Agreement, Licensee shall be considered a
"related company" under the U.S. Trademark Act, 15 U.S.C. Section 1051 et seq.
(b) LICENSOR admits the validity of, and agrees not to
challenge the ownership or validity of, the Corporate Identification Marks alone
and in the Transition Logos. Licensor shall not disparage, dilute or adversely
affect the validity of the Corporate Identification Marks or the Transition
Logos. Licensor agrees that any and all goodwill and other rights that Licensor
may acquire by the use of the Corporate Identification Marks alone and in the
Transition Logos shall inure to the sole benefit of Licensee. Licensor will not
grant or attempt to grant a security interest in the Corporate Identification
Marks or Transition Logos, or this Agreement, or to record any such security
interest in the United States Patent and Trademark Office or elsewhere, against
any trademark application or registration belonging to Licensee. To the extent
necessary, Licensor agrees to execute all documents reasonably requested by
Licensee to effect further registration of, maintenance and renewal of the
Corporate Identification Marks and recordal of the license relationship between
Licensee and Licensor. For purposes of this Agreement, Licensor shall be
considered a "related company" under the U.S. Trademark Act, 15 U.S.C. Section
1051 et seq.
8.2 SIMILAR MARKS. (a) Licensee further agrees not to register in any
country any Mark resembling or confusingly similar to the Licensed Marks and not
to use the Licensed Marks or any part thereof as part of its corporate name
(except as otherwise expressly permitted hereunder), nor use any Mark
confusingly similar, deceptive or misleading with respect to the Licensed Marks
or which dilute the Licensed Marks. If any application for registration is, or
has been, filed in any country by Licensee which relates to any Mark which in
the sole opinion of Licensor, is confusingly similar, deceptive or misleading
with respect to the Licensed Marks, or which dilutes the Licensed Marks,
Licensee shall, at Licensor's sole discretion, immediately abandon any such
application or registration or assign it to Licensor. If Licensee uses any Mark
which in the sole opinion of Licensor, is confusingly similar, deceptive or
misleading with
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respect to the Licensed Marks, or which dilutes the Licensed Marks, or if
Licensee uses the Licensed Marks in connection with any product, or in
connection with any service not specifically authorized hereunder, Licensee
shall, immediately upon receiving a written request from Licensor, permanently
cease such use.
(b) The parties agree that neither will apply to register the
Transition Logos, and that Licensee will have the sole and exclusive right to
use and register the Corporate Identification Mark.
8.3 INFRINGEMENT. In the event that Licensee learns of any
infringement or threatened infringement of the Licensed Marks, either alone or
as contained in Compound Marks or the Transition Logos, or any unfair
competition, passing-off or dilution with respect to the same, or any third
party alleges or claims that said Licensed Marks are liable to cause deception
or confusion to the public, or is liable to dilute or infringe any right of such
third party, Licensee shall immediately notify Licensor or its authorized
representative giving particulars thereof and Licensee shall provide necessary
information and assistance to Licensor or its authorized representatives in the
event that Licensor decides that proceedings should be commenced or defended.
Licensee's reasonable expenses in providing such assistance shall be borne by
Licensor. Licensor shall have exclusive control of any litigation, opposition,
cancellation or related legal proceedings. The decision whether to bring,
defend, maintain or settle any such proceedings shall be at the exclusive option
and expense of Licensor, and all recoveries shall belong exclusively to
Licensor. Licensee will not initiate any such litigation, opposition,
cancellation or related legal proceedings in its own name. Nothing in this
Agreement shall require or be deemed to require Licensor to enforce the Licensed
Marks or the Transition Logos against others. Nothing herein will limit
Licensee's ability to initiate any litigation, opposition, cancellation or
related legal proceedings in its own name with regard to those elements of the
Compound Marks and Transition Logos owned exclusively by Licensee.
8.4 COMPLIANCE WITH LAWS. In the performance of this Agreement,
Licensee shall comply with all applicable laws and regulations, including those
laws and regulations particularly pertaining to the proper use and designation
of Marks. Should Licensee be or become aware of any applicable laws or
regulations which are inconsistent with the provisions of this Agreement,
Licensee shall promptly notify Licensor of such inconsistency. In such event,
Licensor may, at its option, either waive the performance of such inconsistent
provisions, or negotiate with Licensee to make changes in such provisions to
comply with applicable laws and regulations.
ARTICLE IX
TERMINATION
9.1 BREACH BY LICENSEE. Licensor may terminate this Agreement at any
time in the event of a Significant Breach by Licensee. A "Significant Breach by
Licensee" shall mean any event expressly specified in this Agreement to be a
"Significant Breach," and any of the following (after exhaustion of any Cure
Periods set forth in Article VII hereof to the extent such Cure Periods are
applicable):
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(a) Licensee's or any Authorized Dealer's use of the Licensed
Marks or the Transition Logos contrary to the provisions of this Agreement,
provided, however, that such use contrary to this Agreement by a particular
Authorized Dealer shall be grounds for termination only as to that particular
Authorized Dealer; further provided that a pattern of violations without cure of
any provision of this Agreement, including Section 2.5, by a number of
Licensee's Authorized Dealers shall be grounds for termination as to those
Authorized Dealers, or all Authorized Dealers, at the sole discretion of
Licensor.
(b) Licensee's or any Authorized Dealer's use of a Licensed
Mark or the Transition Logos in connection with any marketing materials, or the
offering, marketing or provision of any Avaya Product, which fail to meet the
standards set forth in the Control and Trademark Use Specifications; provided,
however, that (i) the failure of a particular product to comply with the Control
and Trademark Use Specifications shall be grounds for termination only as to
that product; further provided that continued use of the Licensed Marks or the
Transition Logos by Licensee in connection with such product shall be grounds
for termination of the Agreement as to all Avaya Products, and (ii) except as
otherwise provided in Paragraph (a) above, the failure of an Authorized Dealer
to satisfy the standards set forth in the Control and Trademark Use
Specifications shall be grounds for termination only as to that particular
Authorized Dealer;
(c) Licensee's refusing or neglecting a request by Licensor
for access to Licensee's facilities, products or marketing materials;
(d) Unless otherwise permitted herein, Licensee's licensing,
assigning, transferring, disposing of or relinquishing (or purporting to
license, assign, transfer, dispose of or relinquish) any of the rights granted
in this Agreement to others;
(e) Licensee's failure to take appropriate steps to restrain
any Authorized Dealer from violating the terms and conditions of this Agreement;
(f) Licensee's receipt of any license, right or permission to
market, or the marketing by Licensee of, any product or service under any name,
mark, indication of origin or trade dress or the logo of any Person that
competes with Licensor in the provision of products or services; provided,
however, that Licensee may contract manufacture products for any Person
including any Person that competes with Licensor in the provision of Lucent
Products which do not bear the Licensed Marks or the Transition Logos, so long
as such Person makes no reference in any promotional, marketing information or
other material to Licensor or Licensee's relationship to Licensor;
(g) The bankruptcy or insolvency of Licensee; provided,
however, that the bankruptcy or insolvency of an Affiliate or Subsidiary of
Licensee shall be grounds for termination of this Agreement only as to that
Affiliate or Subsidiary;
(h) Licensee's failure to obtain Licensor's permission to
sponsor any undertaking as provided in Section 6.4 of this Agreement;
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(i) Licensee's failure to develop, provide to Licensor an
advance copy of or comply with an End of Life Plan, as required by Section 6.5
of this Agreement.
9.2 TERMINATION OBLIGATIONS. In the event Licensor terminates this
Agreement pursuant to this Article:
(a) Licensee and all Authorized Dealers (or such of the foregoing as
to which this Agreement is terminated) shall immediately cease all use of the
Licensed Marks or the Transition Logos upon notice of termination; provided,
however, that nothing herein shall be construed to prohibit Licensee from making
truthful statements of fact regarding its past affiliation with Licensor, so
long as such statements are not likely to cause confusion, mistake or deception.
(b) Licensee and all Authorized Dealers (or such of the foregoing as
to which this Agreement is terminated) shall have no further rights under this
Agreement.
ARTICLE X
INDEMNITIES
10.1 LICENSEE'S INDEMNIFICATION. Except as provided in Section 10.2
below, Licensee shall defend, indemnify and hold Licensor, its Affiliates and
authorized representatives, and each other Lucent Indemnitee, harmless against
all claims, suits, proceedings, costs, damages and judgments incurred, claimed
or sustained by third parties, whether for personal injury or otherwise, arising
from or in connection with Licensee's or any Authorized Dealer's, manufacture,
marketing, sale, or use of Avaya Products bearing the Licensed Marks or the
Transition Logos after the date of this Agreement, and shall indemnify Licensor
and each Lucent Indemnitee for all damages, losses, costs and expenses
(including reasonable attorneys' fees) due to such use, sale, lease or marketing
and also for any improper or unauthorized use of the Licensed Marks or the
Transition Logos by Licensee or its Authorized Dealers.
10.2 NOTICE. Licensee shall notify Licensor, in writing, in the event
that any third party claims, by suit, proceeding, action or otherwise, that
Licensee's use of the Licensed Marks, alone or as used in the Transition Logos
in connection with Avaya Products as provided in this Agreement constitutes or
amounts to a trademark or service mark infringement, unfair competition or
dilution, and, at Licensor's option, Licensee may be directed to surrender
control of the defense of such claims to Licensor.
ARTICLE XI
NOTICES
All notices or other communications under this Agreement shall
be in writing and shall be deemed to be duly given when (a) delivered in person,
or (b) sent by telecopy, telegram or facsimile, or (c) deposited in the United
States mail or private express mail, postage prepaid, addressed as follows:
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(i) If to Licensor:
Lucent Technologies Inc.
Attn: Senior Vice President and General Counsel
Room 6A-406
600 Mountain Avenue
Murray Hill, New Jersey 07974-0636
Tel: 908-582-8503
Fax: 908-582-6130
with a copy to:
Lucent Technologies Inc.
Attn: Managing Corporate Counsel, Trademarks and Copyrights
150 Allen Road, Suite 2000
Liberty Corner, New Jersey 07938-0875
Tel: 908-903-6391
Fax: 908-903-6388
(ii) If to Licensee:
Avaya Inc.
Attn: Vice President, General Counsel and Corporate Secretary
211 Mount Airy Road, Room 3E-202
Basking Ridge, New Jersey 07920
Tel: 908-953-5210
Fax: 908-953-5462
with a copy to:
Avaya Inc.
Attn: Trademark and Copyright Counsel
150 Allen Road, Suite 2000
P.O. Box 0875
Liberty Corner, New Jersey 07938
Tel: 908-903-6397
Fax: 908-903-6388
Either party may, by notice to the other party, change the address to which such
notices are to be given.
ARTICLE XII
COMPLIANCE WITH LAW
12.1 GENERAL. Nothing in this Agreement shall be construed to prevent
Licensor or Licensee from complying fully with all applicable laws and
regulations, whether now or hereafter in effect.
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12.2 GOVERNMENTAL LICENSES, PERMITS AND APPROVALS. Licensee, at its
expense, shall be responsible for obtaining and maintaining all licenses,
permits and approvals which are required by all Governmental Authorities with
respect to this Agreement, and to comply with any requirements of such
Governmental Authorities for the registration or recording of this Agreement.
Licensee shall furnish to Licensor written evidence from such Governmental
Authorities of any such licenses, permits, clearances, authorizations,
approvals, registration or recording.
ARTICLE XIII
MEDIATION AND DISPUTE RESOLUTION
13.1 DISPUTES. The provisions set forth in this Article shall apply to
all disputes, controversies or claims (whether arising in contract, tort or
otherwise) that may arise out of or relate to, or arise under or in connection
with this Agreement.
13.2 ESCALATION; MEDIATION.
(a) It is the intent of the parties to use their respective
reasonable best efforts to resolve expeditiously and on a mutually acceptable
negotiated basis any dispute, controversy or claim between them with respect to
the matters covered hereby that may arise from time to time. 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) If the parties are not able to resolve the dispute,
controversy or claim through the escalation process referred to above, then the
matter shall be referred to mediation. The parties shall retain a mediator to
aid 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 other proceeding. 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 shall be a prerequisite to the commencement of any action by
either party.
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13.3 COURT ACTIONS.
(a) In the event that any party, after complying with the
provisions set forth in Section 13.2 above, desires to commence an action, such
party may submit the dispute, controversy or claim (or series of related
disputes, controversies or claims) giving rise thereto to a court of competent
jurisdiction.
(b) 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 with respect to all matters not subject to such dispute, controversy or
claim.
ARTICLE XIV
MISCELLANEOUS
14.1 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.
(b) This Agreement and any exhibits, schedules and appendices
hereto 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.
(c) Each party represents as follows:
(i) each 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.
14.2 GOVERNING LAW. This Agreement shall be governed by and construed
and interpreted in accordance with the laws of the State of New York applicable
to contracts to be performed solely within the State of New York, as to all
matters, including matters of validity, construction, effect, enforceability,
performance and remedies.
14.3 ASSIGNABILITY; SUCCESSORS. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and assigns; provided, however, that
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neither party may assign this Agreement, in whole or in part, or its respective
rights or obligations without the prior written consent of the other party.
14.4 RELATIONSHIP OF THE PARTIES; THIRD PARTY BENEFICIARIES.
(a) 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 of independent contractor.
(b) The provisions of this 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 there are no third party
beneficiaries of this Agreement, and this Agreement shall not provide any third
Person with any remedy, claim, liability, reimbursement, claim of action or
other right in addition to those existing without reference to this Agreement.
14.5 SEVERABILITY. If any provision of this 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 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.
14.6 FORCE MAJEURE. No party shall be deemed in default of this
Agreement to the extent that any delay or failure in the performance of its
obligations under this 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 raw materials, 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.
14.7 PUBLICITY. The parties agree to consult and cooperate with each
other prior to issuing any press releases, articles, advertising, or publicity
materials relating to Products under this Agreement or this Agreement which use
the trademarks, logos, trade name, service mark or other company identification
of the other party, with the exception of the Transition Logos or factual
references and except as may be required by governmental regulation or court
order, or any of its Affiliates or any of its personnel.
14.8 HEADINGS. The article, section and paragraph headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.
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14.9 WAIVERS OF DEFAULT. Waiver by any party of any default by the
other party of any provision of this 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.
14.10 INJUNCTIVE RELIEF. In the event of any actual or threatened
default in, or breach of, any of the terms, conditions and provisions of this
Agreement, the party or parties who are or are to be thereby aggrieved shall
have the right to injunctive or other equitable relief of its rights under this
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 injunctive relief 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.
14.11 AMENDMENTS. No provision of this 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.
14.12 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 as a whole (including all of the schedules,
exhibits and appendices hereto) and not to any particular provision of this
Agreement. Article, section, exhibit, schedule and appendix references are to
the articles, sections, exhibits, schedules and appendices to this Agreement
unless otherwise specified. The word "including" and words of similar import
when used in this Agreement shall mean "including, without limitation," unless
the context otherwise requires or unless otherwise specified. The word "or"
shall not be exclusive. Unless expressly stated to the contrary in this
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
the Effective Date, regardless of any amendment or restatement hereof.
IN WITNESS WHEREOF, the parties have caused this Trademark License
Agreement to be executed by their duly authorized representatives as of the
Effective Date.
LUCENT TECHNOLOGIES INC. AVAYA INC.
By: By:
-------------------------- --------------------------
Name: Name:
------------------------ ------------------------
Title: Title:
----------------------- -----------------------
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Exhibit 10.14
================================================================================
PATENT AND TECHNOLOGY LICENSE AGREEMENT
by and between
LUCENT TECHNOLOGIES INC.
and
LUCENT TECHNOLOGIES GRL CORP.
and
AVAYA INC.
and
AVAYA TECHNOLOGY CORP.
Dated as of October 1, 2000
================================================================================
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PATENT AND TECHNOLOGY LICENSE AGREEMENT
Table of Contents
ARTICLE I -- DEFINITIONS
ARTICLE II -- ACCESS AND USE OF LICENSED TECHNOLOGY
2.1 Access to Licensed Technology
2.2 Export Control
2.3 Lucent's Rights to Use Licensed Avaya Technology
2.4 Avaya's Rights to Use Licensed Lucent Technology and Licensed Corporate
Technology
2.5 Procurement
ARTICLE III -- PATENT LICENSES
3.1 Grants to Avaya
3.2 Grants to GRL
3.3 Duration and Extent of Licensees
3.4 Scopes of Licenses
3.5 Filings of Patent Applications
3.6 Joint Inventions
3.7 Disclaimer
3.8 Outside the United States
ARTICLE IV -- ASSIGNMENT OF RESTRICTED JOINT CORPORATE TECHNOLOGY
4.1 Assignment
4.2 Exception to Restriction
4.3 Access to Restricted Joint Corporate Technology
ARTICLE V -- BALANCING PAYMENTS
5.1 Payment to Lucent
ARTICLE VI -- TERMINATION
6.1 Voluntary Termination
6.2 Survival
6.3 Change of Control of, or Certain Acquisitions by Avaya
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6.4 Material Breach
ARTICLE VII -- MISCELLANEOUS PROVISIONS
7.1 Agreement Prevails
7.2 Nothing Construed
7.3 Disclaimer
7.4 Confidentiality
7.5 Counterparts; Entire Agreement; Corporate Power
7.6 Governing Law
7.7 Assignability; Successors.
7.8 Third Party Beneficiaries
7.9 Notices
7.10 Severability
7.11 Force Majeure
7.12 Publicity
7.13 Headings
7.14 Waivers of Default
7.15 Specific Performance
7.16 Amendments
7.17 Interpretation
Exhibit A -- Licensed Avaya Technology
Exhibit B -- Avaya Product Realization Technology
Exhibit C -- Licensed Corporate Technology
Exhibit D -- Licensed Lucent Technology
Exhibit E -- Lucent Product Realization Technology
Exhibit F -- Restricted Joint Corporate Technology
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PATENT AND TECHNOLOGY LICENSE AGREEMENT
THIS PATENT AND TECHNOLOGY LICENSE AGREEMENT (this "Agreement"),
effective as of October 1, 2000 (the "Effective Date"), is by and between Lucent
Technologies Inc., a Delaware corporation, with offices at 600 Mountain Avenue,
Murray Hill, New Jersey 07974 ("Lucent"), Lucent Technologies GRL Corporation, a
Delaware corporation, having an office at Suite 105, 14645 N.W. 77th Avenue,
Miami Lakes, Florida 33014 ("GRL"), Avaya Inc., a Delaware corporation, with
offices at 211 Mount Airy Road, Basking Ridge, New Jersey 07920 ("Avaya"), and
Avaya Technology Corp., a Delaware corporation, with offices at Suite 105, 14645
N.W. 77th Avenue, Miami Lakes, Florida 33014, United States of America ("Avaya
IPCO").
RECITALS
A. WHEREAS, the Board of Directors of Lucent has determined that it is
in the best interests of Lucent and its stockholders to separate Lucent's
existing businesses into two independent businesses;
B. WHEREAS, Avaya and Avaya IPCO desire to receive and Lucent and GRL
are willing to grant to Avaya and Avaya IPCO certain rights to use patents and
technology retained and owned by Lucent and GRL on or after the Effective Date;
and
C. WHEREAS, Lucent and GRL desire to receive and Avaya and Avaya IPCO
are willing to grant to Lucent and GRL certain rights to use patents and
technology which is owned by Avaya and Avaya IPCO on or after the Effective
Date.
NOW, THEREFORE, in consideration of the premises and for other good and
valid consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties, intending to be legally bound, agree as follows:
ARTICLE I
DEFINITIONS
For the purpose of this Agreement the following terms in capital
letters are defined in this Article I and shall have the meaning specified
herein:
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 and the securities of such Person that are outstanding
immediately prior to such transaction and which represent 100% of the combined
voting power of the then outstanding voting securities of such Person entitled
to vote generally in the election of directors ("Voting Securities") are changed
into or exchanged for cash, securities or
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property, unless pursuant to such transaction such securities are changed into
or exchanged for, in addition to any other consideration, securities of the
surviving Person or transferee that represent immediately after such
transaction, at least a majority of the combined voting power of the Voting
Securities of the surviving Person or transferee; (b) a sale or other
disposition of all or substantially all of the assets of such Person; (c) 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 the combined voting power of the then outstanding Voting
Securities; or (d) 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.
COMMON SUPPORT FUNCTION SOFTWARE means those computer programs in
source and object code forms, including their respective associated
documentation, listed on Schedule A of the Technology Assignment and Joint
Ownership Agreement, dated as of September 30, 2000, by and between Lucent and
Avaya.
COPYRIGHTS mean any original works of authorship fixed in any tangible
medium of expression as set forth in 17 U.S.C. Section 101 et. seq.
CORPORATE TECHNOLOGY means any and all portions of Corporation
Technology other than Lucent Technology, Avaya Technology, and Common Support
Function Software. The term includes, but is not limited to, basic research.
DISTRIBUTION DATE shall have the meaning defined in the Contribution
and Distribution Agreement, dated as of September 30, 2000, by and between
Lucent and Avaya.
CORPORATION TECHNOLOGY means any and all Technology existing as of the
Distribution Date which is owned by, and was developed by or for, or purchased
by Lucent and its Subsidiaries, including any of its business units and
divisions. The term includes any and all Technology owned or controlled by any
of Lucent's Subsidiaries under which Lucent has the right to grant any of the
right-to-use licenses of the type and on the terms herein granted.
AVAYA BUSINESS shall have the meaning set forth in the Contribution and
Distribution Agreement, dated as of September 30, 2000, by and between Lucent
and Avaya.
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AVAYA IPCO'S PATENTS means every patent including any reissues or
reexaminations thereof (an including utility models but excluding design patents
and design registrations) issued in any country of the world, which is owned or
controlled by Avaya IPCO or any of its Related Companies and issued on, or
claiming priority from, an application filed in any country of the world within
two (2) years after the Effective Date, with respect to which and to the extent
that Avaya IPCO or any of its Related Companies has a right, as of the Effective
Date or thereafter, to grant the licenses granted herein.
AVAYA PRODUCT REALIZATION TECHNOLOGY means any and all portions of
Avaya Technology listed in the attached Exhibit B.
AVAYA TECHNOLOGY means any and all portions of Corporation Technology
existing as of the Distribution Date which were developed by or for, or
purchased by the Avaya Business. The term includes Licensed Avaya Technology,
and Avaya Product Realization Technology, but shall not include Lucent
Technology, Common Support Function Software or Corporate Technology.
GOVERNMENTAL AUTHORITY means any federal, state, local, foreign or
international court, government, department, commission, board, bureau, agency,
official or other regulatory, administrative or governmental authority.
GRL'S PATENTS means every patent including any reissues or
reexaminations thereof (an including utility models but excluding design patents
and design registrations) issued in any country of the world, which is owned or
controlled by GRL or any of its Related Companies and issued on, or claiming
priority from, an application filed in any country of the world within two (2)
years after the Effective Date, with respect to which and to the extent that GRL
or any of its Related Companies has a right, as of the Effective Date or
thereafter, to grant the licenses granted herein. Notwithstanding the foregoing,
the term GRL's Patents does not include Avaya's Patents.
JOINT CORPORATE TECHNOLOGY means those portions of Corporate Technology
listed on Schedule B of the Technology Assignment and Joint Ownership Agreement,
dated as of September 30, 2000, by and between Lucent and Avaya.
LICENSED CORPORATE TECHNOLOGY means those portions of Corporate
Technology listed in the attached Exhibit C.
LICENSED AVAYA TECHNOLOGY means only those items of Avaya Technology
listed in the attached Exhibit A.
LICENSED LUCENT TECHNOLOGY means only those items of Lucent Technology
listed in the attached Exhibit D.
LICENSED TECHNOLOGY, as to Lucent, means Licensed Avaya Technology, and
as to Avaya, means Licensed Lucent Technology or Licensed Corporate Technology.
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LUCENT BUSINESS shall have the meaning set forth in the Contribution
and Distribution Agreement, dated as of September 30, 2000, by and between
Lucent and Avaya.
LUCENT COMPETITOR means any person or entity that competes with Lucent
in the provision of telecommunications systems, services, and equipment,
including the provision of software and semiconductive devices.
LUCENT TECHNOLOGY means any and all portions of Corporation Technology
existing as of the Distribution Date, which were developed by or for, or
purchased by the Lucent Business. The term includes Licensed Lucent Technology,
and Lucent Product Realization Technology, but shall not include Avaya
Technology, Common Support Function Software or Corporate Technology.
LUCENT PRODUCT REALIZATION TECHNOLOGY means those items of Lucent
Technology listed in the attached Exhibit E.
MASK WORKS means any mask work, registered or unregistered, as defined
in 17 U.S.C. Section 901.
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.
RELATED COMPANIES means (i) with respect to GRL, Lucent, Subsidiaries
of either GRL or Lucent (only for so long as they remain Subsidiaries), (ii)
with respect to Lucent, Subsidiaries of Lucent, only for so long as they remain
Subsidiaries, (iii) with respect to Avaya IPCO, Avaya, and Subsidiaries of
either Avaya IPCO or Avaya (only for so long as they remain Subsidiaries), and
(iv) with respect to Avaya, Subsidiaries of Avaya, only for so long as they
remain Subsidiaries, and any other company so designated and agreed to in a
writing signed by the relevant parties. Solely for purposes of this definition,
Avaya and its Subsidiaries shall be deemed not to be Related Companies or
Subsidiaries of Lucent.
RESTRICTED JOINT CORPORATE TECHNOLOGY means the trade secrets, know
how, and computer programs (in source and object code forms), listed in the
attached Exhibit F.
SUBSIDIARY of a company means a corporation or other legal entity (i)
the majority of whose shares or other securities entitled to vote for election
of directors (or other managing authority) is now or hereafter controlled by
such company either directly or indirectly; or (ii) which does not have
outstanding shares or securities but the majority of whose ownership interest
representing the right to manage such corporation or other legal entity is now
or hereafter owned and controlled by such company either directly or
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8
indirectly; but any such corporation or other legal entity shall be deemed to be
a Subsidiary of such company only as long as such control or ownership and
control exists.
TECHNOLOGY means any and all technical information, computer or other
apparatus programs, specifications, drawings, records, documentation, works of
authorship or other creative works, ideas, knowledge or data. The term
Technology includes Copyrights, Mask Works and any other intellectual property
right, but does not include any trademark, trade name, trade dress or service
mark, or any patent applications on inventions, discoveries or improvements, or
any patents that may be granted or have been granted thereon.
ARTICLE II
ACCESS AND USE OF LICENSED TECHNOLOGY
2.1 ACCESS TO LICENSED TECHNOLOGY. During a period beginning on the
Effective Date and ending on December 31, 2000, each party shall have the right
to access and to copy any and all portions of the Licensed Technology in
possession of the other party. Such access and copying shall be in accordance
with a reasonable request and schedule to be mutually agreed upon between the
party in possession of the Licensed Technology that is requested and the
requesting party. All costs associated with the assembling, copying and
delivering of such Licensed Technology shall be borne by the requesting party.
2.2 EXPORT CONTROL. The parties acknowledge that any software and
technical information provided under this Agreement are subject to U.S. export
laws and regulations and any use or transfer of such software and technical
information must be authorized under those laws and regulations. The parties
agree that they will not use, distribute, transfer, or transmit the software or
technical information (even if incorporated into other products) except in
compliance with U.S. export regulations. If requested by another party, each
party also agrees to sign written assurances and other export-related documents
as may be required for the other party to comply with U.S. export regulations.
2.3 LUCENT'S RIGHTS TO USE LICENSED AVAYA TECHNOLOGY. (a) Subject to
the restrictions specified in this Section 2.3, Lucent and its Related Companies
shall each have a personal, worldwide, nonexclusive, royalty-free, and
non-transferable right to use the Licensed Avaya Technology for the businesses
in which Lucent or any of its Related Companies are now or hereafter engaged.
(b) Lucent's right to use includes the right of Lucent and its Related
Companies to copy, modify and improve any portion of the Licensed Avaya
Technology. No right is granted hereunder to Lucent or its Related Companies to
sublicense any of the Licensed Avaya Technology to any third party, other than
the sublicensing of software in object code form in connection with the sale of
Lucent products or services.
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(c) Notwithstanding any other provision, neither Lucent nor any of its
Related Companies shall have the right to access, copy or use, in whole or in
part, for any purpose, any Avaya Product Realization Technology without the
prior written consent of Avaya.
(d) Notwithstanding the provisions of Section 2.3(b), Lucent's rights
to use the "Octel Messaging Technology" listed in Appendix A includes the right
of Lucent and its Related Companies to sublicense any of such technology in
source code form to any third party for any and all purposes. For purposes of
clarity and not limitation, all rights granted to Lucent under such "Octel
Messaging Technology" shall be irrevocable.
2.4 AVAYA'S RIGHTS TO USE LICENSED LUCENT TECHNOLOGY AND LICENSED
CORPORATE TECHNOLOGY. (a) Subject to the restrictions specified in this Section
2.4, Avaya and its Related Companies shall each have a personal, worldwide,
nonexclusive, royalty-free and non-transferable right to use the Licensed Lucent
Technology and the Licensed Corporate Technology for the businesses in which
Avaya or any of its Related Companies are now or hereafter engaged.
(b) Avaya's right to use includes the right of Avaya and its Related
Companies to copy, modify and improve any portion of Licensed Lucent Technology
and the Licensed Corporate Technology. No right is granted hereunder to Avaya or
its Related Companies to sublicense any of Licensed Lucent Technology or
Licensed Corporate Technology to any third party, other than the sublicensing of
software in object code form in connection with the sale of Avaya products or
services.
(c) Notwithstanding any other provision, neither Avaya nor any of its
Related Companies shall have the right to access, copy or use, in whole or in
part, for any purpose, any Lucent Product Realization Technology, without the
prior written consent of Lucent, and then only to support work for or on behalf
of Lucent.
2.5 PROCUREMENT. (a) As an attribute to each party's rights to use
Licensed Technology, and subject to the restrictions specified in Sections 2.3
and 2.4, each party may disclose to any of its suppliers, prospective suppliers
or third party joint developers (under appropriate joint development agreements)
only those portions of Licensed Technology that are reasonably necessary for the
procurement by such party of components, subsystems, subassemblies, products
and/or services of the businesses of such party.
(b) Each party agrees that it will not make any portion of Licensed
Technology available to any such supplier, prospective supplier, or joint
developer except under procurement terms and conditions (including
confidentiality, use and disclosure restrictions) normally used by such party to
protect its own proprietary information of a similar nature.
(c) The procurement rights granted hereunder to each one of the parties
under this Section 2.5 shall not be exercised by one party in a manner such that
the exercise of
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such one party's procurement rights is a sham to effect the licensing of another
party's Licensed Technology or any portion thereof, to a third party and not for
bona fide business purposes of such one party.
(d) Each party agrees that prior to the disclosure of any portion of
Licensed Technology under this Section 2.5, all proprietary information of the
other parties shall be expunged. No later than December 31, 2000, the parties
will agree on acceptable procedures to achieve such expungement.
ARTICLE III
PATENT LICENSES
3.1 GRANTS TO AVAYA. (a) GRL grants to Avaya IPCO, under GRL's Patents,
worldwide, personal, nonexclusive, royalty-free and non-transferable licenses to
make, have made (subject to 3.1(b)), use, lease, sell, offer for sale and import
any and all products and services of the businesses in which Avaya or any of its
Related Companies is now or hereafter engaged.
(b) The right of Avaya IPCO to have product made pursuant to this
Agreement is not limited to products custom designed by or for Avaya IPCO. Such
"have made" rights shall include the right to have "off the shelf" products made
for or procured by Avaya IPCO. The "have made" rights shall not be exercised by
Avaya in a manner such that the exercise of those rights is a sham to sublicense
GRL's Patents to a third party and not for a bona fide business purpose of Avaya
IPCO.
(c) GRL hereby further grants to Avaya a sublicense under any and all
patent license rights, with respect to which GRL has received from any third
party pursuant to any license agreement a right to sublicense (but only to the
extent that GRL has a right to grant such a sublicense without payment of
royalties), to make, have made, use, lease, offer to sell, sell, and import any
and all products and services.
3.2 GRANTS TO GRL. (a) Avaya IPCO grants to GRL, under Avaya IPCO's
Patents, worldwide, personal, nonexclusive, royalty-free and non-transferable
licenses to make, have made (subject to 3.2(b)), use, lease, sell, offer for
sale and import any and all products and services of the businesses in which GRL
or any of its Related Companies is now or hereafter engaged.
(b) The right of GRL to have product made pursuant to this Agreement is
not limited to products custom designed by or for GRL. Such "have made" rights
shall include the right to have "off the shelf" products made for or procured by
GRL. The "have made" rights shall not be exercised by GRL in a manner such that
the exercise of those rights is a sham to sublicense Avaya's Patents to a third
party and not for a bona fide business purpose of GRL.
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3.3 DURATION AND EXTENT OF LICENSES. Subject to Article VI, all
licenses granted herein as to any party's patents shall continue for the entire
unexpired term of such patents.
3.4 SCOPE OF LICENSES. (a) The licenses granted herein include
licenses to convey to any customer of the grantee, with respect to any licensed
product which is sold or leased by such grantee to such customer, rights to use
and resell such licensed product as sold or leased by such grantee (whether or
not as part of a larger combination); provided, however, that no rights may be
conveyed to customers with respect to any invention which is directed to (1) a
combination of such licensed products(s) (as sold or leased) with any other
product that is not a licensed product, except to the extent that the licensed
product(s) embodies a substantial and significant portion of the invention, (2)
a method or process other than a method or process the inventive steps of which
are implemented primarily by the licensed product(s) in the operation of such
licensed products(s) or (3) a method or process involving the use of a licensed
product to manufacture any other product and to test any such manufactured
product.
(b) Licenses granted herein are not to be construed: (i) as
consent by the grantor to any act which may be performed by the grantee, except
to the extent impacted by a patent licensed herein to the grantee, (ii) except
as otherwise specifically provided under Section 3.4(a), a waiver of a party's
(or any of its Related Companies') rights against any third party with respect
to any infringement or (iii) except to the extent specified in Section 3.4(a),
to include licenses to contributorily infringe or induce infringement under U.S.
law or a foreign equivalent thereof.
(c) The grant of each license hereunder to each party includes the
right to grant sublicenses within the scope of such license to a party's Related
Companies for so long as they remain Related Companies of such party. Any such
sublicense may be made effective retroactively, but not prior to the Effective
Date, nor prior to the sublicensee's becoming a Related Company of such party.
3.5 FILINGS OF PATENT APPLICATIONS. Each party agrees to file
patent applications within the two (2) year period commencing on the Effective
Date in a timely manner as determined by generally accepted good patent filing
practices and as though this Agreement were not in existence between the
parties. The dispute resolution provisions of Article V shall apply to any
allegation by one party that another party hereto has purposely delayed its
patent filings primarily to avoid providing the licenses and rights granted
hereunder.
3.6 JOINT INVENTIONS. (a) There are countries (not including the
United States) which require the express consent of all inventors or their
assignees to the grant of licenses or rights under patents issued in such
countries for joint inventions.
(b) Each party shall give such consent, or shall use its
reasonable best efforts to obtain such consent from its Related Companies, its
employees or employees of any of its Related Companies, as required to make full
and effective any such licenses and rights
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respecting any joint invention granted to a grantee hereunder by such party and
by another licensor of such grantee.
(c) Each party shall take steps which are reasonable under the
circumstances to obtain from third parties whatever other consents are necessary
to make full and effective such licenses and rights respecting any joint
invention purported to be granted by it hereunder. If, in spite of such
reasonable steps, such party is unable to obtain the requisite consents from
such third parties, the resulting inability of such party to make full and
effective its purported grant of such licenses and rights shall not be
considered to be a breach of this Agreement.
3.7 DISCLAIMER. No party or any of its Related Companies makes any
representation, extends any warranty of any kind, assumes any responsibility or
obligation whatsoever, or confers any right by implication, estoppel or
otherwise, other than the licenses, rights and warranties herein expressly
granted.
3.8 OUTSIDE THE UNITED STATES. (a) There are countries in which
the owner of an invention is entitled to damages, compensation or other monetary
award for another's unlicensed manufacture, sale, lease, use or importation
involving such invention prior to the date of issuance of a patent for such
invention but on or after a certain earlier date, hereinafter referred to as the
invention's "protection commencement date" (e.g., the date of publication of
allowed claims or the date of publication or "laying open" of the filed patent
application). In some instances, other conditions precedent must also be
fulfilled (e.g., knowledge or actual notification of the filed patent
application). The parties agree that (i) an invention which has a protection
commencement date in any such country may be used in such country pursuant to
the terms of this Agreement on and after any such date, and (ii) all such
conditions precedent are deemed satisfied by this Agreement.
(b) There may be countries in which a party hereto may have, as a
consequence of this Agreement, rights against third party infringers of another
party's patents licensed hereunder. Each party hereto hereby waives any such
right it may have by reason of such third party's infringement or alleged
infringement of another party's patents.
(c) Each party hereto hereby agrees to register or cause to be
registered, to the extent that such party reasonably determines that
registration or recordation is necessary under applicable law, and without
expense to the other party or any of its Related Companies, any agreements
wherein sublicenses are granted by it under the other party's patents licensed
hereunder. Each party hereto hereby waives any and all claims or defenses,
arising by virtue of the absence of such registration, that might otherwise
limit or affect its obligations to the other party.
ARTICLE IV
ASSIGNMENT OF RESTRICTED JOINT CORPORATE TECHNOLOGY
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4.1 ASSIGNMENT. Lucent hereby irrevocably transfers and assigns
to Avaya an undivided one-half (l/2), interest in the Restricted Joint Corporate
Technology. Lucent and Avaya shall each jointly own an equal, undivided,
one-half (l/2) interest in the Restricted Joint Corporate Technology, with no
duty to account to the other or any exploitation of such jointly-owned
Restricted Joint Corporate Technology. Avaya agrees that it shall not have any
right to, and will not (1) disclose the Restricted Joint Corporate Technology to
any Lucent Competitor, or (2) authorize the use of the Restricted Joint
Corporate Technology by any Lucent Competitor; provided, however, that Avaya
shall not be precluded from selling products or licensing software (in object
code form), which include Restricted Joint Corporate Technology. Avaya agrees
that it will not make any portion of the Restricted Joint Corporate Technology
available to any third party except under confidentiality terms and conditions
normally used by Avaya to protect its own proprietary information of a similar
nature.
4.2 EXCEPTION TO RESTRICTION. Lucent and Avaya agree that the
restrictions in Section 4.1 on Avaya's rights under the Restricted Joint
Corporate Technology shall not apply to any Restricted Joint Corporate
Technology that Avaya actually incorporates into Avaya products, or has
documented, formal and active plans to incorporate into Avaya products, for so
long as Avaya manufactures, sells, or actively develops such products.
4.3 ACCESS TO RESTRICTED JOINT CORPORATE TECHNOLOGY. During a
period beginning on the Effective Date and ending on December 31, 2000, Avaya
shall have the right to access and to copy any and all portions of the
Restricted Joint Corporate Technology in possession of Lucent. Such access and
copying shall be in accordance with a reasonable request and schedule to be
mutually agreed upon between Avaya and Lucent. All costs associated with the
assembling, copying and delivering of such Restricted Joint Corporate Technology
shall be borne by Avaya.
ARTICLE V
BALANCING PAYMENTS
5.1 PAYMENT TO GRL. In consideration for the balance of
licenses and rights exchanged hereunder by the parties, Avaya or Avaya IPCO
shall pay to GRL a lump sum amount of ___________ ($________) within sixty (60)
days of execution of this Agreement by all parties. Neither such sum nor any
portion thereof shall be refundable or creditable to Avaya or Avaya IPCO. No
other payments or royalties shall be due from or to any other party under this
Agreement.
ARTICLE VI
TERMINATION
6.1 VOLUNTARY TERMINATION. By written notice to a party,
another party may voluntarily terminate all or a specified portion of the
licenses and rights granted to it
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hereunder by such granting party. Such notice shall specify the effective date
of such termination and shall clearly specify any affected patent, invention,
product or service.
6.2 SURVIVAL. (a) If a company ceases to be a Related Company of a
party, licenses and rights granted to the other parties hereunder with respect
to patents of such company on applications filed prior to the date of such
cessation shall not be affected by such cessation.
(b) Any voluntary termination of licenses and rights of a party
under Section 6.1 shall not affect such party's licenses and rights with respect
to any licensed product made or service furnished prior to such termination, and
shall not affect the licenses and rights granted to the other parties hereunder.
6.3 CHANGE OF CONTROL OF, OR CERTAIN ACQUISITIONS BY AVAYA. In the
event of a Change of Control of Avaya, or in the event that Avaya acquires any
Person that has a market value greater than fifty percent (50%) of Avaya's
market value at the time of acquisition, then, all patent licenses and
patent-related rights granted to Avaya hereunder shall extend only to a specific
annual volume of products and services which are of a kind comparable to those
offered by Avaya prior to such Change of Control or acquisition. Such specific
volume of products and services shall not exceed the volume of corresponding
licensed products and services of Avaya prior to such Change of Control or
acquisition.
6.4 MATERIAL BREACH. No party may unilaterally terminate this
Agreement, or any licenses granted hereunder, for a material breach of this
Agreement by another party, provided, however, that each party shall retain any
remedies for such breach that it may be entitled to in a court of law or equity.
ARTICLE VII
MISCELLANEOUS PROVISIONS
7.1 AGREEMENT PREVAILS. This Agreement shall prevail in the event
of any conflicting terms or legends that may appear on any portion of the
Licensed Technology.
7.2 NOTHING CONSTRUED. Neither the execution of this Agreement nor
anything in it or in the Licensed Lucent Technology, Licensed Corporate
Technology and Licensed Avaya Technology shall be construed as an obligation
upon any party or its Related Companies to furnish to any other party or its
Related Companies, any assistance of any kind whatsoever, or any information
other than the portion of Licensed Lucent Technology, Licensed Corporate
Technology and Licensed Avaya Technology, as applicable, requested pursuant to
Section 2.1, or to revise, supplement or elaborate upon the Licensed Lucent
Technology, Licensed Corporate Technology and Licensed Avaya Technology.
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7.3 DISCLAIMER. NO PARTY OR ANY OF ITS RELATED COMPANIES MAKES ANY
REPRESENTATION, EXTENDS ANY WARRANTY OF ANY KIND, ASSUMES ANY RESPONSIBILITY OR
OBLIGATION WHATSOEVER, OR CONFERS ANY RIGHT BY IMPLICATION, ESTOPPEL OR
OTHERWISE, OTHER THAN THE RIGHTS AND WARRANTIES HEREIN EXPRESSLY GRANTED.
7.4 CONFIDENTIALITY. (a) Subject to Section 7.4(d), each of
Lucent, GRL, Avaya, and Avaya IPCO 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 such party's confidential and proprietary information,
all information of another party that is either in its possession or furnished
by one party to the other or its respective directors, officers, employees,
agents, accountants, counsel and other advisors and representatives at any time
pursuant to this Agreement or otherwise, and shall not use any such information
other than for the purposes of performing its obligations under this Agreement,
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 of their respective
directors, officers, employees, agents, accountants, counsel and other advisors
and representatives, (ii) later lawfully acquired from other sources by such
party 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 for purposes of performing
such party's obligations under this Agreement (who shall be advised of their
obligations hereunder with respect to such information), except as specified in
Section 2.5 or in compliance with Section 7.4(d) or with the prior written
consent of the other party.
(c) Without limiting the foregoing, when any information is no longer
needed for the purposes contemplated by this Agreement, each party will promptly
after request of a furnishing party either return to the furnishing party all
information in a tangible form (including all copies thereof and all notes,
extracts or summaries based thereon) or certify to the furnishing party that it
has destroyed such information (and such copies thereof and such notes, extracts
or summaries based thereon).
(d) In the event that any party (the "disclosing party") 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 that is subject to the confidentiality provisions hereof, such
disclosing party shall notify the other party prior to disclosing or providing
such information and shall cooperate at the expense of the other 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.
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7.5 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.
(b) This Agreement and any exhibits, schedules and appendices hereto
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.
(c) Each party represents as follows:
(i) each 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.
7.6 GOVERNING LAW. This Agreement shall be governed by and construed
and interpreted in accordance with the laws of the State of New York applicable
to contracts to be performed solely within the State of New York, as to all
matters, including matters of validity, construction, effect, enforceability,
performance and remedies.
7.7 ASSIGNABILITY; SUCCESSORS. (a) This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and assigns; provided, however, that a party-grantee may not assign this
Agreement, in whole or in part, or its respective rights or obligations without
the prior written consent of the party-grantor except as provided in subsection
(b) below.
(b) By the provision of notice thereof in accordance with this
Agreement, a party may assign this Agreement and its rights and obligations
hereunder, either in whole or in part, to any entity that is, or that was
immediately preceding such assignment, a current Subsidiary, business unit,
division or other Related Company of such party, in each case that is the
successor to the business and assets of any such party that relates to this
Agreement.
(c) If Lucent, Avaya or any of their Related Companies, divests a
portion of its business and such divested business continues operation as a
separately identifiable business, then the licenses and rights granted hereunder
to the divesting party may be sublicensed to such divested separate business
without the consent of the other party, but only to the extent and for the time
the divested business functions as a separately
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identifiable business. With respect to patent licenses, such sublicenses shall
further be limited to products and services of the kind provided by the divested
business prior to its divestiture and not to any products or services of any
entity which acquires the divested business. With respect to all other
intellectual property licenses herein, such sublicenses shall further be limited
to products and services of the kind provided or under development by the
divested business prior to its divestiture and not to any other category of
products or services of any entity which acquires the divested business. As used
herein, the term "other category of products or services" of an acquiring entity
shall mean only those products and services which are not of the kind or type
provided by the divested business prior to its divestiture. This Section 7.7(c)
shall apply regardless of whether the business is divested by a distribution to
existing shareholders, a sale of assets or as a sale of a legal entity (e.g.,
sale of a Subsidiary). The sublicensing rights specified herein shall include
any business whose acquisition is after the Effective Date, provided the
acquisition of such business was not a sham for the purpose of extending rights
to the acquired (and then divested) business.
7.8 THIRD PARTY BENEFICIARIES. The provisions of this 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 there are no
third party beneficiaries of this Agreement, and this Agreement shall not
provide any third person with any remedy, claim, liability, reimbursement, claim
of action or other right in addition to those existing without reference to this
Agreement.
7.9 NOTICES. All notices or other communications under this 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 Lucent, to: Lucent Technologies Inc.
150 Allen Road
Liberty Corner, New Jersey 07938-1995
Attn: President-Intellectual Property Business
If to Avaya to: Avaya Inc.
211 Mount Airy Road
Basking Ridge, New Jersey 07920
Attn: Vice President-Law,
Intellectual Property Matters
If to GRL, to: Lucent Technologies GRL Corporation
Suite 105
14645 N.W. 77th Avenue
Miami Lakes, Florida 33014
Attn: Contract Administrator
Intellectual Property Organization
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If to Avaya IPCO to: ______________________________
Any party may, by notice to the other party, change the address to which such
notices are to be given.
7.10 SEVERABILITY. If any provision of this 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 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.
7.11 FORCE MAJEURE. Except with respect to payment obligations
hereunder, no party shall be deemed in default of this Agreement to the extent
that any delay or failure in the performance of its obligations under this
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 raw materials, 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.
7.12 PUBLICITY. Each of Lucent and Avaya shall consult with each other
prior to issuing any press releases or otherwise making public statements with
respect to this Agreement or the transactions contemplated hereby. In addition,
neither party shall issue or release for publication any articles, advertising,
or publicity materials relating to Licensed Technology of the other party under
this Agreement or mentioning or implying the name, trademarks, logos, trade
name, service mark or other company identification of the other party or any of
its affiliates or any of its personnel without the prior written consent of the
other party.
7.13 HEADINGS. The article, section and paragraph headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.
7.14 WAIVERS OF DEFAULT. Waiver by any party of any default by the
other party of any provision of this 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.
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7.15 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, 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, 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.
7.16 AMENDMENTS. No provision of this 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.
7.17 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 as a whole (including all of the schedules, exhibits and
appendices hereto) and not to any particular provision of this Agreement.
Article, section, exhibit, schedule and appendix references are to the articles,
sections, exhibits, schedules and appendices to this Agreement unless otherwise
specified. The word "including" and words of similar import when used in this
Agreement shall mean "including, without limitation," unless the context
otherwise requires or unless otherwise specified. The word "or" shall not be
exclusive. Unless expressly stated to the contrary in this 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 the Effective
Date, regardless of any amendment or restatement hereof.
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IN WITNESS WHEREOF, the parties have caused this PATENT AND TECHNOLOGY
LICENSE AGREEMENT to be executed in four originals by their duly authorized
representatives as of the Effective Date.
LUCENT TECHNOLOGIES INC.
By:___________________________
Name:
Title:
LUCENT GRL CORPORATION
By:___________________________
Name:
Title:
AVAYA INC.
By:___________________________
Name:
Title:
AVAYA TECHNOLOGY CORP.
By:___________________________
Name:
Title:
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EXHIBIT 10.15
TECHNOLOGY ASSIGNMENT AND JOINT OWNERSHIP AGREEMENT
by and between
LUCENT TECHNOLOGIES INC.
and
AVAYA INC.
Dated as of September 30, 2000
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TECHNOLOGY ASSIGNMENT AND JOINT OWNERSHIP AGREEMENT
THIS TECHNOLOGY ASSIGNMENT AND JOINT OWNERSHIP AGREEMENT (this
"Agreement"), effective as of September 30, 2000 (the "Effective Date"), is by
and between Lucent Technologies Inc., a Delaware corporation, with offices at
600 Mountain Avenue, Murray Hill, New Jersey 07974, ("LUCENT"), and Avaya Inc.,
a Delaware corporation, with offices at 211 Mount Airy Road, Basking Ridge, New
Jersey 07920 ("AVAYA").
R E C I T A L S
A. WHEREAS, the Board of Directors of LUCENT has determined that
it is in the best interests of LUCENT and its stockholders to separate LUCENT's
existing businesses into two independent businesses; and
B. WHEREAS, in furtherance of the foregoing separation, LUCENT
desires to transfer, assign, convey, deliver and vest from LUCENT to AVAYA a
full and complete interest in the Avaya Technology, and an undivided one-half
(l/2) interest in each of the Common Support Function Software and the Joint
Corporate Technology.
NOW, THEREFORE, in consideration of the premises and for other good and
valid consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties, intending to be legally bound, agree as follows:
ARTICLE I
DEFINITIONS
COMMON SUPPORT FUNCTION SOFTWARE means the computer programs, in source
and object code forms, including their respective associated documentation,
listed in the attached Schedule B.
COPYRIGHTS means any original works of authorship fixed in any tangible
medium of expression as set forth in 17 U.S.C. Section 101 et. seq.
CORPORATE TECHNOLOGY shall have the meaning set forth in the Technology
License Agreement.
AVAYA TECHNOLOGY shall have the meaning set forth in the Technology
License Agreement. For purposes of clarity, "Avaya Technology" shall include but
is not limited to the trade secrets, know how, and computer programs (in source
and object code forms), listed in the attached Schedule A.
JOINT CORPORATE TECHNOLOGY means the trade secrets, know how, and
computer programs (in source and object code forms), listed in the attached
Schedule C.
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LUCENT COMPETITOR means any person or entity that competes with LUCENT
in the provision of telecommunications systems, services, and equipment,
including the provision of software and semiconductive devices.
LUCENT TECHNOLOGY shall have the meaning set forth in the Technology
License Agreement.
MASK WORKS means any mask work, registered or unregistered, as defined
in 17 U.S.C. Section 901.
TECHNOLOGY means any and all technical information, computer or other
apparatus programs, specifications, drawings, records, documentation, works of
authorship or other creative works, ideas, knowledge or data. The term
Technology includes Copyrights, Mask Works and any other intellectual property
right, but does not include any trademark, trade name, trade dress or service
mark, or any patent applications on inventions, discoveries or improvements, or
any patents that may be granted or have been granted thereon.
TECHNOLOGY LICENSE AGREEMENT means the Technology License Agreement,
dated as of October 1, 2000, by and between LUCENT and AVAYA.
ARTICLE II
ASSIGNMENT
LUCENT hereby irrevocably transfers and assigns to AVAYA all
of LUCENT's rights, title and interest in and to the Avaya Technology in the
United States and throughout the world along with the exclusive right to grant
licenses under Avaya Technology and the right to sue for past infringement of
any intellectual property right (other than patent rights) in Avaya Technology.
ARTICLE III
RETENTION
LUCENT and AVAYA agree that LUCENT retains solely all rights,
title and interest in and to the Lucent Technology and the Corporate Technology
(other than the Joint Corporate Technology, as provided in Article IV).
ARTICLE IV
COMMON SUPPORT FUNCTION
SOFTWARE AND JOINT CORPORATE TECHNOLOGY
LUCENT hereby irrevocably transfers and assigns to AVAYA an
undivided, one-half (l/2), unrestricted interest in the Common Support Function
Software and in Joint Corporate Technology. Each party hereto shall jointly own
an equal, undivided, one-half (l/2), unrestricted interest in each of the Common
Support Function Software and the Joint Corporate Technology, with no duty to
account to the other party for any exploitation of such jointly-owned software
or technology.
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Neither LUCENT nor AVAYA will license or permit sublicensing of
the Mosaix Workflow engine source code to a competitor of the other party
without prior written consent of the other party.
During a period beginning on the Effective Date and ending on
December 31, 2000, AVAYA shall have the right to access and to copy any and all
portions of the Common Support Function Software and in Joint Corporate
Technology in possession of LUCENT. Such access and copying shall be in
accordance with a reasonable request and schedule to be mutually agreed upon
between the parties. All costs associated with the assembling, copying and
delivering of such materials shall be borne by the requesting party.
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IN WITNESS WHEREOF, the parties have caused this TECHNOLOGY ASSIGNMENT AND
JOINT OWNERSHIP AGREEMENT to be executed by their duly authorized
representatives as of the Effective Date.
LUCENT TECHNOLOGIES INC.
By:
--------------------------------
Name:
Title:
AVAYA INC.
By:
--------------------------------
Name:
Title:
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ACKNOWLEDGMENTS
STATE OF NEW JERSEY )
: ss:
COUNTY OF __________ )
I CERTIFY that on _________________________, 2000, ___________
___________________ personally came before me and this person acknowledged under
oath, to my satisfaction that: a.) this person signed, sealed and delivered the
attached Technology Assignment and Joint Ownership Agreement as President -
Intellectual Property Business of Lucent Technologies Inc.; and
b.) the proper corporate seal was affixed; and
c.) this Technology Assignment and Joint Ownership
Agreement was signed and made by Lucent Technologies Inc. as its voluntary act
and deed by virtue of authority from its Board of Directors.
---------------------------
Name
Notary Public
My Commission Expires:
[Notarial Seal]
STATE OF NEW JERSEY )
: ss:
COUNTY OF __________ )
I CERTIFY that on _________________________, 2000, ___________
___________________ personally came before me and this person acknowledged under
oath, to my satisfaction that: a.) this person signed, sealed and delivered the
attached Technology Assignment and Joint Ownership Agreement as Vice President
of Avaya Inc.; and
b.) the proper corporate seal was affixed; and
c.) this Technology Assignment and Joint Ownership
Agreement was signed and made by Avaya Inc. as its voluntary act and deed by
virtue of authority from its Board of Directors.
---------------------------
Name
Notary Public
My Commission Expires:
[Notarial Seal]
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EXHIBIT 10.16
DRAFT
DEVELOPMENT PROJECT AGREEMENT
by and between
LUCENT TECHNOLOGIES INC.
and
AVAYA INC.
Dated as of October 1, 2000
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DEVELOPMENT PROJECT AGREEMENT
This Development Project Agreement (the "Agreement"), effective as of
October 1, 2000 (the "Effective Date"), is by and between Lucent Technologies
Inc., a Delaware corporation with offices at 600 Mountain Avenue, Murray Hill,
New Jersey 07974 ("Lucent"), and Avaya Inc., a Delaware corporation with offices
at 211 Mount Airy Road, Basking Ridge, New Jersey 07920 ("Avaya").
R E C I T A L S
WHEREAS, the Board of Directors of Lucent has determined that it is in
the best interests of Lucent and its stockholders to separate Lucent's existing
businesses into two independent businesses; and
WHEREAS, in furtherance of the foregoing separation, Lucent and Avaya
desire to enter into this Agreement to provide for certain commercial
transactions between the parties as described in Section 1.0 of this Agreement.
NOW, THEREFORE, in consideration of the premises and for other good and
valid consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties, intending to be legally bound, agree as follows:
1.0 TERM AND SCOPE OF AGREEMENT
1.1 The term of this Agreement shall commence on the Effective Date and shall
expire on October 1, 2003, unless earlier terminated in accordance with the
provisions hereof (the "Term"). The Term may be extended for additional one (1)
year periods upon the mutual written agreement of the parties. For specific
Projects, which have a completion date beyond the Term of this Agreement as
specified in their respective Statements of Work, the terms and conditions of
this Agreement shall remain in effect but only with respect to such Projects.
1.2 Avaya and Lucent were affiliated corporations operating under common
ownership and control, and as such, each had access to technology in the form of
inventions, discoveries, ideas, methods, copyrightable works, software, data,
know-how, information, documentation, samples, prototypes or data and including
all patents, copyrights, trade secret protection and other forms of protection
obtained or obtainable thereon ("Intellectual Property" or "IP") developed by or
for the other. Because Avaya and Lucent wish to continue enjoying the benefits
of their prior relationship, they are now entering into this Agreement to
continue sharing certain research and development efforts in certain areas of
technology that are of mutual interest to the parties. To the extent each party
deems appropriate, Avaya and Lucent shall discuss with each other the
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nature and status of their respective research and development activities,
and when in their mutual interest, shall enter into development arrangements to
further their objectives, all in accordance with the terms and conditions set
forth below.
2.0 [THIS SECTION IS RESERVED]
3.0 DEVELOPMENT PROJECTS
3.1 Either party may propose that the other enter into development projects
("Projects") to advance specific technologies or products. Avaya and Lucent will
negotiate in good faith whether to proceed with any Project, however, either
party may, in its sole discretion, choose not to undertake any given Project.
3.2 Each Project mutually agreed upon will be defined by a Statement of Work
which will be in the format of the Sample Statement of Work attached hereto as
Exhibit A, or in such other form as the parties agree is appropriate to the
particular Project, and shall become part of this Agreement upon execution by
authorized representatives of each party. Each Statement of Work will define the
Project's:
3.2.1 Owners, with the understanding that each party will assign an
owner to each Project who will be actively involved in Project
activities and who will have decision-making authority for that party;
3.2.2 Scope, including the expected outcome, resources required, and
methodology to be used to develop that outcome;
3.2.3 Anticipated deliverables (including related documentation) and
milestones;
3.2.4 Staffing, with the understanding that, based on whether the
particular project is a sole or a joint work project, personnel from
either, or both Avaya and Lucent will ordinarily be assigned to work on
the Project.
3.2.5 Funding, with the understanding that funding will be allocated
based upon (i) the resources (including personnel, equipment,
materials, time and intellectual property) furnished by each party,
(ii) the anticipated benefits to be derived by each party from the
Project; and (iii) the accomplishment by each party of defined
milestones; and
3.2.6 If appropriate, Intellectual Property ownership, with the
understanding that Section 5.0 of this Agreement will be considered the
default allocation of such ownership and license rights, and that this
allocation will be adjusted only to the extent otherwise specified in
the Statement of Work pursuant to Section 3.3 below.
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3.3 Each Statement of Work will be governed by and construed in accordance with
the terms and conditions of this Agreement, but to the extent there is any
inconsistency between the terms and conditions of a Statement of Work and those
of this Agreement, the terms and conditions of this Agreement shall take
precedence and control the rights and obligations of the parties.
Notwithstanding the foregoing sentence, to the extent that any terms and
conditions of this Agreement are to be modified or superseded by the terms and
conditions of a Statement of Work, such terms shall be specifically identified
in the Statement of Work and shall require the signature of a D-level (or its
equivalent) manager of each party, and in the case of any terms and conditions
relating to intellectual property ownership or licensing are to be modified,
superseded or added to, the same will require the signature of the president (or
its equivalent) of Lucent's and Avaya's intellectual property business.
3.4 Specific development activities of the kind contemplated under this
Agreement that are completed or in progress as of the Effective Date, which
activities may be covered by arrangements such as a cross-business unit
agreement pursuant to which ongoing payments are being made or are to be made to
Lucent, shall not be affected by the terms of this Agreement unless such
activities are subsequently covered by a Statement of Work hereunder. Such
activities include, but are not limited to, those activities listed in Exhibit
B.
4.0 PAYMENT
4.1 Each party requesting development to be performed on its behalf will fund
each Project performed by the other party for the requesting party. In the case
of joint development Projects, the parties will mutually agree on how to fund
and staff such development consistent with Section 3.2.5 above. Amounts payable
by the requesting party for each Project will be specified in the Statement of
Work for such Project, and may include all direct and overhead expenses
associated with such project, and may include a reasonable amount of profit.
Such amounts may include lump-sum fees and/or ongoing royalties or fees, such as
a fee for each copy of software licensed or product made. Unless otherwise
agreed to by the parties, such royalties and fees will be established by the
parties at the time they agree to such development and will be specified in the
Statement of Work. All payments will become due thirty (30) days after receipt
of an invoice or other agreed-upon triggering event.
4.2 Any invoiced amount shall be paid within thirty (30) days from the date of
the invoice. If a party fails to pay any invoiced amount when due, any unpaid
amount will be subject to a late payment charge at the rate of one and one-half
percent (1-1/2%) per month (but not to exceed the then-maximum lawful rate).
Payments to Lucent shall be made to LUCENT's account: LUCENT Technologies Inc.,
Licensing Account No. 3750657331, at Bank of America, P.O. Box 277078, Atlanta,
Georgia 30384-7078, United States of America or by bank wire transfer to LUCENT
Technologies Account 3750657331, Swift Code NABKUS3A, ABA Code 111000012.
Payments to Avaya shall be made to Avaya's account:
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[_______________________________] Changes in address or account information may
be specified by written notice.
4.3 For projects involving the purchase of development services, the requesting
party shall bear all taxes, duties and other similar charges (and any related
interest and penalties), however designated, imposed upon or based upon the
provision, sale, license or use of any products developed and services performed
hereunder, excluding taxes on the performing party's net income, unless the
requesting party provides the performing party with a valid tax exempt
certificate. For projects involving joint development, each party will be
responsible for applicable taxes based on its respective expenses, costs, income
or use of the developments associated with the Project.
5.0 INTELLECTUAL PROPERTY RIGHTS
5.1 Ownership and licensing of Intellectual Property conceived, created,
discovered or developed during (or in anticipation ) of the performance of work
pursuant to a Statement of Work but not including any Intellectual Property (a)
pre-existing the preparation of such Statement of Work or (b) developed
independently during such work by an organization other than that organization
directly responsible for performance of the work ("Project IP") will be
determined as follows:
5.1.1 Each party shall own an equal, undivided, joint interest in and
to any Project IP that is jointly conceived, created, discovered or
developed by employees, contractors or agents of both parties ("Joint
Project IP"), and either party may use and license such jointly
developed Project IP for any purpose and in any manner they deem
appropriate without restriction and without accounting to each other.
Patentable inventions conceived, made or developed jointly by Lucent
and Avaya shall be deemed jointly owned only to the extent the
employees of both parties qualify as joint inventors in accordance with
applicable U.S. law and the rules promulgated by the U.S. Patent &
Trademark Office (37 C.F.R. 1.45) (hereinafter "Joint Inventions").
Each party shall endeavor to notify the other and share Project IP as
reasonably necessary to determine whether Project IP should be
classified as Joint Project IP, and further, the parties agree to
disclose and furnish copies to each other of all Joint Project IP.
5.1.2 Project IP conceived, created, discovered or developed solely by
one or more employees, contractors or agents of a party will be solely
owned by that party. It is agreed that such solely owned Project IP
(including only those inventions and patents in such Project IP not
covered by the October 1, 2000 Patent and Technology License Agreement
executed between the Parties) shall be subject to a non-exclusive,
royalty-free (unless fees are otherwise agreed upon in the Statement of
Work), perpetual, worldwide license to the other party to use, copy,
display, perform, modify, create derivative works,
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license (including the right to sublicense such Project IP except
solely owned patents obtained thereon), market and distribute the
Project IP in the usual and ordinary course of its business, and to the
extent that any portion of the Project IP is incorporated in tangible
products, to make, have made, use, import, sell and offer to sell such
products.
5.2 In the case where pre-existing or independently developed Intellectual
Property ("Background IP") of a party is incorporated into a deliverable
specified in, or otherwise identified as a separate deliverable under, a
Statement of Work and use of such Background IP is reasonably necessary for
commercial exploitation of such deliverable, the parties agree to negotiate fair
and reasonable terms and conditions (including any fees) for a limited license
to use such Background IP for such commercial exploitation which shall be set
forth in a separate written agreement or a Statement of Work executed pursuant
to Section 3.3 above. The parties hereby contemplate that any Background IP
which consists of software shall be licensed only in object code format and only
within a field of use reasonably necessary for such commercial exploitation
unless otherwise specified in a Statement of Work. In connection with such
licenses to software in object code format, the parties will negotiate on a case
by case basis (a) any maintenance and other support to be furnished along with
the software (including any fees to be paid therefor), and (b) whether or not to
establish escrow for the source code of such software and the terms and
conditions thereof.
5.3 With respect to Joint Inventions, the parties shall share all relevant
information pertaining to such Joint Inventions and shall decide on a case by
case basis which of the parties shall file and prosecute patent applications for
such Joint Inventions and maintain patents obtained thereon in the U.S. and in
foreign countries (the "Selected Party"). The Selected Party shall, at its sole
expense, diligently file and prosecute patent applications for such Joint
Inventions and maintain patents obtained thereon in the U.S. and in foreign
countries (in accordance with its standard, internal reviews and procedures for
filing and prosecuting inventions and patent applications thereon). If the
Selected Party decides not to file or prosecute a patent application based upon
a particular Joint Invention in the U.S. or any foreign country or maintain any
patent obtained thereon, the other party shall be given adequate opportunity to,
at its sole expense, file, prosecute and maintain such Joint Invention, patent
applications and patents obtained thereon and the Selected Party shall provide
all reasonable assistance and authorizations to the other party to effectuate
such opportunity. In the event either party desires not to file a patent
application on a Joint Invention for the reasonable and good faith purpose of
protecting trade secrets in such Joint Invention, the parties shall mutually
agree on whether or not to file a patent application which agreement shall not
be unreasonably withheld.
6.0 REVISIONS TO SCHEDULES OR DELIVERABLES
6.1 Except as otherwise provided in Section 6.2, the parties acknowledge that
there may be a need to make reasonable changes to the specifications and/or the
milestone schedule for one or more of the deliverables being developed by a
party under a Statement of Work. If a party desires
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to propose a change to the specifications or milestone schedule, then such party
will give notice to the other party. The receiving party agrees to promptly
review the requested changes, and if the proposed change will have an impact on
the receiving party's obligations under such Statement of Work, the receiving
party will provide the initiating party with an estimate, in writing, of any
necessary and reasonable revisions to the Statement of Work (including without
limitation changes in specifications, milestone schedules, staffing and fees) in
order to accommodate the requested change. If agreed upon by both parties, the
revision will be reflected in an amended Statement of Work which will supersede
the relevant portions of the original Statement of Work. If the parties cannot
agree, the matter will be escalated under the provisions set forth in Section
10.1 for the parties to determine (a) whether the proposed changes and revisions
to the Statement of Work are reasonable and do not significantly alter the
receiving party's rights or obligations under the original Statement of Work and
(b) whether the receiving party is reasonably capable of performing the revised
Statement of Work given the circumstances of the parties and Project at the
time. If both (a) and (b) are determined to be true, then the parties shall
proceed with the amended Statement of Work. Notwithstanding any of the
foregoing, if achievement of a party's particular deliverable is dependent upon
performance and/or completion of tasks within the control of the other party or
a third party, the milestone schedule date for such deliverable (and other
affected deliverables) will be adjusted accordingly to reflect any changes in
the performance and/or completion of such tasks.
6.2 In the event either party determines that a particular delivery date in a
Statement of Work will likely be missed, such party shall promptly give notice
to the other party and set forth, in reasonable detail, the reason for the
anticipated delay, any corrective measures the notifying party intends to
undertake, and the estimated revised delivery date. Any such estimated revised
delivery date that is less than seven (7) calendar days beyond the original
delivery date shall be deemed to be accepted by the other party and the
Statement of Work shall be so amended. Any such estimated revised delivery date
that is more than seven (7) days beyond the original delivery date shall be
subject to the Revisions and Change Control procedures described in Section 6.
In the event that either party reasonably believes that repeated minor schedule
changes have significantly hindered the development project, the matter will be
escalated under the provisions set forth in Section 10.1.
7.0 DEVELOPMENT RESPONSIBILITIES
7.1 With respect to development obligations under any Statement of Work, each
party will perform the work in a professional manner and use commercially
reasonable efforts to:
(i) develop the deliverables, including related documentation, in
accordance with the milestone tasks and schedule in the Statement
of Work, and to design, complete, test, and deliver all
deliverables by or before their associated delivery dates;
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(ii) provide labor, tools, material and facilities necessary and/or
appropriate for the timely and satisfactory development of the
deliverables;
(iii) commit and utilize the resources and qualified personnel that are
necessary and/or appropriate for the timely and satisfactory
development of the deliverables;
(iv) cooperate with the other party and provide the other party
reasonable access during normal business hours to personnel
working in connection with the development performed under such
Statement of Work;
(v) promptly inform the other party regarding any errors it may
detect in the deliverables.
7.2 Notwithstanding the obligation set forth in Section 7.1(i), the parties
acknowledge and agree that the outcome and results of any work performed by
either party which is research in nature are not guaranteed or warranted in any
manner, whether with respect to merchantability, fitness for a particular
purpose or otherwise.
8.0 LOANED PROPERTY
8.1 In the event that one party loans the other party tools, equipment or
products, as specified in a Statement of Work, (collectively, the "Loaned
Property") solely for the other party's internal use in performing the
development obligations under such Statement of Work, the other party may use
the Loaned Property for development of deliverables and testing purposes, but
may not, without the prior written consent of the other party, further
distribute or use such Loaned Property for any other use, including use for
third party projects. Such party shall return all such Loaned Property
immediately to the owner upon the owner's request, or upon termination of this
Agreement or the relevant Statement of Work. All Loaned Property shall remain
the property of the owner. Each party understands and agrees that the Loaned
Property is provided AS IS and each party disclaims any liability, warranty,
express or implied, including the implied warranties of fitness for a particular
purpose, merchantability and non-infringement of third party rights for the
Loaned Property. The owner shall pay shipping costs for delivery of the Loaned
Property to the other party who shall return all Loaned Property with shipping
and insurance costs prepaid. The borrowing party shall maintain the Loaned
Property in a safe location and in good working order (with assistance and
support from the owner), shall keep the Loaned Property in confidence in
accordance with Section 12.0 below, and shall fully insure the Loaned Property.
9.0 ACCEPTANCE OF DELIVERABLES
9.1 Unless otherwise agreed to in a Statement of Work, the receiving party (the
"Receiving Party") shall have thirty (30) calendar days from the actual delivery
date of a deliverable, to examine and test each deliverable for errors (the
"Acceptance Period"). Within such Acceptance Period, the Receiving Party will
provide the delivering party (the "Delivering Party") with written
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acceptance of the deliverable or a notice of rejection and a statement of errors
which provides the Delivering Party with detailed information about the error as
reasonably determined by the Receiving Party. If the Receiving Party does not
provide the Delivering Party with a notice of rejection within the Acceptance
Period, the Deliverable shall be deemed to be accepted. In the event that the
Receiving Party fails to include a statement of errors with the notice of
rejection, or if the Delivering Party needs further detail on the statement of
errors, then the Delivering Party shall so notify the Receiving Party. Unless
otherwise agreed to in a Statement of Work, the Delivering Party shall use
commercially reasonable efforts to correct the errors set forth in the statement
of errors and redeliver the deliverable to the Receiving Party within thirty
(30) calendar days of the Delivering Party's receipt of the complete statement
of errors. In the case where the Delivering Party believes in good faith that
the correction for a particular error cannot be completed within thirty (30)
days from receipt of the statement of errors, the Delivering Party will provide
the Receiving Party, within two (2) days from receipt of the statement of
errors, with an interim plan which outlines the corrective steps to be taken by
the Delivering Party, the schedule for such corrective steps, and the projected
redelivery date based on such interim plan, for review and written acceptance by
the Receiving Party. In the event that the parties cannot agree on an interim
plan, then the matter will be escalated under the provisions set forth in
Section 10.1 ("Dispute Resolution"). The Receiving Party shall, within fifteen
(15) calendar days from receipt of the redelivered deliverable (or such other
time period described in the Statement of Work, if any) (the "Second Acceptance
Period"), provide the Delivering Party with written acceptance or another notice
of rejection and statement of errors. If the Receiving Party does not provide
the Delivering Party with a notice of rejection within the Second Acceptance
Period, the deliverable shall be deemed accepted. Should the redelivered
deliverable still contain errors on the second delivery as described above or
should the Delivering Party not redeliver the deliverable as set forth herein
(or as otherwise agreed to between the parties), the Receiving Party shall elect
one of the following remedies within fifteen (15) calendar days after receipt of
the second delivery: (i) to extend the correction period for a mutually
agreeable time, (ii) to revise the specifications and/or other acceptance
criteria in a mutually agreeable manner with respect to the particular errors,
or (iii) to terminate the development of the rejected Deliverable. In the case
of termination of the development of a rejected Deliverable, the Receiving Party
shall elect to either (a) retain the deliverable and any rights (including
license and ownership rights) it would otherwise have to the Intellectual
Property relating to such deliverable under Section 5 ("Intellectual Property
Ownership"), or the applicable Statement of Work, and pay to the Delivering
Party the fees specified therefore in the Statement of Work less a mutually
agreed upon equitable amount of fees (agreement not to be unreasonably witheld)
commensurate with the nature and degree of the specific error complained of, or
(b) to return the deliverable and not retain any license rights to the rejected
deliverable ; and in both cases of (a) and (b) above, to pay to the Delivering
Party no less than fifty percent (50%) of the fees attributable to the work
actually performed by the Delivering Party up to the date of termination of the
rejected deliverable (calculated on a loaded salary cost basis for the number of
days actually worked on such deliverable). In the spirit of Section 7.2 and
notwithstanding the foregoing sentence, the parties agree that there shall be no
reduction in the fees paid by one party to the other for work which is research
in nature.
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10.0 DISPUTE RESOLUTION
10.1 Except for claims of threatened or actual unauthorized disclosure or use of
Confidential Information or a violation or misuse of a party's intellectual
property rights, in the event of a dispute between the parties (the "Dispute")
the following escalation procedure shall be initiated. The party raising the
Dispute shall provide the other party with written notice stating in detail the
nature of the Dispute. Within five (5) business days of the date of such notice,
the signatories to the relevant Statement of Work (or the successor to that
person's related responsibilities) shall meet and negotiate in good faith to
resolve such Dispute. Each party agrees that use of this escalation procedure in
connection with termination of this Agreement or the relevant Statement of Work
may not be commenced until the expiration of the sixty (60) day cure period set
forth in Section 11.1, below ("Termination").
11.0 TERMINATION
11.1 In the case of a material breach of this Agreement or a Statement of Work
by a party in default, this Agreement or the relevant Statement of Work may, at
the election of the non-breaching party, be terminated at any time after giving
sixty (60) days written notice detailing the nature of the material breach, and
the other party fails to cure such material breach within such notice period.
The written notice will specify the material breach and state the intention to
terminate if the material breach is not cured. Notwithstanding the foregoing, if
the material breach relates solely to obligations established in a single
Statement of Work, the other party may terminate only that Statement of Work
upon notice as provided by this Section and not the entire Agreement.
11.2 The termination of this Agreement will not result in the termination of any
rights or licenses granted hereunder prior to the date of such termination.
11.3 All rights and obligations of the parties which by their nature would
continue beyond the termination cancellation, or expiration of this Agreement,
shall survive such termination, cancellation or expiration.
12.0 CONFIDENTIALITY
12.1 Each party shall use reasonable efforts, to the same extent it does with
respect to its own proprietary and confidential information of like nature, to
prevent the disclosure to third parties of any of the other party's proprietary
and confidential information which is furnished or disclosed under the scope of
this Agreement in written form when designated "CONFIDENTIAL" or "PROPRIETARY"
from being disclosed to third parties, or in oral or visual form when identified
as confidential or proprietary at the time of disclosure.
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12.2 Section 12.1 shall not apply, and the receiving party shall have no
obligation, with respect to any information which is or becomes public knowledge
through no wrongful act of the receiving party; is already known to the
receiving party without an obligation to keep in confidence; is necessarily
disclosed through a party's reasonable exercise of the licenses granted in this
Agreement (e.g., inherent disclosure by virtue of product sales); is rightfully
obtained by the receiving party from any third party without similar restriction
and without breach of any obligation owed to the disclosing party; is
independently developed by the receiving party without use of the confidential
information in such independent development; or is disclosed pursuant to a
lawful requirement or request of a governmental agency.
12.3 Notwithstanding the restrictions of Section 12.1, either party may provide
confidential information of the other to their third party consultants and
contractors having a need to know, provided, the receiving party binds those
consultants and contractors to terms at least as restrictive as those stated
herein, advises them of their obligations, and indemnifies the disclosing party
for any breach of the obligations.
12.4 The obligations of the parties under this Section 12.0 shall survive for a
period of five (5) years following the term or any termination of this
Agreement, or as otherwise specified in a Statement of Work for confidential
information covered by such Statement of Work.
13.0 WARRANTIES
13.1 Each party warrants that it has the right and power to grant all the rights
to Intellectual Property to be granted pursuant to this Agreement.
13.2 Each party warrants that it has the right and power to enter into this
Agreement and that there are no outstanding assignments, grants, licenses,
encumbrances, obligations or agreements which would prevent it from performing
under the terms of this Agreement.
13.3 The parties and their subsidiaries and affiliates make no representations
or warranties other than as set forth in Section 7.1, this Section 13.0 and
Section 16.1(c), whether expressly or impliedly. By way of example but not of
limitation, the parties and their affiliates make no warranties of
merchantability or fitness for any particular purpose, or that the use of any
information provided or products developed under this Agreement (or any
Statement of Work hereto) will not infringe any patent or other intellectual
property right of any third party.
14.0 LIMITATIONS OF LIABILITY
14.1 Except for a breach of the confidentiality obligations in Section 12.0 or
an infringement by one party of the other party's intellectual property rights,
the entire liability of each party, for
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any claim, loss, damage or expense of the other party, or of any other person or
entity, arising out of this Agreement or any Statement of Work hereto, or the
use of any information furnished hereunder, whether in an action for or arising
out of breach of contract or tort (including negligence, indemnity or strict
liability), shall be the amount of direct damages, including awarded counsel
fees and costs, not to exceed the fees actually paid for the work and
deliverables which gave rise to such claim, loss, damage or expense.
14.2 Except for a breach of the confidentiality obligations in Section 12.0 or
an infringement by one party of the other party's intellectual property rights
and notwithstanding any other provision of this Agreement, neither party shall
be liable for any incidental, indirect, or consequential damages or lost
profits, revenues or savings arising out of this Agreement or any Statement of
Work hereto, whether in an action for or arising out of breach of contract or
tort (including negligence, indemnity or strict liability).
14.3 Each party shall give the other prompt written notice of any claim brought
hereunder. Any arbitration, action or proceeding brought by either party against
the other must be brought within twenty-four (24) months after the party knows
or should have known of the claim.
14.4 This Section 14.0 shall survive failure of an exclusive or limited remedy.
15.0 EXPORT CONTROL
15.1 The parties acknowledge that any information furnished under this Agreement
is subject to U.S. export laws and regulations and that any use or transfer of
such information must be authorized under those regulations. Each party agrees
that it will not use or transmit information in violation of U.S. export
regulations. If requested by a party, the other party will execute written
assurances and other export-related documents as may be required for the former
party to comply with U.S. export regulations.
16.0 MISCELLANEOUS
16.1 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.
(b) This Agreement and any exhibits, schedules and appendices hereto 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.
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(c) Each party represents as follows:
each 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
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.
16.2 Governing Law
This Agreement shall be governed by and construed and interpreted in accordance
with the laws of the State of New York applicable to contracts to be performed
solely within the State of New York, as to all matters, including matters of
validity, construction, effect, enforceability, performance and remedies.
16.3 Assignability; Successors
(a) This Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns; provided, however, that
neither party may assign this Agreement, in whole or in part, or its respective
rights or obligations without the prior written consent of the other party
except as provided in subsection (b) below.
(b) By the provision of notice thereof in accordance with this Agreement, either
party may assign this Agreement and its rights and obligations hereunder, either
in whole or in part, to any entity that is, or that was immediately preceding
such assignment, a current subsidiary, business unit, division or other
Affiliate of such party, that in each case is the successor to any portion of
the business and assets of any such party that relates to this Agreement.
16.4 Relationship of the Parties; Third Party Beneficiaries
(a) 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 of independent
contractor.
(b) The provisions of this 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 there are no third party beneficiaries of this
Agreement, and this Agreement shall not provide any third person with any
remedy, claim, liability, reimbursement, claim of action or other right in
addition to those existing without reference to this Agreement.
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16.5 Notices
All notices or other communications under this 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 Lucent, to: Lucent Technologies Inc.
Senior Contract Administrator
Lucent Technologies Inc.
150 Allen Road, Suite 2000,
P.O. Box 1995
Liberty Corner, New Jersey 07938, USA
with a copy to: Lucent Technologies Inc.
600 Mountain Avenue
Murray Hill, New Jersey 07974
Attn: General Counsel, Bell Laboratories
If to Avaya to: Avaya Inc.
211 Mount Airy Road
Basking Ridge, New Jersey 07920
Attn: [Chief Technical Officer]
with a copy to: Avaya Inc.
211 Mount Airy Road
Basking Ridge, NJ 07920
Attn: General Counsel
Any party may, by notice to the other party, change the address to which such
notices are to be given.
16.6 Severability
If any provision of this 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 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.
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16.7 Force Majeure
Except with respect to payment obligations hereunder, no party shall be deemed
in default of this Agreement to the extent that any delay or failure in the
performance of its obligations under this 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 raw materials, 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.
16.8 Publicity
Each of Lucent and Avaya shall consult with each other prior to issuing any
press releases or otherwise making public statements with respect to this
Agreement, the transactions contemplated hereby, or both. In addition, neither
party shall issue or release for publication any articles, advertising, or
publicity materials relating to any products or services made or furnished under
this Agreement or mentioning or implying the name, trademarks, logos, trade
name, service mark or other company identification of the other party or any of
its Affiliates or any of its personnel without the prior written consent of the
other party.
16.9 Headings
The article, section and paragraph headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
16.10 Waivers of Default
Waiver by any party of any default by the other party of any provision of this
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.
16.11 Amendments
No provision of this 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.
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16.12 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
as a whole (including all of the schedules, exhibits and appendices hereto) and
not to any particular provision of this Agreement. Article, section, exhibit,
schedule and appendix references are to the articles, sections, exhibits,
schedules and appendices to this Agreement unless otherwise specified. The word
"including" and words of similar import when used in this Agreement shall mean
"including, without limitation," unless the context otherwise requires or unless
otherwise specified. The word "or" shall not be exclusive. Unless expressly
stated to the contrary in this 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 the Effective Date, regardless of any
amendment or restatement hereof.
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IN WITNESS WHEREOF, the parties have caused this Development Project Agreement
to be executed by their duly authorized representatives as of the Effective
Date.
LUCENT TECHNOLOGIES INC. AVAYA INC.
By:___________________________ By:___________________________
Name: Name:
Title: Title:
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EXHIBIT A
SAMPLE STATEMENT OF WORK
STATEMENT OF WORK
FOR
(PROJECT)
This Statement of Work is made and entered into on ________________ ("Effective
Date") by and between Lucent Technologies and Avaya Inc. pursuant to Section 3.0
of the Development Project Arrangement entered into between the parties as of
___________________ ("DPA").
Upon mutual agreement to the substance of this Statement of Work and execution
of it by authorized representatives of each party, this Statement of Work is to
be attached to and made a part of the Development Project Agreement. This
Statement of Work will be governed by and construed in accordance with the terms
of the DPA, and to the extent there is any inconsistency between the terms of
this Statement of Work and those of the DPA, the terms of DPA shall take
precedence and control the work tasks identified herein. Notwithstanding the
foregoing sentence, to the extent that any terms and conditions of the DPA are
to be modified or superseded by the terms and conditions of this Statement of
Work, such terms shall be specifically identified in Section 11.0 hereof and
shall require the signature of a D-level (or its equivelant) manager of each
party whose signature, and in the event any terms and conditions relating to
intellectual property ownership or licensing are to be modified, superseded or
added to, the same will require the signature of the president (or its
equivalent) of Lucent's and Avaya's intellectual property business.
================================================================================
1.0 Project Name:
2.0 Project Description:
2.1 Scope:
2.2 Expected Outcome:
2.3 Methodology: (Nature of collaboration between Lucentand Avaya)
3.0 Owners:
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<TABLE>
<CAPTION>
NAME ORGANIZATION PHONE # FAX # EMAIL ADDRESS
<S> <C> <C> <C> <C>
--------------------- ------------------------ ----------------------- ---------------------- -----------------------------
--------------------- ------------------------ ----------------------- ---------------------- -----------------------------
</TABLE>
4.0 Start Date of Project:
5.0 Termination Date of Project:
6.0 Deliverables: (i.e. prototypes, technical information, documentation,
training, etc.)
6.1 Lucent Responsibilities:
6.2 Avaya Responsibilities:
7.0 Milestones:
7.1 Lucent's current milestone expectations:
7.2 Avaya's current milestone expectations:
8.0 Staffing:
8.1 Lucent and Avaya will staff this effort with the following people at
the following level:
<TABLE>
<CAPTION>
NAME ORGANIZATION PHONE #/FAX # EMAIL ADDRESS TIME COMMITMENT
<S> <C> <C> <C> <C>
--------------------- ------------------------ ----------------------- ---------------------- -----------------------------
--------------------- ------------------------ ----------------------- ---------------------- -----------------------------
</TABLE>
8.2 Lucent and Avaya personnel are subject to change based upon
availability, provided that a suitable replacement person capable of
performing the same work can be found.
9.0 Funding:
9.1 Lucent shall pay $___________ to Avaya for _____ (#) of Avaya Technical
Headcount.
9.2 Avaya shall pay $___________ to Lucent for _____ (#) of Lucent
Technical Headcount.
10.0 Miscellaneous Terms NOT Modifying or Superseding the Development
Project Agreement:
11.0 Terms and conditions modifying or superseding the Development Project
Agreement:
[Note: Such terms are only effective upon signature by a D-level (or its
equivalent) manager of each party, and in the event any terms and conditions
relating to intellectual property ownership
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or licensing are to be modified, superseded or added to, the same will require
the signature of the president (or its equivalent) of Lucent's and Avaya's
intellectual property business]
IN WITNESS WHEREOF, the parties have caused this Statement of Work to be
executed by their duly authorized representatives:
---------------------- -------- ---------------------- --------
Name date Name date
Bell Labs Director Avaya (title)
-------------------------------- --------------------------------
Signature Signature
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EXHIBIT B
COMPLETED AND CURRENT DEVELOPMENT ACTIVITIES
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Use Pursuant to Company Instructions
1
EXHIBIT 10.17
-------------------------------------------------------------------------------
PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT
BY AND AMONG
AVAYA INC.
AND
THE PURCHASERS LISTED ON SCHEDULE 1 HERETO
------------------
Dated as of
August 8, 2000
------------------
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2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I
Definitions .................................................................... 2
ARTICLE II
Sale and Purchase
SECTION 2.01. Agreement to Sell and to Purchase;
Purchase Price .............................................................. 10
SECTION 2.02. Initial Conditions.............................................................. 11
SECTION 2.03. Escrow Funding.................................................................. 12
SECTION 2.04. Release of Escrowed Funds and
Securities...................................................................... 13
ARTICLE III
Representations and Warranties
of the Company
SECTION 3.01. Organization and Standing....................................................... 13
SECTION 3.02. Capital Stock................................................................... 14
SECTION 3.03. Authorization; Enforceability................................................... 15
SECTION 3.04. No Violation; Consents.......................................................... 16
SECTION 3.05. Form 10; Financial Statements................................................... 17
SECTION 3.06. Material Adverse Change......................................................... 17
SECTION 3.07. Assets.......................................................................... 17
SECTION 3.08. Intellectual Property........................................................... 18
SECTION 3.09. No Undisclosed Material Liabilities............................................. 18
SECTION 3.10. Compliance with Laws............................................................ 19
SECTION 3.11. No Litigation................................................................... 19
SECTION 3.12. Compliance with Constituent Documents........................................... 19
SECTION 3.13. Environmental Matters........................................................... 20
SECTION 3.14. Interim Changes................................................................. 21
SECTION 3.15. The Contribution and Distribution............................................... 21
ARTICLE IV
Representations and Warranties of the Purchasers
SECTION 4.01. Organization; Authorization;
Enforceability............................................................... 22
SECTION 4.02. Private Placement............................................................... 22
SECTION 4.03. No Violation; Consents.......................................................... 23
</TABLE>
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<TABLE>
<S> <C>
SECTION 4.04. No Litigation................................................................... 24
SECTION 4.05. Financing....................................................................... 24
SECTION 4.06. Ownership of Securities......................................................... 25
SECTION 4.07. Future Acquisitions............................................................. 25
ARTICLE V
Covenants of the Company
SECTION 5.01. Access to Books and Records..................................................... 25
SECTION 5.02. Compliance with Conditions;
Commercially Reasonable Efforts ............................................. 26
SECTION 5.03. HSR Act Notification............................................................ 26
SECTION 5.04. Consents and Approvals.......................................................... 26
SECTION 5.05. Filing of Certificate of Designation............................................ 27
SECTION 5.06. Reservation of Shares........................................................... 27
SECTION 5.07. Listing of Shares............................................................... 27
SECTION 5.08. Use of Proceeds................................................................. 27
SECTION 5.09. Warburg Group Director and Observer............................................. 27
SECTION 5.10. Registration Rights............................................................. 28
SECTION 5.11. Preemptive Rights............................................................... 29
SECTION 5.12. Escrow Agreement................................................................ 33
ARTICLE VI
Covenants of the Purchasers
SECTION 6.01. Compliance with Conditions;
Commercially Reasonable Efforts ............................................. 33
SECTION 6.02. HSR Act Notification............................................................ 33
SECTION 6.03. Consents and Approvals.......................................................... 34
SECTION 6.04. Restrictions on Transfer........................................................ 34
SECTION 6.05. Standstill...................................................................... 34
SECTION 6.06. Confidentiality; Information.................................................... 36
SECTION 6.07. Compliance with Section 355..................................................... 37
SECTION 6.08. IPO Lock-up..................................................................... 37
SECTION 6.09. Prohibition on Solicitation and Hiring.......................................... 38
SECTION 6.10. Escrow Agreement................................................................ 38
ARTICLE VII
Conditions Precedent to Initial
Conditions Date and Funding
SECTION 7.01. Conditions to the Company's
Obligations in Respect of the Initial
Conditions .......................................................................... 39
</TABLE>
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<TABLE>
<S> <C>
SECTION 7.02. Conditions to Each Purchasers'
Obligations in Respect of the Initial
Conditions ..................................................................... 39
SECTION 7.03. Conditions to Each Party's
Obligations In Respect of the
Funding ........................................................................ 40
SECTION 7.04. Conditions to the Company's
Obligations in Respect of the
Funding ........................................................................ 41
SECTION 7.05. Conditions to Each Purchaser's
Obligations in Respect of the
Funding ........................................................................ 41
SECTION 7.06. Conditions to Each Party's
Obligations In Respect of the
Release of Escrowed Funds and
Securities ..................................................................... 41
ARTICLE VIII
Miscellaneous
SECTION 8.01. Survival ......................................................................... 42
SECTION 8.02. Legends .......................................................................... 42
SECTION 8.03. Notices .......................................................................... 43
SECTION 8.04. Termination ...................................................................... 44
SECTION 8.05. GOVERNING LAW .................................................................... 45
SECTION 8.06. WAIVER OF JURY TRIAL ............................................................. 45
SECTION 8.07. Attorney Fees .................................................................... 45
SECTION 8.08. Entire Agreement ................................................................. 45
SECTION 8.09. Modifications and Amendments ..................................................... 46
SECTION 8.10. Waivers and Extensions ........................................................... 46
SECTION 8.11. Titles and Headings; Rules of
Construction .................................................................. 46
SECTION 8.12. Exhibits and Schedules ........................................................... 46
SECTION 8.13. Expenses; Brokers ................................................................ 47
SECTION 8.14. Press Releases and Public
Announcements ................................................................. 47
SECTION 8.15. Assignment; No Third Party
Beneficiaries ................................................................. 47
SECTION 8.16. Severability ..................................................................... 48
SECTION 8.17. Counterparts ..................................................................... 48
</TABLE>
Schedules
Schedule 1 List of Purchasers
Schedule 3.01 Organization and Standing
Schedule 3.02 Capital Stock
Schedule 3.04 No Violation; Consents
Schedule 3.05 Form 10; Financial Statements
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Schedule 3.07 Assets
Schedule 3.08 Intellectual Property
Schedule 3.09 Undisclosed Liabilities
Schedule 3.11 No Litigation
Schedule 3.13 Environmental Matters
Schedule 3.14 Interim Changes
Schedule 3.15 The Contribution and Distribution
Schedule 5.01 Access to Books and Records
Exhibits
Exhibit A Form of Certificate of Designation
Exhibit B Form of Series A and Series B Warrant
Certificate
Exhibit C Form of Cravath, Swaine & Moore Opinion
Exhibit D Registration Rights Provisions
iv
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1
PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT dated
as of August 8, 2000, by and among Avaya Inc., a Delaware
corporation (the "Company"), and each of the purchasers listed
on Schedule 1 hereto (individually, a "Purchaser" and
collectively, the "Purchasers").
WHEREAS, Lucent Technologies Inc., a Delaware corporation
("Lucent"), and the Company expect to enter into a Contribution and Distribution
Agreement (as defined herein) whereby subject to the terms and conditions
thereof, Lucent will contribute (the "Contribution") to the Company
substantially all the assets and liabilities of its Enterprise Communications
Business (as defined herein) and, following the Contribution, distribute (the
"Distribution"), subject to the terms and conditions of the Contribution and
Distribution Agreement, to Lucent's stockholders all the shares of the Company's
Common Stock;
WHEREAS, the Company proposes, subject to the terms and
conditions set forth herein, to issue and sell to the Purchasers 4,000,000
shares (the "Preferred Shares") of its 6-1/2% Series B Convertible Participating
Preferred Stock, par value $1.00 per share (the "Series B Preferred Stock"),
having an initial liquidation preference equal to $100 per share;
WHEREAS, the Company proposes, subject to the terms and
conditions set forth herein, to issue and sell to the Purchasers the Series A
Warrants (as defined herein) and the Series B Warrants (as defined herein);
WHEREAS, the Purchasers desire, subject to the terms and
conditions set forth herein, to purchase the Securities (as defined herein) from
the Company; and
WHEREAS, the Preferred Shares, the Series A Warrants and the
Series B Warrants shall not be issued by the Company or purchased by the
Purchasers unless the Distribution is consummated.
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NOW, THEREFORE, the parties hereto, intending to be legally
bound, hereby agree as follows.
ARTICLE I
Definitions
(a) As used in this Agreement, the following terms shall have
the following meanings:
"Affiliate" means, with respect to any Person, any other
Person directly or indirectly controlling, controlled by, or under direct or
indirect common control with, such Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Applicable Law" means (a) any United States Federal, state,
local or foreign law, statute, rule, regulation, order, writ, injunction,
judgment, decree or permit of any Governmental Authority and (b) any rule or
listing requirement of any national stock exchange or Commission recognized
trading market on which securities issued by the Company or any of the
Subsidiaries are listed or quoted.
"Business Day" means any day other than a Saturday, a Sunday,
or a day when banks in The City of New York are authorized by Applicable Law to
be closed.
"Capital Stock" means (i) with respect to any Person that is a
corporation, any and all shares, interests, participations, rights or other
equivalents (however designated) of corporate stock and (ii) with respect to any
other Person, any and all partnership or other equity interests of such Person.
"Certificate of Designation" means the Certificate of
Designation of the Powers, Preferences and Relative, Participating, Optional and
Other Special Rights and Qualifications, Limitations and Restrictions thereof
relating to the Series B Preferred Stock, in the form attached hereto as Exhibit
A.
"Commission" means the United States Securities and Exchange
Commission.
8
3
"Common Stock" means the Common Stock of the Company, par
value $0.01 per share, and, unless the context otherwise requires, includes the
associated Series A Junior Participating Preferred Stock purchase rights
issuable in respect of such shares pursuant to the Rights Agreement.
"Common-Stock-Equivalent Security" means securities of the
Company more than 50% of the principal amount, liquidation preference or stated
value of which is convertible into or exchangeable or exercisable for, shares of
Common Stock. Any offerings of units of multiple securities, one or more of
which securities is Common Stock or a Common-Stock-Equivalent Security, shall
not constitute an offering of Common Stock-Equivalent Securities unless more
than 50% of the aggregate principal amount, liquidation preference and/or stated
value of all securities comprising such unit is attributable to Common Stock or
is convertible into or exchangeable or exercisable for, shares of Common Stock.
"Confidentiality Agreement" means the Confidentiality
Agreement dated June 1, 2000 between Lucent Technologies Inc. and Warburg.
"Contract" means any contract, lease, loan agreement,
mortgage, security agreement, trust indenture, note, bond, or other agreement
(whether written or oral) or instrument.
"Contribution and Distribution Agreement" means the
Contribution and Distribution Agreement between the Company and Lucent to be
entered into in connection with the Distribution, substantially in the form
included in the Distribution Documentation Annex.
"Conversion Shares" means the shares of Common Stock issuable
upon the conversion of the Series B Preferred Stock in accordance with the terms
of the Certificate of Designation.
"Development Project Agreement" means the Development Project
Agreement between the Company and Lucent to be entered into in connection with
the Distribution, substantially in the form included in the Distribution
Documentation Annex.
"Distribution Agreements" means the Contribution and
Distribution Agreement, the Interim Services and Systems Replication Agreement,
the Employee Benefits Agreement, the Tax Sharing Agreement, the Patent and
Technology License Agreement, the Trademark License Agreement, the Technology
9
4
Assignment and Joint Ownership Agreement and the Development Project Agreement.
"Distribution Documentation Annex" means the Annex delivered
to the Purchasers as of the date hereof containing the Draft Form 10 and the
Distribution Agreements.
"Draft Form 10" means the registration statement on Form 10
filed by the Company with the Commission in connection with the Distribution
(and all exhibits and schedules thereto and documents incorporated by reference
therein), in the form included in the Distribution Documentation Annex.
"Effective Date" means the date the Form 10 is first declared
effective by the Commission.
"Employee Benefits Agreement" means the Employee Benefits
Agreement between the Company and Lucent to be entered into in connection with
the Contribution and the Distribution, substantially in the form included in the
Distribution Documentation Annex.
"Enterprise Communications Business" means the business of
providing enterprise voice communications systems and software, communications
applications, professional services for customer and enterprise relationship
management, multiservice networking products and product installation services,
maintenance and other value-added services in respect of the foregoing and the
manufacture of structured cabling systems and electronic cabinets, to be
conducted by the Company and its Subsidiaries following the Contribution, all as
described in the Draft Form 10.
"Equity Documents" means this Agreement, the Escrow Agreement,
the Warrants and the Certificate of Designation.
"Escrow Agent" means the party identified as such in the
Escrow Agreement.
"Escrow Agreement" means the escrow agreement among the
Purchasers, the Company and the Escrow Agent to be entered into in connection
with the Issuance.
"Exchange Act" means the Securities Exchange Act of 1934, as
from time to time amended, and the rules and regulations of the Commission
promulgated thereunder.
10
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"Form 10" means the registration statement on Form 10 filed by
the Company with the Commission in connection with the Distribution (and all
exhibits and schedules thereto and documents incorporated by reference therein),
as amended through the Effective Date.
"GAAP" means United States generally accepted accounting
principles, consistently applied.
"Governmental Authority" means (i) any foreign, Federal, state
or local court or governmental or regulatory agency or authority, (ii) any
arbitration board, tribunal or mediator and (iii) any national stock exchange or
Commission recognized trading market on which securities issued by the Company
or any of the Subsidiaries are listed or quoted.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended, and applicable rules and regulations and any similar
state acts.
"Intellectual Property" means any patent (including all
reissues, divisions, continuations and extensions thereof), patent application,
patent right, trademark, trademark registration, trademark application,
servicemark, trade name, business name, brand name, copyright, copyright
registration, design, design registration, software, firmware, trade secret,
license, customer list, proprietary technology, know-how, invention, discovery,
improvement, process or formula or any right to any of the foregoing, and all
other forms of intellectual property.
"Interim Services and Systems Replication Agreement" means the
Interim Services and Systems Replication Agreement between the Company and
Lucent to be entered into in connection with the Contribution and the
Distribution, substantially in the form included in the Distribution
Documentation Annex.
"Lien" means any mortgage, pledge, lien, security interest,
claim, restriction, charge or encumbrance of any kind.
"Material Adverse Effect" means a material adverse effect on
the business, condition (financial or otherwise), operations, performance or
properties of the Enterprise Communications Business, taken as a whole.
"Patent and Technology Agreement" means the Patent and
Technology Agreement between the Company and Lucent to be entered into in
connection with the Distribution,
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substantially in the form included in the Distribution Documentation Annex.
"Permitted Liens" means (i) mechanics', carriers', workmen's,
repairmen's or other like Liens arising or incurred in the ordinary course of
business, Liens arising under original purchase price conditional sales
contracts and equipment leases with third parties entered into in the ordinary
course of business and liens for taxes that are not due and payable or that may
thereafter be paid without penalty, (ii) Liens that secure obligations that are
reflected as liabilities in the Company Financial Statements or Liens the
existence of which is referred to in the notes to the Company Financial
Statements, (iii) other leases, subleases and similar agreements, imperfections
of title or easements, covenants, rights-of-way and encumbrances, if any, that,
individually or in the aggregate, do not materially impair, and could not
reasonably be expected materially to impair, the continued use and operation of
the assets to which they relate in the conduct of the Enterprise Communications
Business as presently conducted, (iv) (A) zoning, building and other similar
legal restrictions, (B) Liens that have been placed by any developer, landlord
or other third party on property over which the Company or any Subsidiary has
easement rights or on any leased property and subordination or similar
agreements relating thereto and (C) unrecorded easements, covenants,
rights-of-way and other similar restrictions and (v) other Liens that would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
"Permitted Transferee" means, with respect to any Purchaser or
any Permitted Transferee of any Purchaser, any member of the Warburg Group,
Warburg or any subsidiary of Warburg (but excluding any portfolio company of any
member of the Warburg Group); provided, however, that each Permitted Transferee
must agree in writing to be bound by the terms of this Agreement to the same
extent, and in the same manner, as the transferring Purchaser prior to the
transfer of any Preferred Shares, Warrants or Common Stock to such Permitted
Transferee; and provided further, however, that the transfer of Preferred
Shares, Warrants or Common Stock to such Permitted Transferee is in compliance
with all applicable securities laws.
"Person" means any individual, partnership, corporation,
limited liability company, joint venture, association, joint-stock company,
trust, unincorporated organization, government or agency or political
subdivision thereof, or other entity.
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"Private Letter Ruling" means the private letter ruling dated
August 3, 2000, from the Internal Revenue Service that the Distribution
qualifies as a tax-free distribution under Section 355.
"Purchasers' Ownership Interest" means, as of any date, a
percentage equal to the quotient of (x) the sum of (i) the aggregate number of
shares of Common Stock then issuable upon conversion in accordance with the
terms of the Certificate of Designation of the aggregate number of shares of
Series B Preferred Stock owned as of such date by the Purchasers and the
Permitted Transferees and (ii) the aggregate number of shares of Common Stock
owned as of such date by the Purchasers and the Permitted Transferees by (y) the
number of shares of Common Stock as of such date determined in accordance with
GAAP utilizing the treasury stock method.
A "Qualifying Ownership Interest" shall be deemed to exist at
any time the Purchasers and the Permitted Transferees own a number of shares of
Series B Preferred Stock and shares of Common Stock that in the aggregate
represent (assuming conversion of any such shares of Series B Preferred Stock
into shares of Common Stock in accordance with the terms of the Certificate of
Designation) not less than 50% of the number of shares of Common Stock that
would be issuable at such time upon conversion of all the Preferred Shares
initially acquired by the Purchasers pursuant to this Agreement (without regard
to whether such Preferred Shares are then outstanding).
"Qualified Equity Offering" means a public or nonpublic
offering of Common Stock or a Common Stock-Equivalent Security (collectively,
"New Stock") solely for cash in a capital-raising transaction; provided,
however, that none of the following offerings shall constitute a Qualified
Equity Offering: (i) any offering pursuant to any stock purchase plan, stock
ownership plan, stock option plan or other similar plan where stock is being
issued or offered to a trust, other entity or otherwise, for the benefit of any
employees, officers, consultants or directors of the Company, (ii) any offering
made as part of or in connection with any non-capital-raising transaction
(including, without limitation, a partnership or joint venture or strategic
alliance or investment) and (iii) any offering that would result in an
antidilution adjustment to the Series B Preferred Stock pursuant to Section 7 of
the Certificate of Designation.
"Representatives" means, collectively, with respect to any
Person, such Person's directors, partners,
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officers, employees, financial advisors, lenders, accountants, attorneys,
agents, equity investors, controlled Affiliates and controlling persons of such
Person or its controlled Affiliates.
"Rights Agreement" means the Rights Agreement to be dated as
of September 30, 2000 between the Company and The Bank of New York, as Rights
Agent.
"Section 355" means Section 355 of the Internal Revenue Code
of 1986, as amended.
"Securities" means the Preferred Shares and the Warrants.
"Securities Act" means the Securities Act of 1933, as from
time to time amended, and the rules and regulations of the Commission
promulgated thereunder.
"Series A Warrants" means the four-year warrants to purchase
shares of Common Stock representing 2.0% of the Total Shares Outstanding (as
defined in the Series A Warrant) substantially in the form attached hereto as
Exhibit B.
"Series B Preferred Stock" has the meaning set forth in the
second recital to this Agreement. The Series B Preferred Stock has the
designation, powers, preferences and rights, and qualifications, limitations and
restrictions thereof set forth in the Certificate of Designation.
"Series B Warrants" means the five-year warrants to purchase
shares of Common Stock representing 1.6% of the Total Shares Outstanding (as
defined in the Series B Warrant) substantially in the form attached hereto as
Exhibit B.
"subsidiary" means, with respect to any Person (i) a
corporation a majority of whose capital stock with voting power, under ordinary
circumstances, to elect directors is at the time, directly or indirectly, owned
by such Person, by a subsidiary of such Person, or by such Person and one or
more subsidiaries of such Person, (ii) a partnership in which such Person or a
subsidiary of such Person is, at the date of determination, a general partner of
such partnership and has the power to direct the policies and management of such
partnership, or (iii) any other Person (other than a corporation) in which such
Person, a subsidiary of such Person or such Person and one or more subsidiaries
of such Person, directly or indirectly, at the date of determination thereof,
has (A) at least a majority
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ownership interest or (B) the power to elect or direct the election of a
majority of the directors or other governing body of such Person.
"Subsidiary" means a subsidiary of the Company, including
subsidiaries of Lucent that will be transferred to the Company in connection
with the Contribution.
"Tax Sharing Agreement" means the Tax Sharing Agreement
between the Company and Lucent to be entered into in connection with the
Contribution and the Distribution, substantially in the form included in the
Distribution Documentation Annex.
"Technology Assignment and Joint Ownership Agreement" means
the Technology Assignment and Joint Ownership Agreement between the Company and
Lucent to be entered into in connection with the Distribution, substantially in
the form included in the Distribution
Documentation Annex.
"Trademark License Agreement" means the Trademark License
Agreement between the Company and Lucent to be entered into in connection with
the Distribution, substantially in the form included in the Distribution
Documentation Annex.
"Transactions" means the transactions contemplated by the
Equity Documents.
"Warburg" means the general partner of Warburg, Pincus Equity
Partners, L.P.
"Warburg Group" means, collectively, any investment fund that
is an Affiliate of Warburg.
"Warrants" means the Series A Warrants and the Series B
Warrants.
"Warrant Shares" means the shares of Common Stock issuable
upon exercise of the Warrants in accordance with the terms of the applicable
Warrants.
(b) As used in this Agreement, the following terms shall have
the meanings given thereto in the Sections set forth opposite such terms:
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<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
Closing 2.04
Company Preamble
Company Financial Statements 3.05(c)
Contribution Recitals
Contribution and Distribution Agreement Recitals
DGCL 3.02(d)
Distribution Recitals
Environmental Law 3.13(b)
Funding 2.03
Funding Date 2.03
Hazardous Substance 3.13(c)
Initial Conditions 2.02
Initial Conditions Date 2.02
Issuance 2.01
Lucent Recitals
New Stock 5.11(a)
Notices 8.03
Preferred Shares Recitals
Purchaser; Purchasers Preamble
Purchase Price 2.01
Qualifying Ownership Interest 5.11(a)
Registrable Securities 5.10
Registration Rights Provisions 5.10
Registration Statement 5.10
Warburg Group Director 5.09(a)
Warburg Group Observer 5.09(a)
</TABLE>
ARTICLE II
Sale and Purchase
SECTION 2.01. Agreement to Sell and to Purchase; Purchase
Price. Immediately following the consummation of the Distribution and upon the
terms and subject to the conditions set forth in this Agreement and the Escrow
Agreement, the Company shall issue and sell (in accordance with the terms of the
Escrow Agreement) to each Purchaser, and each Purchaser, severally and not
jointly, shall purchase and accept (in accordance with the terms of the Escrow
Agreement) from the Company, such number of Preferred Shares and fractional
interests in the Warrants as is
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indicated on Schedule 1 hereto (the "Issuance"), for an aggregate purchase
price, payable (in accordance with the terms of the Escrow Agreement) by wire
transfer of immediately available funds to a bank account or bank accounts
designated by the Company, equal to $100.00 for one Preferred Share, and the
corresponding fractional interest in the Series A Warrants and the Series B
Warrants (the "Purchase Price"). The aggregate purchase price for all the
Preferred Shares and Warrants to be issued and sold to all the Purchasers is
$400.0 million. The Company shall not be required to issue and sell Preferred
Shares and Warrants to any Purchaser unless the conditions set forth in Article
VII to the issuance and sale to all Purchasers shall have been satisfied or
waived.
SECTION 2.02. Initial Conditions. The initial conditions in
respect of the Issuance (the "Initial Conditions") shall be satisfied on the
Effective Date, which is expected to be September 1, 2000, or at such other time
and date as the parties hereto shall agree in writing (such date and time, the
"Initial Conditions Date"), at the offices of Cravath, Swaine & Moore, located
at 825 Eighth Avenue, New York, New York 10019 or at such other place as the
parties hereto shall agree in writing.
On the Initial Conditions Date:
(a) Each Purchaser shall deliver to the Company:
(i) the officer's certificate of such Purchaser contemplated
by Section 7.01(c); and
(ii) a copy of the Escrow Agreement executed by such
Purchaser.
(b) The Company shall deliver to each Purchaser:
(i) an opinion of Cravath, Swaine & Moore, dated the Initial
Conditions Date in the form attached hereto as Exhibit D;
(ii) the officer's certificate of the Company contemplated by
Section 7.02(e); and
(iii) a copy of the Escrow Agreement executed by the Company.
(c) The Escrow Agent shall deliver to the Company and each
Purchaser a copy of the Escrow Agreement executed by the
Escrow Agent.
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SECTION 2.03. Escrow Funding. The funding into escrow of the
Issuance (the "Funding") shall take place on the date of the Distribution or, if
such date is not a Business Day, on the Business Day immediately preceding the
date of the Distribution, or at such other time and date as the parties hereto
shall agree in writing (such date and time, the "Funding Date"), at the offices
of Cravath, Swaine & Moore, located at 825 Eighth Avenue, New York, New York
10019 or at such other place as the parties hereto shall agree in writing. The
Funding Date currently is expected to be September 29, 2000.
At the Funding:
(a) Each Purchaser shall deliver:
(i) to the Escrow Agent, an amount equal to the aggregate
Purchase Price of the Preferred Shares and fractional interest
in the Warrants being purchased by such Purchaser pursuant to
Section 2.01 via wire transfer of immediately available funds
to such bank account as the Escrow Agent shall designate not
later than two Business Days prior to the Funding Date; and
(ii) to the Company, the officer's certificate of such
Purchaser contemplated by Section 7.04.
(b) The Company shall deliver:
(i) to the Escrow Agent, certificates representing the
Preferred Shares and fractional interest in the Warrants being
purchased by each Purchaser pursuant to Section 2.01, which
shall be in definitive form and registered in the name of such
Purchaser or its nominee or designee and in such denominations
as such Purchaser shall request not later than two Business
Days prior to the Funding Date; and
(ii) to each Purchaser, the officer's certificate of the
Company contemplated by Section 7.05.
SECTION 2.04. Release of Escrowed Funds and Securities. The
Escrow Agent shall release the escrowed funds and securities in accordance with
the terms of the Escrow Agreement, and the closing of the issuance and sale of
the Preferred Shares and the Warrants (the "Closing") shall occur immediately
following the satisfaction of the condition set forth in Section 7.06; provided,
however, that if such condition has not been satisfied prior to the second
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Business Day immediately succeeding the Funding Date, the escrowed funds and
securities, plus any earnings thereon (as specified in the Escrow Agreement),
shall be returned to the parties who placed them in escrow on the third Business
Day immediately succeeding the Funding Date.
ARTICLE III
Representations and Warranties
of the Company
The Company hereby represents and warrants to each Purchaser
on the date hereof and on and as of the Initial Conditions Date and, in the case
of Sections 3.02, 3.14 and 3.15, on and as of the Funding Date as follows:
SECTION 3.01. Organization and Standing. (a) The Company is
duly incorporated, validly existing and in good standing under the laws of the
State of Delaware and has all requisite corporate power and authority to own its
properties and assets and to carry on its business as it is now being conducted
and as proposed to be conducted immediately following the Distribution. The
Company has furnished to the Purchasers true and correct copies of the Company's
certificate of incorporation and by-laws as amended through the date of this
Agreement and true and correct copies of the Company's certificate of
incorporation and by-laws in substantially the form as will be in effect as of
the Distribution (exclusive of the certificate of designation to be filed in
connection with the Rights Agreement).
(b) Each direct and indirect material Subsidiary will, at the
time of the Distribution, be duly incorporated, validly existing and, where
applicable, in good standing under the laws of its jurisdiction of incorporation
and have all requisite power and authority to own its properties and assets and
to carry on its business as it is proposed to be conducted immediately following
the Distribution, and each such material Subsidiary will be qualified to
transact business, and will be in good standing, in each jurisdiction in which
the properties owned, leased or operated by it or the nature of the business
conducted by it makes such qualification necessary; except in all cases as would
not, individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect. Except as set forth in Schedule 3.01, (i) all of the outstanding
shares of capital stock of each such material Subsidiary are validly issued,
fully paid, nonassessable and free of preemptive rights and upon consummation of
the Contribution will be owned directly
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or indirectly by the Company and (ii) there are no subscriptions, options,
warrants, rights, calls, contracts, voting trusts, proxies or other commitments,
understandings, restrictions or arrangements relating to the issuance, sale,
voting or transfer of any shares of capital stock of any such material
Subsidiary, including any right of conversion or exchange under any outstanding
security, instrument or agreement.
SECTION 3.02. Capital Stock. (a) The authorized Capital Stock
of the Company immediately following the Distribution will consist solely of (i)
1,500,000,000 shares of Common Stock, of which a number of shares equal to a
number calculated based on the number of shares of Lucent common stock
outstanding on the record date established by Lucent for the Distribution and
the distribution ratio for the Distribution which shall be not less than one
share of Common Stock for every 10 shares of Lucent common stock and not more
than one share of Common Stock for every 20 shares of Lucent common stock will
be issued and outstanding immediately following the Distribution, and (ii)
200,000,000 shares of preferred stock, par value $1.00 per share, of which,
prior to the issuance of the Preferred Shares on the Funding Date as
contemplated by this Agreement, no more than 15,000,000 shares will have been
designated as Series A Junior Participating Preferred Stock and no shares are
issued or outstanding. Each share of Capital Stock of the Company that will be
issued and outstanding immediately following the Funding, including without
limitation the Preferred Shares, will be duly authorized and validly issued and
fully paid and nonassessable, and the issuance thereof will not have been
subject to any preemptive rights or made in violation of any Applicable Law.
(b) Except as set forth on Schedule 3.02, there are (i) no
outstanding options, warrants, agreements, conversion rights, exchange rights,
preemptive rights or other rights (whether contingent or not) to subscribe for,
purchase or acquire any issued or unissued shares of Capital Stock of the
Company or any Subsidiary or any Lucent options that will be converted into
options to purchase Common Stock, and (ii) no restrictions upon, or Contracts or
understandings of the Company or any Subsidiary with respect to, the voting or
transfer of any shares of Capital Stock of the Company or any Subsidiary.
(c) Prior to the Initial Conditions Date, the Conversion
Shares and Warrant Shares will have been duly authorized and adequately reserved
in contemplation of the conversion of the Series B Preferred Stock and the
exercise
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of the Warrants, respectively, and, when issued and delivered in accordance with
the terms of the Certificate of Designation or the Warrants, as the case may be,
will have been validly issued and will be fully paid and nonassessable, and the
issuance thereof will not have been subject to any preemptive rights or made in
violation any Applicable Law.
(d) The holders of the Series B Preferred Stock will, upon
issuance thereof, have the rights set forth in the Certificate of Designation
(subject to the limitations and qualifications set forth therein and under the
General Corporation Law of the State of Delaware (the "DGCL")).
SECTION 3.03. Authorization; Enforceability. The Company has
the power and authority to execute, deliver and perform the terms and provisions
of each of the Equity Documents, and, as of the Initial Conditions Date, will
have taken all action necessary to authorize the execution, delivery and
performance by it of each of such Equity Documents and to consummate the
Transactions. As of the Initial Conditions Date, no other corporate proceeding
on the part of the Company will be necessary for such authorization, execution,
delivery and consummation. The Company has duly executed and delivered this
Agreement and, on the Initial Conditions Date, the Company will have duly
executed and delivered each of the other Equity Documents to be executed and
delivered on or prior to Initial Conditions Date. This Agreement constitutes,
and each of the other Equity Documents, when executed and delivered by the
Company, will constitute, a legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms.
SECTION 3.04. No Violation; Consents. (a) Subject to the
governmental filings and other matters referred to in Section 3.04(b), the
execution, delivery and performance by the Company of each of the Equity
Documents and the consummation by the Company of the Transactions do not and
will not contravene any Applicable Law, except for any such contravention that
would not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect. Except as set forth on Schedule 3.04, the execution,
delivery and performance by the Company of each of the Equity Documents and the
consummation of the Transactions (i) will not (A) violate, result in a breach of
or constitute (with or without due notice or lapse of time or both) a default
(or give rise to any right of termination, cancellation or acceleration) under
any Contract to which the Company or any Subsidiary is a party or by which the
Company or any Subsidiary is bound or to
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which any of the assets of the Enterprise Communications Business will be
subject immediately following the Distribution, or (B) result in the creation or
imposition of any Lien upon any of the assets of the Enterprise Communications
Business, except for any such violations, breaches, defaults or Liens that would
not, individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect; and (ii) will not conflict with or violate any provision of the
certificate of incorporation or bylaws or other governing documents of the
Company or any Subsidiary.
(b) Except for (i) the filings by Lucent and the Company, if
any, required by the HSR Act and the expiration or termination of the applicable
waiting period with respect thereto, (ii) applicable filings, if any, with the
Commission pursuant to the Exchange Act, (iii) filings under state securities or
"blue sky" laws, (iv) filing of the Certificate of Designation with the
Secretary of State of the State of Delaware, and (v) such customary items as may
be required in connection with the registration of securities for public offer
and sale pursuant to the Registration Rights Provisions, no consent,
authorization or order of, or filing or registration with, any Governmental
Authority or other Person is required to be obtained or made by the Company,
Lucent or any Subsidiary for the execution, delivery and performance of any of
the Equity Documents or the consummation of the Transactions, except where the
failure to obtain such consents, authorizations or orders, or make such filings
or registrations, would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.
SECTION 3.05. Form 10; Financial Statements. (a) Except as set
forth on Schedule 3.05, the Draft Form 10 does not contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements made therein, in the light of the
circumstances under which they were made, not misleading and, to the Company's
knowledge, complies in all material respects with the applicable provisions of
the Exchange Act; it being understood that the fact that information is added,
deleted or changed in response to comments from the Commission is not evidence
that the Draft Form 10 (i) contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements made therein, in light of the circumstances under which they
were made, not misleading, or (ii) failed to comply with the applicable
provisions of the Exchange Act.
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(b) As of the Effective Date, the Form 10 will comply in all
material respects with the applicable provisions of the Exchange Act and will
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements made
therein, in the light of the circumstances under which they were made, not
misleading.
(c) The historical financial statements of the Company and the
Subsidiaries (including any related notes or schedules) included in the Draft
Form 10 (the "Company Financial Statements") were prepared in accordance with
GAAP (except as may be disclosed therein). The Company Financial Statements
fairly present, on the basis set forth in Note 1 of the audited Company
Financial Statements, the combined financial position of the Company and the
Subsidiaries as of the dates thereof and the results of operations, cash flows
and changes in invested equity for the periods then ended (subject, in the case
of the unaudited interim financial statements, to normal year-end audit
adjustments on a basis comparable with past periods). The Company Financial
Statements do not necessarily reflect the financial position, results of
operations, changes in invested equity and cash flows of the Company if the
Company had been a stand-alone entity, independent of Lucent.
SECTION 3.06. Material Adverse Change. Except as disclosed in
the Draft Form 10, since June 30, 2000, there has not been any material adverse
change in the business condition (financial or otherwise), operations,
performance or properties of the Enterprise Communications Business, taken as a
whole, but excluding any such effect resulting from changes in general economic
conditions or the industry described under "Industry Opportunity" in the Draft
Form 10 that do not have a materially disproportionate effect on the business
condition (financial or otherwise), operations, performance or properties of the
Enterprise Communications Business.
SECTION 3.07. Assets. Except as set forth in Schedule 3.07,
the Company and the Subsidiaries own and have or, immediately following the
Distribution will own and have, good and valid title to, or a valid leasehold
interest in, or otherwise have or, immediately following the Distribution will
have, sufficient rights to use, all of the properties and assets (real, personal
or mixed, tangible or intangible) reasonably necessary to conduct the Enterprise
Communications Business, free and clear of all Liens, except for Permitted
Liens. This Section 3.07 does not apply to intellectual property (for which
Section 3.08 is applicable).
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SECTION 3.08. Intellectual Property. Except as set forth in
Schedule 3.08 and except as would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect, (i) immediately
following the Distribution, the Company or a Subsidiary will have sufficient
rights to use all the Intellectual Property reasonably necessary to conduct the
Enterprise Communications Business (the "Company Intellectual Property") and the
consummation of the Transactions will not conflict with, alter or impair any
such rights; (ii) to the knowledge of the Company, the use of any licensed
Company Intellectual Property by the Company and the Subsidiaries, as licensee
and the use of any other Company Intellectual Property the use of which by the
Company or any Subsidiary is governed by a Contract with a third-party, will,
immediately following the Distribution, be in accordance in all material
respects with the applicable license or Contract pursuant to which the entities
conducting the Enterprise Communications Business acquired the right to use such
Company Intellectual Property; and (iii) since January 1, 1999, neither the
Company nor any of its Subsidiaries nor, to the knowledge of the Company, after
due inquiry of Lucent, Lucent nor any of its subsidiaries has received any
written notification that the Enterprise Communications Business has infringed
upon or violated the Intellectual Property rights of others, and to the
Company's knowledge no Company Intellectual Property is being used or enforced
by the Enterprise Communications Business in a manner that would reasonably be
expected to result in the abandonment, cancellation or unenforceability of any
Company Intellectual Property.
SECTION 3.09. No Undisclosed Material Liabilities. Except as
disclosed on Schedule 3.09 or in the Draft Form 10, there are no liabilities of
the Enterprise Communications Business, the Company or the Subsidiaries of any
kind whatsoever, whether accrued, contingent, absolute, determined, determinable
or otherwise, other than (i) liabilities disclosed, reflected or reserved
against in the balance sheet of the Company and the Subsidiaries dated as of
June 30, 2000 (and the notes thereto) included in the Draft Form 10 or in the
"Management's Discussion and Analysis of Financial Condition and Results of
Operation" section of the Draft Form 10, including, without limitation, the
section therein captioned "Review of Operations and Related Charge", (ii)
liabilities incurred in the ordinary course consistent with past practice since
June 30, 2000, (iii) liabilities arising under the Equity Documents, (iv)
liabilities not required by GAAP to be recognized or disclosed on a consolidated
balance sheet of the Company and its consolidated Subsidiaries or in the notes
thereto,
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(v) liabilities to be retained by Lucent and (vi) such other liabilities as
would not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.
SECTION 3.10. Compliance with Laws. The Enterprise
Communications Business, the Company and the Subsidiaries are in compliance in
all material respects with all Applicable Laws, except for instances of
noncompliance that, individually or in the aggregate, have not had and would not
reasonably be expected to have a Material Adverse Effect.
SECTION 3.11. No Litigation. Except as disclosed in the Draft
Form 10 or Schedule 3.11, there are not any (a) outstanding judgments, orders or
decrees against or affecting the Company or any of the Subsidiaries, (b)
proceedings pending or, to the knowledge of the Company, threatened against or
affecting the Enterprise Communications Business, the Company or any of the
Subsidiaries or (c) investigations by any Governmental Authority that are, to
the knowledge of the Company, pending or threatened against or affecting the
Enterprise Communications Business, the Company or any of the Subsidiaries that,
in any case, individually or in the aggregate, would reasonably be expected to
have a Material Adverse Effect or a material adverse effect on the ability of
the Company to timely perform its obligations under this Agreement.
SECTION 3.12. Compliance with Constituent Documents. None of
the Company or any material Subsidiary is in breach or violation of or in
default in the performance or observance of any term or provision of, and no
event has occurred which, with lapse of time or action by a third party, would
result in a default under the respective articles or certificate of
incorporation, bylaws or similar organizational instruments of such entities.
SECTION 3.13. Environmental Matters. (a) Except as set forth
on Schedule 3.13 and except for such matters as would not, individually or in
the aggregate, reasonably be expected to have a Material Adverse Effect, (i) the
Enterprise Communications Business is conducted in compliance with all
Environmental Laws, including, without limitation, having all permits, licenses
and other approvals and authorizations necessary for the operation of their
respective businesses as presently conducted, (ii) since January 1, 1999,
neither the Company nor any Subsidiary nor, to the knowledge of the Company,
after due inquiry of Lucent, neither Lucent nor any of its subsidiaries has
received any written notices, demand letters or written
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requests for information from any federal, state, local or foreign governmental
entity indicating that any of the entities conducting the Enterprise
Communications Business may be in violation of, or liable under, any
Environmental Law in connection with the ownership or operation of the
Enterprise Communications Business, (iii) there are no civil, criminal or
administrative actions, suits, demands, claims, hearings, investigations or
proceedings pending against the Company or any Subsidiary or, to the knowledge
of the Company, Lucent or any of its subsidiaries or, to the knowledge of the
Company, threatened against such entities relating to any violation, or alleged
violation, of any Environmental Law related to the Enterprise Communications
Business, and (iv) to the knowledge of the Company, no Hazardous Substance has
been disposed of, released or transported in violation of any Environmental Law,
or in a manner giving rise to any liability under Environmental Law, from any
properties owned or operated by the Company or the entities conducting the
Enterprise Communications Business as a result of any activity of the Enterprise
Communications Business.
(b) As used herein, "Environmental Law" means any applicable
federal, state, local or foreign law, statute, ordinance, rule, regulation,
code, license, permit, authorization, approval, consent, judgment, decree,
injunction, requirement or enforceable agreement with any governmental entity
relating to (x) the protection, preservation or restoration of the environment
(including, without limitation, air, water vapor, surface water, groundwater,
drinking water supply, surface land, subsurface land, plant and animal life or
any other natural resource) or (y) the exposure to, or the use, storage,
recycling, treatment, generation, transportation, processing, handling,
labeling, production, release or disposal of Hazardous Substances, in each case
as amended and as in effect at the date hereof.
(c) As used herein, "Hazardous Substance" means any substance
presently listed, defined, designated or classified as hazardous, toxic,
radioactive, or dangerous, or otherwise regulated, under any Environmental Law.
SECTION 3.14. Interim Changes. (a) Since June 30, 2000, except
for (i) actions taken to prepare the Company to be an independent public company
(e.g., the incorporation of the Company and its Subsidiaries, the retention of
additional employees and the creation of a corporate infrastructure), (ii)
actions taken to transfer the Enterprise Communications Business from Lucent and
its subsidiaries to the Company and the Subsidiaries,
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(iii) actions taken to pursue the business and strategy of the Company and the
Subsidiaries as described in the Draft Form 10 and (iv) actions taken to pursue
the restructuring as contemplated by the charge to be incurred in connection
with the company-wide restructuring plan and one-time expenses to be incurred in
connection with the Company's reorganization plans and separation from Lucent
described in the Draft Form 10, the Enterprise Communications Business has been
operated in all material respects in the ordinary course of business. Without
limiting the foregoing, except to the extent consistent with the business and
strategy of the Company and the Subsidiaries as described in the Draft Form 10
or as otherwise described in the Draft Form 10, since June 30, 2000, neither the
Company nor, with respect to the Enterprise Communications Business, any
Subsidiary has entered into any material new lines of business or terminated any
existing material lines of business or agreed in writing or otherwise to do so.
(b) The Company has not terminated the employment or
materially reduced the responsibilities of the individuals identified in
Schedule 3.14.
SECTION 3.15. The Contribution and Distribution. Assuming
Lucent enters into each of the Distribution Agreements, the Company will enter
into each of the Distribution Agreements in substantially the same form included
in the Distribution Documentation Annex with only such changes (a) as would not
increase the burdens or decrease the benefits of such agreements to the Company
in a manner that would, individually or in the aggregate, have a material
adverse effect on the business, condition (financial or otherwise), operations,
performance, properties or prospects of the Enterprise Communications Business,
taken as a whole, (b) as are modifications to schedules to the Distribution
Agreements to reflect claims made, or actions, suits, demands, claims, hearings,
investigations or proceedings initiated, in each case after the date hereof,
against or affecting the Enterprise Communications Business, the Company or any
Subsidiary (including with respect to any violation of any Environmental Law)
and (c) as are set forth on Schedule 3.15.
ARTICLE IV
Representations and Warranties of the Purchasers
Each Purchaser severally as to itself only, and not jointly,
hereby represents and warrants to the Company
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on the date hereof and as of the Initial Conditions Date and, in the case of
Sections 4.02, 4.06 and 4.07, on and as of the Funding Date, as follows:
SECTION 4.01. Organization; Authorization; Enforceability.
Such Purchaser is duly organized, validly existing and in good standing under
the laws of the jurisdiction of its organization and has all requisite power and
authority to own its properties and assets and to carry on its business as it is
now being conducted and as currently proposed to be conducted. Such Purchaser
has the power to execute, deliver and perform its obligations under each of the
Equity Documents to which it is a party and has taken all necessary action to
authorize the execution, delivery and performance by it of such Equity Documents
and to consummate the Transactions. No other proceedings on the part of such
Purchaser are necessary for such authorization, execution, delivery and
consummation. Such Purchaser has duly executed and delivered this Agreement and,
on the Initial Conditions Date, such Purchaser will have duly executed and
delivered each of the other Equity Documents to be executed and delivered by it
on or prior to the Initial Conditions Date. This Agreement constitutes, and each
of the other Equity Documents to which such Purchaser is a party, when executed
and delivered by such Purchaser, will constitute, a legal, valid and binding
obligation of such Purchaser, enforceable against such Purchaser in accordance
with its terms.
SECTION 4.02. Private Placement. (a) Such Purchaser
understands that (i) the offering and sale of the Securities, the Conversion
Shares and the Warrant Shares in the Issuance by the Company is intended to be
exempt from registration under the Securities Act pursuant to Section 4(2)
thereof, and (ii) there is no existing public or other market for the Preferred
Shares, the Warrants or the Common Stock.
(b) Such Purchaser (i) is a "qualified institutional buyer",
as such term is defined in Rule 144A under the Securities Act or (ii) is an
institutional "accredited investor", as such term is defined in Rule 501(a) of
Regulation D under the Securities Act.
(c) Such Purchaser is acquiring the Securities to be acquired
hereunder (and will acquire the Conversion Shares and the Warrant Shares) for
its own account (or for accounts over which it exercises investment authority),
for investment and not with a view to the resale or distribution thereof in
violation of any securities law.
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(d) Such Purchaser understands that the Securities, the
Conversion Shares and the Warrant Shares will be issued in a transaction exempt
from the registration or qualification requirements of the Securities Act and
applicable state securities laws, and that such securities must be held
indefinitely unless a subsequent disposition thereof is registered or qualified
under the Securities Act and such laws or is exempt from such registration or
qualification.
(e) Such Purchaser (A) has been furnished with or has had full
access to all the information that it considers necessary or appropriate to make
an informed investment decision with respect to the Securities, the Conversion
Shares and the Warrant Shares and that it has requested from the Company, (B)
has had an opportunity to discuss with management of the Company the intended
business and financial affairs of the Company and to obtain information (to the
extent the Company possessed such information or could acquire it without
unreasonable effort or expense) necessary to verify any information furnished to
it or to which had access, and (C) can bear the economic risk of (x) an
investment in the Securities, the Conversion Shares and the Warrant Shares
indefinitely and (y) a total loss in respect of such investment, has such
knowledge and experience in business and financial matters so as to enable it to
understand and evaluate the risks of and form an investment decision with
respect to its investment in the Securities, the Conversion Shares and the
Warrant Shares and to protect its own interest in connection with such
investment.
SECTION 4.03. No Violation; Consents. (a) Subject to the
governmental filings and other matters referred to in Section 4.03(b), the
execution, delivery and performance by such Purchaser of each of the Equity
Documents to which it is a party and the consummation by such Purchaser of the
Transactions do not and will not contravene any Applicable Law, except for any
such contravention that would not, individually or in the aggregate, reasonably
be expected to have a material adverse effect on the ability of such Purchaser
to timely perform its obligations under the Equity Documents. The execution,
delivery and performance by such Purchaser of each of the Equity Documents to
which it is a party and the consummation of the Transactions (i) will not (A)
violate, result in a breach of or constitute (with or without due notice or
lapse of time or both) a default (or give rise to any right of termination,
cancellation or acceleration) under any Contract to which such Purchaser is
party or by which such Purchaser is bound or to which any of its assets is
subject,
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or (B) result in the creation or imposition of any Lien upon any of the assets
of such Purchaser, except for any such violations, breaches, defaults or Liens
that would not, individually or in the aggregate, reasonably be expected to have
a material adverse effect on the ability of such Purchaser to timely perform its
obligations under this Agreement; and (ii) will not conflict with or violate any
provision of the certificate of incorporation or bylaws or other governing
documents of such Purchaser.
(b) Except for (i) the filings by such Purchaser, if any,
required by the HSR Act and the expiration or termination of the applicable
waiting period with respect thereto and (ii) applicable filings, if any, with
the Commission pursuant to the Exchange Act, no consent, authorization or order
of, or filing or registration with, any Governmental Authority or other Person
is required to be obtained or made by such Purchaser for the execution, delivery
and performance of any of the Equity Documents or the consummation of any of the
Transactions, except where the failure to obtain such consents, authorizations
or orders, or make such filings or registrations, would not, individually or in
the aggregate, reasonably be expected to have a material adverse effect on the
ability of such Purchaser to timely perform its obligations under the Equity
Documents.
SECTION 4.04. No Litigation. There are not any (a) outstanding
judgments, orders or decrees against or affecting the Purchaser or any of its
subsidiaries, (b) proceedings pending or, to the knowledge of the Purchaser,
threatened against or affecting the Purchaser or any of its subsidiaries or (c)
investigations by any Governmental Authority that are, to the knowledge of the
Purchaser, pending or threatened against or affecting the Purchaser or any of
its subsidiaries that, in any case, individually or in the aggregate, would
reasonably be expected to have a material adverse effect on the ability of such
Purchaser to timely perform its obligations under the Equity Documents.
SECTION 4.05. Financing. Such Purchaser has on call and will
have on the Funding Date available funds to consummate the purchase of the
Securities to be purchased by it on the Funding Date.
SECTION 4.06. Ownership of Securities. Such Purchaser does not
own, directly or indirectly, or have any option or right to acquire, any
securities of Lucent or the Company other than the Preferred Shares and the
Warrants being purchased by it hereunder.
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SECTION 4.07. Future Acquisitions. Such Purchaser has no
present plan or intention to acquire, directly or indirectly, 50% or more of the
total voting power or total fair market value (as such terms are interpreted for
purposes of Section 355) of all shares of outstanding Capital Stock of the
Company.
ARTICLE V
Covenants of the Company
SECTION 5.01. Access to Books and Records. The Company shall
afford to each of the Purchasers and the Purchasers' accountants, counsel and
representatives full access during normal business hours throughout the period
prior to the Initial Conditions Date (or the earlier termination of this
Agreement pursuant to Section 8.04) to all properties, books, Contracts,
commitments and records related to the Enterprise Communications Business and,
during such period, shall, upon request, furnish promptly to each of the
Purchasers all other information concerning the Enterprise Communications
Business as the Purchasers may reasonably request, provided that no
investigation or receipt of information pursuant to this Section 5.01 shall
affect any representation or warranty of the Company or the conditions to the
obligations of the Purchasers. Following the Initial Conditions Date and
throughout the period prior to the Funding Date (or the earlier termination of
this Agreement pursuant to Section 8.04), the Company shall (i) afford to each
of the Purchasers and the Purchasers' accountants, counsel and representatives
such access as may be reasonably necessary to validate the satisfaction of the
conditions to the Funding set forth in Article VII and (ii) provide to the
Purchasers copies of the execution copies of the Distribution Agreements no
later than five Business Days before the Funding Date. All requests pursuant to
this Section 5.01 shall be made to the persons designated from time to time by
the Company for this purpose, who shall initially be the individuals listed on
Schedule 5.01.
SECTION 5.02. Compliance with Conditions; Commercially
Reasonable Efforts. The Company shall use all commercially reasonable efforts to
cause all conditions precedent to the obligations of the Company and the
Purchasers to be satisfied. Upon the terms and subject to the conditions of this
Agreement, the Company will use all commercially reasonable efforts to take, or
cause to be taken, all action, and to do, or cause to be done, all things
necessary, proper or advisable consistent with
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Applicable Law to consummate and make effective in the most expeditious manner
practicable the Issuance in accordance with the terms of the Equity Documents.
SECTION 5.03. HSR Act Notification. To the extent required by
the HSR Act, the Company shall (a) use all commercially reasonable efforts to
file or cause to be filed, as promptly as practicable after the execution and
delivery of this Agreement (and, in any event, within two Business Days of such
execution and delivery), with the United States Federal Trade Commission and the
Antitrust Division of the United States Department of Justice, all reports and
other documents required to be filed by it under the HSR Act concerning the
transactions contemplated hereby and (b) use all commercially reasonable efforts
to promptly comply with or cause to be complied with any requests by the United
States Federal Trade Commission or the Antitrust Division of the United States
Department of Justice for additional information concerning such transactions,
in each case so that the waiting period applicable to this Agreement and the
transactions contemplated hereby under the HSR Act shall expire as soon as
practicable after the execution and delivery of this Agreement. The Company
agrees to request, and to cooperate with the Purchasers in requesting, early
termination of any applicable waiting period under the HSR Act.
SECTION 5.04. Consents and Approvals. The Company (a) shall
use all commercially reasonable efforts to obtain all necessary consents,
waivers, authorizations and approvals of all Governmental Authorities (other
than as expressly set forth in Section 5.03 regarding the HSR Act) and of all
other Persons required in connection with the execution, delivery and
performance of this Agreement or the consummation of the Transactions and (b)
shall diligently assist and cooperate with the Purchasers in preparing and
filing all documents required to be submitted by the Purchasers to any
Governmental Authority in connection with the Issuance (which assistance and
cooperation shall include, without limitation, timely furnishing to the
Purchasers all information concerning the Company and its Subsidiaries that
counsel to the Purchasers reasonably determines is required to be included in
such documents or would be helpful in obtaining any such required consent,
waiver, authorization or approval).
SECTION 5.05. Filing of Certificate of Designation. Prior to
the Initial Conditions Date, the Company shall file the Certificate of
Designation with the Secretary of State of the State of Delaware pursuant to
Section 151(g) of the DGCL.
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SECTION 5.06. Reservation of Shares. The Company shall (a)
cause to be authorized and reserve and keep available at all times during which
any of the Securities remain outstanding, free from preemptive rights, out of
its treasury stock or authorized but unissued shares of Capital Stock, or both,
solely for the purpose of effecting the conversion of the Preferred Shares and
exercise of the Warrants pursuant to the terms of the Certificate of Designation
and the Warrants, respectively, sufficient shares of Common Stock (including any
related rights issuable in respect thereof pursuant to the Rights Agreement) to
provide for the issuance of the maximum number of shares issuable upon
conversion of outstanding Preferred Shares and exercise of outstanding Warrants;
and (b) issue and cause the transfer agent to deliver such shares of Common
Stock (including any related rights issuable in respect thereof pursuant to the
Rights Agreement) as required upon conversion of the Shares or exercise of the
Warrants, and take all actions necessary to ensure that all such shares will,
when issued and paid for pursuant to the conversion of the Preferred Shares or
exercise of the Warrants, be duly and validly issued, fully paid and
nonassessable.
SECTION 5.07. Listing of Shares. The Company shall use all
commercially reasonable efforts to cause the shares of Common Stock issuable
upon conversion of the Preferred Shares or exercise of the Warrants to be listed
or otherwise eligible for trading on the New York Stock Exchange or other
national securities exchange.
SECTION 5.08. Use of Proceeds. The Company shall use the
proceeds from the Issuance for payment of expenses incurred in connection with
the Transactions and for working capital and general corporate purposes.
SECTION 5.09. Warburg Group Director and Observer. (a) The
Warburg Group shall be entitled to designate for election to the Board of
Directors one person reasonably acceptable to the Board of Directors (the
"Warburg Group Director") for so long as the Purchasers and the Permitted
Transferees own a Qualifying Ownership Interest. The Company and the Purchasers
agree that the initial Warburg Group Director shall be Jeffrey Harris.
(b) In addition, during such time as the Warburg Group shall
have the right to designate for nomination a Warburg Group Director, the Company
shall permit an authorized representative of Warburg reasonably acceptable to
the Board of Directors (the "Warburg Group Observer") to attend all meetings of
the Board of Directors (but not
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(i) meetings of any committees of the Board of Directors or (ii) executive
sessions of the Board of Directors) as an observer, without authority to vote.
The Company and the Purchasers agree that the initial Warburg Group Observer
shall be Dr. Henry Kressel.
(c) Immediately following the closing, the initial Warburg
Group Director shall be appointed to the Board of Directors to a class of
directors whose term expires not earlier than 2002. If a vacancy shall exist in
the office of a Warburg Group Director, the Warburg Group shall be entitled to
designate a successor and the Board of Directors shall elect such successor and,
in connection with the meeting of shareholders of the Company next following
such election, nominate such successor for election as director by the
shareholders and use its commercially reasonable efforts to cause the successor
to be elected. Each Purchaser agrees that Warburg shall identify the individuals
proposed to serve as Warburg Group Director and Warburg Group Observer, and that
the Company shall be entitled to rely solely and exclusively on information
provided by Warburg in connection with the exercise of the Purchasers' rights
pursuant to this Section 5.09.
(d) At any time the Purchasers and the Permitted Transferees
cease to have the right to appoint a Warburg Group Director, any Warburg Group
Director shall resign promptly and the Warburg Group Observer shall no longer be
permitted to attend meetings of the Board of Directors.
(e) Any Warburg Group Director shall be entitled to such
compensation as is customarily paid by the Company to the Company's outside
directors. The compensation and expenses of any Warburg Group Observer shall be
solely the responsibility of the Purchasers.
SECTION 5.10. Registration Rights. The Company shall use all
commercially reasonable efforts to file a registration statement (together with
any registration statement in respect of the Warrants and the Warrant Shares,
the "Registration Statement") covering the Registrable Securities (other than
the Warrants and the Warrant Shares) on behalf of the Purchasers and any
Permitted Transferees with the Commission by March 31, 2001, and a registration
statement covering the Warrants and the Warrant Shares on behalf of the
Purchasers and the Permitted Transferees with the Commission by June 30, 2001.
The expenses of the preparation and filing of such Registration Statement shall
be borne by the Company. Upon filing the Registration Statement, the Company
will use its commercially reasonable efforts to cause the Registration Statement
to be declared
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effective by the Commission and to keep the Registration Statement effective
with the Commission so long as any Registrable Securities remain outstanding.
Provisions relating to the registration rights set forth in this Section 5.10
are included in Exhibit E hereto (the "Registration Rights Provisions").
"Registrable Securities" means the Securities, the Warrant Shares and the
Conversion Shares. As to any particular Registrable Securities, such Registrable
Securities shall cease to be Registrable Securities as soon as they (i) have
been sold or otherwise disposed of pursuant to the Registration Statement or any
other registration statement that was filed with the Commission and declared
effective under the Securities Act, (ii) are eligible for sale pursuant to Rule
144 without being subject to the volume and manner of sale limitations
thereunder, (iii) have been otherwise sold, transferred or disposed of by a
Purchaser to any Person that is not a Permitted Transferee, or (iv) have ceased
to be outstanding. All communications with the Company by the Purchasers and the
Permitted Transferees with respect to the registration rights granted pursuant
to this Section 5.10 shall be made by and through Warburg.
SECTION 5.11. Preemptive Rights. (a) So long as the Purchasers
and the Permitted Transferees own a Qualifying Ownership Interest, if at any
time prior to the fifth anniversary of the Distribution, the Company makes a
Qualified Equity Offering, the Purchasers and the Permitted Transferees who own
the securities constituting the Qualifying Ownership Interest (the "Eligible
Purchasers") shall be afforded the opportunity to acquire for the same price
(net of any underwriting discounts or sales commissions) and on the same terms
as such securities are proposed to be offered to others, in the aggregate, up to
the lesser of (x) the amount of New Stock that, if purchased by all the Eligible
Purchasers, would result in the Purchasers' Ownership Interest after giving pro
forma effect to the sale of New Stock being equal to the Purchasers' Ownership
Interest before giving effect to such sale of New Stock and (y) 5.0% of the New
Stock. The amount of New Stock to be made available to the Eligible Purchasers
calculated in accordance with the preceding sentence is referred to herein as
the "Designated Stock". The Eligible Purchasers may allocate among themselves
the aggregate amount of Designated Stock made available to them for purchase
pursuant to this Section 5.11.
(b) (i) If the Company proposes to make a Qualified Equity
Offering that is an underwritten public offering or a private offering made to
financial institutions for resale pursuant to Rule 144A, no later than
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five Business Days after the initial filing of a registration statement with the
Commission with respect to such underwritten public offering or the commencement
of such Rule 144A offering, it shall give the Eligible Purchasers written notice
of its intention (including in the case of a registered public offering, a copy
of the prospectus contained in the registration statement filed in respect of
such offering) describing, to the extent possible, the anticipated amount of
securities, price, timing and other terms of such offering. Each Eligible
Purchaser shall have five Business Days from the date of receipt of any such
notice to notify the Company in writing that it wishes to be offered the
opportunity to exercise its preemptive purchase rights. Such notice shall
constitute a non-binding indication of interest of the Eligible Purchaser to
exercise its preemptive rights. The failure to respond during such five Business
Day period shall constitute a waiver of the preemptive rights in respect of such
offering.
(ii) If any Eligible Purchaser indicates an interest in
participating in such underwritten public offering or Rule 144A offering, the
Company shall offer the Eligible Purchasers who have indicated an interest in
participating in such offering, if such underwritten offering or Rule 144A
offering is consummated, the Designated Stock (as adjusted to reflect the actual
size of such offering when priced) on the same terms as the New Stock is offered
to the underwriters. Each Eligible Purchaser exercising its preemptive rights
shall enter into a binding commitment to purchase the Designated Stock to be
acquired contemporaneously with the execution of any underwriting agreement or
purchase agreement entered into between the Company and the underwriters of such
underwritten public offering or Rule 144A offering, and the failure to enter
into such an agreement at or prior to such time shall constitute a waiver of the
preemptive rights in respect of such offering. Any offers and sales pursuant to
this Section 5.11 in the context of a registered public offering shall be
conditioned on reasonably acceptable representations and warranties of each
Eligible Purchaser regarding its status as the type of offeree to whom a private
sale can be made concurrently with a registered public offering in compliance
with applicable securities laws. If an Eligible Purchaser elects not to or fails
to consummate any purchase, the Company shall thereafter be entitled for a
period of 90 days to sell or enter into an agreement to sell the Designated
Stock not purchased at a price and upon terms no more favorable to the purchaser
of such securities than were provided to the underwriters.
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(c) (i) If the Company proposes to make a Qualified Equity
Offering that it is not an underwritten public offering or Rule 144A offering (a
"Private Placement"), it shall give the Eligible Purchasers written notice of
its intention, describing, to the extent possible, the anticipated amount of
securities, price and other terms upon which the Company proposes to offer the
same. Each Eligible Purchaser shall have five Business Days from the date of
receipt of any such notice to notify the Company in writing that it intends to
exercise such preemptive purchase rights and as to the amount of Designated
Stock such Purchaser desires to purchase, up to the maximum amount calculated
pursuant to Section 5.11(a). Such notice shall constitute a binding agreement of
the Purchaser to purchase the amount of Designated Stock so specified (or a
proportionally lesser amount if the amount of New Stock is subsequently reduced)
upon the price and other terms set forth in the Company's notice to it. The
failure to respond during such five Business Day period shall constitute a
waiver of the preemptive rights in respect of such offering.
(ii) If the Purchaser exercises its preemptive purchase rights
in respect of a Private Placement, the closing of the purchase of the New Stock
with respect to which such right has been exercised shall take place within 30
calendar days after the giving of notice of such exercise, which period of time
shall be extended for a maximum of 135 days in order to comply with applicable
laws and regulations; provided, however, that (i) such closing shall be
conditioned on consummation of the closing of the sale of shares of New Stock in
the transaction giving rise to the preemptive rights and (ii) the actual amount
of Designated Stock to be sold to such Eligible Purchaser shall be reduced if
the aggregate number of shares of New Stock sold in the transaction giving rise
to the preemptive rights is reduced and, at the option of such Eligible
Purchaser, may be proportionally increased if the aggregate number of shares of
New Stock sold in such transaction is increased. Each of the Company and each
Eligible Purchaser agrees to use its commercially reasonable efforts to secure
any regulatory approvals or other consents, and to comply with any law or
regulation necessary in connection with the offer, sale and purchase of, such
New Stock.
(iii) In the event an Eligible Purchaser fails to exercise its
preemptive purchase rights provided in respect of a Private Placement within
said five Business Day period or, if so exercised, such Eligible Purchaser does
not consummate such purchase, the Company shall thereafter be entitled during
the period of 90 days following the conclusion of the applicable period to sell
or enter into an
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agreement (pursuant to which the sale of the New Stock covered thereby shall be
consummated, if at all, within 30 days from the date of such agreement) to sell
the Designated Stock not purchased pursuant to this Section 5.11, at a price and
upon terms no more favorable to the purchaser of such securities than were
specified in the Company's notice to the Eligible Purchasers. In the event the
Company has not sold the New Stock or entered into an agreement to sell the New
Stock within said 90-day period, the Company shall not thereafter offer, issue
or sell such Designated Stock without first offering such securities to the
Eligible Purchasers in the manner provided above.
(iv) The Eligible Purchasers shall not have any rights to
participate in the negotiation of the proposed terms of any Private Placement
and shall be passive investors with respect to such Private Placement, provided
that they shall have the same economic rights (including, without limitation,
preemptive rights and rights relating to closing conditions and indemnification,
if any) as, but, unless agreed to by the Company and the lead purchaser in such
Private Placement, not the corporate governance or other rights granted to, the
other investors in such Private Placement.
(d) If registration rights are granted to the investors in any
Private Placement, the Company shall provide registration rights to the Eligible
Purchasers that exercised their preemptive rights on a pari passu basis with
such other investors in such Private Placement. In all other instances, the
Company will provide for the registration, on terms consistent with Section
5.10, for any shares of Common Stock acquired (or issuable upon conversion,
exercise or exchange of any other security acquired) within six months after (i)
the closing of the applicable acquisition (with respect to any Common Stock
acquired) or (ii) the earliest date on which such other securities can be
converted, exercised or exchanged for Common Stock (with respect to any other
security acquired).
(e) The Company and the Eligible Purchasers shall cooperate in
good faith to facilitate the exercise of the Eligible Purchasers' preemptive
rights in a manner that does not jeopardize the timing, marketing or execution
of such offering.
SECTION 5.12. Escrow Agreement. The Company shall use its
commercially reasonable efforts to enter into an Escrow Agreement having such
terms as are necessary or proper to implement the issuance and purchase of the
Securities as contemplated by Article II.
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ARTICLE VI
Covenants of the Purchasers
SECTION 6.01. Compliance with Conditions; Commercially
Reasonable Efforts. Each Purchaser will use all commercially reasonable efforts
to cause all conditions precedent to the obligations of the Company and the
Purchasers to be satisfied. Upon the terms and subject to the conditions of this
Agreement, each Purchaser will use all commercially reasonable efforts to take,
or cause to be taken, all action, and to do, or cause to be done, all things
necessary, proper or advisable consistent with applicable law to consummate and
make effective in the most expeditious manner practicable the Transactions to
such Purchaser in accordance with the terms of the Equity Documents.
SECTION 6.02. HSR Act Notification. To the extent required by
the HSR Act, each Purchaser shall, (a) use all commercially reasonable efforts
to file or cause to be filed, as promptly as practicable after the execution and
delivery of this Agreement (and, in any event, within two Business Days of such
execution and delivery), with the United States Federal Trade Commission and the
Antitrust Division of the United States Department of Justice, all reports and
other documents required to be filed by it under the HSR Act concerning the
transactions contemplated hereby and (b) use all commercially reasonable efforts
to promptly comply with or cause to be complied with any requests by the United
States Federal Trade Commission or the Antitrust Division of the United States
Department of Justice for additional information concerning such transactions,
in each case so that the waiting period applicable to this Agreement and the
transactions contemplated hereby under the HSR Act shall expire as soon as
practicable after the execution and delivery of this Agreement. Each Purchaser
agrees to request, and to cooperate with the Company in requesting, early
termination of any applicable waiting period under the HSR Act.
SECTION 6.03. Consents and Approvals. Each Purchaser (a) shall
use all commercially reasonable efforts to obtain all necessary consents,
waivers, authorizations and approvals of all Governmental Authorities (other
than as expressly set forth in Section 6.02 regarding the HSR Act) and of all
other Persons required in connection with the execution, delivery and
performance of the Equity Documents or the consummation of the Transactions and
(b) shall diligently assist and cooperate with the Company in
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preparing and filing all documents required to be submitted by the Company to
any Governmental Authority in connection with the Transactions (which assistance
and cooperation shall include, without limitation, timely furnishing to the
Company all information concerning such Purchaser that counsel to the Company
reasonably determines is required to be included in such documents or would be
helpful in obtaining any such required consent, waiver, authorization or
approval).
SECTION 6.04. Restrictions on Transfer. The Purchasers and the
Permitted Transferees shall not knowingly sell, assign, transfer, pledge,
hypothecate, deposit in a voting trust or otherwise dispose of Preferred Shares,
Warrants or shares of Common Stock that would represent (giving effect to the
conversion of any Preferred Shares and the exercise of any Warrants) in the
aggregate 5% or more of the issued and outstanding shares of Common Stock to any
Person or group (as defined for purposes of Rule 13d under the Exchange Act) in
a single transaction or series of related transactions.
(b) If the Purchasers are not in violation of this Section
6.04, the restrictions set forth in Section 6.04(a) shall not apply to any
transfer of the Preferred Shares, Warrants or shares of Common Stock (i)
pursuant to a tender offer, exchange offer or any other business combination
available to all stockholders of the Company or (ii) as part of a distribution
of such Preferred Shares, Warrants or shares of Common Stock to the limited
partners of the applicable Purchaser or Permitted Transferee.
SECTION 6.05. Standstill. Each Purchaser agrees that, prior to
the fifth anniversary of the date hereof, it will not and will not permit any
member of the Warburg Group or any other controlled Affiliate to, in any manner,
whether publicly or otherwise, directly or indirectly, without the prior written
consent of the Company, (i) acquire, agree to acquire or make any public
proposal to acquire, directly or indirectly, beneficial ownership of any voting
securities or assets of the Company or any Subsidiary, (ii) enter into or
publicly propose to enter into, directly or indirectly, any merger or other
business combination or similar transaction or change of control involving the
Company or any Subsidiary, (iii) make, or in any way participate, directly or
indirectly, in any "solicitation" of "proxies" (as such terms are used in the
proxy rules of the Commission) to vote, or seek to advise or influence any
Person with respect to the voting of, any securities of the Company or any
Subsidiary, (iv) call, or seek to call, a meeting of the Company's stockholders
or initiate any stockholder proposal
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for action by stockholders of the Company, (v) bring any action or otherwise act
to contest the validity of this Section 6.05 or seek a release of the
restrictions contained herein, (vi) form, join or in any way participate in a
"group" (within the meaning of Sections 13(d)(3) of the Exchange Act) with
respect to any securities of the Company or any Subsidiary, (vii) other than any
seat on the Board of Directors expressly granted to the Warburg Group in Section
5.09, seek representation on the Board of Directors of the Company, the removal
of any directors from the Board of Directors of the Company or a change in the
size or composition of the Board of Directors of the Company (including, without
limitation, voting for any directors not nominated by the Board of Directors of
the Company), (viii) enter into any discussions, negotiations, arrangements,
understandings or agreements (whether written or oral) with any other Person
regarding any possible purchase of sale of any securities or assets of the
Company or any Subsidiary, (ix) disclose any intention, plan or arrangement
inconsistent with the foregoing, (x) take, or solicit, propose to or agree with
any other Person to take, any similar actions designed to influence the
management or control of the Company or (xi) advise, assist or encourage any
other persons in connection with any of the foregoing.
Nothing in this Section 6.05 shall (i) limit any action taken
by a Warburg Group Director in his or her capacity as a member of the Board of
Directors of the Company, (ii) prohibit or restrict any Purchaser, any member of
the Warburg Group or any other controlled Affiliate of any Purchaser from
responding to any inquiries from any shareholders of the Company as to such
Person's intention with respect to the voting of shares of Common Stock or any
other voting securities of the Company beneficially owned by such Purchaser, any
member of the Warburg Group or any other controlled Affiliate of any Purchaser
so long as such response is consistent with the terms of this Agreement, (iii)
prohibit or restrict a purchase, sale, merger, consolidation or other business
combination transaction involving any portfolio company of any Purchaser, any
member of the Warburg Group or any controlled Affiliate of any Purchaser so long
as the purpose of such transaction is not the acquisition of voting securities
or assets of the Company or any Subsidiary, (iv) prohibit the purchase or other
acquisition of beneficial ownership of (A) any of the Securities, the Conversion
Shares or the Warrant Shares, (B) any New Stock offered to the Eligible
Purchasers pursuant to Section 5.11 or (C) in an amount that, when taken
together with the number of shares of Common Stock beneficially owned by the
Purchasers, the Warburg Group and the Purchasers' controlled Affiliates
(excluding any Warrant
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Shares issuable with respect to any then unexercised Warrants) and the number of
shares of Common Stock issuable upon conversion of Preferred Shares beneficially
owned by the Warburg Group (assuming the liquidation value of such Preferred
Shares had accreted until the fifth anniversary of their date of issuance in
accordance with Section 4 of the Certificate of Designation), would not exceed
9.9% of the then outstanding Common Stock, (v) prohibit or restrict any
agreement, arrangement, understanding, negotiation, discussion, disclosure or
other action exclusively involving Warburg, its controlled Affiliates (other
than any portfolio companies), the Purchasers, any member of the Warburg Group,
and any employee, officer or director thereof or (vi) prohibit any notice to
limited partners of a Warburg Group member in respect of a proposed distribution
of securities of the Company to such limited partners.
SECTION 6.06. Confidentiality; Information. (a) Each Purchaser
shall keep all information received by it from the Company or its
Representatives confidential and shall not, without the Company's prior written
consent, disclose such information in any manner whatsoever, in whole or in
part. The Purchasers shall cause any Warburg Group Director and any observer to
the Board of Directors permitted to the Purchasers to comply with the foregoing
requirement.
(b) Section 6.06(a) shall not apply to any such information as
(i) is or becomes generally available to the public other than as a result of
any disclosure or other action or inaction by such Purchaser or any of its
Representatives or (ii) is or becomes known or available to such Purchaser on a
non-confidential basis from a source (other than the Company or its
Representatives) that, to the best of such Purchaser's knowledge, is not under a
legal obligation not to disclose such information to such Purchaser or (iii) was
independently developed by such Purchaser or its Representatives without
reference to any information provided by the Company or its Representatives
(except pursuant to clauses (i), (ii) or (iv)) or (iv) was known to such
Purchaser prior to such disclosure by the Company or its Representatives.
(c) In the event that such Purchaser or its Representatives
become legally compelled (by oral questions, interrogatories, requests for
information or documents, subpoenas, civil investigative demands or otherwise),
to disclose any information received from the Company or its Representatives,
such Purchaser shall provide the Company with prompt written notice so that the
Company may seek a protective order or other appropriate remedy, or if the
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Company so directs, such Purchaser shall, and shall cause its Representatives
to, exercise its reasonable best efforts to obtain a protective order or other
appropriate remedy at the Company's reasonable expense. Failing the entry of a
protective order or other appropriate remedy or receipt of a waiver hereunder,
such Purchaser shall furnish only that portion of the information which it is
advised by its counsel is legally required to be furnished and shall exercise
its reasonable best efforts to obtain reliable assurance that confidential
treatment shall be accorded such information.
(d) The Purchasers shall cause any Warburg Group Director and
any observer to the Board of Directors designated by the Purchasers to provide
such information to the Company as may reasonably be required in connection with
the Form 10 (if designated prior to the Effective Time) or any other filings
with the Commission or any other Governmental Authority in connection with the
Distribution or the Transactions.
SECTION 6.07. Compliance with Section 355. No Purchaser shall
take any action or omit to take any action reasonably available to it and not
materially burdensome to it that could reasonably be expected to materially
contribute to a determination that the Contribution or the Distribution would
result in the recognition of gain to Lucent or the Company by virtue of the
Contribution or the Distribution failing to qualify under Section 355.
SECTION 6.08. IPO Lock-up. In connection with any initial
public offering of the Common Stock, so long as (i) the Purchasers beneficially
own in the aggregate at least 5% of the Common Stock (calculated in accordance
with Rule 13d under the Exchange Act) (ii) the Purchasers are requested by the
managing underwriter of such initial public offering and (iii) each other
director who beneficially owns Common Stock enters into a "lock-up" agreement of
at least 90 days, each Purchaser agrees to enter into a similar "lock-up"
agreement with the underwriters of such offering containing customary terms and
conditions and restricting sales of Common Stock and other securities
convertible into or exercisable for Common Stock and certain other transactions
having an equivalent economic effect for a period of up to 90 days following the
date of such offering.
SECTION 6.09. Prohibition on Solicitation and Hiring. (a) No
Purchaser or Permitted Transferee shall, nor shall it permit any Affiliate
(other than a portfolio company) to, for a period of two years from the date
hereof, directly or indirectly, solicit for employment or hire any
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senior management employee or senior technical employee of the Enterprise
Communications Business, the Company or any Subsidiary, with whom such Purchaser
or Permitted Transferee came into contact as a result of either the due
diligence process in respect of the Transactions or the exercise of the Warburg
Group's director and observer rights in Section 5.09, whether or not such person
would commit a breach of his or her contract of service in leaving such
employment; provided, however, that the foregoing shall not prohibit any
Purchaser, Permitted Transferee or Affiliate from making general solicitations
of employment (or engaging search firms to make such solicitations) not
specifically directed toward employees of the Company or any of its subsidiaries
and/or hiring any employee who responds to any such general solicitation or
initiates contact with any Purchaser, Permitted Transferee or Affiliate without
solicitation.
(b) No Purchaser or Permitted Transferee shall, nor shall it
permit any Affiliate (other than a portfolio company) to, for a period of two
years from the date hereof, directly or indirectly, assist (including, without
limitation, through identification, introduction or otherwise for the purpose of
inducing employment) a portfolio company of such Purchaser, Permitted Transferee
or Affiliate in soliciting for employment any senior management employee or
senior technical employee of the Enterprise Communications Business the Company
or any Subsidiary, with whom such Purchaser or Permitted Transferee came into
contact as a result of either the due diligence process in respect of the
Transactions or the exercise of the Warburg Group's director and observer rights
in Section 5.09, whether or not such person would commit a breach of his or her
contract of service in leaving such employment; provided, however, that the
foregoing shall not prohibit any portfolio company from making general
solicitations of employment (or engaging search firms to make such
solicitations) not specifically directed toward employees of the Company or any
of its subsidiaries.
SECTION 6.10. Escrow Agreement. Each Purchaser shall use its
commercially reasonable efforts to enter into an Escrow Agreement having such
terms as are necessary or proper to implement the issuance and purchase of the
Securities as contemplated by Article II.
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ARTICLE VII
Conditions Precedent to Initial Conditions Date and Funding
SECTION 7.01. Conditions to the Company's Obligations in
Respect of the Initial Conditions Date. The obligations of the Company to issue
and sell the Securities hereunder shall be subject, at the election of the
Company, to the satisfaction or waiver, on the Initial Conditions Date, of the
following conditions:
(a) The representations and warranties of each Purchaser
contained in this Agreement shall have been true and correct when made and, in
addition, shall be repeated and true and correct in all material respects on and
as of the Initial Conditions Date with the same force and effect as though made
on and as of the Initial Conditions Date.
(b) Each Purchaser shall have performed in all material
respects all obligations and agreements, and complied in all material respects
with all covenants contained in this Agreement to be performed and complied with
by such Purchaser on the Initial Conditions Date.
(c) Each Purchaser shall have delivered to the Company a
certificate executed by it or on its behalf by a duly authorized representative,
dated the Initial Conditions Date, to the effect that each of the conditions
specified in paragraph (a) and (b) of this Section 7.01 has been satisfied.
(d) The Form 10 shall have been declared effective by the
Commission on the Initial Conditions Date.
SECTION 7.02. Conditions to Each Purchasers' Obligations in
Respect of the Initial Conditions Date. The obligations of each Purchaser to
purchase the Securities hereunder shall be subject to the satisfaction or
waiver, on the Initial Conditions Date, of the following conditions:
(a) The representations and warranties of the Company
contained in this Agreement (i) shall have been true and correct when made and
(ii) shall be (A) in the case of representations and warranties that are
qualified as to materiality or Material Adverse Effect, true and correct and (B)
in all other cases, true and correct in all material respects, in the case of
clauses (A) and (B), as of the Initial Conditions Date with the same force and
effect as though made on and as of the Initial Conditions Date.
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(b) The Company shall have performed in all material respects
all of its obligations, agreements and covenants contained in this Agreement to
be performed and complied with at or prior to the Initial Conditions Date.
(c) The Company shall have entered into the Registration
Rights Agreement.
(d) The Company shall have filed the Certificate of
Designation with the Secretary of State of the State of Delaware.
(e) The Company shall have delivered to the Purchasers a
certificate executed by it or on its behalf by a duly authorized representative,
dated the Initial Conditions Date, to the effect that each of the conditions
specified in paragraph (a) through (d) of this Section 7.02 has been satisfied.
(f) The Purchasers shall have received the opinion of counsel
to the Company, dated the Initial Conditions Date, and addressed to the
Purchasers, substantially in the form attached hereto as Exhibit D.
(g) The Form 10 shall have been declared effective by the
Commission on the Initial Conditions Date.
SECTION 7.03. Conditions to Each Party's Obligations In
Respect of the Funding. The respective obligations of the Company and each
Purchaser hereunder required to be performed on the Funding Date shall be
subject, to the satisfaction or waiver, at the Funding, of the following
conditions:
(a) Any applicable waiting period under the HSR Act shall have
expired or been terminated.
(b) No provision of any Applicable Law, injunction, order or
decree of any Governmental Entity shall be in effect which has the effect of
making the Transactions or the ownership by any Purchaser (other than as a
result of such Purchaser not being a U.S. person) of the Securities, the
Conversion Shares or the Warrant Shares illegal or shall otherwise prohibit the
consummation of the Transactions.
(c) The Private Letter Ruling shall not have been withdrawn.
(d) Lucent shall have declared a dividend distributing all the
shares of Common Stock owned by Lucent
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to holders of Lucent common stock and not revoked such dividend.
SECTION 7.04. Conditions to the Company's Obligations in
Respect of the Funding. The obligations of the Company hereunder to be performed
on the Funding Date shall be subject, at the election of the Company, to the
satisfaction or waiver at the Funding, of the following condition: the
representations and warranties of each Purchaser in Section 4.02, 4.06 and 4.07
shall be true and correct as of the Funding Date as though made on and as of the
Funding Date and each Purchaser shall have delivered to the Company a
certificate executed by it or on its behalf by a duly authorized representative,
dated the Funding Date, to such effect.
SECTION 7.05. Conditions to Each Purchaser's Obligations in
Respect of the Funding. The obligations of each Purchaser hereunder to be
performed on the Funding Date shall be subject, at the election of such
Purchaser, to the satisfaction or waiver at the Funding, of the following
condition:
(a) The representations and warranties of the Company in
Sections 3.02, 3.14 and 3.15 shall be true and correct as of the
Funding Date as though made on and as of the Funding Date and the
Company shall have delivered to such Purchaser a certificate executed
by it or on its behalf by a duly authorized representative, dated the
Funding Date, to such effect.
(b) Warburg shall be reasonably satisfied that the
consolidated indebtedness for borrowed money of the Company and the
Subsidiaries at the time of the Distribution will not exceed the sum of
(i) $700.0 million, (ii) an amount equal to the aggregate restructuring
and separation costs and expenses of the Enterprise Communications
Business incurred by Lucent and its subsidiaries, to the extent such
costs and expenses exceed $50.0 million (all calculated on a pre-tax
basis), and (iii) increases in working capital received by the Company
and the Subsidiaries from Lucent and its subsidiaries pursuant to the
Contribution and Distribution Agreement in excess of the Company's
business plan.
SECTION 7.06. Conditions to Each Party's Obligations In
Respect of the Release of Escrowed Funds and Securities. The release of the
escrowed funds and securities shall be subject to the consummation of the
Distribution.
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ARTICLE VIII
Miscellaneous
SECTION 8.01. Survival. Only those representations,
warranties, agreements and covenants of the parties contained in Sections 2.01
and 2.03, 2.04, 3.02, 3.14, 3.15, 4.02, 4.06 and 4.07, Article V, Article VI and
Article VIII shall survive the Initial Conditions Date. Only those
representations, warranties, agreements and covenants of the parties contained
in Sections 2.01 and 2.03, 2.04, Article V, Article VI and Article VIII and
requiring performance after the Initial Conditions Date or the Funding Date
shall survive the Initial Conditions Date or the Funding Date, as the case may
be. All other representations, warranties, agreements and covenants of the
parties shall not survive the Initial Conditions Date.
SECTION 8.02. Legends. (a) So long as applicable, each
certificate representing any portion of the Preferred Shares or the Warrants
shall be stamped or otherwise imprinted with a legend in the following form (in
addition to any legend required under applicable state securities laws):
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR
THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. SUCH SHARES MAY
NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION PURSUANT TO AN
EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS AND DELIVERY TO THE
ISSUER OF AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO IT TO THE
EFFECT THAT SUCH TRANSFER IS EXEMPT FROM REGISTRATION UNDER THOSE
LAWS."
(b) In addition, so long as applicable, each certificate
representing any portion of the Preferred Shares or the Warrants shall be
stamped or otherwise imprinted with a legend in the following form:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER AS SET FORTH IN A PREFERRED STOCK AND WARRANT
PURCHASE AGREEMENT, DATED AS OF THE 8TH DAY OF AUGUST, 2000, AS IT MAY
BE AMENDED FROM TIME TO TIME, A COPY OF WHICH IS ON FILE AT THE
PRINCIPAL EXECUTIVE OFFICES OF THE ISSUER. NO REGISTRATION OF TRANSFER
OF SUCH SECURITIES WILL BE MADE ON THE BOOKS OF THE ISSUER UNLESS AND
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UNTIL SUCH RESTRICTIONS SHALL HAVE BEEN COMPLIED WITH.
ANY TRANSFER NOT IN COMPLIANCE WITH SUCH AGREEMENT
SHALL BE VOID."
The legend referred to in this paragraph (b) shall be removed at such time as
such security is transferred to a Person other than a Purchaser or a Permitted
Transferee.
SECTION 8.03. Notices. All notices, demands, requests,
consents, approvals or other communications (collectively, "Notices") required
or permitted to be given hereunder or which are given with respect to this
Agreement shall be in writing and shall be personally served, delivered by
reputable air courier service with charges prepaid, or transmitted by hand
delivery, telegram, telex or facsimile, addressed as set forth below, or to such
other address as such party shall have specified most recently by written
notice. Notice shall be deemed given on the date of service or transmission if
personally served or transmitted by telegram, telex or facsimile. Notice
otherwise sent as provided herein shall be deemed given on the next business day
following delivery of such notice to a reputable air courier service.
To the Company:
Avaya Inc.
211 Mount Airy Road
Basking Ridge, NJ 07920
Attn: Gary K. McGuire
Telephone: (908) 953-6000
Fax: (908) 953-9875
with copies to:
Avaya Inc.
211 Mount Airy Road
Basking Ridge, NJ 07820
Attn: Pamela F. Craven
Telephone: (908) 953-6000
Fax: (908) 953-5462
and
Cravath, Swaine & Moore
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019
Attn: Susan Webster
Telephone: (212) 474-1000
Fax: (212) 474-3700
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To the Purchasers:
To the address specified on Schedule 1 hereto,
with a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attn: Andrew Brownstein
David Silk
Telephone: (212) 403-1000
Fax: (212) 403-2000
SECTION 8.04. Termination. (a) This Agreement may be
terminated: (i) at any time prior to the Funding by mutual written agreement of
the Company and the Purchasers, (ii) if the Funding shall not have occurred on
or prior to November 15, 2000, by either the Company or the Purchasers, at any
time after November 15, 2000, provided that the right to terminate this
Agreement under this Section 8.04(ii) shall not be available to any party whose
failure to fulfill any obligation under this Agreement was the cause of or
resulted in the failure of the Funding to occur on or before such date, (iii) if
any Governmental Authority shall have issued a nonappealable final order, decree
or ruling or taken any other action having the effect of permanently
restraining, enjoining or otherwise prohibiting the Contribution, the
Distribution or the transactions contemplated by this Agreement, by either the
Company or the Purchasers, provided that the right to terminate this Agreement
pursuant to this Section 8.04(iii) shall not be available to any party whose
failure to fulfill any obligation under this Agreement was the cause of, or
resulted in, such final order, decree or ruling, (iv) by the Purchasers if the
Company shall make (A) any amendment to any Distribution Agreement after the
Initial Conditions Date without the Purchasers' consent that is not referenced
on Schedule 3.15 or that, individually or in the aggregate, would increase the
burdens or decrease the benefits of such agreements to the Company in a manner
that would, individually or in the aggregate, have a material adverse effect on
the business, condition (financial or otherwise), operations, performance,
properties or prospects of the Enterprise Communications Business, taken as a
whole other than modifications to schedules to the Distribution Agreements to
reflect claims made, or actions, suits, demands, claims, hearings,
investigations or proceedings initiated, in each case after the date hereof,
against or affecting the Enterprise Communications Business, the Company or any
Subsidiary (including with respect to any
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violation of any Environmental Law) or (B) any amendment to the Employee
Benefits Agreement that would result in a material decrease in the Pension
Transfer Amount (as such term is defined in the Employee Benefits Agreement),
(v) if the conditions set forth in Sections 7.01 and 7.02 have not been
satisfied or waived on or prior to the Effective Date, by the Purchasers on (but
not after) the third Business Day immediately succeeding the Effective Date
(provided that such conditions have not been satisfied prior to such third
Business Day) or (vi) if the escrowed funds and securities have been returned to
the Purchasers and the Company, respectively, pursuant to Section 2.04, by
either the Company or the Purchasers.
(b) In the event of termination of this Agreement, written
notice thereof shall be given to the other parties specifying the provision
hereof pursuant to which such termination is made, and this Agreement (except
for the provisions of this Section 8.04, and Sections 8.03, 8.05, 8.06, 8.07,
8.08, 8.13, 8.14, and 8.15 which shall survive such termination) shall become
null and void. The Confidentiality Agreement shall survive any termination of
this Agreement.
SECTION 8.05. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED
BY, INTERPRETED UNDER, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
DELAWARE, REGARDLESS OF THE LAWS THAT MIGHT OTHERWISE GOVERN UNDER APPLICABLE
PRINCIPLES OF CONFLICTS OF LAW THEREOF.
SECTION 8.06. WAIVER OF JURY TRIAL. EACH PARTY HEREBY WAIVES
TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A
TRIAL BY JURY IN RESPECT TO ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT
OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT, ANY OTHER EQUITY DOCUMENT OR ANY
TRANSACTION CONTEMPLATED HEREBY OR THEREBY. EACH PARTY (A) CERTIFIES THAT NO
REPRESENTATIVE OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT
SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE
FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE
BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER EQUITY DOCUMENTS, AS
APPLICABLE, BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN
THIS SECTION 8.06.
SECTION 8.07. Attorney Fees. A party in breach of this
Agreement shall, on demand, indemnify and hold harmless the other party for and
against all reasonable out-of-pocket expenses, including legal fees, incurred by
such other party by reason of the enforcement and protection of its rights under
this Agreement. The payment of such
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expenses is in addition to any other relief to which such other party may be
entitled.
SECTION 8.08. Entire Agreement. (a) This Agreement and the
Equity Documents (including all agreements entered into pursuant hereto and
thereto and all certificates and instruments delivered pursuant hereto and
thereto) constitute the entire agreement of the parties with respect to the
subject matter hereof and supersede all prior and contemporaneous agreements,
representations, understandings, negotiations and discussions between the
parties, whether oral or written, with respect to the subject matter hereof.
(b) Without limiting the foregoing, the Purchasers and the
Company agree that insofar as such agreement relates to Avaya, the
Confidentiality Agreement shall be deemed terminated effective as of the
Closing.
SECTION 8.09. Modifications and Amendments. No amendment,
modification or termination of this Agreement shall be binding upon any other
party unless executed in writing by the parties hereto intending to be bound
thereby.
SECTION 8.10. Waivers and Extensions. Any party to this
Agreement may waive any condition, right, breach or default that such party has
the right to waive, provided that such waiver will not be effective against the
waiving party unless it is in writing, is signed by such party, and specifically
refers to this Agreement. Waivers may be made in advance or after the right
waived has arisen or the breach or default waived has occurred. Any waiver may
be conditional. No waiver of any breach of any agreement or provision herein
contained shall be deemed a waiver of any preceding or succeeding breach thereof
nor of any other agreement or provision herein contained. No waiver or extension
of time for performance of any obligations or acts shall be deemed a waiver or
extension of the time for performance of any other obligations or acts.
SECTION 8.11. Titles and Headings; Rules of Construction.
Titles and headings of sections of this Agreement are for convenience only and
shall not affect the construction of any provision of this Agreement. Unless the
context otherwise requires:
(a) a term has the meaning assigned to it;
(b) "or" is not exclusive;
(c) "including" means including without limitation; and
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47
(d) words in the singular include the plural and words
in the plural include the singular.
SECTION 8.12. Exhibits and Schedules. Each of the exhibits and
schedules referred to herein and attached hereto is an integral part of this
Agreement and is incorporated herein by reference.
SECTION 8.13. Expenses; Brokers. All costs and expenses
incurred in connection with this Agreement shall be paid by the party incurring
such cost or expense; provided, however, that the Company will reimburse the
Purchasers for all documented fees and expenses reasonably incurred by them
through the Funding (or earlier termination of this Agreement) related to due
diligence and the negotiation, execution and consummation of the Transactions.
Other than the use of Morgan, Stanley & Co. Incorporated by the Company, each of
the parties represents to the others that neither it nor any of its Affiliates
has used a broker or other intermediary in connection with the Transactions for
whose fees or expenses any other party will be liable. Each party agrees to
indemnify and hold the other parties to this Agreement harmless from and against
any and all claims, liabilities or obligations with respect to any such fees or
expenses asserted by any Person on the basis of any act or statement alleged to
have been made by such party or any of its Affiliates.
SECTION 8.14. Press Releases and Public Announcements. All
public announcements or public disclosures relating to the Transactions (other
than the Form 10) shall be made only if mutually agreed upon by the Company and
the Purchasers, except to the extent such disclosure is, in the opinion of
counsel, required by law or by stock exchange regulation, provided that (a) any
such required disclosure shall only be made, to the extent consistent with law
and stock exchange regulation, after consultation with the Purchasers, (b) no
such announcement or disclosure (except as required by law or by stock exchange
regulation) shall identify any Purchaser without such Purchaser's prior consent
and (c) the Company hereby consents to the publication by Warburg, on one
occasion following the Funding but in as many periodicals as Warburg may elect,
of a customary "tombstone" advertisement announcing the investment made pursuant
to this Agreement.
SECTION 8.15. Assignment; No Third Party Beneficiaries. This
Agreement and the rights, duties and obligations hereunder may not be assigned
or delegated by the Company without the prior written consent of the Purchasers,
and may not assigned or delegated by any
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48
Purchaser without the Company's prior written consent, except that without such
consent, prior to the Initial Conditions Date, this Agreement may be assigned or
delegated, in whole or in part, by any Purchaser (or by any assignee referred to
in this provision) to any Permitted Transferee. Except as set forth above, any
assignment or delegation of rights, duties or obligations hereunder made without
the prior written consent of the Purchasers, shall be void and of no effect.
This Agreement and the provisions hereof shall be binding upon and shall inure
to the benefit of each of the parties and their respective successors and
permitted assigns. This Agreement is not intended to confer any rights or
benefits on any Persons other than as expressly set forth in this Section 8.15.
SECTION 8.16. Severability. This Agreement shall be deemed
severable, and the invalidity or unenforceability of any term or provision
hereof shall not affect the validity or enforceability of this Agreement or of
any other term or provision hereof. Furthermore, in lieu of any such invalid or
unenforceable term or provision, the parties hereto intend that there shall be
added as a part of this Agreement a provision as similar in terms to such
invalid or unenforceable provision as may be possible and be valid and
enforceable.
SECTION 8.17. Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same instrument.
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49
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
AVAYA INC.,
by
GARY K. MCGUIRE
Name: Gary K. McGuire
Title: Chief Financial
Officer
WARBURG, PINCUS NETHERLANDS EQUITY PARTNERS I, C.V.
by: WARBURG, PINCUS & CO.,
its General Partner
by
JEFFREY A. HARRIS
Name: Jeffrey A. Harris
Title: Partner
WARBURG, PINCUS NETHERLANDS EQUITY PARTNERS II, C.V.
by: WARBURG, PINCUS & CO.,
its General Partner
by
JEFFREY A. HARRIS
Name: Jeffrey A. Harris
Title: Partner
WARBURG, PINCUS NETHERLANDS EQUITY PARTNERS III, C.V.
by: WARBURG, PINCUS & CO.,
its General Partner
by
JEFFREY A. HARRIS
Name: Jeffrey A. Harris
Title: Partner
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50
WARBURG, PINCUS EQUITY PARTNERS, L.P.
by: WARBURG, PINCUS & CO.,
its General Partner
by
JEFFREY A. HARRIS
Name: Jeffrey A. Harris
Title: Partner
56
Schedule 1
WARBURG, PINCUS NETHERLANDS EQUITY PARTNERS I, C.V.
Number of Preferred Shares
being purchased from the Company: 120,000 shares
Fractional Interest in Series A Warrants: 3%
Fractional Interest in Series B Warrants: 3%
Address for Notice:
Warburg, Pincus & Co.
466 Lexington Avenue
New York, NY 10017-3147
Telephone: (212) 878-0638
Fax: (212) 878-6139
WARBURG, PINCUS NETHERLANDS EQUITY PARTNERS II, C.V.
Number of Preferred Shares
being purchased from the Company: 80,000 shares
Fractional Interest in Series A Warrants: 2%
Fractional Interest in Series B Warrants: 2%
Address for Notice:
Warburg, Pincus & Co.
466 Lexington Avenue
New York, NY 10017-3147
Telephone: (212) 878-0638
Fax: (212) 878-6139
WARBURG, PINCUS NETHERLANDS EQUITY PARTNERS III, C.V.
Number of Preferred Shares
being purchased from the Company: 20,000 shares
Fractional Interest in Series A Warrants: 0.5%
Fractional Interest in Series B Warrants: 0.5%
Address for Notice:
Warburg, Pincus & Co.
466 Lexington Avenue
New York, NY 10017-3147
Telephone: (212) 878-0638
Fax: (212) 878-6139
57
2
WARBURG, PINCUS EQUITY PARTNERS, L.P.
Number of Preferred Shares
being purchased from the Company: 3,780,000 shares
Fractional Interest in Series A Warrants: 94.5%
Fractional Interest in Series B Warrants: 94.5%
Address for Notice:
Warburg, Pincus & Co.
466 Lexington Avenue
New York, NY 10017-3147
Telephone: (212) 878-0638
Fax: (212) 878-6139
58
Exhibit A
Form of Certificate of Designation
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RIGHTS OF SERIES B CONVERTIBLE PARTICIPATING PREFERRED STOCK
OF
AVAYA INC.
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
The undersigned, pursuant to the provisions of Sections 103 and 151 of
the General Corporation Law of the State of Delaware, do hereby certify that,
pursuant to the authority expressly vested in the Board of Directors of Avaya
Inc., a Delaware corporation (the "CORPORATION"), by the Corporation's
Certificate of Incorporation, the Board of Directors has duly provided for the
issuance of and created a series of Preferred Stock of the Corporation, par
value $1.00 per share (the "PREFERRED STOCK"), and in order to fix the
designation and amount and the voting powers, designations, preferences and
relative, participating, optional and other special rights, and the
qualifications, limitations and restrictions, of a series of Preferred Stock,
has duly adopted this Certificate of Designations, Preferences and Rights of
Preferred Stock (the "CERTIFICATE").
Each share of such series of Preferred Stock shall rank equally in all
respects and shall be subject to the following provisions:
1. NUMBER OF SHARES AND DESIGNATION. 4,000,000 shares of Preferred
Stock of the Corporation shall constitute a series of Preferred Stock designated
as Series B Convertible Participating Preferred Stock (the "SERIES B PREFERRED
STOCK"). The number of shares of Series B Preferred Stock may be increased (to
the extent of the Corporation's authorized and unissued Preferred Stock) or
decreased (but not below the number of shares of Series B Preferred Stock then
outstanding) by further resolution duly adopted by the Board of Directors and
the filing of a certificate of increase or decrease, as the case may be, with
the Secretary of State of Delaware.
2. RANK. The Series B Preferred Stock shall, with respect to payment of
dividends, redemption payments, rights upon liquidation, dissolution or winding
up of the affairs of the Corporation, or otherwise (i) rank senior and prior to
the Common Stock, and each other class or series of equity securities of the
Corporation, whether currently issued or issued in the future, that by its terms
ranks junior to the Series B Preferred Stock (whether with respect to payment of
dividends, redemption payments, rights upon liquidation, dissolution or winding
up of the affairs of the Corporation, or otherwise) (all of such equity
securities, including the Common Stock, are collectively referred to herein as
the "JUNIOR SECURITIES"), (ii) rank on a parity with each other class or series
of equity securities of the Corporation, whether currently issued or issued in
the future, that does not by its terms expressly provide that it ranks senior to
or junior to the Series B Preferred Stock (whether with respect to payment of
dividends, redemption payments, rights upon liquidation, dissolution or winding
up of the affairs of the Corporation, or otherwise) (all of such equity
securities are collectively referred to herein as the "PARITY SECURITIES"), and
(iii) rank junior to each other class or series of equity securities of the
Corporation, whether currently issued or issued in the future, that by its terms
ranks senior to the Series B Preferred Stock (whether with respect to payment of
dividends, redemption payments, rights upon liquidation, dissolution or winding
up of the affairs of the Corporation, or otherwise) (all of such equity
securities are collectively referred to herein as the "SENIOR SECURITIES"). The
respective definitions of Junior Securities, Parity Securities and Senior
Securities shall also include any rights or options exercisable or exchangeable
for or convertible into any of the Junior Securities, Parity Securities or
Senior Securities, as the case may be.
59
3. DIVIDENDS.
(a) The holders of shares of Series B Preferred Stock shall be entitled
to receive, when, as and if declared by the Board of Directors, out of funds
legally available for the payment of dividends, dividends on the terms described
below:
(i) Holders of shares of Series B Preferred Stock shall be
entitled to participate equally and ratably with the holders of shares
of Common Stock in all dividends and distributions paid (whether in the
form of cash, stock or otherwise) on the shares of Common Stock as if
immediately prior to each record date for the Common Stock, shares of
Series B Preferred Stock then outstanding were converted into shares of
Common Stock (in the manner described in Section 7); provided, however,
that the holders of shares of Series B Preferred Stock shall not be
entitled to participate in such dividend or distribution if an
adjustment to the Conversion Price shall be required with respect to
such dividends or distributions pursuant to Section 7(c) hereof;
(ii) In addition to any dividends paid pursuant to Section
3(a)(i), in respect of each fiscal quarter beginning with the
thirteenth (13th) fiscal quarter following the Original Issue Date
through the twentieth (20th) fiscal quarter following the Original
Issue Date, the Corporation may, at its option, pay a cash dividend on
each share of Series B Preferred Stock at an annual rate equal to 3.25%
(compounded quarterly) of the Liquidation Value then in effect;
(iii) In addition to any dividends paid pursuant to Section
3(a)(i), in respect of each fiscal quarter beginning with the twenty
first (21st) fiscal quarter following the Original Issue Date through
the fortieth (40th) fiscal quarter following the Original Issue Date,
the Corporation may, at its option, pay a cash dividend on each share
of Series B Preferred Stock at an annual rate equal to 6.5% (compounded
quarterly) of the Liquidation Value then in effect; and
(iv) In addition to any dividends paid pursuant to Section
3(a)(i), in respect of each fiscal quarter beginning with the forty
first (41st) fiscal quarter following the Original Issue Date, and
thereafter, the Corporation shall pay a cash dividend on each share of
Series B Preferred Stock at an annual rate equal to 12.0% (compounded
quarterly) of the Liquidation Value then in effect.
For purposes of this Section 3, the first fiscal quarter shall be the period
beginning on the Original Issue Date and ending on the last day of the
Corporation's fiscal quarter in which the Original Issue Date occurs. Dividends
payable pursuant to Section 3(a)(i) shall be payable on the same date that such
dividends are payable to holders of shares of Common Stock. Dividends payable
pursuant to Sections 3(a)(ii) and (iii) shall be payable quarterly in arrears on
March 31, June 30, September 30 and December 31 of each year (unless such day is
not a Business Day (as
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60
defined below), in which event such dividends shall be payable on the next
succeeding Business Day) (each such payment date being a "DIVIDEND PAYMENT DATE"
and the period from the third anniversary of the Original Issue Date until the
first Dividend Payment Date and each such quarterly period thereafter being a
"DIVIDEND PERIOD"). The amount of dividends payable on the Series B Preferred
Stock for the initial Dividend Period, or for any other period shorter or longer
than a full Dividend Period, shall be computed on the basis of a 360-day year of
twelve 30-day months. As used herein, the term "BUSINESS DAY" means any day
except a Saturday, Sunday or day on which banking institutions are legally
authorized to close in the City of New York.
(b) Each dividend shall be payable to the holders of record of shares
of Series B Preferred Stock as they appear on the stock records of the
Corporation at the close of business on such record dates (each, a "DIVIDEND
PAYMENT RECORD DATE"), which shall be not more than 60 days nor less than 10
days preceding the Dividend Payment Date thereof, as shall be fixed by the Board
of Directors.
(c) From and after the time, if any, as the Corporation fails to pay to
the holder of any shares of Series B Preferred Stock, on the date specified for
redemption in accordance with Section 6(b), the redemption price calculated
pursuant to Section 5 after such holder has delivered notice to the Corporation
pursuant to Section 6(a) of its intention to exercise its redemption rights
under Section 5, (a) no dividends shall be declared or paid or set apart for
payment, or other distribution declared or made, upon any Junior Securities, nor
shall any Junior Securities be redeemed, purchased or otherwise acquired (other
than a redemption, purchase or other acquisition of shares of Common Stock made
for purposes of any employee or director incentive or benefit plans or
arrangements of the Corporation or any subsidiary of the Corporation or the
payment of cash in lieu of fractional shares in connection therewith) for any
consideration (nor shall any moneys be paid to or made available for a sinking
fund for the redemption of any shares of any such Junior Securities) by the
Corporation, directly or indirectly (except by conversion into or exchange for
Junior Securities or the payment of cash in lieu of fractional shares in
connection therewith) and (b) the Corporation shall not, directly or indirectly,
make any payment on account of any purchase, redemption, retirement or other
acquisition of any Parity Securities (other than for consideration payable
solely in Junior Securities or the payment of cash in lieu of fractional shares
in connection therewith); provided, however, that this Section 3(c) shall not be
applicable at any time that the Corporation has paid, in accordance with Section
6(b), the redemption price to each holder that has exercised its redemption
right pursuant to Section 6(a).
4. LIQUIDATION PREFERENCE.
(a) The initial liquidation preference for the shares of Series B
Preferred Stock shall be $100.00 per share, which amount shall accrete, (x) from
the Original Issue Date until the tenth anniversary of the Original Issue Date,
at an annual rate of 6.5%, compounded quarterly, and (y) from and after the
tenth anniversary of the Original Issue Date, at an annual rate of 12.0%,
compounded quarterly, in each case, computed on the basis of a 360 day year of
twelve 30 day months (such accreted amount being the "LIQUIDATION VALUE"). The
Liquidation Value shall be calculated on each Dividend Payment Date and the
accretion for the Dividend Period ending on the applicable Dividend Payment Date
shall be reduced by the amount of any cash dividend paid on such Dividend
Payment Date pursuant to Sections 3(a)(ii), 3(a)(iii) or 3(a)(iv); provided,
however, that in the event of a Change in Control within five years after the
Original Issue Date,
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(A) the Liquidation Value upon such Change in Control shall be increased by the
difference between (i) the Accelerated Amount (as defined below) minus (ii) the
Accelerated Cash Payment (as defined below) (to the extent paid pursuant to the
following proviso) and (B) only the portion of such increased Liquidation Value
equal to the Non-Accelerated Amount (as defined below) shall accrete (in the
manner set forth in Section 4(a)(x)) upon such Change in Control until the fifth
anniversary of the Original Issue Date, upon which anniversary and thereafter
all of the Liquidation Value then in effect (as increased pursuant to Section
4(a)(A) and accreted pursuant to Section 4(a)(B)) shall accrete (in the manner
set forth in Sections 4(a)(x) and 4(a)(y)); provided, further, however, that in
the circumstances described below, the Corporation shall have the option to pay
the Accelerated Cash Payment. The "ACCELERATED CASH PAYMENT" shall mean the
product of (x) EP (as defined below) and (y) (i) in the case of a Change in
Control after the third anniversary of the Original Issue Date, if a cash
dividend was paid on the Dividend Payment Date immediately preceeding such
Change in Control pursuant to Section 3(a)(ii) hereof, the amount of cash
dividends payable pursuant to Section 3(a)(ii) in respect of the fiscal quarter
in which such Change in Control occurs and each fiscal quarter thereafter
through the twentieth (20th) fiscal quarter following the Original Issue Date
and (ii) in the case of a Change in Control prior to the third anniversary of
the Original Issue Date, 100% of the amount of cash dividends payable at the
option of the Corporation pursuant to Section 3(a)(ii) in respect of the
seventeenth (17th) through twentieth (20th) fiscal quarters following the
Original Issue Date, assuming in each case full accretion (as adjusted for
payment of such cash dividends) prior to the date of payment of each dividend.
The "ACCELERATED AMOUNT" shall be: (FV-LV) x EP; and the "NON-ACCELERATED
AMOUNT" shall be: LV x (1-EP), in each case where:
(i) FV is the amount of the Liquidation Value had it fully
accreted from the date of the Change in Control through the fifth
anniversary of the Original Issue Date,
(ii) LV is the Liquidation Value in effect prior to the
adjustment pursuant to this section, and
(iii) EP is (A) in the context of a Change in Control effected
pursuant to a transaction or series of related transactions that
constitute a Business Combination, the percentage of consideration paid
to shareholders of the Corporation in such Business Combination that is
not paid in common stock of the Corporation or of the surviving
corporation of the Business Combination or its ultimate parent company
into or for which shares of common stock of the Corporation were
converted or exchanged pursuant to the Business Combination (other than
cash in lieu of fractional shares which shall be deemed to be common
stock for purposes of this clause (A)); and (B) in the event of any
other Change in Control, 100%.
(b) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of shares of Series B
Preferred Stock shall be entitled to receive the greater of (i) the Liquidation
Value of such shares in effect on the date of such liquidation, dissolution or
winding up, plus an amount equal to (A) except to the extent that a dividend
pursuant to Section 3(a)(ii), (iii) or (iv) has been declared in respect of the
Dividend Period during which such liquidation, dissolution or winding up occurs
and such liquidation, dissolution or winding up occurs after the relevant
Dividend Payment Record Date, the unrecognized accretion from the immediately
preceding Dividend Payment Date up to but not including the date of such
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liquidation, dissolution or winding up and (B) the dividends accrued and unpaid
thereon, whether or not declared, up to but not including the date of such
liquidation, dissolution or winding up or (ii) the payment such holders would
have received had such holders, immediately prior to such liquidation,
dissolution or winding up, converted their shares of Series B Preferred Stock
into shares of Common Stock (pursuant to, and at a conversion rate described in,
Section 7).
(c) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of shares of Series B
Preferred Stock (i) shall not be entitled to receive the Liquidation Value of
such shares until payment in full or provision has been made for the payment in
full of all claims of creditors of the Corporation and the liquidation
preferences for all Senior Securities, and (ii) shall be entitled to receive the
Liquidation Value of such shares before any payment or distribution of any
assets of the Corporation shall be made or set apart for holders of any Junior
Securities. Subject to clause (i) above, if the assets of the Corporation are
not sufficient to pay in full the Liquidation Value payable to the holders of
shares of Series B Preferred Stock and the liquidation preference payable to the
holders of any Parity Securities, then such assets, or the proceeds thereof,
shall be distributed among the holders of shares of Series B Preferred Stock and
any such other Parity Securities ratably in accordance with the Liquidation
Value for the Series B Preferred Stock and the liquidation preference for the
Parity Securities, respectively.
(d) Neither a consolidation or merger of the Corporation with or into
any other entity, nor a merger of any other entity with or into the Corporation,
nor a sale or transfer of all or any part of the Corporation's assets for cash,
securities or other property shall be considered a liquidation, dissolution or
winding up of the Corporation within the meaning of this Section 4.
5. REDEMPTION.
The holder of shares of Series B Preferred Stock shall have the right
to require the Corporation to redeem such shares of Series B Preferred Stock, in
whole or in part, at such holder's option, (i) upon the Corporation's delivery
of notice of exercise of its conversion rights pursuant to Section 7(a)(ii), at
a cash redemption price equal to the Liquidation Value in effect on the
Redemption Date plus an amount equal to (A) except to the extent that a dividend
pursuant to Section 3(a)(ii), (iii) or (iv) has been declared in respect of the
Dividend Period during which such Redemption Date occurs and the Redemption Date
occurs after the relevant Dividend Payment Record Date, the unrecognized
accretion from the immediately preceding Dividend Payment Date up to but not
including the Redemption Date and (B) the dividends accrued and unpaid thereon,
whether or not declared, up to but not including the Redemption Date or (ii)
within 60 days of a Change in Control, at a cash redemption price equal to 101%
of the Liquidation Value in effect on the Redemption Date, plus an amount equal
to (A) except to the extent that a dividend pursuant to Section 3(a)(ii), (iii)
or (iv) has been declared in respect of the Dividend Period during which such
Redemption Date occurs and the Redemption Date occurs after the relevant
Dividend Payment Record Date, the unrecognized accretion from the immediately
preceding Dividend Payment Date up to but not including the Redemption Date and
(B) the dividends accrued and unpaid thereon, whether or not declared, up to but
not including the Redemption Date. In the event that the Corporation does not
pay the redemption price on the Redemption Date, the redemption price shall be
calculated as if the Redemption Date were the later of the Redemption Date and
the date on which such payment is made.
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6. PROCEDURES FOR REDEMPTION.
(a) In the event of a redemption of shares of Series B Preferred Stock
pursuant to Section 5, notice of such redemption shall be given by first class
mail, postage prepaid, mailed not less than 15 days nor more than 60 days prior
to the Redemption Date, to the office of the Corporation. Such notice shall
state: (i) the date on which the holder is to surrender to the Corporation the
certificates for any shares to be redeemed (such date, or if such date is not a
Business Day, the first Business Day thereafter, the "REDEMPTION DATE") and (ii)
the number of shares of Series B Preferred Stock to be redeemed and, if fewer
than all the shares held by such holder are to be redeemed, the number of shares
to be redeemed from such holder. Any notice mailed in the manner herein provided
shall be conclusively presumed to have been duly given whether or not the
Corporation receives the notice.
(b) Upon surrender in accordance with the notice of redemption of the
certificates for any shares so redeemed, such shares shall be redeemed by the
Corporation at the redemption price aforesaid. In case fewer than all the shares
represented by any such certificate are redeemed, a new certificate shall be
issued representing the unredeemed shares without cost to the holder thereof.
7. CONVERSION.
(a) Right to Convert.
(i) Subject to the provisions of this Section 7, each holder
of shares of Series B Preferred Stock shall have the right, at any time
and from time to time, at such holder's option, to convert any or all
of such holder's shares of Series B Preferred Stock, in whole or in
part, into fully paid and non-assessable shares of Common Stock at the
conversion price equal to the "INITIAL CONVERSION PRICE" per share of
Common Stock (as defined below), subject to adjustment as described in
Section 7(c) (as adjusted, the "CONVERSION PRICE"). The number of
shares of Common Stock into which a share of the Series B Preferred
Stock shall be convertible (calculated as to each conversion to the
nearest 1/1,000,000th of a share) shall be determined by dividing the
Liquidation Value in effect at the time of conversion by the Conversion
Price in effect at the time of conversion; provided, however, that,
except to the extent that a dividend pursuant to Section 3(a)(ii),
(iii) or (iv) has been declared in respect of the Dividend Period
during which conversion occurs and conversion occurs after the relevant
Dividend Payment Record Date, the Liquidation Value in respect of the
shares of Series B Stock to be converted shall be increased by an
amount equal to the unrecognized accretion from the immediately
preceding Dividend Payment Date up to but not including the date of
conversion. The "INITIAL CONVERSION PRICE" shall be an amount equal to
the quotient of $7,600,000,000, divided by (y) the Initial Fully
Diluted Shares Outstanding (as defined below). The Corporation will
prepare a schedule calculating the Initial Conversion Price and present
this schedule to the initial holders within 15 Business Days after
December 31, 2000. If the initial holders concur with such schedule as
prepared by the Corporation or otherwise do not respond within 10
Business Days following receipt, the Initial Conversion Price will be
as set forth therein. If the initial holders dispute the calculation of
the Initial Conversion
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64
Price pursuant to such schedule as proposed by the Corporation, the
initial holders will note such dispute in writing to the Corporation
within 10 Business Days following receipt of Schedule 7(a)(i) from the
Corporation. If the Corporation and the initial holders cannot agree on
calculation of the Initial Conversion Price within 5 Business Days
following the initial holders' written response noting its dispute,
then the Corporation and the initial holders will chose a mutually
agreeable investment banking or accounting firm to compute the Initial
Conversion Price in accordance with this definition, and such
computation shall be final. The fees and expenses of such firm shall be
borne equally by the Corporation and the initial holders disputing such
calculation. "INITIAL FULLY DILUTED SHARES OUTSTANDING" means the sum
of (x) all issued and outstanding shares of Common Stock of the
Corporation as of the time immediately following the Distribution (as
defined in the Purchase Agreement), (y) all shares of Common Stock
issuable upon exercise or conversion of all options and convertible
securities issued and outstanding as of the time immediately following
the Distribution that are held by employees, officers and directors of
the Corporation and with respect to which the exercise price is less
than or equal to the Twenty Day Average Price (in each case after
giving effect to the deemed receipt by the Corporation of the aggregate
exercise or conversion price of all such options or convertible
securities and the deemed application of such amount to acquire shares
of Common Stock at the Twenty Day Average Price of the Common Stock)
and (z) all shares and restricted shares of Common Stock and all shares
of Common Stock issuable upon exercise or conversion of all options and
convertible securities issued, sold or granted following the
Distribution (other than those referred to in clause (y) above) to
employees, officers and directors of the Corporation and with respect
to which the exercise price (or in the case of shares or restricted
shares, the purchase price) is less than or equal to the Twenty Day
Average Price (in each case after giving effect to the deemed receipt
by the Corporation of the aggregate exercise or conversion (or
purchase) price of all such shares, options or convertible securities
and the deemed application of such amount to acquire shares of Common
Stock at the Twenty Day Average Price of the Common Stock). The "TWENTY
DAY AVERAGE PRICE" shall mean the average of the Market Prices of the
Common Stock during the twenty consecutive trading days ending on the
90th day (or if such day is not a business day, the next preceding
business day) after the Original Issue Date. The calculation of Initial
Fully Diluted Shares Outstanding shall not take into account Series B
Preferred Stock or Warrants or the shares of Common Stock into which
such shares of Series B Preferred Stock are convertible or the shares
of Common Stock issuable upon exercise of such Warrants. The Initial
Conversion Price and the Initial Fully Diluted Shares Outstanding shall
be determined as of December 31, 2000. Following the determination of
the Initial Conversion Price as set forth herein, the Corporation shall
amend this Certificate of Designation to set forth the amount thereof.
(ii) From and after the fifth anniversary of the Original
Issue Date, subject to the provisions of this Section 7, the
Corporation shall have the right to require the holder of shares of
Series B Preferred Stock, from time to time, at the Corporation's
option, to convert any or all of such holder's shares of Series B
Preferred Stock, in whole or in part, into fully paid and
non-assessable shares of Common Stock at the Conversion Price. The
number of shares of Common Stock into which a share of the Series B
Preferred Stock shall be convertible (calculated as to each conversion
to the nearest 1/1,000,000th of a
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share) shall be determined by dividing the Liquidation Value in effect
at the time of conversion by the Conversion Price in effect at the time
of conversion.
(b) Mechanics of Conversion.
(i) A holder of shares of Series B Preferred Stock or the
Corporation, as the case may be, that elects to exercise its conversion
rights pursuant to Section 7(a) shall provide notice to the other party
as follows:
(A) Holder's Notice and Surrender. To exercise its
conversion right pursuant to Section 7(a)(i), the holder of
shares of Series B Preferred Stock to be converted shall
surrender the certificate or certificates representing such
shares at the office of the Corporation (or any transfer agent
of the Corporation previously designated by the Corporation to
the holders of Series B Preferred Stock for this purpose) with
a written notice of election to convert, completed and signed,
specifying the number of shares to be converted.
(B) Corporation's Notice. To exercise its conversion
right pursuant to Section 7(a)(ii), the Corporation shall
deliver written notice to such holder, at least 30 days and no
more than 75 days prior to the Conversion Date, specifying:
(i) the number of shares of Series B Preferred Stock to be
converted and, if fewer than all the shares held by such
holder are to be converted, the number of shares to be held by
such holder; (ii) the Conversion Date; (iii) the number of
shares of Common Stock to be issued in respect of each share
of Series B Preferred Stock that is converted; (iv) the place
or places where certificates for such shares are to be
surrendered for issuance of certificates representing shares
of Common Stock; and (v) that dividends on the shares to be
converted will cease to accrue on such Conversion Date.
Unless the shares issuable upon conversion are to be issued in the same
name as the name in which such shares of Series B Preferred Stock are
registered, each share surrendered for conversion shall be accompanied
by instruments of transfer, in form satisfactory to the Corporation,
duly executed by the holder or the holder's duly authorized attorney
and an amount sufficient to pay any transfer or similar tax in
accordance with Section 7(b)(vi). As promptly as practicable after the
surrender by the holder of the certificates for shares of Series B
Preferred Stock as aforesaid, the Corporation shall issue and shall
deliver to such holder, or on the holder's written order to the
holder's transferee, a certificate or certificates for the whole number
of shares of Common Stock issuable upon the conversion of such shares
and a check payable in an amount corresponding to any fractional
interest in a share of Common Stock as provided in Section 7(b)(vii).
(ii) Each conversion shall be deemed to have been effected
immediately prior to the close of business on (x) in the case of
conversion pursuant to Section 7(a)(i), the first Business Day on which
the certificates for shares of Series B Preferred Stock shall have been
surrendered and such notice received by the Corporation as aforesaid
and (y) in the case of conversion pursuant to Section 7(a)(ii), the
date specified as the Conversion Date in the Corporation's notice of
conversion delivered to each holder pursuant to Sec-
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tion 7(b)(i)(B) (in either case, the "CONVERSION DATE"). At such time
on the Conversion Date:
(A) the person in whose name or names any certificate
or certificates for shares of Common Stock shall be issuable
upon such conversion shall be deemed to have become the holder
of record of the shares of Common Stock represented thereby at
such time; and
(B) such shares of Series B Preferred Stock so
converted shall no longer be deemed to be outstanding, and all
rights of a holder with respect to such shares (x) in the
event of conversion pursuant to Section 7(a)(i), surrendered
for conversion and (y) in the event of conversion pursuant to
Section 7(a)(ii), covered by the Corporation's notice of
conversion, shall immediately terminate except the right to
receive the Common Stock and other amounts payable pursuant to
this Section 7.
All shares of Common Stock delivered upon conversion of the Series B
Preferred Stock will, upon delivery, be duly and validly authorized and
issued, fully paid and nonassessable, free from all preemptive rights
and free from all taxes, liens, security interests and charges (other
than liens or charges created by or imposed upon the holder or taxes in
respect of any transfer occurring contemporaneously therewith).
(iii) Holders of shares of Series B Preferred Stock at the
close of business on a Dividend Payment Record Date shall be entitled
to receive the dividend payable on such shares on the corresponding
Dividend Payment Date notwithstanding the conversion thereof following
such Dividend Payment Record Date and prior to such Dividend Payment
Date. A holder of shares of Series B Preferred Stock on a Dividend
Payment Record Date who (or whose transferee) tenders any such shares
for conversion into shares of Common Stock on such Dividend Payment
Date will receive the dividend payable by the Corporation on such
shares of Series B Preferred Stock if and when paid, and the converting
holder need not include payment of the amount of such dividend upon
surrender of shares of Series B Preferred Stock for conversion.
(iv) Except as provided in clause (iii) above and in Section
7(c), the Corporation shall make no payment or adjustment for accrued
and unpaid dividends on shares of Series B Preferred Stock, whether or
not in arrears, on conversion of such shares or for dividends in cash
on the shares of Common Stock issued upon such conversion.
(v) The Corporation will at all times reserve and keep
available, free from preemptive rights, out of its authorized but
unissued Common Stock, solely for the purpose of effecting conversions
of the Series B Preferred Stock, the aggregate number of shares of
Common Stock issuable upon conversion of the Series B Preferred Stock.
The Corporation will procure, at its sole expense, the listing of the
shares of Common Stock, subject to issuance or notice of issuance on
the principal domestic stock exchange on which the Common Stock is then
listed or traded. The Corporation will take all commercially reasonable
action as may be necessary to ensure that the shares of Common Stock
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may be issued without violation of any applicable law or regulation or
of any requirement of any securities exchange on which the shares of
Common Stock are listed or traded.
(vi) Issuances of certificates for shares of Common Stock upon
conversion of the Series B Preferred Stock shall be made without charge
to the holder of shares of Series B Preferred Stock for any issue or
transfer tax (other than taxes in respect of any transfer occuring
contemporaneously therewith or as a result of the holder being a
non-U.S. person) or other incidental expense in respect of the issuance
of such certificates, all of which taxes and expenses shall be paid by
the Corporation; provided, however, that the Corporation shall not be
required to pay any tax which may be payable in respect of any transfer
involved in the issuance or delivery of shares of Common Stock in a
name other than that of the holder of the Series B Preferred Stock to
be converted, and no such issuance or delivery shall be made unless and
until the person requesting such issuance or delivery has paid to the
Corporation the amount of any such tax or has established, to the
satisfaction of the Corporation, that such tax has been paid.
(vii) In connection with the conversion of any shares of
Series B Preferred Stock, no fractions of shares of Common Stock shall
be issued, but in lieu thereof the Corporation shall pay a cash
adjustment in respect of such fractional interest in an amount equal to
such fractional interest multiplied by the Market Price per share of
Common Stock on the Conversion Date.
(viii) If fewer than all of the outstanding shares of Series B
Preferred Stock are to be converted pursuant to Section 7(a)(ii), the
shares shall be redeemed on a pro rata basis (according to the number
of shares of Series B Preferred Stock held by each holder, with any
fractional shares rounded to the nearest whole share or in such other
manner as the Board of Directors may determine, as may be prescribed by
resolution of the Board of Directors).
(ix) Notwithstanding anything to the contrary in this
Certificate, if a notice of conversion has been given by the
Corporation pursuant to Section 7(b)(ii) and any holder of shares of
Series B Preferred Stock shall, prior to the close of business on the
Business Day preceding the Conversion Date, give written notice to the
Corporation pursuant to Section 6 of the redemption of any or all of
the shares to be converted held by the holder that would otherwise be
converted on such Conversion Date, then such conversion shall not
become effective as to such shares to be redeemed and such redemption
shall become effective as provided in Section 5.
(c) Adjustments to Conversion Price. The Conversion Price shall be
adjusted from time to time as follows:
(i) Common Stock Issued at Less than Market Value. If the
Corporation issues or sells any Common Stock other than Excluded Stock
without consideration or for consideration per share less than the
Market Price of the Common Stock, as of the day of such issuance or
sale, the Conversion Price in effect immediately prior to each such
issuance or sale will immediately (except as provided below) be reduced
to the price determined by multiplying (A) the Conversion Price at
which shares of Series B Preferred
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Stock were theretofore convertible by (B) a fraction of which the
numerator shall be the sum of (1) the number of shares of Common Stock
outstanding immediately prior to such issuance or sale and (2) the
number of additional shares of Common Stock that the aggregate
consideration received by the Corporation for the number of shares of
Common Stock so offered would purchase at the Market Price per share of
Common Stock on the last trading day immediately preceding such
issuance or sale, and of which the denominator shall be the number of
shares of Common Stock outstanding immediately after such issuance or
sale. For the purposes of any adjustment of the Conversion Price
pursuant to this Section 7(c), the following provisions shall be
applicable:
(A) In the case of the issuance of Common Stock for
cash, the amount of the consideration received by the
Corporation shall be deemed to be the amount of the cash
proceeds received by the Corporation for such Common Stock
before deducting therefrom any discounts or commissions
allowed, paid or incurred by the Corporation for any
underwriting or otherwise in connection with the issuance and
sale thereof.
(B) In the case of the issuance of Common Stock
(otherwise than upon the conversion of shares of Capital Stock
or other securities of the Corporation) for a consideration in
whole or in part other than cash, including securities
acquired in exchange therefor (other than securities by their
terms so exchangeable), the consideration other than cash
shall be deemed to be the fair value thereof as determined by
the Board of Directors, provided, however, that such fair
value as determined by the Board of Directors shall not exceed
the aggregate Market Price of the shares of Common Stock being
issued as of the date the Board of Directors authorizes the
issuance of such shares.
(C) In the case of the issuance of (a) options,
warrants or other rights to purchase or acquire Common Stock
(whether or not at the time exercisable) or (b) securities by
their terms convertible into or exchangeable for Common Stock
(whether or not at the time so convertible or exchangeable) or
options, warrants or rights to purchase such convertible or
exchangeable securities (whether or not at the time
exercisable):
(1) the aggregate maximum number of shares
of Common Stock deliverable upon exercise of such
options, warrants or other rights to purchase or
acquire Common Stock shall be deemed to have been
issued at the time such options, warrants or rights
are issued and for a consideration equal to the
consideration (determined in the manner provided in
Section 7(c)(i) (A) and (B), if any, received by the
Corporation upon the issuance of such options,
warrants or rights plus the minimum purchase price
provided in such options, warrants or rights for the
Common Stock covered thereby;
(2) the aggregate maximum number of shares
of Common Stock deliverable upon conversion of or in
exchange for any such convertible or exchangeable
securities, or upon the exercise of options, war-
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rants or other rights to purchase or acquire such
convertible or exchangeable securities and the
subsequent conversion or exchange thereof, shall be
deemed to have been issued at the time such
securities were issued or such options, warrants or
rights were issued and for a consideration equal to
the consideration, if any, received by the
Corporation for any such securities and related
options, warrants or rights (excluding any cash
received on account of accrued interest or accrued
dividends), plus the additional consideration
(determined in the manner provided in Section 7(c)(i)
(A) and (B), if any, to be received by the
Corporation upon the conversion or exchange of such
securities, or upon the exercise of any related
options, warrants or rights to purchase or acquire
such convertible or exchangeable securities and the
subsequent conversion or exchange thereof;
(3) on any change in the number of shares of
Common Stock deliverable upon exercise of any such
options, warrants or rights or conversion or exchange
of such convertible or exchangeable securities or any
change in the consideration to be received by the
Corporation upon such exercise, conversion or
exchange, but excluding changes resulting from the
anti-dilution provisions thereof (to the extent
comparable to the anti-dilution provisions contained
herein), the Conversion Price as then in effect shall
forthwith be readjusted to such Conversion Price as
would have been obtained had an adjustment been made
upon the issuance of such options, warrants or rights
not exercised prior to such change, or of such
convertible or exchangeable securities not converted
or exchanged prior to such change, upon the basis of
such change;
(4) on the expiration or cancellation of any
such options, warrants or rights (without exercise),
or the termination of the right to convert or
exchange such convertible or exchangeable securities
(without exercise), if the Conversion Price shall
have been adjusted upon the issuance thereof, the
Conversion Price shall forthwith be readjusted to
such Conversion Price as would have been obtained had
an adjustment been made upon the issuance of such
options, warrants, rights or such convertible or
exchangeable securities on the basis of the issuance
of only the number of shares of Common Stock actually
issued upon the exercise of such options, warrants or
rights, or upon the conversion or exchange of such
convertible or exchangeable securities; and
(5) if the Conversion Price shall have been
adjusted upon the issuance of any such options,
warrants, rights or convertible or exchangeable
securities, no further adjustment of the Conversion
Price shall be made for the actual issuance of Common
Stock upon the exercise, conversion or exchange
thereof.
(ii) Stock Splits, Subdivisions, Reclassifications or
Combinations. If the Corporation shall (1) declare a dividend or make a
distribution on its Common Stock in shares of Common Stock, (2)
subdivide or reclassify the outstanding shares of Common
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Stock into a greater number of shares, or (3) combine or reclassify the
outstanding Common Stock into a smaller number of shares, the
Conversion Price in effect at the time of the record date for such
dividend or distribution or the effective date of such subdivision,
combination or reclassification shall be adjusted to the number
obtained by multiplying the Conversion Price at which the shares of
Series B Preferred Stock were theretofore convertible by a fraction,
the numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to such action, and the denominator of
which shall be the number of shares of Common Stock outstanding
immediately following such action.
(iii) Other Distributions. In case the Corporation shall fix a
record date for the making of a distribution to all holders of shares
of its Common Stock (i) of shares of any class or of any Person other
than shares of the Corporation's Common Stock or (ii) of evidence of
indebtedness of the Corporation or any Subsidiary or (iii) of assets
(excluding Ordinary Cash Dividends, and dividends or distributions
referred to in Section 7(c)(ii)), or (iv) of rights or warrants, in
each such case the Conversion Price in effect immediately prior thereto
shall be reduced immediately thereafter to the price determined by
multiplying (A) the Conversion Price in effect immediately prior
thereto by (B) a fraction, the numerator of which shall be the Market
Price per share of Common Stock on such record date less the then fair
market value (as determined by the Board of Directors, whose good faith
determination shall be conclusive) as of such record date of the
shares, assets, evidences of indebtedness, rights or warrants so paid
with respect to one share of Common Stock, and the denominator of which
shall be the Market Price per share of Common Stock on such record
date; provided, however, that in the event the then fair market value
(as so determined) so paid with respect to one share of Common Stock is
equal to or greater than the Market Price per share of Common Stock on
such record date, in lieu of the foregoing adjustment, adequate
provision shall be made so that each holder of shares of Series B
Preferred Stock shall have the right to receive the amount and kind of
shares, assets, evidences of indebtedness, rights or warrants such
holder would have received had such holder converted each such share of
Series B Preferred Stock immediately prior to record date for such
distribution. In the event that such distribution is not so made, the
Conversion Price then in effect shall be readjusted, effective as of
the date when the Board of Directors determines not to distribute such
shares, evidences of indebtedness, assets, rights or warrants, as the
case may be, to the Conversion Price that would then be in effect if
such record date had not been fixed.
(iv) Certain Repurchases of Common Stock. In case the
Corporation effects a Pro Rata Repurchase of Common Stock, then the
Conversion Price shall be reduced to the price determined by
multiplying the Conversion Price in effect immediately prior to the
effective date of such Pro Rata Repurchase by a fraction of which the
numerator shall be the product of (x) the number of shares of Common
Stock outstanding (including any tendered or exchanged shares) at such
effective date, multiplied by the Market Price per share of Common
Stock on the trading day next succeeding such effective date, and the
denominator of which shall be the sum of (A) the fair market value of
the aggregate consideration payable to stockholders based upon the
acceptance (up to any maximum specified in the terms of the tender or
exchange offer) of all shares validly tendered or exchanged and not
withdrawn as of such effective date (the shares deemed so accepted,
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71
up to any maximum, being referred to as the "Purchased Shares") and (B)
the product of the number of shares of Common Stock outstanding (less
any Purchased Shares) at such effective date and the Market Price per
share of Common Stock on the trading day next succeeding such effective
date, such reduction to become effective immediately prior to the
opening of business on the day following such effective date.
(v) Business Combinations. In case of any Business Combination
or reclassification of Common Stock (other than a reclassification of
Common Stock referred to in Section 7(c)(ii)), lawful provision shall
be made as part of the terms of such Business Combination or
reclassification whereby the holder of each share of Series B Preferred
Stock then outstanding shall have the right thereafter to convert such
share only into the kind and amount of securities, cash and other
property receivable upon the Business Combination or reclassification
by a holder of the number of shares of Common Stock of the Corporation
into which a share of Series B Preferred Stock would have been
convertible immediately prior to the Business Combination or
reclassification. The Corporation, the Person formed by the
consolidation or resulting from the merger or which acquires such
assets or which acquires the Corporation's shares, as the case may be,
shall make provisions in its certificate or articles of incorporation
or other constituent documents to establish such rights and to ensure
that the dividend, voting and other rights of the holders of Series B
Preferred Stock established herein are unchanged, except as permitted
by Section 9 or as required by applicable law. The certificate or
articles of incorporation or other constituent documents shall provide
for adjustments, which, for events subsequent to the effective date of
the certificate or articles of incorporation or other constituent
documents, shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Section 7.
(vi) Successive Adjustments. Successive adjustments in the
Conversion Price shall be made, without duplication, whenever any event
specified in Sections 7(c)(i), (ii), (iii), (iv) and (v) shall occur.
(vii) Rounding of Calculations; Minimum Adjustments. All
calculations under this Section 7(c) shall be made to the nearest
one-tenth (1/10th) of a cent. No adjustment in the Conversion Price is
required if the amount of such adjustment would be less than $0.01;
provided, however, that any adjustments which by reason of this Section
7(c)(vii) are not required to be made will be carried forward and given
effect in any subsequent adjustment.
(viii) Adjustment for Unspecified Actions. If the Corporation
takes any action affecting the Common Stock, other than action
described in this Section 7(c), which in the opinion of the Board of
Directors would materially adversely affect the conversion rights of
the holders of shares of Series B Preferred Stock, the Conversion Price
may be adjusted, to the extent permitted by law, in such manner, if
any, and at such time, as such Board of Directors may determine in good
faith to be equitable in the circumstances. Failure of the Board of
Directors to provide for any such adjustment prior to the effective
date of any such action by the Corporation affecting the Common Stock
will be evidence that the Board of Directors has determined that it is
equitable to make no adjustments in the circumstances.
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(ix) Voluntary Adjustment by the Corporation. The Corporation
may at its option, at any time during the term of the Series B
Preferred Stock, reduce the then current Conversion Price to any amount
deemed appropriate by the Board of Directors; provided, however, that
if the Corporation elects to make such adjustment, such adjustment will
remain in effect for at least a 15-day period, after which time the
Corporation may, at its option, reinstate the Conversion Price in
effect prior to such reduction, subject to any interim adjustments
pursuant to this Section 7(c).
(x) Statement Regarding Adjustments. Whenever the Conversion
Price shall be adjusted as provided in this Section 7(c), the
Corporation shall forthwith file, at the principal office of the
Corporation, a statement showing in reasonable detail the facts
requiring such adjustment and the Conversion Price that shall be in
effect after such adjustment and the Corporation shall also cause a
copy of such statement to be sent by mail, first class postage prepaid,
to each holder of shares of Series B Preferred Stock at the address
appearing in the Corporation's records.
(xi) Notices. In the event that the Corporation shall give
notice or make a public announcement to the holders of Common Stock of
any action of the type described in this Section 7(c) (but only if the
action of the type described in this Section 7(c) would result in an
adjustment in the Conversion Price or a change in the type of
securities or property to be delivered upon conversion of the Series B
Preferred Stock), the Corporation shall, at the time of such notice or
announcement, and in the case of any action which would require the
fixing of a record date, at least 10 days prior to such record date,
give notice to the holder of shares of Series B Preferred Stock, in the
manner set forth in Section 7(c)(x), which notice shall specify the
record date, if any, with respect to any such action and the
approximate date on which such action is to take place. Such notice
shall also set forth the facts with respect thereto as shall be
reasonably necessary to indicate the effect on the Conversion Price and
the number, kind or class of shares or other securities or property
which shall be deliverable upon conversion of the Series B Preferred
Stock. Failure to give such notice, or any defect therein, shall not
affect the legality or validity of any such action.
(xii) Miscellaneous. Except as provided in Section 7(c), no
adjustment in respect of any dividends or other payments or
distributions made to holders of Series B Preferred Stock of securities
issuable upon the conversion of the Series B Preferred Stock will be
made during the term of the Series B Preferred Stock or upon the
conversion of the Series B Preferred Stock. In addition,
notwithstanding any of the foregoing, no such adjustment will be made
for the issuance or conversion of (a) any Securities (as defined in the
Purchase Agreement) or (b) any rights under the Rights Agreement or any
successor agreement unless such rights become exercisable (in which
case they will be deemed for purposes of this Certificate to have been
issued at the time they become exercisable).
8. STATUS OF SHARES. All shares of Series B Preferred Stock that are at
any time redeemed pursuant to Section 5 or converted pursuant to Section 7 and
all shares of Series B Preferred Stock that are otherwise reacquired by the
Corporation shall (upon compliance with any applicable provisions of the laws of
the State of Delaware) have the status of authorized but unis-
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73
sued shares of Common Stock, without designation as to series, subject to
reissuance by the Board of Directors as shares of any one or more other series.
9. VOTING RIGHTS.
(a) The holders of record of shares of Series B Preferred Stock shall
not be entitled to any voting rights except as hereinafter provided in this
Section 9 or as otherwise provided by law.
(b) The holders of the shares of Series B Preferred Stock (i) shall be
entitled to vote with the holders of the Common Stock on all matters submitted
for a vote of holders of Common Stock (voting together with the holders of
Common Stock as one class), (ii) shall be entitled to a number of votes equal to
the number of votes to which shares of Common Stock issuable upon conversion of
such shares of Series B Preferred Stock would have been entitled if such shares
of Common Stock had been outstanding at the time of the applicable vote and
related record date and (iii) shall be entitled to notice of any stockholders'
meeting in accordance with the Certificate of Incorporation and Bylaws of the
Corporation.
(c) So long as any shares of Series B Preferred Stock are outstanding:
(i) the Corporation shall not, without the written consent or
affirmative vote at a meeting called for that purpose by holders of at
least a majority of the outstanding shares of Series B Preferred Stock,
voting as a single class, amend, alter or repeal any provision of the
Corporation's Certificate of Incorporation (by merger or otherwise) so
as to adversely affect the preferences, rights or powers of the Series
B Preferred Stock; provided that any such amendment, alteration or
repeal to create, authorize or issue any Junior Securities, or any
security convertible into, or exchangeable or exercisable for, shares
of Junior Securities, shall not be deemed to have any such adverse
effect;
(ii) the Corporation shall not, without the written consent or
affirmative vote at a meeting called for that purpose by holders of at
least a majority of the outstanding shares of Series B Preferred Stock,
voting as a single class, create, authorize or issue any Senior
Securities, or any security convertible into, or exchangeable or
exercisable for, shares of Senior Securities; and
(iii) the Corporation shall not, without the written consent
or affirmative vote at a meeting called for that purpose by holders of
at least a majority of the outstanding shares of Series B Preferred
Stock, voting as a single class, create, authorize or issue any new
class of Parity Securities or increase the issued and authorized number
of shares of Series B Preferred Stock to the extent that (A) the
creation, authorization or issuance of such new class of Parity
Securities would adversely affect the class voting rights of the Series
B Preferred Stock or (B) the aggregate liquidation preference of the
issued and outstanding Parity Securities and Series B Preferred Stock
could be increased in excess of $400,000,000 as a result of the
creation, authorization or issuance of such new class of Parity
Securities or such increased shares of Series B Preferred Stock;
provided that no such consent or vote of the holders of Series B Preferred Stock
shall be required if at or prior to the time when such amendment, alteration or
repeal is to take effect, or when the
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issuance of any such securities is to be made, as the case may be, all shares of
Series B Preferred Stock at the time outstanding shall have been called for
redemption by the Corporation and the funds necessary for such redemption shall
have been set aside in accordance with Sections 5 and 6.
(d) The consent or votes required in Section 9(c) shall be in addition
to any approval of stockholders of the Corporation which may be required by law
or pursuant to any provision of the Corporation's Certificate of Incorporation
or Bylaws, which approval shall be obtained by vote of the stockholders of the
Corporation in the manner provided in Section 9(b).
10. DEFINITIONS.
Unless the context otherwise requires, when used herein the following
terms shall have the meaning indicated.
"Affiliate" means with respect to any Person, any other Person
directly, or indirectly through one or more intermediaries,
controlling, controlled by or under common control with such Person.
For purposes of this definition, the term "control" (and correlative
terms "controlling," "controlled by" and "under common control with")
means possession of the power, whether by contract, equity ownership or
otherwise, to direct the policies or management of a Person.
"Beneficially Own" or "Beneficial Ownership" is defined in Rules 13d-3
and 13d-5 of the Exchange Act, but without taking into account any
contractual restrictions or limitations on voting or other rights.
"Business Combination" means (i) any reorganization, consolidation,
merger, share exchange or similar business combination transaction
involving the Corporation with any Person or (ii) the sale, assignment,
conveyance, transfer, lease or other disposition by the Corporation of
all or substantially all of its assets.
"Capital Stock" means (i) with respect to any Person that is a
corporation or company, any and all shares, interests, participations
or other equivalents (however designated) of capital or capital stock
of such Person and (ii) with respect to any Person that is not a
corporation or company, any and all partnership or other equity
interests of such Person.
"Change in Control" shall mean the happening of any of the following
events:
(a) The acquisition by any Person of Beneficial Ownership of 50% or
more of either (A) the then-outstanding shares of Common Stock of the
Corporation (the "Outstanding Corporation Common Stock") or (B) the combined
voting power of the then-outstanding voting securities of the Corporation
entitled to vote generally in the election of directors (the "Outstanding
Corporation Voting Securities"); provided, however, that, for purposes of this
definition, the following acquisitions shall not constitute a Change in Control:
(i) any acquisition directly from the Corporation, (ii) any acquisition by the
Corporation, (iii) any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by the Corporation or any company that is an
Affiliate of the Corporation or (iv) any acquisition by any corporation pursuant
to a transaction that complies with (c)(A) and (c)(B) in this definition; or
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75
(b) Individuals who, as of the date hereof, constitute the Board of
Directors (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board of Directors; provided, however, that any individual
becoming a director subsequent to the date hereof whose election, or nomination
for election by the Corporation's shareholders, was approved by a vote of at
least a majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board; or
(c) Consummation of a Business Combination, in each case, unless,
following such Business Combination, (A) all or substantially all of the
individuals and entities that were the Beneficial Owners of the Outstanding
Corporation Common Stock and the Outstanding Corporation Voting Securities
immediately prior to such Business Combination Beneficially Own, directly or
indirectly, more than 50% of the then-outstanding shares of common stock and the
combined voting power of the then-outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the corporation
resulting from such Business Combination (including, without limitation, a
corporation that, as a result of such transaction, owns the Corporation or all
or substantially all of the Corporation's assets either directly or through one
or more subsidiaries) in substantially the same proportions as their ownership
immediately prior to such Business Combination of the Outstanding Corporation
Common Stock and the Outstanding Corporation Voting Securities, as the case may
be, and (B) no Person (excluding any corporation resulting from such Business
Combination or any employee benefit plan (or related trust) of the Corporation
or such corporation resulting from such Business Combination) beneficially owns,
directly or indirectly, 50% or more of, respectively, the then-outstanding
shares of common stock of the corporation resulting from such Business
Combination or the combined voting power of the then-outstanding voting
securities of such corporation; or
(d) Approval by the shareholders of the Corporation of a complete
liquidation or dissolution of the Corporation.
"Common Stock" means the Common Stock of the Corporation, par value
$0.01 per share.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
or any successor statute, and the rules and regulations promulgated
thereunder.
"Excluded Stock" means (i) shares of Common Stock issued by the
Corporation as a stock dividend payable in shares of Common Stock, or
upon any subdivision or split-up of the outstanding shares of Capital
Stock in each case which is subject to the provisions of Section
7(c)(ii), or upon conversion of shares of Capital Stock (but not the
issuance of such Capital Stock which will be subject to the provisions
of Section 7(c)(i)(C)), (ii) the issuance of shares of Common Stock in
any bona fide underwritten public offering, (iii) the issuance of
Common Stock in connection with any debt financing from or with one or
more unaffiliated third parties approved by the Board of Directors
(including upon the exercise of any warrants issued in connection with
such financings), (iv) the issuance of shares of Common Stock
(including upon exercise of options) to directors, advisors, employees
or consultants of the Corporation pursuant to a stock option plan,
restricted stock plan or other agreement approved by the Board of
Directors, (v) the issuance of shares of Common Stock in connection
with acquisitions of assets or securities of another Person
18
76
(other than issuances to affiliates of the Corporation), and (vi) the
issuance of shares of Common Stock upon exercise of the Series B
Preferred Stock and the Warrants.
"Market Price" means, with respect to a particular security, on any
given day, the average of the highest and lowest reported sale prices
regular way or, in case no such reported sales takes place on such day,
the average of the highest asked and lowest bid prices regular way, in
either case on the principal national securities exchange on which the
applicable securities is listed or admitted to trading, or if not
listed or admitted to trading on any national securities exchange, (i)
the average of the highest and lowest sale prices for such day reported
by the Nasdaq Stock Market if such security is traded over-the-counter
and quoted in the Nasdaq Stock Market, or (ii) if such security is so
traded, but not so quoted, the average of the highest reported asked
and lowest reported bid prices of such security as reported by the
Nasdaq Stock Market or any comparable system, or (iii) if such security
is not listed on the Nasdaq Stock Market or any comparable system, the
average of the highest asked and lowest bid prices as furnished by two
members of the National Association of Securities Dealers, Inc.
selected from time to time by the Corporation for that purpose. If such
security is not listed and traded in a manner that the quotations
referred to above are available for the period required hereunder, the
Market Price per share of Common Stock shall be deemed to be the fair
value per share of such security as determined in good faith by the
Board of Directors.
"Ordinary Cash Dividends" means any cash dividend or cash distribution
which, when combined on a per share of Common Stock basis with the per
share amounts of all other cash dividends and cash distributions paid
on the Common Stock during the 365-day period ending on the Dividend
Payment Record Date of such dividend or distribution (as adjusted to
appropriately reflect any of the events referred to in Section 7(c) and
excluding (a) cash dividends or cash distributions that resulted in an
adjustment to the Conversion Price, (b) cash dividends paid on the
Common Stock in which the Preferred Stock participates, and (c) cash
dividends or cash distributions paid on the Series B Preferred Stock),
does not exceed 7.5% of the Market Price of a share of Common Stock on
the trading day immediately preceding the date of declaration of such
dividend or distribution.
"Original Issue Date" means the date upon which the initial shares of
Series B Preferred Stock were originally issued by the Corporation.
"Person" means an individual, entity or group (within the meaning of
Section 13(d)(3) or 14(d)(2) of the Exchange Act).
"Pro Rata Repurchases" means any purchase of shares of Common Stock by
the Corporation or any Affiliate thereof pursuant to any tender offer
or exchange offer subject to Section 13(e) of the Exchange Act, or
pursuant to any other offer available to substantially all holders of
Common Stock, whether for cash, shares of capital stock of the
Corporation, other securities of the Corporation, evidences of
indebtedness of the Corporation or any other person or any other
property (including, without limitation, shares of capital stock, other
securities or evidences of indebtedness of a Subsidiary of the
Corporation), or any combination thereof, effected while the Series B
Preferred Stock
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77
is outstanding; provided, however, that "Pro Rata Repurchase" shall not
include any purchase of shares by the Corporation or any Affiliate
thereof made in accordance with the requirements of Rule 10b-18 as in
effect under the Exchange Act. The "Effective Date" of a Pro Rata
Repurchase shall mean the date of acceptance of shares for purchase or
exchange under any tender or exchange offer which is a Pro Rata
Repurchase or the date of purchase with respect to any Pro Rata
Repurchase that is not a tender or exchange offer.
"Purchase Agreement" means the Purchase Agreement, dated as of August
8, 2000, among the Corporation and the purchasers named therein,
including all schedules and exhibits thereto.
"Rights Agreement" means the Rights Agreement, to be dated as of
September 30, 2000, between the Corporation and the Bank of New York,
as Rights Agent, as amended.
"Subsidiary" of a Person means (i) a corporation, a majority of whose
stock with voting power, under ordinary circumstances, to elect
directors is at the time of determination, directly or indirectly,
owned by such Person or by one or more Subsidiaries of such Person, or
(ii) any other entity (other than a corporation) in which such Person
or one or more Subsidiaries of such Person, directly or indirectly, at
the date of determination thereof has at least a majority ownership
interest.
"Warrants" means collectively the warrants which were issued to the
purchasers named in the Purchase Agreement pursuant to the Purchase
Agreement.
11. MERGER OR CONSOLIDATION OF THE CORPORATION.
Unless approved pursuant to Section 9(c)(i), the Corporation will not
merge or consolidate into, or sell, transfer or lease all or substantially all
of its property to, any other corporation unless the successor, transferee or
lessee corporation, as the case may be (if not the Corporation), (a) expressly
assumes the due and punctual performance and observance of each and every
covenant and condition of this Certificate to be performed and observed by the
Corporation and (b) expressly agrees to exchange, at the holder's option, shares
of Series B Preferred Stock for shares of the surviving corporation's capital
stock on terms substantially similar to the terms under this Certificate.
12. NO OTHER RIGHTS.
The shares of Series B Preferred Stock shall not have any relative,
participating, optional or other special rights and powers except as set forth
herein or as may be required by law.
This Certificate shall become effective at _____ p.m. Eastern Standard
Time on _____ __, 2000.
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78
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
duly executed and acknowledged by its undersigned duly authorized officer this
____ day of _____, 2000.
AVAYA INC.
By: ___________________________________
Name:
Title:
21
79
Exhibit B
Form of Warrant
FORM OF SERIES [_________] WARRANT*
THE WARRANTS REPRESENTED BY THIS INSTRUMENT AND THE SECURITIES ISSUABLE
UPON EXERCISE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR SECURITIES LAWS OF ANY STATE AND MAY NOT BE TRANSFERRED, SOLD OR
OTHERWISE DISPOSED OF EXCEPT WHILE A REGISTRATION STATEMENT RELATING THERETO IS
IN EFFECT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT OR SUCH LAWS.
THE WARRANTS REPRESENTED BY THIS INSTRUMENT ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER AS SET FORTH IN A PREFERRED STOCK AND WARRANT PURCHASE
AGREEMENT, DATED AS OF THE 8TH DAY OF AUGUST, 2000, AS IT MAY BE AMENDED FROM
TIME TO TIME, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL EXECUTIVE OFFICES OF
THE ISSUER. NO REGISTRATION OF TRANSFER OF SUCH WARRANTS WILL BE MADE ON THE
BOOKS OF THE ISSUER UNLESS AND UNTIL SUCH RESTRICTIONS SHALL HAVE BEEN COMPLIED
WITH. ANY TRANSFER NOT IN COMPLIANCE WITH SUCH AGREEMENT SHALL BE VOID. [THIS
PARAGRAPH TO BE DELETED WHEN THIS WARRANT IS NO LONGER HELD BY A PURCHASER (AS
DEFINED IN THE PURCHASE AGREEMENT) OR A PERMITTED TRANSFEREE (AS DEFINED IN THE
PURCHASE AGREEMENT)]
SERIES [________] WARRANT
No. __ October ___, 2000
TO PURCHASE SHARES OF COMMON STOCK, PAR VALUE $0.01
PER SHARE, OF AVAYA INC.
1. Definitions. Unless the context otherwise requires, when used herein
the following terms shall have the meaning indicated.
"Affiliate" means with respect to any Person, any other Person
directly, or indirectly through one or more intermediaries,
controlling, controlled by or under common control with such Person.
For purposes of this definition, the term "control" (and correlative
terms "controlling," "controlled by" and "under common control with")
means possession of the power, whether by contract, equity ownership or
otherwise, to direct the policies or management of a Person.
"Board" means the Board of Directors of the Company.
"Business Combination" means (i) any reorganization, consolidation,
merger, share exchange or similar business combination transaction
involving the Company with any Per-
--------
* This is the Form of Warrant for both Series A and Series B.
80
son or (ii) the sale, assignment, conveyance, transfer, lease or other
disposition by the Company of all or substantially all of its assets.
"Business Day" means any day except Saturday, Sunday and any day which
shall be a legal holiday or a day on which banking institutions in New
York City, New York generally are authorized or required by law or
other governmental actions to close.
"Capital Stock" means (i) with respect to any Person that is a
corporation or company, any and all shares, interests, participations
or other equivalents (however designated) of capital or capital stock
of such Person and (ii) with respect to any Person that is not a
corporation or company, any and all partnership or other equity
interests of such Person.
"Certificate of Designation" means the Certificate of Designation
relating to the Preferred Stock filed with the Secretary of State of
Delaware on September __, 2000.
"Common Stock" means the Company's common stock, par value $0.01 per
share.
"Company" means Avaya Inc., a Delaware corporation.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
or any successor statute, and the rules and regulations promulgated
thereunder.
"Excluded Stock" means (i) shares of Common Stock issued by the Company
as a stock dividend payable in shares of Common Stock, or upon any
subdivision or split-up of the outstanding shares of Capital Stock in
each case which is subject to Section 13(B), or upon conversion of
shares of Capital Stock (but not the issuance of such Capital Stock
which will be subject to the provisions of Section 13(A)(iii)), (ii)
the issuance of shares of Common Stock in any bona fide underwritten
public offering, (iii) the issuance of Common Stock in connection with
any debt financing from or with one or more unaffiliated third parties
approved by the Board (including upon the exercise of any warrants
issued in connection with such financings), (iv) the issuance of shares
of Common Stock (including upon exercise of options) to directors,
advisors, employees or consultants of the Company pursuant to a stock
option plan, employee stock purchase plan, restricted stock plan or
other agreement approved by the Board, (v) the issuance of shares of
Common Stock in connection with acquisitions of assets or securities of
another Person (other than issuances to Affiliates of the Company), and
(vi) the issuance of shares of Common Stock upon conversion of the
Preferred Stock and exercise of the Warrants.
"Exercise Price" has the meaning given to it in Section 2(A).
"Expiration Time" has the meaning given to it in Section 3.
"Initial Conversion Price" shall have the meaning set forth in Section
7 of the Certificate of Designation.
"Market Price" means, with respect to a particular security, on any
given day, the average of the highest and lowest reported sale prices
regular way or, in case no such reported sales takes place on such day,
the average of the highest asked and lowest bid prices
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regular way, in either case on the principal national securities
exchange on which the applicable securities is listed or admitted to
trading, or if not listed or admitted to trading on any national
securities exchange, (i) the average of the highest and lowest sale
prices for such day reported by the Nasdaq Stock Market if such
security is traded over-the-counter and quoted in the Nasdaq Stock
Market, or (ii) if such security is so traded, but not so quoted, the
average of the highest reported asked and lowest reported bid prices of
such security as reported by the Nasdaq Stock Market or any comparable
system, or (iii) if such security is not listed on the Nasdaq Stock
Market or any comparable system, the average of the highest asked and
lowest bid prices as furnished by two members of the National
Association of Securities Dealers, Inc. selected from time to time by
the Company for that purpose. If such security is not listed and traded
in a manner that the quotations referred to above are available for the
period required hereunder, the Market Price per share of Common Stock
shall be deemed to be the fair value per share of such security as
determined in good faith by the Board.
"Ordinary Cash Dividends" means any cash dividend or cash distribution
which, when combined on a per share of Common Stock basis with the per
share amounts of all other cash dividends and cash distributions paid
on the Common Stock during the 365-day period ending on the date of
declaration of such dividend or distribution (as adjusted to
appropriately reflect any of the events referred to in Section 13 and
excluding (a) cash dividends or cash distributions that resulted in an
adjustment to the Exercise Price, (b) cash dividends paid on the Common
Stock in which the Preferred Stock participates pursuant to Section
3(a)(i) of the Certificate of Designation and (c) cash dividends or
cash distributions paid on the Preferred Stock), does not exceed 7.5%
of the Market Price of a share of Common Stock on the trading day
immediately preceding the date of declaration of such dividend or
distribution.
"Original Issue Date" means the date on which the Warrants of this
Series were first issued.
"Person" means an individual, entity or group (within the meaning of
Section 13(d)(3) or 14(d)(2) of the Exchange Act).
"Preferred Stock" means the Series B Convertible Participating
Preferred Stock of the Company or successor preferred stock as
contemplated by the Certificate of Designation.
"Pro Rata Repurchases" means any purchase of shares of Common Stock by
the Company or any Affiliate thereof pursuant to any tender offer or
exchange offer subject to Section 13(e) of the Exchange Act, or
pursuant to any other offer available to substantially all holders of
Common Stock, whether for cash, shares of capital stock of the Company,
other securities of the Company, evidences of indebtedness of the
Company or any other person or any other property (including, without
limitation, shares of capital stock, other securities or evidences of
indebtedness of a subsidiary of the Company), or any combination
thereof, effected while this Warrant is outstanding; provided, however,
that "Pro Rata Repurchase" shall not include any purchase of shares by
the Company or any Affiliate thereof made in accordance with the
requirements of Rule 10b-18 as in effect under the Exchange Act. The
"Effective Date" of a Pro Rata Repurchase shall mean the
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date of acceptance of shares for purchase or exchange under any tender
or exchange offer which is a Pro Rata Repurchase or the date of
purchase with respect to any Pro Rata Repurchase that is not a tender
or exchange offer.
"Purchase Agreement" means the Preferred Stock and Warrant Purchase
Agreement, dated as of August 8, 2000, among the Company and the
purchasers named therein, including all schedules and exhibits thereto.
"Rights Agreement" means the Rights Agreement to be dated as of
September 30, 2000 between the Company and the Bank of New York, as
Rights Agent, as amended.
"Rights" is defined in Section 14.
"Securities Act" means the Securities Act of 1933, as amended, or any
successor statute, and the rules and regulations promulgated
thereunder.
"Shares" is defined in Section 2(A).
"Subsidiary" of a Person means (i) a corporation, a majority of whose
stock with voting power, under ordinary circumstances, to elect
directors is at the time of determination, directly or indirectly,
owned by such Person or by one or more Subsidiaries of such Person, or
(ii) any other entity (other than a corporation) in which such Person
or one or more Subsidiaries of such Person, directly or indirectly, at
the date of determination thereof has at least a majority ownership
interest.
"Warrantholder" has the meaning given to it in Section 2(A).
"Warrants" means collectively the warrants represented hereby (and by
any instrument replacing, in whole or in part, this instrument) which
were issued to the purchasers named in the Purchase Agreement pursuant
to the Purchase Agreement.
2. Number of Shares; Exercise Price.
(A) This certifies that, for value received, [NAME OF WARBURG,
PINCUS ENTITY] or its registered assigns (the "Warrantholder")
is entitled, upon the terms and subject to the conditions
hereinafter set forth, to acquire from the Company, in whole
or in part, up to an aggregate of the Applicable Number of
fully paid and nonassessable shares of Common Stock, par value
$0.01 per share, (the "Shares") of the Company, at a per Share
purchase price (the "Exercise Price") equal to 1.3 times the
Initial Conversion Price. The number and type of Shares and
the Exercise Price are subject to adjustment as provided
herein, and all references to "Shares", "Common Stock" and
"Exercise Price" herein shall be deemed to include any such
adjustment or series of adjustments. The "Applicable Number"
means [2.0%/1.6%]+ of the Total Shares Outstanding. "Total
Shares Outstanding" means the quotient of (x) the sum of (a)
all issued and outstanding shares of Common Stock as of the
Original Issue Date (the "Initial Outstanding Amount"),
-----------
+ Series A = 2.0%; Series B = 1.6%.
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and (b) the Option Amount, divided by (y) 0.964. "Option
Amount" means the lesser of (a) the sum of (1) all shares of
Common Stock issuable upon exercise or conversion of all
options and convertible securities granted, sold or issued to
directors, officers or employees of the Company as of the
Original Issue Date which at such date had an exercise or
conversion price less than or equal to the Exercise Price at
the Original Issue Date, whether such shares are vested or
unvested and without regard to the relationship of the
exercise or conversion price thereof to the Market Price of
the Common Stock and (2) all shares and restricted shares of
Common Stock and all shares of Common Stock issuable upon
exercise or conversion of all options and convertible
securities granted, sold or issued to directors, officers or
employees of the Company after the Original Issue Date and on
or prior to the end of the 90th day following the Original
Issue Date which had at the date of grant, sale or issuance an
exercise price (or in the case of shares or restricted shares,
a purchase price) less than or equal to the Exercise Price at
such date of grant, sale or issuance, whether such shares are
vested or unvested and without regard to the relationship of
the exercise or conversion price thereof to the Market Price
of the Common Stock and (b) the product of (1) the Initial
Outstanding Amount and (2) 0.1765.
(B) The Company will prepare a schedule calculating the Applicable
Number and the Total Shares Outstanding and present this
schedule to the initial holders of Warrants of this Series
within 15 Business Days after the 90th day following the
Original Issue Date. If the initial holders concur with such
schedule as prepared by the Company or otherwise do not
respond within 10 Business Days following receipt, the
Applicable Number and the Total Shares Outstanding will be as
set forth therein. If the initial holders dispute the
calculation of the Applicable Number or the Total Shares
Outstanding pursuant to such schedule as proposed by the
Company, the initial holders will note such dispute in writing
to the Company within 10 Business Days following receipt of
such schedule from the Company. If the Company and the initial
holders cannot agree on the calculation of the Applicable
Number and the Total Shares Outstanding within 5 Business Days
following the initial holders' written response noting its
dispute, then the Company and the initial holders will chose a
mutually agreeable investment banking or accounting firm to
compute the Applicable Amount and the Total Shares Outstanding
in accordance with this Warrant, and such computation shall be
final. The fees and expenses of such firm shall be borne
equally by the Company and the initial holders disputing such
calculations. The calculation of the Applicable Number and the
Total Shares Outstanding shall not take into account shares of
Preferred Stock or shares of Common Stock into which the
shares of Preferred Stock are convertible. The Applicable
Number and the Total Shares Outstanding shall be determined as
of the 90th day following the Original Issue Date. Following
the determination of the Applicable Number and the Total
Shares Outstanding the Company and the Warrantholder shall
amend this Warrant to set forth the amount thereof.
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3. Exercise Rights.
(A) Exercise of Warrant; Term. The right to purchase the Shares
represented by this Warrant is exercisable, in whole or in
part, by the Warrantholder, at any time or from time to time
but in no event later than 11:59 p.m. New York City Time, on
[insert fourth/fifth anniversary of the date of issuance of
Warrant]++ (the "Expiration Time"), by (a) the surrender of
this Warrant and Notice of Exercise annexed hereto, duly
completed and executed on behalf of the Warrantholder, at the
office of the Company in Basking Ridge, New Jersey (or such
other office or agency of the Company in the United States as
it may designate by notice in writing to the Warrantholder at
the address of the Warrantholder appearing on the books of the
Company), and (b) payment of the Exercise Price for the Shares
thereby purchased at the election of the Warrantholder in one
of the following manners:
(i) by tendering in cash, by certified or cashier's check or by
wire transfer payable to the order of the Company; or
(ii) by having the Company withhold shares of Common Stock issuable
upon exercise of this Warrant equal in value to the aggregate
Exercise Price as to which this Warrant is so exercised based
on the Market Price of the Common Stock on the trading day
prior to the date on which this Warrant and the Notice of
Exercise are delivered to the Company.
(B) Mandatory Exercise. At any time beginning on the later of (x)
the date that is six months after the Original Issue Date or
(y) the date that the Warrant Registration Statement shall
have become effective under the Securities Act, and continuing
until the second anniversary of the Original Issue Date, at
the Company's option, the Warrantholder shall be required to
exercise this Warrant with respect to up to 50% of the
Applicable Number, but only if the average of the Market
Prices of the Common Stock has been at least [2.0/2.25]$ times
the Initial Conversion Price over a period of 20 consecutive
trading days, ending on a trading day with respect to which
the Market Price is at least [2.0/2.25]** times the Initial
Conversion Price and which is no more than five trading days
prior to the date on which the Company delivered written
notice thereof to the Warrantholder, which notice shall state
the number of Shares subject to such exercise and the date of
exercise (which date must be no fewer than 10 days after, and
no more than 20 days after, the date of the notice) (the
"Exercise Deadline Date"). If the Warrantholder is required to
exercise this Warrant pursuant to this Section 3(B), the
method of exercise shall be the same as the method described
in Section 3(A); provided, however, that if the Warrantholder
fails to exercise this Warrant on or prior to the Exercise
Deadline Date, the Company shall effect the exercise of this
Warrant on the next succeeding day by withholding shares of
Common Stock in the manner described in Section 3(A)(ii) based
on the Market Price of the Common Stock on the
++ Series A= 4th Anniversary; Series B= 5th Anniversary
$ Series A = 2.0 times; Series B = 2.25 times.
** Series A = 2.0 times; Series B = 2.25 times.
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Exercise Deadline Date. The Company shall deliver, in
accordance with Section 4, the shares of Common Stock (and any
cash in lieu of fractional shares) issued as a result of any
exercise pursuant to the proviso to the immediately preceding
sentence to the Warrantholder who failed to exercise in the
name and at the address of the Warrantholder appearing on the
books of the Company and such Warrantholder's Warrant shall
thereafter be null and void with respect to the portion of the
Warrant so exercised. "Warrant Registration Statement" shall
mean a registration statement filed by the Company under the
Securities Act registering the sale by the initial purchasers
and Permitted Transferees (as defined in the Purchase
Agreement) of the Warrants and the shares of Common Stock
issuable upon exercise of this Warrant, in accordance with
Section 5.10 of the Purchase Agreement.
(C) Replacement of Warrant. If the exercising (or selling, as the
case may be) Warrantholder does not exercise (or sell, as the
case may be) this Warrant in its entirety, the Warrantholder
will be entitled to receive from the Company within a
reasonable time, not exceeding three (3) Business Days, a new
warrant in substantially identical form for the purchase of
that number of Shares equal to the difference between the
number of Shares subject to this Warrant and the number of
Shares as to which this Warrant is so exercised (or sold, as
the case may be); provided, however, that if the Warrantholder
is required to deliver this Warrant to the Company pursuant to
Section 3(B) and fails to do so, the Warrantholder shall not
be entitled to receive a new warrant from the Company until
the Warrantholder delivers this Warrant to the Company and
then only in respect of the portion of the Warrant not
exercised pursuant to Section 3(B).
4. Issuance of Shares; Authorization; Listing. Subject to the next
sentence, certificates for Shares issued upon exercise of this Warrant
will be issued in such name or names as the Warrantholder may designate
and will be delivered to such named Person or Persons within a
reasonable time, not to exceed three (3) Business Days after the date
on which this Warrant has been duly exercised in accordance with the
terms of this Warrant. In the event this Warrant is exercised prior to
the final determination of the Exercise Price and the number of shares
of Common Stock issuable upon exercise of this Warrant, such exercise
shall be effective when made but payment of the exercise price shall be
made and certificates for Shares shall be issued, three (3) Business
Days after final determination of the Exercise Price. The Company
hereby represents and warrants that any Shares issued upon the exercise
of this Warrant in accordance with the provisions of Section 3 will,
upon issuance and payment therefor, be duly and validly authorized and
issued, fully paid and nonassessable, free from all preemptive rights
and free from all taxes, liens, security interests and charges (other
than liens or charges created by or imposed upon the Warrantholder or
taxes in respect of any transfer occurring contemporaneously
therewith). The Company agrees that the Shares so issued will be deemed
to have been issued to the Warrantholder as of the close of business on
the date on which this Warrant and payment of the Exercise Price are
delivered to the Company in accordance with the terms of this Warrant,
notwithstanding that the stock transfer books of the Company may then
be closed or certificates representing such Shares may not be actually
delivered on such date. The Company will at all times reserve and keep
available, free from preemptive
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rights, out of its authorized but unissued Common Stock, solely for the
purpose of providing for the exercise of this Warrant, the aggregate
number of shares of Common Stock issuable upon exercise of this
Warrant. The Company will procure, at its sole expense, the listing of
the Shares, subject to issuance or notice of issuance on the principal
domestic stock exchange on which the Common Stock is then listed or
traded. The Company will take all commercially reasonable action as may
be necessary to ensure that the Shares may be issued without violation
of any applicable law or regulation or of any requirement of any
securities exchange on which the Shares are listed or traded.
5. No Fractional Shares or Scrip. No fractional Shares or scrip
representing fractional Shares shall be issued upon any exercise of
this Warrant. In lieu of any fractional Share to which the
Warrantholder would otherwise be entitled, the Warrantholder shall be
entitled to receive a cash payment equal to the Market Price per share
of Common Stock computed as of the trading day immediately preceding
the date the Warrant is presented for exercise, multiplied by such
fraction of a Share.
6. No Rights as Shareholders. This Warrant does not entitle the
Warrantholder to any voting rights or other rights as a shareholder of
the Company prior to the date of exercise hereof.
7. Charges, Taxes and Expenses. Issuance of certificates for shares of
Common Stock upon the exercise of this Warrant shall be made without
charge to the Warrantholder or such designated Persons for any issue or
transfer tax (other than taxes in respect of any transfer occurring
contemporaneously therewith or as a result of the holder being a
non-U.S. person) or other incidental expense in respect of the issuance
of such certificates, all of which taxes and expenses shall be paid by
the Company; provided, however, that the Company shall not be required
to pay any tax which may be payable in respect of any transfer involved
in the issuance or delivery of shares of Common Stock in a name other
than that of the Warrantholder or such designated Persons, and no such
issuance or delivery shall be made unless and until the person
requesting such issuance or delivery has paid to the Company the amount
of any such tax or has established, to the satisfaction of the Company,
that such tax has been paid.
8. Transfer/Assignment. This Warrant and any rights hereunder are not
transferable by the Warrantholder, in whole or in part, in the absence
of any effective registration statement related to this Warrant or an
opinion of counsel, satisfactory in form and substance to the Company,
that such registration is not required under the Securities Act and any
applicable state securities laws. Subject to compliance with the
preceding sentence, this Warrant and all rights hereunder are
transferable, in whole or in part, upon the books of the Company by the
registered holder hereof in person or by duly authorized attorney, and
a new warrant shall be made and delivered by the Company, of the same
tenor as this Warrant but registered in the name of the transferee,
upon surrender of this Warrant, duly endorsed, to the office or agency
of the Company described in Section 3. All expenses, taxes (other than
stock transfer taxes or taxes imposed because the transferee is a
non-U.S. Person) and other charges payable in connection with the
preparation, execution and delivery of the new warrants pursuant to
this Section 8 shall be paid by the Company. The restrictions imposed
by the first sentence of this Section 8 shall terminate as to the
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Warrant (i) when such security has been effectively registered under
the Securities Act and disposed of in accordance with the registration
statement covering such security, except with respect to securities
held following such disposition by Affiliates of the Company, or (ii)
when, in the opinion of counsel for the Company, such restrictions are
no longer required in order to achieve compliance with the Securities
Act.
9. Exchange and Registry of Warrant. This Warrant is exchangeable, upon
the surrender hereof by the Warrantholder at the office or agency of
the Company described in Section 3, for a new warrant or warrants of
like tenor representing the right to purchase in the aggregate a like
number of shares. The Company shall maintain at the office or agency
described in Section 3 a registry showing the name and address of the
Warrantholder as the registered holder of this Warrant. This Warrant
may be surrendered for exchange or exercise, in accordance with its
terms, at the office of the Company, and the Company shall be entitled
to rely in all respects, prior to written notice to the contrary, upon
such registry.
10. Loss, Theft, Destruction or Mutilation of Warrant. If this Warrant is
mutilated, lost, stolen or destroyed, the Company will issue and
deliver in substitution for and upon cancellation of the mutilated
Warrant, or in substitution for the Warrant lost, stolen or destroyed,
a new warrant or warrants of like tenor and representing an equivalent
right or interest, but only upon, in the case of a lost, stolen or
destroyed certificate, receipt of evidence satisfactory to the Company
of such loss, theft or destruction. If required by the Company, the
Warrantholder shall furnish an indemnity bond sufficient to protect the
Company from any out-of-pocket loss which it may suffer if a Warrant is
replaced. The Company may charge the Warrantholder for its reasonable
expenses in replacing a Warrant.
11. Saturdays, Sundays, Holidays, etc. If the last or appointed day for the
taking of any action or the expiration of any right required or granted
herein shall not be a Business Day, then such action may be taken or
such right may be exercised on the next succeeding day that is a
Business Day.
12. Rule 144 Information. The Company covenants that it will file the
reports required to be filed by it under the Securities Act and the
Exchange Act and the rules and regulations promulgated thereunder (or,
if the Company is not required to file such reports, it will, upon the
request of any Warrantholder, make publicly available such information
as is described in Rule 144(c)(2) under the Securities Act). Upon the
request of any Warrantholder, the Company will deliver to such
Warrantholder a written statement that it has complied with such
requirements.
13. Adjustments and Other Rights. The Exercise Price and the number of
Shares issuable upon exercise of this Warrant shall be subject to
adjustment from time to time as follows:
(A) Common Stock Issued at Less than Market Value. If the Company
issues or sells any Common Stock other than Excluded Stock
without consideration or for consideration per share less than
the Market Price of the Common Stock, as of the day of such
issuance or sale, the Exercise Price in effect immediately
prior to each
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such issuance or sale will immediately (except as provided
below) be reduced to the price determined by multiplying the
Exercise Price, in effect immediately prior to such issuance
or sale, by a fraction, (1) the numerator of which shall be
(x) the number of shares of Common Stock outstanding
immediately prior to such issuance or sale plus (y) the number
of shares of Common Stock which the aggregate consideration
received by the Company for the total number of such
additional shares of Common Stock so issued or sold would
purchase at the Market Price on the last trading day
immediately preceding such issuance or sale and (2) the
denominator of which shall be the number of shares of Common
Stock outstanding immediately after such issue or sale. In
such event, the number of shares of Common Stock issuable upon
the exercise of this Warrant shall be increased to the number
obtained by dividing (i) the product of (a) the number of
Shares issuable upon the exercise of this Warrant before such
adjustment, and (b) the Exercise Price in effect immediately
prior to the issuance giving rise to this adjustment by (ii)
the new Exercise Price determined in accordance with the
immediately preceding sentence. For the purposes of any
adjustment of the Exercise Price and the number of Shares
issuable upon exercise of this Warrant pursuant to this
Section 13(A), the following provisions shall be applicable:
(i) In the case of the issuance of Common Stock for cash, the
amount of the consideration received by the Company shall be
deemed to be the amount of the cash proceeds received by the
Company for such Common Stock before deducting therefrom any
discounts or commissions allowed, paid or incurred by the
Company for any underwriting or otherwise in connection with
the issuance and sale thereof.
(ii) In the case of the issuance of Common Stock (otherwise than
upon the conversion of shares of Capital Stock or other
securities of the Company) for a consideration in whole or in
part other than cash, including securities acquired in
exchange therefor (other than securities by their terms so
exchangeable), the consideration other than cash shall be
deemed to be the fair value thereof as determined by the
Board, provided, however, that such fair value as determined
by the Board shall not exceed the aggregate Market Price of
the shares of Common Stock being issued as of the date the
Board authorizes the issuance of such shares.
(iii) In the case of the issuance of (a) options, warrants or other
rights to purchase or acquire Common Stock (whether or not at
the time exercisable) or (b) securities by their terms
convertible into or exchangeable for Common Stock (whether or
not at the time so convertible or exchangeable) or options,
warrants or rights to purchase such convertible or
exchangeable securities (whether or not at the time
exercisable):
(a) the aggregate maximum number of shares of Common Stock
deliverable upon exercise of such options, warrants or other
rights to purchase or acquire Common Stock shall be deemed to
have been issued at the time such options, warrants or rights
are issued and for a consideration equal to the consideration
(determined in the manner provided in Section 13(A)(i) and
(ii)), if any, received by the Com-
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pany upon the issuance of such options, warrants or rights
plus the minimum purchase price provided in such options,
warrants or rights for the Common Stock covered thereby;
(b) the aggregate maximum number of shares of Common Stock
deliverable upon conversion of or in exchange for any such
convertible or exchangeable securities, or upon the exercise
of options, warrants or other rights to purchase or acquire
such convertible or exchangeable securities and the subsequent
conversion or exchange thereof, shall be deemed to have been
issued at the time such securities were issued or such
options, warrants or rights were issued and for a
consideration equal to the consideration, if any, received by
the Company for any such securities and related options,
warrants or rights (excluding any cash received on account of
accrued interest or accrued dividends), plus the additional
consideration (determined in the manner provided in Section
13(A)(i) and (ii)), if any, to be received by the Company upon
the conversion or exchange of such securities, or upon the
exercise of any related options, warrants or rights to
purchase or acquire such convertible or exchangeable
securities and the subsequent conversion or exchange thereof;
(c) on any change in the number of shares of Common Stock
deliverable upon exercise of any such options, warrants or
rights or conversion or exchange of such convertible or
exchangeable securities or any change in the consideration to
be received by the Company upon such exercise, conversion or
exchange, but excluding changes resulting from the
anti-dilution provisions thereof (to the extent comparable to
the anti-dilution provisions contained herein), the Exercise
Price and the number of Shares issuable upon exercise of this
Warrant as then in effect shall forthwith be readjusted to
such Exercise Price and number of Shares as would have been
obtained had an adjustment been made upon the issuance of such
options, warrants or rights not exercised prior to such
change, or of such convertible or exchangeable securities not
converted or exchanged prior to such change, upon the basis of
such change;
(d) on the expiration or cancellation of any such options,
warrants or rights (without exercise), or the termination of
the right to convert or exchange such convertible or
exchangeable securities (without exercise), if the Exercise
Price and the number of Shares issuable upon exercise of this
Warrant shall have been adjusted upon the issuance thereof,
the Exercise Price and the number of Shares issuable upon
exercise of this Warrant shall forthwith be readjusted to such
Exercise Price and number of Shares as would have been
obtained had an adjustment been made upon the issuance of such
options, warrants, rights or such convertible or exchangeable
securities on the basis of the issuance of only the number of
shares of Common Stock actually issued upon the exercise of
such options, warrants or rights, or upon the conversion or
exchange of such convertible or exchangeable securities; and
(e) if the Exercise Price and the number of Shares issuable upon
exercise of this Warrant shall have been adjusted upon the
issuance of any such options, warrants,
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rights or convertible or exchangeable securities, no further
adjustment of the Exercise Price and the number of Shares
issuable upon exercise of this Warrant shall be made for the
actual issuance of Common Stock upon the exercise, conversion
or exchange thereof.
(B) Stock Splits, Subdivisions, Reclassifications or Combinations.
If the Company shall (1) declare a dividend or make a
distribution on its Common Stock in shares of Common Stock,
(2) subdivide or reclassify the outstanding shares of Common
Stock into a greater number of shares, or (3) combine or
reclassify the outstanding Common Stock into a smaller number
of shares, the number of Shares issuable upon exercise of this
Warrant at the time of the record date for such dividend or
distribution or the effective date of such subdivision,
combination or reclassification shall be proportionately
adjusted so that the Warrantholder after such date shall be
entitled to purchase the number of shares of Common Stock
which such holder would have owned or been entitled to receive
after such date had this Warrant been exercised immediately
prior to such date. In such event, the Exercise Price in
effect at the time of the record date for such dividend or
distribution or the effective date of such subdivision,
combination or reclassification shall be adjusted to the
number obtained by dividing (i) the product of (a) the number
of Shares issuable upon the exercise of this Warrant before
such adjustment and (b) the Exercise Price in effect
immediately prior to the issuance giving rise to this
adjustment by (ii) the new number of Shares issuable upon
exercise of the Warrant determined pursuant to the immediately
preceding sentence.
(C) Other Distributions. In case the Company shall fix a record
date for the making of a distribution to all holders of shares
of its Common Stock (i) of shares of any class or of any
Person other than shares of the Company's Common Stock or (ii)
of evidence of indebtedness of the Company or any Subsidiary
or (iii) of assets (excluding Ordinary Cash Dividends, and
dividends or distributions referred to in Section 13(B)), or
(iv) of rights or warrants, in each such case the number of
Shares issuable upon exercise of this Warrant shall be
multiplied by a fraction, the numerator of which is the Market
Price per share of Common Stock on such record date and the
denominator of which is the Market Price per share of Common
Stock on such record date less the fair market value (as
reasonably determined by the Board, which amount shall be the
cash amount in the case of a distribution in cash) of said
shares or evidences of indebtedness or assets or rights or
warrants to be so distributed per share of Common Stock; such
adjustment shall take effect on the record date for such
distribution. In such event, the Exercise Price shall be
multiplied by a fraction, the numerator of which is the number
of Shares issuable upon the exercise of this Warrant before
such adjustment, and the denominator of which is the new
number of Shares issuable upon exercise of this Warrant
determined in accordance with the immediately preceding
sentence. Notwithstanding the foregoing, in the event that the
fair market value (as determined above) of the shares or
evidences of indebtedness or assets or rights or warrants to
be so distributed with respect to one share of Common Stock is
equal to or greater than the Market Price per share of Common
Stock on such record date, then proper provision shall be made
such that upon exercise of the Warrant, the holder shall
receive
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the amount and kind of such shares, assets, evidences of
indebtedness, rights or warrants such holders would have
received had such holders exercised this Warrant immediately
prior to such record date. In the event that such distribution
is not so made, the Exercise Price and the number of Shares
issuable upon exercise of this Warrant then in effect shall be
readjusted, effective as of the date when the Board determines
not to distribute such shares, evidences of indebtedness,
assets, rights or warrants, as the case may be, to the
Exercise Price that would then be in effect and the number of
Shares that would then be issuable upon exercise of this
Warrant if such record date had not been fixed.
(D) Certain Repurchases of Common Stock. In case the Company
effects a Pro Rata Repurchase of Common Stock, then the
Exercise Price shall be reduced to the price determined by
multiplying the Exercise Price in effect immediately prior to
the effective date of such Pro Rata Repurchase by a fraction
of which the numerator shall be (i) the product of (x) the
number of shares of Common Stock outstanding immediately
before such Pro Rata Repurchase and (y) the Market Price of a
share of Common Stock on the trading day immediately preceding
the first public announcement by the Company or any of its
Affiliates of the intent to effect such Pro Rata Repurchase,
minus (ii) the aggregate purchase price of the Pro Rata
Repurchase, and of which the denominator shall be the product
of (i) the number of shares of Common Stock outstanding
immediately prior to such Pro Rata Repurchase minus the number
of shares of Common Stock so repurchased and (ii) the Market
Price per share of Common Stock on the trading day immediately
preceding the first public announcement of such Pro Rata
Repurchase. In such event, the number of shares of Common
Stock issuable upon the exercise of this Warrant shall be
increased to the number obtained by dividing (i) the product
of (a) the number of Shares issuable upon the exercise of this
Warrant before such adjustment, and (b) the Exercise Price in
effect immediately prior to the Pro Rata Repurchase giving
rise to this adjustment by (ii) the new Exercise Price
determined in accordance with the immediately preceding
sentence.
(E) Business Combinations. In case of any Business Combination or
reclassification of Common Stock (other than a
reclassification of Common Stock referred to in Section
13(B)), any Shares issued or issuable upon exercise of this
Warrant after the date of such Business Combination or
reclassification will be exchangeable for the number of shares
of stock or other securities or property (including cash) to
which the Common Stock issuable (at the time of such Business
Combination or reclassification) upon exercise of this Warrant
immediately prior to such Business Combination or
reclassification would have been entitled upon such Business
Combination or reclassification; and in any such case, if
necessary, the provisions set forth herein with respect to the
rights and interests thereafter of the Warrantholder shall be
appropriately adjusted so as to be applicable, as nearly as
may reasonably be, to any shares of stock or other securities
or property thereafter deliverable on the exercise of this
Warrant. In determining the kind and amount of stock,
securities or the property receivable upon consummation of
such Business Combination or reclassification, if the holders
of Common Stock have the right to elect the kind or amount of
consideration receivable upon consummation of such
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Business Combination, then the Warrantholder shall have the
right to make a similar election upon exercise of this Warrant
with respect to the number of shares of stock or other
securities or property which the Warrantholder will receive
upon exercise of this Warrant.
(F) Successive Adjustments. Successive adjustments in the Exercise
Price and the number of shares of Common Stock issuable upon
exercise of this Warrant shall be made, without duplication,
whenever any event specified in Sections 13(A), (B), (C), (D)
and (E) shall occur.
(G) Rounding of Calculations; Minimum Adjustments. All
calculations under this Section 13 shall be made to the
nearest one-tenth (1/10th) of a cent or to the nearest
one-hundreth (1/100th) of a share, as the case may be. No
adjustment in the Exercise Price or the number of Shares into
which this Warrant is exercisable is required if the amount of
such adjustment would be less than $0.01 or one-tenth (1/10th)
of a share of Common Stock, as the case may be; provided,
however, that any adjustments which by reason of this Section
13(G) are not required to be made will be carried forward and
given effect in any subsequent adjustment.
(H) Timing of Issuance of Additional Common Stock Upon Certain
Adjustments. Notwithstanding the foregoing, in any case in
which the provisions of this Section 13 shall require that an
adjustment shall become effective immediately after a record
date for an event, the Company may defer until the occurrence
of such event (i) issuing to the Warrantholder of this Warrant
exercised after such record date and before the occurrence of
such event the additional shares of Common Stock issuable upon
such exercise by reason of the adjustment required by such
event over and above the shares of Common Stock issuable upon
such exercise before giving effect to such adjustment and (ii)
paying to such Warrantholder any amount of cash in lieu of a
fractional share of Common Stock; provided, however, that the
Company upon request shall deliver to such Warrantholder a due
bill or other appropriate instrument evidencing such
Warrantholder's right to receive such additional shares, and
such cash, upon the occurrence of the event requiring such
adjustment.
(I) Adjustment for Unspecified Actions. If the Company takes any
action affecting the Common Stock, other than action described
in this Section 13, which in the opinion of the Board would
materially adversely affect the exercise rights of the
Warrantholders, the Exercise Price for the Warrants and/or the
number of Shares received upon exercise of the Warrant may be
adjusted, to the extent permitted by law, in such manner, if
any, and at such time, as such Board may determine in good
faith to be equitable in the circumstances. Failure of the
Board to provide for any such adjustment prior to the
effective date of any such action by the Company affecting the
Common Stock will be evidence that the Board has determined
that it is equitable to make no adjustments in the
circumstances.
(J) Voluntary Adjustment by the Company. The Company may at its
option, at any time during the term of the Warrants, reduce
the then current Exercise Price or in-
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crease the number of Shares for which the Warrant may be
exercised to any amount deemed appropriate by the Board;
provided, however, that if the Company elects to make such
adjustment, such adjustment will remain in effect for at least
a 15-day period, after which time the Company may, at its
option, reinstate the Exercise Price or number of Shares in
effect prior to such reduction, subject to any interim
adjustments pursuant to this Section 13.
(K) Statement Regarding Adjustments. Whenever the Exercise Price
or the number of Shares into which this Warrant is exercisable
shall be adjusted as provided in this Section 13, the Company
shall forthwith file, at the principal office of the Company a
statement showing in reasonable detail the facts requiring
such adjustment and the Exercise Price that shall be in effect
and the number of Shares into which this Warrant shall be
exercisable after such adjustment and the Company shall also
cause a copy of such statement to be sent by mail, first class
postage prepaid, to each Warrantholder at the address
appearing in the Company's records.
(L) Notices. In the event that the Company shall give notice or
make a public announcement to the holders of Common Stock of
any action of the type described in this Section 13 (but only
if the action of the type described in this Section 13 would
result in an adjustment in the Exercise Price or the number of
Shares into which this Warrant is exercisable or a change in
the type of securities or property to be delivered upon
exercise of this Warrant), the Company shall, at the time of
such notice or announcement, and in the case of any action
which would require the fixing of a record date, at least 10
days prior to such record date, give notice to the
Warrantholder, in the manner set forth in Section 13(K), which
notice shall specify the record date, if any, with respect to
any such action and the approximate date on which such action
is to take place. Such notice shall also set forth the facts
with respect thereto as shall be reasonably necessary to
indicate the effect on the Exercise Price and the number, kind
or class of shares or other securities or property which shall
be deliverable upon exercise of this Warrant. Failure to give
such notice, or any defect therein, shall not affect the
legality or validity of any such action.
(M) Miscellaneous. Except as provided in Section 13, no adjustment
in respect of any dividends or other payments or distributions
made to Warrantholders of securities issuable upon exercise of
Warrants will be made during the term of a Warrant or upon the
exercise of a Warrant. In addition, notwithstanding any of the
foregoing, no such adjustment will be made for the issuance or
conversion of (a) any Securities (as defined in the Purchase
Agreement) or (b) any rights under the Rights Agreement or any
successor agreement unless such rights become exercisable (in
which case they will be deemed for purposes of this Warrant to
have been issued at the time they become exercisable).
(N) No Impairment. The Company will not, by amendment of its
Articles or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to
avoid the observance or performance of any of the terms to be
observed or performed hereunder
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by the Company, but will at all times in good faith assist in
the carrying out of all the provisions of this Warrant and in
taking of all such action as may be necessary or appropriate
in order to protect the rights of the Warrantholder.
14. Rights. Whenever the Company shall issue shares of Common Stock upon
exercise of this Warrant, the Company shall issue, together with each
such share of Common Stock, one right to purchase Series A Junior
Participating Preferred Stock, $1.00 par value per share, of the
Company (or other securities in lieu thereof) pursuant to the Rights
Agreement, or any similar rights issued to holders of Common Stock in
addition thereto or in the replacement therefor (such rights, together
with any additional or replacement rights, being collectively referred
to as the "Rights"), whether or not such Rights shall be exercisable at
such time, but only if such Rights are issued and outstanding and held
by the other holders of Common Stock (or evidenced by outstanding share
certificates representing Common Stock) at such time and have not
expired or been redeemed.
15. Merger or Consolidation of the Company. The Company will not merge or
consolidate into, or sell, transfer or lease all or substantially all
of its property to, any other corporation unless the successor,
transferee or lessee corporation, as the case may be (if not the
Company), (a) expressly assumes the due and punctual performance and
observance of each and every covenant and condition of this Warrant to
be performed and observed by the Company and (b) expressly agrees to
exchange, at the Warrantholder's option, this Warrant for a warrant or
warrants on such surviving corporation's common stock on terms
substantially similar to the terms under this Warrant.
16. GOVERNING LAW. THIS WARRANT SHALL BE BINDING UPON ANY SUCCESSORS OR
ASSIGNS OF THE COMPANY. THIS WARRANT SHALL CONSTITUTE A CONTRACT UNDER
THE LAWS OF THE STATE OF DELAWARE AND FOR ALL PURPOSES SHALL BE
CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF
DELAWARE, WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS PRINCIPLES.
17. Attorneys' Fees. A party in breach of this Warrant shall, on demand,
indemnify and hold harmless the other party for and against all
reasonable out-of-pocket expenses, including legal fees, incurred by
such other party by reason of the enforcement and protection of its
rights under this Warrant. The payment of such expenses is in addition
to any other relief to which such other party may be entitled.
18. Amendments. This Warrant may be amended and the observance of any term
of this Warrant may be waived only with the written consent of the
Company and the Warrantholder.
19. Notice. All notices hereunder shall be in writing and shall be
effective (a) on the day on which delivered if delivered personally or
transmitted by telex or telegram or telecopier with evidence of
receipt, (b) one Business Day after the date on which the same is
delivered to a nationally recognized overnight courier service with
evidence of receipt, or (c) five Business Days after the date on which
the same is deposited, postage prepaid, in the U.S. mail, sent by
certified or registered mail, return receipt requested, and addressed
to the party to be notified at the address indicated below for the
Company, or at the address
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for the Warrantholder set forth in the registry maintained by the
Company pursuant to Section 9, or at such other address and/or telecopy
or telex number and/or to the attention of such other person as the
Company or the Warrantholder may designate by ten-day advance written
notice.
20. Entire Agreement. This Warrant and the forms attached hereto contain
the entire agreement between the parties with respect to the subject
matter hereof and supersede all prior and contemporaneous arrangements
or undertakings with respect thereto.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by a duly authorized officer.
Dated: October ___, 2000
AVAYA INC.
By: __________________________________
Name:
Title:
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[FORM OF NOTICE OF EXERCISE]
Date: ______________
TO: Avaya Inc.
RE: Election to Subscribe for and Purchase Common Stock
The undersigned, pursuant to the provisions set forth in the attached
Warrant, hereby agrees to subscribe for and purchase the number of shares of the
Common Stock set forth below covered by such Warrant. The undersigned, in
accordance with Section 3 of the Warrant, hereby agrees to pay the aggregate
Exercise Price for such shares of Common Stock in the manner set forth below. A
new warrant evidencing the remaining shares of Common Stock covered by such
Warrant, but not yet subscribed for and purchased, should be issued in the name
set forth below. If the new warrant is being transferred, an opinion of counsel
is attached hereto with respect to the transfer of such warrant.
Number of Shares of Common Stock: ______________________________
Method of Payment of Exercise Price: ___________________________
Name and Address of Person to be
Issued New Warrant: ____________________________________________
____________________________________________
____________________________________________
____________________________________________
Holder: ______________________________
By: ___________________________________
Name: _________________________________
Title: ________________________________
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Exhibit C
Form of Cravath, Swaine & Moore Opinion
1. Based solely on a certificate from the Secretary of State
of the State of Delaware, the Company is a corporation validly existing and in
good standing under the laws of the State of Delaware.
2. Each of the Purchase Agreement and the Escrow Agreement has
been duly authorized, executed and delivered by the Company, and constitutes a
legal, valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms (subject to applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent transfer and other similar
laws relating or affecting creditors' rights generally from time to time in
effect and to general principles of equity, including, without limitation,
concepts of materiality, reasonableness, good faith and fair dealing, regardless
of whether considered in a proceeding in equity or at law). With respect to the
foregoing opinion, (i) insofar as provisions contained in the Registration
Rights Provisions provide for indemnification, the enforceability thereof may be
limited by public policy considerations, (ii) the availability of a decree for
specific performance or an injunction is subject to the discretion of the court
requested to issue any such decree or injunction and (iii) we express no opinion
as to the enforceability of Section 5.09 of the Purchase Agreement.
3. The Certificate of Designation has been duly authorized and
executed by the Company, and, based solely upon advice from Corporation Trust
Company, has been filed with the Secretary of State of the State of Delaware.
4. The Series B Preferred Shares have been duly and validly
authorized, and, when issued and delivered to and paid for by the Purchasers
pursuant to the Purchase Agreement, will be validly issued, fully paid, and
nonassessable.
5. The Warrants have been duly authorized, executed, issued
and delivered and, when delivered to and paid for by the Purchasers pursuant to
the Purchase Agreement, will constitute valid and legally binding obligations of
the Company.
6. The shares of Common Stock into which the Series B
Preferred Shares are convertible and for which the Warrants are exercisable have
been duly and validly authorized and, when issued and delivered upon conversion
of the Series B Preferred Shares, as contemplated in the Certificate of
Designation, or exercise of the Warrants will be validly issued, fully paid, and
nonassessable.
99
Exhibit D
Registration Rights Provisions
1. Suspension of Registration Statement. Anything in this
Agreement to the contrary notwithstanding, it is understood and agreed that the
Company shall not be required to keep any shelf registration effective or
useable for offers and sales of the Registrable Securities, file a post
effective amendment to a shelf registration statement or prospectus supplement
or to supplement or amend any registration statement, if (A) the Registration
Statement, any prospectus or prospectus supplement constituting a part thereof,
or any document incorporated by reference in any of the foregoing contains an
untrue statement of a material fact or omits to state any material fact required
to be stated therein or necessary to make the statements therein not misleading,
in the light of the circumstances under which they are made; (B) the Company is
in possession of material information that it deems advisable not to disclose in
a Registration Statement; (C) the Company has determined to proceed with a
public offering of its equity securities and, in the judgment of the managing
underwriter thereof or the Company (if such offering is not underwritten), sales
under the Registration Statement would have a material adverse effect on such
offering; or (D) the Company is engaged in any program for the purchase of
shares of its own Common Stock, unless such repurchase program and the requested
sale may proceed concurrently pursuant to an exemption under the Commission's
Regulation M or any other applicable exemption (it being understood that, to the
extent consistent with any such program, the Company will use commercially
reasonable efforts to make an exemption available to the beneficiaries of these
registration rights (the "Beneficiaries") or to otherwise open up a sufficient
window period under Regulation M to enable the Beneficiary to obtain the
liquidity it desires hereunder). The Company shall provide notice of any such
suspension to the Warburg Group Director, or if there is then no Warburg Group
Director, to Warburg and each Beneficiary in accordance with Section 8.03 of
this Agreement. Upon receipt by a Beneficiary of notice of an event of the kind
described in this Section 1, such Beneficiary shall forthwith discontinue such
Beneficiary's disposition of Registrable Securities until the Company has
provided notice that such disposition may continue and of any supplemented or
amended prospectus indicated in such notice. The Company agrees that any period
in which sales, transfers or dispositions must be discontinued as a result of a
given occurrence of a circumstance referred to in the preceding sentence shall
not exceed 60 days, and shall not exceed 120 days in the aggregate over any
12-month period.
2. Indemnification by the Company. The Company agrees to
indemnify and hold harmless each Beneficiary, its officers and directors, and
each person, if any, who
100
2
controls such Beneficiary, within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act, from and against any and all
losses, claims, damages and liabilities (including, without limitation, any
legal or other expenses reasonably incurred by such Beneficiary, any of its
officers or directors or any such controlling person in connection with
defending or investigating any such action or claim) caused by any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement or any prospectus relating to Registrable Securities (as
amended or supplemented if the Company shall have furnished any amendments or
supplements thereto) or any preliminary prospectus, or caused by any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, except insofar as such losses, claims,
damages or liabilities are caused by any such untrue statement or omission or
alleged untrue statement or omission based upon information furnished by such
Beneficiary or the plan of distribution furnished in writing to the Company by
or on behalf of such Beneficiary expressly for use therein; provided, however,
that the foregoing indemnity agreement with respect to any prospectus shall not
inure to the benefit of such Beneficiary if a copy of the most current
prospectus at the time of the delivery of the securities was made available to
such Beneficiary but was not provided by the Beneficiary or any Underwriter to
the buyer of such securities and such current prospectus would have cured the
defect giving rise to such loss, claim, damage or liability. The Company also
agrees to indemnify any Underwriters of any Registrable Securities, their
officers and directors and each person who controls such Underwriters on
substantially the same basis as that of the indemnification of Beneficiary
provided in this Section 2. As used throughout this Exhibit, "Underwriter" means
a securities dealer who purchases any Registrable Securities as principal and
not as part of such dealer's market-making activities.
3. Indemnification by Each Beneficiary. Each Beneficiary
agrees, severally and not jointly, to indemnify and hold harmless the Company,
its officers and directors, and each person, if any, who controls the Company
within the meaning of either Section 15 of the Securities Act or Section 20 of
the Exchange Act to the same extent as the foregoing indemnity from the Company
to such Beneficiary, but only with reference to information furnished by such
Beneficiary or the plan of distribution furnished in writing by or on behalf of
such Beneficiary expressly for use in the Registration Statement or any
prospectus relating to the
101
3
Registrable Securities, or any amendment or supplement thereto or any
preliminary prospectus. Each Beneficiary also agrees, severally and not jointly,
to indemnify and hold harmless any Underwriters of the Registrable Securities,
their officers and directors and each person who controls such Underwriters on
substantially the same basis as that of the indemnification of the Company
provided in this Section 3. Notwithstanding anything to the contrary contained
in this Exhibit, the obligations of any Beneficiary pursuant to this Section 3
shall not exceed the amount of proceeds received by such Beneficiary for the
relevant Registrable Securities.
4. Conduct of Indemnification Proceedings. In case any
proceeding (including any governmental investigation) shall be instituted
involving any person in respect of which indemnity may be sought pursuant to
Section 2 or 3 of this Exhibit, such person (the "Indemnified Party") shall
promptly notify the person against whom such indemnity may be sought (the
"Indemnifying Party") in writing and the Indemnifying Party, upon the request of
the Indemnified Party, shall retain counsel reasonably satisfactory to such
Indemnified Party to represent such Indemnified Party and any others the
Indemnifying Party may designate in such proceeding and shall pay the fees and
disbursements of such counsel related to such proceeding. In any such
proceeding, any Indemnified Party shall have the right to retain its own counsel
(which counsel shall be reasonably accountable to the Indemnifying Party), but
the fees and expenses of such counsel shall be at the expense of such
Indemnified Party unless (a) the Indemnifying Party and the Indemnified Party
shall have mutually agreed in writing to the retention of such counsel or (b)
the named parties to any such proceeding (including any impleaded parties)
include both the Indemnified Party and the Indemnifying Party and, in the
written opinion of counsel for the Indemnified Party, representation of both
parties by the same counsel would be inappropriate due to actual or potential
conflicts of interests between them. It is understood that the Indemnifying
Party shall not, in connection with any proceeding or related proceedings
involving one or more Indemnified Parties in the same jurisdiction, be liable
for the fees and expenses of more than one separate firm of attorneys (in
addition to any local counsel required under the circumstances) at any time for
all such Indemnified Parties, and that all such fees and expenses shall be
reimbursed as they are submitted in writing for payment. In the case of any such
separate firm for the Indemnified Parties, such firm shall be designated in
writing by the Indemnified Parties or, if the Indemnified Parties are
exclusively Beneficiaries, by Warburg. The
102
4
Indemnifying Party shall not be liable for any settlement of any proceeding
effected without its written consent, but if settled with such consent, or if
there be a final judgment for the plaintiff, the Indemnifying Party shall
indemnify and hold harmless such Indemnified Parties from and against any loss
or liability (to the extent stated above) by reason of such settlement or
judgment.
5. Contribution. If the indemnification provided for in this
Exhibit is unavailable to an Indemnified Party in respect of any losses, claims,
damages or liabilities referred to herein, then each such Indemnifying Party, in
lieu of indemnifying such Indemnified Party, shall contribute to the amount paid
or payable by such Indemnified Party as a result of such losses, claims, damages
or liabilities (a) in such proportion as is appropriate to reflect the relative
benefits received by the Company, Beneficiary and the Underwriters from the
offering of the securities, or (b) if the allocation provided by clause (a)
above is not permitted by applicable law, in such proportion as is appropriate
to reflect not only the relative benefits referred to in clause (a) above but
also the relative fault of the Company, such Beneficiary and the Underwriters in
connection with the statements or omissions that resulted in such losses,
claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative benefits received by the Company, such Beneficiary
and the Underwriters shall be deemed to be in the same respective proportions as
the total proceeds from the offering (net of underwriting discounts and
commissions but before deducting expenses) received by each of the Company and
such Beneficiary and the total underwriting discounts and commissions received
by the Underwriters, in each case as set forth in the table on the cover page of
the prospectus, bear to the aggregate public offering price of the securities.
The relative fault of the Company, such Beneficiary and the Underwriters shall
be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by such party and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
The Company and each Beneficiary agrees that it would not be
just and equitable if contribution pursuant to this Section 5 were determined by
pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation that does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
The amount paid or
103
5
payable by an Indemnified Party as a result of the losses, claims, damages or
liabilities referred to in the immediately preceding paragraph shall be deemed
to include, subject to the limitations set forth above, any legal or other
expenses reasonably incurred by such Indemnified Party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 5, no Underwriter shall be required to contribute any
amount in excess of the amount by which the total price at which the securities
underwritten by it and distributed to the public were offered to the public
exceeds the amount of any damages which such Underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission, and each Beneficiary shall not be required to contribute
any amount in excess of the amount by which the net proceeds of the offering
(before deducting expenses) received by such Beneficiary exceeds the amount of
any damages which such Beneficiary has otherwise been required to pay by reason
of such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
6. Survival. The indemnity and contribution agreements
contained in this Exhibit shall remain operative and in full force and effect
regardless of (a) any termination of this Agreement or any underwriting
agreement, (b) any investigation made by or on behalf of any Indemnified Person
or by or on behalf of the Company and (c) the consummation of the sale or
successive resales of the Registrable Securities.
7. Registration Expenses. In connection with the Registrable
Securities, the Company shall pay the following reasonable expenses incurred in
connection with such registration: (a) registration and filing fees with the
Commission, (b) fees and expenses of compliance with securities or blue sky laws
(including reasonable fees and disbursements of counsel in connection with blue
sky qualifications of the Registrable Securities), (c) printing expenses, (d)
fees and expenses incurred in connection with the listing of the Registrable
Securities on the stock exchanges, if any, on which the applicable class of
Registrable Securities is then listed or, if such class of Registrable
Securities is not then listed, on the principal national stock exchange on which
the Common Stock is then listed, (e) fees and expenses of counsel and
independent certified public accountants for the Company (including the
104
6
expenses of any comfort letters reasonably required by any Underwriters), (f)
the fees and expenses of any additional experts retained by the Company in
connection with such registration and (g) fees and expenses in connection with
any review of underwriting arrangements by the National Association of
Securities Dealers, Inc. Each Beneficiary shall pay any underwriting fees,
discounts or commissions attributable to the sale of Registrable Securities by
it and any out-of-pocket expenses of such Beneficiary, including its counsel
fees, accountant fees and expenses. The Company shall pay internal Company
expenses (including, without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties).
1
EXHIBIT 21
LIST OF SUBSIDIARIES
<TABLE>
<CAPTION>
NAME OF ENTITY PLACE OF INCORP.
-------------- ----------------
<S> <C>
Avaya Argentina Ltda. Argentina
Avaya Australia Pty. Ltd. Australia
Avaya Communication GmbH Austria
Avaya Middle East W.L.L. Bahrain
Avaya Foreign Sales Corp. Barbados
Avaya Belgium S.A./N.V. Belgium
Avaya Brasil Ltda. Brazil
Avaya Canada Corp. Canada
Soundlogic Acquisition ULC Canada
Avaya Chile Ltda. Chile
Lucent EN Columbia Colombia
(Name change pending)
Lucent Technologies Business Colombia
Communications Systems
Colombia S.A.
Avaya s.r.o. Czech Republic
Avaya Denmark ApS Denmark
Avaya EMEA Ltd.-Egypt Rep. Delaware
Office
Avaya Communications S.A. France
Avaya Deutschland GmbH Germany
Octel Communications GmbH Germany
Avaya EMEA Ltd.-Greek Branch Delaware
Avaya Hong Kong Company Ltd. Hong Kong
</TABLE>
2
<TABLE>
<CAPTION>
NAME OF ENTITY PLACE OF INCORP.
-------------- ----------------
<S> <C>
Avaya Hungary Ltd./AVAYA Hungary
Hungary Communication
Limited Liability
Company
Avaya India Pvt. Limited India
TATA Telecom Ltd. India
P.T. Avaya Indonesia Indonesia
Avaya Capital Ireland Ireland
Lucent Technologies GCM Ireland
Sales Limited (Name change pending)
Avaya Ireland Ltd. Ireland
Avaya Communication Israel Israel
Ltd.
Octel Communications Israel
(Israel) Ltd.
Avaya Communication Italia Italy
S.p.A.
Avaya Japan Ltd. Japan
Avaya Nederland B.V.- Netherlands
Kazakhstan Rep. Office
Avaya Korea Ltd. Korea
Avaya Nederland B.V.- Netherlands
Lithuania Rep. Office
Avaya (Malaysia) Sdn. Bhd. Malaysia
Lucent Technologies BCS de Mexico
Mexico, S.A. de C.V.
(Name change pending)
Octel Communications Latin Mexico
America, S.A. de C.V.
(Mexico)
Avaya Nederland B.V. Netherlands
Avaya Holding EMEA B.V. Netherlands
Avaya (Beijing) Enterprise People's Republic of China
</TABLE>
3
<TABLE>
<CAPTION>
NAME OF ENTITY PLACE OF INCORP.
-------------- ----------------
<S> <C>
Networking Co., Ltd.
Avaya Tianjin Cable Company, People's Republic of China
Ltd.
Avaya Panama Ltda. Panama
Avaya Peru Ltda. Peru
Avaya Philippines Inc. Philippines
Avaya Poland Sp. z.o.o. Poland
Avaya Puerto Rico, Inc. Puerto Rico
ZAO Avaya Russian Federation
Avaya Nederland B.V.-Russia Netherlands
Rep. Office
Avaya EMEA Ltd.-Saudi Arabia Deleware
Branch
Avaya Singapore Pte. Ltd. Singapore
Avaya Slovensko s.r.o. Slovak Republic
Maquinas de Comunicaciones Spain
S.L.
Avaya Sweden AB Sweden
Avaya Switzerland AG Switzerland
Avaya Asia Pacific Inc. Delaware
(Taiwan Branch)
Avaya Asia Pacific Inc. Delaware
(Thailand Branch)
Avaya Nederland B.V.-Turkish Netherlands
Rep. Office
Avaya Nederland B.V.-U.A.E. Netherlands
Rep. Office
Avaya Nederland B.V.-Ukraine Netherlands
Rep. Office
Avaya UK Holdings Ltd. UK
Avaya UK Ltd. UK
Lucent Technologies NEW ECS UK
Ltd. (Name change pending)
</TABLE>
4
<TABLE>
<CAPTION>
NAME OF ENTITY PLACE OF INCORP.
--------------- ----------------
<S> <C>
Ltd. (Pending)
Mosaix Ltd. UK
Lucent Technologies ECS plc. UK
(Name change pending)
Network Alchemy Ltd. UK
FirstChoice CTI Ltd. UK
SDX Systemcare UK
Telecom Tecq. Ltc. UK
Objective Communications UK
Ltd.
Avaya Asia Pacific Inc. Delaware
Avaya CALA Inc. Delaware
Avaya EMEA Ltd. Delaware
Avaya Inc. Delaware
Avaya Holdings Corp. Delaware
Avaya Holdings LLC Delaware
Avaya International LLC Delaware
Avaya Management Services Delaware
Inc.
Avaya Realty Inc. New Jersey
Avaya Technology Corp. Delaware
Avaya Venture Partners Inc. Delaware
Avaya World Services Inc. Delaware
Octel Communications Delaware
Corporation
Mosaix, Inc. Washington
Avaya Venezuela S.A. Venezuela
Business Equipment Insurance Company Vermont
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the audited
combined balance sheet of Avaya Inc. at September 30, 1999 and the audited
combined statement of income for the year ended September 30, 1999 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> SEP-30-1999
<CASH> 194
<SECURITIES> 0
<RECEIVABLES> 1,823
<ALLOWANCES> 58
<INVENTORY> 824
<CURRENT-ASSETS> 3,043
<PP&E> 1,380
<DEPRECIATION> 704
<TOTAL-ASSETS> 4,239
<CURRENT-LIABILITIES> 1,597
<BONDS> 5
<PREFERRED-MANDATORY> 0
<PREFERRED> 0
<COMMON> 0
<OTHER-SE> 1,817
<TOTAL-LIABILITY-AND-EQUITY> 4,239
<SALES> 8,268
<TOTAL-REVENUES> 8,268
<CGS> 3,579
<TOTAL-COSTS> 4,564
<OTHER-EXPENSES> 540
<LOSS-PROVISION> 25
<INTEREST-EXPENSE> 90
<INCOME-PRETAX> 307
<INCOME-TAX> 121
<INCOME-CONTINUING> 186
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 96
<NET-INCOME> 282
<EPS-BASIC> 0.00
<EPS-DILUTED> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited combined balance sheet of Avaya Inc. at June 30, 2000 and the
unaudited combined statement of income for the nine month period ended June 30,
2000 and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> Jun-30-2000
<CASH> 217
<SECURITIES> 0
<RECEIVABLES> 1,660
<ALLOWANCES> 72
<INVENTORY> 736
<CURRENT-ASSETS> 2,763
<PP&E> 1,481
<DEPRECIATION> 754
<TOTAL-ASSETS> 4,076
<CURRENT-LIABILITIES> 1,533
<BONDS> 0
<PREFERRED-MANDATORY> 0
<PREFERRED> 0
<COMMON> 0
<OTHER-SE> 1,796
<TOTAL-LIABILITY-AND-EQUITY> 4,076
<SALES> 5,664
<TOTAL-REVENUES> 5,664
<CGS> 2,418
<TOTAL-COSTS> 3,152
<OTHER-EXPENSES> 350
<LOSS-PROVISION> 43
<INTEREST-EXPENSE> 59
<INCOME-PRETAX> 277
<INCOME-TAX> 109
<INCOME-CONTINUING> 168
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 168
<EPS-BASIC> 0.00
<EPS-DILUTED> 0.00
</TABLE>
1
LUCENT TECHNOLOGIES INC.
600 MOUNTAIN AVENUE
MURRAY HILL, NJ 07974
September , 2000
Dear Shareowner:
I am pleased to report that the previously announced spinoff of Lucent's
enterprise communications businesses is expected to become effective on
September 30, 2000. Avaya Inc., a recently formed Delaware corporation that will
own all these enterprise communications businesses, will commence operation on
that day as an independent public company. Avaya's shares of common stock will
be listed on the New York Stock Exchange under the symbol "AV."
Holders of record of Lucent common stock as of the close of business on
, 2000, which will be the record date, will receive one share
of Avaya common stock for every shares of Lucent common stock held.
No action is required on your part to receive your Avaya shares. You will not be
required either to pay anything for the new shares or to surrender any shares of
Lucent common stock.
No fractional shares of Avaya common stock will be issued. If you otherwise
would be entitled to a fractional share you will receive a check for the cash
value thereof, which may be taxable to you. In due course you will be provided
with information to enable you to compute your tax bases in both Lucent and
Avaya common stock. Lucent has received a ruling from the Internal Revenue
Service to the effect that, for U.S. Federal income tax purposes, the
distribution of Avaya common stock is tax-free to Lucent and to you to the
extent that you receive Avaya common stock.
The enclosed information statement describes the distribution of shares of
Avaya common stock and contains important information about Avaya, including
financial statements. I suggest that you read it carefully. If you have any
questions regarding the distribution, please contact Lucent's transfer agent,
The Bank of New York, telephone (888) 582-3686 or +1 (908) 769-9611
(International), TDD or TTY: 1-800-711-7072, or send an e-mail to The Bank of
New York at lu-shareholders-svcs@email.bony.com.
Sincerely,
RICHARD A. MCGINN
Chairman and Chief Executive Officer
2
[Logo]
INFORMATION STATEMENT
AVAYA INC.
DISTRIBUTION OF APPROXIMATELY SHARES OF COMMON STOCK
This information statement is being furnished in connection with the
distribution by Lucent Technologies Inc. to holders of its common stock of all
the outstanding shares of Avaya Inc. common stock. Lucent has transferred or
will transfer to us its enterprise communications businesses described in this
information statement.
Shares of our common stock will be distributed to holders of Lucent common
stock of record as of the close of business on , 2000, which will be
the record date. Each such holder will receive one share of our common stock for
every shares of Lucent common stock held on the record date. The
distribution will be effective at 11:59 p.m. on September 30, 2000. Shareowners
will receive cash in lieu of fractional shares, which may be taxable.
No shareowner approval of the distribution is required or sought. We are
not asking you for a proxy and you are requested not to send us a proxy. Lucent
shareowners will not be required to pay for the shares of our common stock to be
received by them in the distribution, or to surrender or to exchange shares of
Lucent common stock in order to receive our common stock, or to take any other
action in connection with the distribution. Each share of our common stock
distributed will be accompanied by one preferred stock purchase right. There is
no current trading market for our common stock. We will apply to list our common
stock on the New York Stock Exchange under the symbol "AV."
IN REVIEWING THIS INFORMATION STATEMENT, YOU SHOULD CAREFULLY CONSIDER THE
MATTERS DESCRIBED UNDER THE CAPTION "RISK FACTORS" ON PAGES 14.
------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS
INFORMATION STATEMENT IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
------------------------
THIS INFORMATION STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES.
------------------------
Shareowners of Lucent with inquiries related to the distribution should
contact Lucent's transfer agent, The Bank of New York, P.O. Box 11009, Church
Street, New York, New York 10286-1009, telephone (888) 582-3686 or +1 (908)
769-9611 (International), TDD or TTY 1-800-711-7072, or send an e-mail to The
Bank of New York at lu-shareholders-svcs@email.bony.com.
The date of this information statement is , 2000.
3
INFORMATION STATEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary..................................................... 1
The Distribution............................................ 8
Risk Factors................................................ 14
Forward Looking Statements.................................. 24
Dividend Policy............................................. 25
Capitalization.............................................. 26
Selected Financial Information.............................. 28
Unaudited Pro Forma Condensed Financial Statements.......... 29
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 35
Business.................................................... 51
Relationship Between Lucent and Our Company After the
Distribution.............................................. 81
Management.................................................. 92
Ownership of Our Common Stock............................... 103
Description of Capital Stock................................ 105
Related Transactions and Equity Investment.................. 115
Shares Eligible for Future Sale............................. 117
Indemnification of Directors and Officers................... 118
Available Information....................................... 120
Index to Combined Financial Statements...................... F-1
</TABLE>
i
4
SUMMARY
The following is a summary of some of the information contained in this
information statement. In addition to this summary, we urge you to read the
entire information statement carefully, especially the risks of investing in our
common stock discussed under "Risk Factors" and our financial statements.
We describe in this information statement the businesses to be contributed
to us by Lucent Technologies Inc. immediately prior to the distribution,
described under "-- The Distribution," as if they were our businesses for all
historical periods described. Following the distribution, we will be an
independent public company, and Lucent will have no continuing stock ownership
in us. Accordingly, our historical financial results as part of Lucent contained
herein may not reflect our financial results in the future as an independent
company or what our financial results would have been had we been a stand-alone
company during the periods presented.
OUR COMPANY
We are a leading provider of communications systems and software for
enterprises, including businesses, government agencies and other organizations.
We offer voice, converged voice and data, customer relationship management,
messaging, multi-service networking and structured cabling products and
services. Multi-service networking products are products that support network
infrastructures which carry voice, video and data traffic over any of the
protocols, or sets of procedures, supported by the Internet on local area and
wide area data networks. A structured cabling system is a flexible cabling
system designed to connect phones, workstations, personal computers, local area
networks and other communications devices within a building or across one or
more campuses.
We are a worldwide leader in sales of messaging and structured cabling
systems and a U.S. leader in sales of enterprise voice communications and call
center systems. We are not a leader in multi-service networking products or in
converged voice and data products. We have entered these product areas
relatively recently, and our product portfolio is less complete than the
portfolios of some of our competitors. We are implementing a strategy focused on
these products. Our broad customer base includes approximately 78% of the
Fortune 500 companies. In fiscal 1999, we had revenue of approximately $8.3
billion and net income of approximately $300 million.
We support our customers with comprehensive global service offerings,
including remote diagnostics testing of our advanced systems, installation of
our products, on-site repair and maintenance. We believe our global service
organization is an important consideration for customers purchasing our systems
and software and is a source of significant revenue for us, primarily from
maintenance contracts. We also offer professional services for customer
relationship management and value-added services for the outsourcing of
messaging and other portions of an enterprise's communications system.
We intend to use our leadership positions in enterprise communications
systems and software, our broad portfolio of products and services and strategic
alliances with other technology and consulting services leaders to offer our
customers comprehensive eBusiness communications solutions. By eBusiness, we
mean the internal and external use of communications tools and electronic
networks to interact, collaborate and transact business with an enterprise's
customers, suppliers, partners and employees.
We have historically operated as part of Lucent. In connection with our
separation from Lucent, we are engaging in a comprehensive review of our
operations, including our organizational structure, products and services and
market segments. Based on this review, we expect to begin implementing a
company-wide restructuring in the fourth quarter of fiscal 2000, with a view
toward improving our profitability and business performance as a stand-alone
company. After our restructuring plan is finalized and approved by our board of
directors, we expect to record charges in connection with this plan of $700
million to $800 million in the fourth quarter of fiscal 2000. In addition, we
expect to incur one time expenses in the fourth
1
5
quarter of fiscal 2000 in connection with our separation from Lucent in the
range of $100 million to $150 million. As a result of our restructuring plan and
strategic initiatives, we intend to:
- reduce our costs of products and services;
- reduce our corporate overhead expenses;
- increase our investment in research and development;
- implement a tax strategy tailored to our operations as a stand-alone
company; and
- increase our revenue growth by focusing our sales and product development
efforts on the higher growth segments of our market.
Lucent was formed from the systems and technology units that were formerly
a part of AT&T Corp. and the research and development capabilities of Bell
Laboratories. On September 30, 1996, Lucent became independent of AT&T when AT&T
distributed all its Lucent shares to its shareowners in a tax-free spinoff.
Lucent, as a whole, designs, develops and manufactures communications systems,
software and products for enterprises, service providers and equipment
manufacturers.
Through this distribution, Lucent is spinning off its businesses primarily
focused on enterprise communications, which are the businesses described in this
information statement as our businesses. In fiscal year 1999, our businesses
accounted for approximately 11% of Lucent's assets, 6% of Lucent's net income
and 21% of Lucent's total revenue. Our businesses have exhibited different
growth characteristics, customers, distribution channels and technological
evolution than Lucent's other businesses which focused on service providers and
equipment manufacturers. Those differences are expected to continue in the
future. In particular, our traditional business, enterprise voice communications
systems, is characterized by a relatively low industry growth rate, as compared
to the pace of growth of the overall communications market. The market segments
addressed by Lucent's businesses focused on service providers and equipment
manufacturers are growing at significantly higher rates than the market segments
of our traditional business. The separation will allow us to focus greater
management attention and resources on opportunities for our businesses in the
communications market, including opportunities in higher growth market areas,
and to focus on better managing our cost structure. Lucent will similarly
benefit by being able to focus on its retained businesses and its growth
opportunities.
STRATEGY
Our objective is to become the leading worldwide provider of communications
solutions for enterprises operating in the rapidly changing eBusiness
environment. To accomplish this goal, we are pursuing the following three major
strategies:
- improving our profitability and business performance by using the
opportunities we believe are available to us as a stand-alone company;
- capitalizing on near-term revenue growth opportunities in international
sales, distribution and customer relationship management products and
services; and
- positioning ourselves to capitalize on long-term growth opportunities by
focusing on advanced enterprise communications products that support
eBusiness solutions, which we believe are the high growth areas of our
market.
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THE DISTRIBUTION
Please see "The Distribution" for a more detailed description of the
matters described below.
DISTRIBUTING COMPANY Lucent Technologies Inc., one of the world's
leading designers, developers and manufacturers of
communications systems, software and products.
Lucent currently operates in three major business
segments: service provider networks, enterprise
networks and microelectronics and communications
technologies.
DISTRIBUTED COMPANY Avaya Inc., which will own the enterprise
communications businesses formerly conducted by
Lucent and described in this information statement.
Please see "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and
"Business" for a description of these businesses.
DISTRIBUTION RATIO Each holder of Lucent common stock will receive a
dividend of one share of our common stock, and the
associated preferred stock purchase right, for
every shares of Lucent common stock held
on the record date.
SECURITIES TO BE
DISTRIBUTED Based on 3,339,511,932 shares of Lucent common
stock outstanding on June 30, 2000, approximately
shares of our common stock, together with
the associated preferred stock purchase rights,
will be distributed. The shares of our common stock
to be distributed will constitute all of the
outstanding shares of our common stock immediately
after the distribution. Lucent shareowners will not
be required to pay for the shares of our common
stock to be received by them in the distribution,
or to surrender or exchange shares of Lucent common
stock in order to receive our common stock, or to
take any other action in connection with the
distribution.
FRACTIONAL SHARES Fractional shares of our common stock will not be
distributed. Fractional shares will be aggregated
and sold in the public market by the distribution
agent. The aggregate net cash proceeds of these
sales will be distributed ratably to those
shareowners who would otherwise have received
fractional interests. These proceeds may be taxable
to those shareowners.
DISTRIBUTION AGENT,
TRANSFER AGENT AND
REGISTRAR FOR THE SHARES The Bank of New York will be the distribution
agent, transfer agent and registrar for the shares
of our common stock.
RECORD DATE The record date is the close of business on
, 2000.
DISTRIBUTION DATE 11:59 p.m. on September 30, 2000.
FEDERAL INCOME TAX
CONSEQUENCES OF THE
DISTRIBUTION Lucent has received a ruling from the Internal
Revenue Service to the effect that the distribution
will qualify as a tax-free transaction under
Sections 355 and 368(a)(1)(D) of the Internal
Revenue Code of 1986, as amended.
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STOCK EXCHANGE LISTING There is not currently a public market for our
common stock. We will apply for our common stock to
be listed on the New York Stock Exchange under the
symbol "AV." If such application is approved, it is
anticipated that trading will commence on a
when-issued basis prior to the distribution. When
issued trading refers to a transaction made
conditionally because the security has been
authorized but not yet issued. On the first trading
day following the distribution date, when-issued
trading in respect of our common stock will end and
regular-way trading will begin. Regular way trading
refers to trading after a security has been issued
and typically involves a transaction that settles
on the third full business day following the date
of a transaction. We cannot predict the trading
prices for our common stock before or after the
distribution date, however, we believe the presence
of a when-issued trading market prior to the
distribution may have a stabilizing effect on the
price of our common stock following the
distribution.
ASSUMPTION OF LUCENT
COMMERCIAL PAPER PROGRAM Prior to the distribution, Lucent intends to issue
$700 million of short-term debt under a commercial
paper program, which will be assumed by us at the
distribution date. The $700 million of debt we will
assume from Lucent represents the portion of
Lucent's liabilities that Lucent has determined
should be attributed to our businesses. We may
assume additional debt under the commercial paper
program to the extent additional debt is incurred
by Lucent under the program to fund restructuring
or separation costs and expenses that we may incur
prior to the distribution. We may also assume
additional debt under the program for our working
capital if there is a substantial increase in our
working capital over our current plan prior to the
distribution. We also will assume Lucent's
obligations under two related revolving credit
facilities. Upon the distribution, Lucent will be
relieved of all obligations under the program.
Accordingly, upon the distribution, we will become
obligated to satisfy all payments and other terms
of this commercial paper program and the related
revolving credit facilities.
RELATIONSHIP BETWEEN LUCENT
AND US AFTER THE
DISTRIBUTION Following the distribution, we will be an
independent public company, and Lucent will have no
continuing stock ownership interest in us. Prior to
the distribution, we and Lucent will enter into a
Contribution and Distribution Agreement and several
ancillary agreements for the purpose of
accomplishing the contribution of Lucent's
enterprise communications businesses to us and the
distribution of our common stock to Lucent's
shareowners. These agreements also will govern our
relationship with Lucent subsequent to the
distribution and provide for the allocation of
employee benefit, tax and some other liabilities
and obligations attributable to periods prior to
the distribution. These agreements also include
arrangements with respect to intellectual property,
interim services and a number of on-going
commercial relationships, including product supply
arrangements. The Contribution and Distribution
Agreement includes an agreement that we generally
will indemnify Lucent against liabilities arising
out of its enterprise communications businesses
being transferred to us and that Lucent generally
will indemnify us against liabilities arising out
of Lucent's
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retained businesses. Please see "Relationship
Between Lucent and Our ]Company After the
Distribution" for a more detailed description of
these agreements.
POST-DISTRIBUTION DIVIDEND
POLICY We do not anticipate paying any dividends on our
common stock in the foreseeable future. The payment
and amount of dividends by us after the
distribution, however, will be subject to the
discretion of our board of directors.
ANTI-TAKEOVER EFFECTS Under the terms of the Contribution and
Distribution Agreement, if a change of control of
us occurs prior to the third anniversary of the
date of the distribution, Lucent could terminate or
cause us to reconvey some of the rights, including
important intellectual property rights, granted
under the agreements which we are entering into
with Lucent. This may discourage a change of
control transaction during that period. In
addition, some provisions of our certificate of
incorporation and by-laws, as each will be in
effect following the distribution, may have the
effect of making more difficult an acquisition of
control of us in a transaction not approved by our
board of directors. Our rights agreement also will
make more difficult an acquisition of control of us
in a transaction not approved by our board of
directors.
RISK FACTORS Shareowners should carefully consider the matters
discussed under "Risk Factors."
OUR PRINCIPAL EXECUTIVE
OFFICES 211 Mount Airy Road
Basking Ridge, NJ 07920
(908) 953-6000
RECENT DEVELOPMENT
On August 8, 2000, we entered into an agreement to sell 4,000,000 shares of
Series B convertible participating preferred stock and warrants to purchase
shares of our common stock to Warburg, Pincus Equity Partners, L.P. and several
related investment funds for a total of $400 million. Based on an agreed
formula, the Series B convertible participating preferred stock is expected to
be initially convertible into approximately 5.0% of our fully diluted common
stock, calculated using a modified treasury stock method as of the 90th day
after issuance. The warrants have an exercise price equal to 130% of the
conversion price for the Series B convertible participating preferred stock. The
warrants are exercisable for 3.6% of a total number of shares of common stock to
be calculated pursuant to an agreed upon formula as of the 90th day after
issuance. As long as these investors and their permitted transferees maintain
ownership of a combination of shares of common stock and Series B convertible
participating preferred stock that, in the aggregate, on an as-converted basis,
represent at least 50% of the shares of our common stock initially issuable on
conversion of all the shares of Series B convertible participating preferred
stock purchased, the investors will be entitled to designate for election one
individual to our board of directors and to have one observer attend meetings of
our board of directors. The closing of the investment is subject to a number of
conditions and we cannot assure you that the investment will be consummated. For
a more detailed description of this equity investment, please see "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and "Related Transactions and
Equity Investment."
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SUMMARY HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
The following table sets forth our summary historical and pro forma
financial information derived from our audited combined financial statements for
the fiscal years ended and as of September 30, 1997, 1998 and 1999, our
unaudited interim combined financial statements for the nine months ended and as
of June 30, 2000, and our unaudited pro forma condensed financial statements
included elsewhere in this information statement. Such summary financial
information may not be indicative of our future performance as an independent
company. In our opinion, all adjustments, which consist only of normal and
recurring accruals, considered necessary for a fair presentation have been
included in our unaudited combined financial statements. The unaudited pro forma
combined financial statements were prepared as if the distribution and related
transactions had occurred as of June 30, 2000 for the unaudited pro forma
condensed balance sheet, and as of October 1, 1998, for the unaudited pro forma
condensed statements of income. Our fiscal year ends on September 30 each year.
The summary financial information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," the unaudited pro forma condensed financial statements and the
notes thereto and the combined financial statements and the notes thereto
included elsewhere in this information statement.
The pro forma statements of income give pro forma effect to the assumption
by us from Lucent of $700 million of short-term debt under a commercial paper
program that Lucent will enter into prior to the distribution, including the
associated interest expense. We may assume additional debt under the commercial
paper program to the extent additional debt is incurred by Lucent under the
program to fund restructuring or separation costs and expenses that we may incur
prior to the distribution. We may also assume additional debt under the program
for our working capital if there is a substantial increase in our working
capital over our current plan prior to the distribution. Upon the distribution,
Lucent will be relieved of all obligations under the program. In addition, we
currently anticipate requiring approximately $700 million of additional
financing over the next eight months to fund costs and expenses in connection
with the planned restructuring and separation, including the portion of these
costs and expenses that we may incur prior to the distribution. We have not yet
finalized the type of this additional financing. After the distribution, we may
refinance all or a part of the commercial paper program with long-term or other
short-term debt.
The pro forma balance sheet includes the impact of the estimated net assets
and deferred taxes we will receive in connection with Lucent's prepaid pension
costs and long-term postretirement liabilities associated with the related
employees that will be transferred to us at the date of distribution. The pro
forma adjustments are based upon available information and assumptions that we
believe are reasonable. Please see the notes to unaudited pro forma condensed
financial statements for a discussion of how these adjustments are presented in
the pro forma financial statements.
The pro forma financial information does not reflect many significant
changes that may occur after the distribution in our financing plans and cost
structure, including costs or savings related to our planned restructuring or
our manufacturing initiative. In particular, we have not made adjustments for
our anticipated requirement for approximately $700 million of additional
financing over the next eight months.
The pro forma balance sheet also does not include the impact of the $400
million we expect to receive for the 4,000,000 shares of Series B convertible
participating preferred stock and the warrants to purchase shares of our common
stock we expect to issue upon consummation of the equity investment by Warburg,
Pincus Equity Partners, L.P. and related investment funds after completion of
the distribution. No amounts have yet been ascribed to potential beneficial
conversion features, as described in the "Unaudited Pro Forma Condensed
Financial Statements," which amounts will only be determinable after the
distribution. The conversion features, the accretion to liquidation value for
the Series B convertible participating preferred stock and any beneficial
conversion features will dilute both basic and fully diluted earnings per share.
For a more detailed description of this equity investment, please see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and "Related Transactions and
Equity Investment."
6
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SUMMARY HISTORICAL AND PRO FORMA FINANCIAL INFORMATION -- (CONTINUED)
<TABLE>
<CAPTION>
PRO FORMA HISTORICAL PRO FORMA HISTORICAL
NINE MONTHS NINE MONTHS FISCAL YEAR FISCAL YEAR ENDED
ENDED ENDED ENDED SEPTEMBER 30,
JUNE 30, JUNE 30, SEPTEMBER 30, -----------------------------------
2000 2000 1999 1999 1998 1997
----------- ----------- ------------- ---- ---- ----
(UNAUDITED) (UNAUDITED) (UNAUDITED)
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME INFORMATION:
Revenue.......................................... $5,664 $5,664 $8,268 $8,268 $7,754 $6,413
Costs............................................ 3,152 3,152 4,564 4,564 4,107 3,285
Gross margin..................................... 2,512 2,512 3,704 3,704 3,647 3,128
Operating expenses:
Selling, general and administrative............ 1,880 1,880 2,795 2,795 2,609 2,186
Research and development....................... 350 350 540 540 423 346
Purchased in-process research and
development.................................. -- -- -- -- 306 472
Total operating expenses......................... 2,230 2,230 3,335 3,335 3,338 3,004
Operating income................................. 282 282 369 369 309 124
Other income -- net.............................. 54 54 28 28 25 17
Interest expense................................. 41 59 48 90 94 59
Provision for income taxes....................... 116 109 137 121 197 230
Income (loss) before cumulative effect of
accounting change.............................. 179 168 212 186 43 (148)
Cumulative effect of accounting change (net of
income taxes of $62 for the year ended
September 30, 1999)............................ -- -- 96 96 -- --
Net income (loss)................................ 179 168 308 282 43 (148)
BALANCE SHEET INFORMATION:
Total assets..................................... 4,609 4,076 4,239 4,177 3,340
Total debt....................................... 704 4 10 14 25
</TABLE>
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THE DISTRIBUTION
GENERAL
The board of directors of Lucent has approved the distribution of all of
the outstanding shares of our common stock to the holders of Lucent common
stock. In the distribution, each holder of Lucent common stock will receive as a
dividend one share of our common stock and an associated preferred stock
purchase right for every shares of Lucent common stock held on
, 2000, which will be the record date. Please see "Description of
Capital Stock -- Rights Agreement" for a description of these rights.
MANNER OF EFFECTING THE DISTRIBUTION
The general terms and conditions relating to the distribution are set forth
in the Contribution and Distribution Agreement between us and Lucent. Under the
Contribution and Distribution Agreement, the distribution will be effective at
11:59 p.m. on the distribution date, September 30, 2000. For most Lucent
shareowners who own Lucent common stock in registered form or participate in The
Bank of New York's BuyDIRECT(SM) program on the record date, our transfer agent
will credit their shares of Avaya common stock to book entry accounts
established to hold their Avaya common stock. Our distribution agent will send
these shareowners a statement reflecting their Avaya common stock ownership.
Book entry refers to a method of recording stock ownership in our records in
which no physical certificates are used. For shareowners who own Lucent common
stock through a broker or other nominee their shares of Avaya common stock will
be credited to these shareowners' accounts by the broker or other nominee. As
further discussed below, fractional shares will not be distributed. A delivery
of a share of our common stock in connection with the distribution also will
constitute the delivery of the preferred stock purchase right associated with
such share. These rights are intended to have anti-takeover effects. The
existence of the rights may deter a potential acquiror from making a takeover
proposal or a tender offer. For a more detail discussion of these rights, please
see "Description of Capital Stock -- Rights Agreement." Following the
distribution, shareowners whose shares are held in book entry form may request
that their shares of our common stock be transferred to a brokerage or other
account at any time, as well as delivery of physical stock certificates for
their shares, in each case without charge.
LUCENT SHAREOWNERS WILL NOT BE REQUIRED TO PAY FOR SHARES OF OUR COMMON
STOCK RECEIVED IN THE DISTRIBUTION, OR TO SURRENDER OR EXCHANGE SHARES OF LUCENT
COMMON STOCK IN ORDER TO RECEIVE OUR COMMON STOCK, OR TO TAKE ANY OTHER ACTION
IN CONNECTION WITH THE DISTRIBUTION. NO VOTE OF LUCENT SHAREOWNERS IS REQUIRED
OR SOUGHT IN CONNECTION WITH THE DISTRIBUTION, AND LUCENT SHAREOWNERS HAVE NO
APPRAISAL RIGHTS IN CONNECTION WITH THE DISTRIBUTION.
Fractional shares of our common stock will not be issued to Lucent
shareowners as part of the distribution nor credited to book entry accounts. In
lieu of receiving fractional shares, each holder of Lucent common stock who
would otherwise be entitled to receive a fractional share of our common stock
will receive cash for the fractional interest, which may be taxable to such
holder. For an explanation of the tax consequences of the distribution, please
see "-- Federal Income Tax Consequences of the Distribution." The distribution
agent will, as soon as practicable after the distribution date, aggregate
fractional shares into whole shares and sell them in the open market at the
prevailing market prices and distribute the aggregate proceeds, net of brokerage
fees, ratably to Lucent shareowners otherwise entitled to fractional interests.
The amount of this payment will depend on the prices at which the aggregated
fractional shares are sold by the distribution agent in the open market shortly
after the distribution date. We will be responsible for any payment of brokerage
fees. The amount of these brokerage fees is not expected to be material to us.
In addition, at the time of the distribution, each outstanding option to
purchase Lucent common stock held by our employees on the distribution date will
be converted into a similar option for our common stock.
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In order to be entitled to receive shares of our common stock in the
distribution, Lucent shareowners must be shareowners at the close of business on
the record date, , 2000.
The chart set forth below illustrates the distribution ratio by showing the
number of our shares and/or the amount of cash that a Lucent shareowner would
receive pursuant to the distribution for varying amounts of Lucent shares held
as of the record date for the distribution assuming a distribution ratio of one
share of our common stock for every shares of Lucent common stock
held.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
SHARES OF LUCENT
COMMON STOCK Shares Shares Shares Shares
---------------- ------ ------ ------ ------
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHARES OF OUR COMMON 0 shares of our common 1 share of our common 1 share of our common 4 shares of our common
STOCK TO BE RECEIVED stock and cash for stock and no cash stock and cash for stock and no cash
UPON DISTRIBUTION fractional share fractional share
----------------------------------------------------------------------------------------------------------------------
</TABLE>
Because the distribution will be effected in the manner described above,
many of our shareowners may hold odd lots, or blocks of less than 100, of our
shares. An investor selling an odd lot may be required to pay a higher
commission rate than an investor selling round lots, or blocks of 100 shares.
REASONS FOR THE DISTRIBUTION
Lucent's board of directors has determined that separation of our
businesses from Lucent's other businesses is in the best interests of Lucent and
its shareowners. The separation will allow us to focus greater management
attention and resources on opportunities for our businesses in the
communications market and to focus on better managing our cost structure. Lucent
will similarly benefit by being able to focus on its retained businesses and
their growth opportunities.
In deciding how to achieve Lucent's business purpose of separating our
businesses from Lucent's, Lucent determined that a spin-off of our business was
the only transaction that would be nontaxable, practical and not unduly
expensive.
DIFFERENT BUSINESSES
Lucent currently operates in the three major business segments described
below.
- Service Provider Networks. This segment is comprised of businesses that
provide public networking systems and software to communications service
providers and public network operators around the world.
- Enterprise Networks. This segment is primarily comprised of the
businesses described in this information statement under "Business,"
which provide communications systems and software for enterprises around
the world, including businesses, government agencies and other
organizations.
- Microelectronics and Communications Technologies. This segment is
comprised of businesses that provide high-performance integrated
circuits, power systems and optoelectronic components to communications
service providers and equipment manufacturers for applications in the
communications and computing industries.
Our businesses have exhibited different growth characteristics, customers,
distribution channels and technological evolution than Lucent's other two
segments. Those differences are expected to continue in the future. Lucent's
management believes that the different businesses require inherently different
strategies in order to maximize their long-term value. Consequently, Lucent's
current structure, which involves the operation of each of these segments under
a single corporate entity, is not the most effective structure to design and
implement the distinct strategies necessary to operate each segment successfully
in a manner that maximizes its long-term value.
GROWTH RATES
Our traditional business, enterprise voice communications systems, is
characterized by a relatively low industry growth rate, as compared to the pace
of growth of the overall communications market. The
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market segments addressed by Lucent's other two segments are growing at
significantly higher rates than the market segments of our traditional business.
Although our revenue increased by approximately 6% in fiscal 1999 over fiscal
1998, the remainder of Lucent's revenue grew in excess of 20% during the same
period. We believe that our separation from Lucent will allow us to focus our
management and research and development investments on higher growth segments of
our market, while better managing our cost structure.
CUSTOMERS AND DISTRIBUTION CHANNELS
Our customers are principally businesses, government agencies and other
organizations that use communications systems, software and services. We
generally produce a much larger number of sales transactions, among a much
larger number of customers, with a much smaller average dollar value, than the
other Lucent segments. We reach our customers through a direct sales force and
through indirect distribution channels, including a network of distributors,
dealers, value-added resellers and systems integrators.
By contrast, the customers of Lucent's service provider networks segment
are mainly the communications service providers that provide the worldwide
communications infrastructure. The customers of Lucent's microelectronics and
communications technologies segments are service providers and equipment
manufacturers, including Lucent, that develop and manufacture communications
equipment. The central need of those customers is for reliable, scalable,
open-standard platforms for providing communications services and interacting
with end-users of communications services. These segments generally have fewer
customers, and fewer sales transactions that have much larger average dollar
values, than we do. Lucent largely reaches those customers primarily through its
worldwide direct sales force.
TECHNOLOGY
The technology we use is different from the technology used by the other
two Lucent segments and technological evolution in our markets is of a different
type. Key technology developments for us are the development of eBusiness
communications solutions for enterprises to enable them to improve their
performance and converged voice and data solutions that can efficiently handle
an enterprise's voice and data traffic as well as the evolution of our existing
voice communications systems, applications and products. By eBusiness, we mean
the internal and external use of communications tools and electronic networks,
to interact, collaborate and transact business with an enterprise's customers,
suppliers, partners and employees. Our research and development spending will be
more focused on these product development areas in higher growth segments of our
market than on basic research. The focus of technological change in Lucent's
other two segments, however, is on high-speed infrastructure, next generation
components, networks and systems. Basic research underpins the scientific
advances that fuel these new products.
ADDITIONAL BENEFITS
We believe several additional benefits may result from the separation. The
ability for each of Lucent and us to pursue acquisitions and other investment
opportunities is expected to be enhanced by providing differentiated access to
the capital markets, such as using our own common stock for a transaction. Each
of Lucent and us will also be able to create more focused acquisition strategies
that meet the different needs of the businesses, as set forth above. Finally, we
believe there are opportunities to improve our profitability and our business
performance as a stand-alone company.
INTERESTS OF PERSONS IN THE DISTRIBUTION
One of our directors, Mr. Henry B. Schacht is a member of the Lucent board
of directors and voted to approve the distribution. Upon becoming chairman of
our board of directors, Mr. Schacht will resign from the Lucent board of
directors. For his service as chairman of our board of directors, Mr. Schacht
will
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receive, at the distribution, a number of options to acquire our common stock
equal to 40,000 Lucent shares at an exercise price of $59.2188, converted into
options to acquire our common stock at the same ratio as all other unvested
Lucent options. Please see "Management -- Executive Compensation."
RESULTS OF THE DISTRIBUTION
After the distribution, we will be an independent public company owning and
operating what has previously been Lucent's enterprise communications
businesses. Immediately after the distribution, we expect to have approximately
holders of record of shares of our common stock and approximately
shares of our common stock outstanding, based on the number of record
shareowners and outstanding shares of Lucent common stock on June 30, 2000 and
after giving effect to the delivery to shareowners of cash in lieu of fractional
shares of our common stock. The actual number of shares to be distributed will
be determined on the record date. Thereafter, upon consummation of our
transaction with Warburg, Pincus Equity Partners, L.P. and related investment
funds, these investors will own 4,000,000 shares of our Series B convertible
participating preferred stock as well as warrants to purchase shares of our
common stock. For a more detailed description of this equity investment, please
see "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and "Related Transactions and
Equity Investment."
For information regarding options to purchase our common stock that will be
outstanding after the distribution, see "Relationship Between Lucent and Our
Company After the Distribution -- Employee Benefits Agreement and Plans" and
"Management." Prior to the distribution, we will enter into several agreements
with Lucent in connection with, among other things, intellectual property,
interim services and a number of on-going commercial relationships, including
product supply arrangements. For a more detailed description of these
agreements, please see "Relationship Between Lucent and Our Company After the
Distribution."
The distribution will not affect the number of outstanding shares of Lucent
common stock or any rights of Lucent shareowners. Certificates representing
outstanding shares of Lucent common stock also will continue to represent rights
to purchase shares of Lucent's Series A junior participating preferred stock,
par value $1.00 per share, pursuant to the Rights Agreement, dated as of April
4, 1996, as amended, between Lucent and The Bank of New York, as rights agent.
The chart below sets forth the businesses of Lucent before and after the
distribution.
[Lucent Businesses Chart]
Lucent has recently announced plans to spin-off its microelectronics
business, which includes the optoelectronics components and integrated circuits
divisions, into a separate company.
ASSUMPTION OF LUCENT COMMERCIAL PAPER PROGRAM
Prior to the distribution, Lucent intends to issue $700 million of
short-term debt under a commercial paper program, which will be assumed by us at
the distribution date. The $700 million of debt we will assume from Lucent
represents the portion of Lucent's liabilities that Lucent has determined should
be attributed to our businesses. We may assume additional debt under the
commercial paper program to the extent additional debt is incurred by Lucent
under the program to fund restructuring or separation costs
11
15
and expenses we may incur prior to the distribution or our working capital if
there is a substantial increase in our working capital over our current plan
prior to the distribution. We will also assume Lucent's obligations under two
related revolving credit facilities. Upon the distribution, Lucent will be
relieved of all obligations under the program. Accordingly, upon the
distribution, we will become obligated to satisfy all payments and other terms
of this commercial paper program and the related revolving credit facilities.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" for a more detailed discussion of our restructuring, the commercial
paper program and the related revolving credit facilities.
FEDERAL INCOME TAX CONSEQUENCES OF THE DISTRIBUTION
Lucent has received a ruling from the Internal Revenue Service, or the IRS,
to the effect that the distribution will qualify as a tax-free transaction under
Sections 355 and 368(a)(1)(D) of the Internal Revenue Code, or the Code. The
ruling provides that for U.S. Federal income tax purposes:
- Lucent will not recognize any gain or loss upon the distribution;
- no gain or loss will be recognized by, or be includible in the income of,
a shareowner of Lucent common stock solely as the result of the receipt
of our common stock in the distribution, except, as described below, in
connection with cash received in lieu of fractional shares of our common
stock;
- the basis of the Lucent common stock and our common stock in the hands of
Lucent's shareowners immediately after the distribution will be the same
as the basis of the Lucent common stock immediately before the
distribution, allocated between the common stock of Lucent and us in
proportion to their relative fair market values on the date of the
distribution;
- the holding period of our common stock received by Lucent shareowners
will include the holding period of their Lucent common stock, provided
that such Lucent common stock is held as a capital asset on the date of
the distribution; and
- shareowners of Lucent who receive cash from the distribution agent in
respect of fractional shares will recognize gain or loss on the sale of
the fractional share interest equal to the difference between the cash
received and the holder's basis in such fractional share interest. Such
gain or loss will be capital gain or loss to such holder, provided the
fractional share interest is a capital asset in the hands of such holder.
Although the ruling relating to the qualification of the distribution as a
tax-free transaction is generally binding on the IRS, the continuing validity of
the ruling is subject to factual representations and assumptions. Lucent and we
are not aware of any facts or circumstances that would cause such
representations and assumptions to be untrue.
If the distribution were not to qualify as a tax-free transaction, Lucent
would recognize taxable gain equal to the excess of the fair market value of our
common stock distributed to Lucent shareowners over Lucent's tax basis in our
common stock. In addition, each shareowner who receives our common stock in the
distribution would generally be treated as receiving a taxable distribution in
an amount equal to the fair market value of our common stock received.
Even if the distribution otherwise qualifies for tax-free treatment under
Sections 355 and 368(a)(1)(D) of the Code, it may be disqualified as tax-free to
Lucent under Section 355(e) of the Code if 50% or more of the stock of Lucent or
us is acquired as part of a plan or series of related transactions that include
the distribution. For this purpose, any acquisitions of our stock or Lucent's
stock within two years before or after the distribution are presumed to be part
of such a plan, although Lucent or we may be able to rebut that presumption. If
such an acquisition of our stock or Lucent's stock triggers the application of
Section 355(e), Lucent would recognize taxable gain as described above but the
distribution would generally be tax-free to each Lucent shareowner. Under the
tax sharing agreement between Lucent and us, we would be required to indemnify
Lucent against that taxable gain if it were triggered by an acquisition of our
stock. Please see "Relationship Between Lucent and Our Company After the
Distribution -- Tax Sharing Agreement" for a more detailed discussion of the tax
sharing agreement between Lucent and us.
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U.S. Treasury regulations require each Lucent shareowner that receives
shares of our stock in the distribution to attach to the shareowner's U.S.
Federal income tax return for the year in which such stock is received a
detailed statement setting forth such data as may be appropriate to show the
applicability of Section 355 of the Code to the distribution. Within a
reasonable period of time after the distribution, Lucent will provide its
shareowners who receive our common stock pursuant to the distribution with the
information necessary to comply with such requirement.
EACH LUCENT SHAREOWNER SHOULD CONSULT HIS OR HER TAX ADVISER ABOUT THE
PARTICULAR CONSEQUENCES OF THE DISTRIBUTION TO SUCH SHAREOWNER, INCLUDING THE
APPLICATION OF STATE, LOCAL AND FOREIGN TAX LAWS, AND POSSIBLE CHANGES IN TAX
LAW THAT MAY AFFECT THE TAX CONSEQUENCES DESCRIBED ABOVE.
LISTING AND TRADING OF OUR COMMON STOCK
There is not currently a public market for our common stock. We will apply
for our common stock to be listed on the New York Stock Exchange under the
symbol "AV." Assuming such listing is approved, it is anticipated that trading
will commence on a when-issued basis prior to the distribution. When issued
trading refers to a transaction made conditionally because the security has been
authorized but not yet issued. On the first trading day following the
distribution date, when-issued trading in our common stock will end and
regular-way trading will begin. Regular way trading refers to trading after a
security has been issued and typically involves a transaction that settles on
the third full business day following the date of a transaction.
We cannot assure you as to the price at which our common stock will trade
before, on or after the distribution date. Although the price at which such
stock trades may fluctuate significantly until our common stock is fully
distributed and an orderly market develops, we believe the presence of a when-
issued trading market may have a stabilizing effect on the price of our common
stock following the distribution. In addition, the combined trading prices of
our common stock and Lucent common stock held by shareowners after the
distribution may be less than, equal to or greater than the trading price of
Lucent common stock prior to the distribution.
The shares distributed to Lucent shareowners will be freely transferable,
except for shares received by people who may have a special relationship or
affiliation with us. People who may be considered our affiliates after the
distribution generally include individuals or entities that control, are
controlled by, or are under common control with us. This may include some or all
of our officers and directors. Persons who are our affiliates will be permitted
to sell their shares only pursuant to an effective registration statement under
the Securities Act of 1933, as amended, or an exemption from the registration
requirements of the Securities Act, such as exemptions afforded by Section 4(2)
of the Securities Act or Rule 144 thereunder.
REASON FOR FURNISHING THIS INFORMATION STATEMENT
This information statement is being furnished by Lucent solely to provide
information to shareowners of Lucent who will receive shares of our common stock
in the distribution. It is not, and is not to be construed as, an inducement or
encouragement to buy or sell any of our securities. The information contained in
this information statement is believed by us to be accurate as of the date set
forth on its cover. Changes may occur after that date, and we will not update
the information except in the normal course of our respective public disclosure
obligations and practices.
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RISK FACTORS
You should carefully consider the following risk factors and all the other
information contained in this information statement in evaluating us and our
common stock.
RISKS RELATED TO OUR SEPARATION FROM LUCENT
WE HAVE NO HISTORY OPERATING AS AN INDEPENDENT COMPANY, AND WE MAY BE
UNABLE TO MAKE THE CHANGES NECESSARY TO OPERATE AS A STAND-ALONE BUSINESS, OR WE
MAY INCUR GREATER COSTS AS A STAND-ALONE COMPANY THAT MAY CAUSE OUR
PROFITABILITY TO DECLINE. Prior to the distribution, our businesses were
operated by Lucent as a segment of its broader corporate organization rather
than as a stand-alone company. Lucent assisted us by providing financing,
particularly for acquisitions, as well as providing corporate functions such as
negotiating acquisitions and legal and tax functions. Following the
distribution, Lucent will have no obligation to provide assistance to us other
than the interim services which will be provided by Lucent and which are
described in "Relationship Between Lucent and Our Company After the
Distribution." These interim services include, among others, various data
processing and telecommunications services and corporate support services,
including accounting, financial management, tax, payroll, legal, human resources
administration, procurement and other general support. Because our businesses
have never been operated as an independent company, we cannot assure you that we
will be able to successfully implement the changes necessary to operate
independently or that we will not incur additional costs operating independently
that will cause our profitability to decline.
We are in the process of creating our own, or engaging third parties to
provide, systems and business functions to replace many of the systems and
business functions Lucent provides us. We may not be successful in implementing
these systems and business functions or in transitioning data from Lucent's
systems to ours. If we do not have in place our own systems and business
functions or if we do not have agreements with other service providers once our
interim services agreement with Lucent expires, we may not be able to
effectively operate our business and our profitability may decline.
OUR HISTORICAL FINANCIAL INFORMATION MAY NOT BE REPRESENTATIVE OF OUR
RESULTS AS A SEPARATE COMPANY AND, THEREFORE, MAY NOT BE RELIABLE AS AN
INDICATOR OF OUR HISTORICAL OR FUTURE RESULTS. The historical financial
information we have included in this information statement may not reflect what
our results of operations, financial position and cash flows would have been had
we been a stand-alone company during the periods presented or what our results
of operations, financial position and cash flows will be in the future. This is
because:
- our combined financial statements reflect allocations, primarily with
respect to corporate overhead and basic research, for services provided
to us by Lucent, which allocations may not reflect the costs we will
incur for similar services as a stand-alone company; and
- the information does not reflect changes that we expect to occur in the
future as a result of our separation from Lucent, including changes in
how we fund our operations, conduct research and development and tax and
employee matters.
In addition, our combined financial statements include assets, liabilities,
revenue and expenses which were not historically recorded at the level of the
businesses transferred to us. For example, historically all financing was done
by Lucent at the parent level. Our combined financial statements, however,
reflect an estimated amount of interest expense that we believe we would have
incurred had we been a stand-alone company during the periods presented. We
cannot assure you that this estimated amount of interest expense or the other
allocations and estimates we have used to create our combined financial
statements are indicative of the actual amounts we would have incurred as a
stand-alone company. Therefore, our combined financial statements may not be
indicative of our future performance as an independent company. For additional
information about our past financial performance and the basis of presentation
of our combined financial statements, including our estimates of interest
expense, please see "Selected Financial Information," "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and our combined
financial statements and the notes thereto included elsewhere in this
information statement.
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AT THE DISTRIBUTION WE WILL ASSUME A SIGNIFICANT AMOUNT OF DEBT AND MAY
SUBSTANTIALLY INCREASE OUR DEBT IN THE FUTURE, WHICH COULD SUBJECT US TO VARIOUS
RESTRICTIONS AND HIGHER INTEREST COSTS, AND DECREASE OUR PROFITABILITY. Because
historically Lucent provided financing to us and incurred debt at the parent
level, our combined financial statements do not include debt. For purposes of
including an estimated amount of interest expense that we may have incurred as a
stand-alone company, we have made assumptions regarding the average debt
balances outstanding and the interest rates for this debt. Please see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Overview" for details about these assumptions. Prior to the
distribution, Lucent intends to issue $700 million of short-term debt under a $2
billion commercial paper program, which we will assume at the distribution date.
We may assume additional debt under the commercial paper program to the extent
additional debt is incurred by Lucent under the program to fund restructuring or
separation costs and expenses that we may incur prior to the distribution. We
may also assume additional debt under the program for our working capital if
there is a substantial increase in our working capital over our current plan
prior to the distribution. Lucent will retain the proceeds of all borrowings
under this commercial paper program made prior to the distribution and upon the
distribution will be relieved of all obligations under the program. In addition,
we intend to enter into two unsecured revolving credit facilities with third
party financial institutions, a 364-day credit facility and a five-year credit
facility, each allowing for borrowings of up to $1 billion. Lucent will
initially be a party to each of these credit facilities, but will have no
obligations thereunder following the distribution. We will be able to borrow
funds under these facilities for general corporate purposes, including for the
support of the commercial paper program or repayment of other debt, working
capital and acquisitions.
We may substantially increase our debt in the future. We currently
anticipate requiring approximately $700 million of additional financing over the
next eight months to fund costs and expenses in connection with the planned
restructuring and separation. If our cash flow from operations is less than we
expect, we may require more financing. We may from time to time issue additional
commercial paper under our $2 billion commercial paper program, if the market
permits such borrowings, make borrowings under our revolving credit facilities
or issue other long or short-term debt, if available. We intend to file a debt
shelf registration statement in order to be able to access the capital to fund
our operations. The commercial paper program and future indebtedness may impose
various restrictions and covenants on us which could limit our ability to
respond to market conditions, to provide for unanticipated capital investments
or to take advantage of business opportunities. We also may incur higher than
expected interest expense in servicing our debt, which would decrease our
profitability.
WE COULD INCUR SIGNIFICANT TAX LIABILITY IF THE CONTRIBUTION OR THE
DISTRIBUTION DOES NOT QUALIFY FOR TAX-FREE TREATMENT, WHICH COULD REQUIRE US TO
PAY LUCENT A SUBSTANTIAL AMOUNT OF MONEY. Lucent and the Lucent shareowners
could incur significant tax liability if the contribution of the businesses or
the distribution described in this information statement do not qualify for
tax-free treatment. Should this occur, we could be jointly and severally liable
for, and could be required to indemnify and pay Lucent for, taxes imposed upon
Lucent with respect to the contribution or the distribution.
Lucent has received a private letter ruling from the Internal Revenue
Service indicating that the contribution of these businesses and the
distribution would not be taxable to Lucent or its shareowners. For a more
complete discussion of the ruling and the tax consequences of the distribution
being taxable, please see "The Distribution -- Federal Income Tax Consequences."
Although any U.S. Federal income taxes imposed in connection with the
distribution generally would be imposed on Lucent and its shareowners, we would
be liable for all or a portion of such taxes in the circumstances described
below. First, as part of the distribution, Lucent and we will enter into a tax
sharing agreement. This agreement will generally allocate, between Lucent and
us, the taxes and liabilities relating to the failure of the contribution or the
distribution to be tax-free. In addition, under the tax sharing agreement, if
the distribution fails to qualify as a tax-free distribution under Section 355
of the Internal Revenue Code because of an acquisition of our stock or assets,
or some other actions of ours, then we will be solely liable for any resulting
corporate taxes. For a more complete discussion of the allocation of taxes and
liabilities between Lucent and us under the tax sharing agreement, please see
"Relationship
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Between Lucent and Our Company After the Distribution -- Tax Sharing Agreement."
Second, aside from the tax sharing agreement, under U.S. Federal income tax
laws, we and Lucent would be jointly and severally liable for Lucent's Federal
income taxes resulting from the distribution being taxable. This means that even
if we do not have to indemnify Lucent for any tax liabilities if the
contribution or the distribution fails to be tax-free, we may still be liable
for any part of, including the whole amount of, these liabilities and expenses
if Lucent fails to pay them.
BECAUSE THERE HAS NOT BEEN ANY PUBLIC MARKET FOR OUR COMMON STOCK AND OUR
STOCK MAY BE CONSIDERED A TECHNOLOGY STOCK, THE MARKET PRICE AND TRADING VOLUME
OF OUR COMMON STOCK MAY BE VOLATILE, AND YOU MAY NOT BE ABLE TO RESELL YOUR
SHARES AT OR ABOVE THE INITIAL MARKET PRICE OF OUR STOCK FOLLOWING THE
DISTRIBUTION. Prior to the distribution, there has been no trading market for
our common stock. Accordingly, we cannot predict the extent to which investors'
interest will lead to a liquid trading market or whether the market price of our
common stock will be volatile. The combined trading prices of Lucent common
stock and our common stock after the distribution may be less than, equal to or
greater than the trading price of Lucent common stock prior to the distribution.
The market price of our common stock could fluctuate significantly for many
reasons, including in response to the risk factors listed in this information
statement or for reasons unrelated to our specific performance. Our common stock
may be considered a technology stock by investors. Technology stocks have
recently experienced extreme price and volume fluctuations. Therefore, the
market price and trading volume of our common stock also may be extremely
volatile.
A NUMBER OF OUR SHARES ARE OR WILL BE ELIGIBLE FOR FUTURE SALE, WHICH MAY
CAUSE OUR STOCK PRICE TO DECLINE. Any sales of substantial amounts of our
common stock in the public market or the exercise of substantial amounts of
options or warrants or the conversion of the 4,000,000 shares of our Series B
convertible participating preferred stock, or the perception that such sales,
exercises or conversions might occur, whether as a result of the distribution or
otherwise, could cause the market price of our common stock to decline. Upon
completion of the distribution, we will have outstanding an aggregate of
shares of our common stock, assuming no exercise of outstanding
options. All of these shares will be freely tradeable without restriction or
further registration under the Securities Act, unless the shares are owned by
one of our "affiliates," as that term is defined in Rule 405 under the
Securities Act. As of , 2000, unvested options to purchase
shares of Lucent common stock were outstanding and held by Lucent
employees who are expected to become our employees as of the distribution. It is
estimated that as a result of the distribution these options would represent
options to purchase of our shares of common stock, or approximately
of our outstanding stock. This concentration of stock options relative to
the amount of our common stock outstanding will have a dilutive effect on our
earnings per share which could adversely affect the market price of our common
stock. Further, holders of our Series B convertible participating preferred
stock may convert these preferred shares into common stock at any time and the
warrants to be sold to Warburg, Pincus Equity Partners, L.P. and related
investment funds are immediately exercisable. Please see "Description of Capital
Stock" for a description of the amount of our common stock into which the Series
B convertible participating preferred stock may be converted or for which the
warrants may be exercised.
RISKS RELATING TO OUR BUSINESS
OUR PRODUCT REVENUE HAS BEEN DECLINING, AND IF WE DO NOT SUCCESSFULLY
IMPLEMENT OUR STRATEGY TO EXPAND OUR SALES IN MARKET SEGMENTS WITH HIGHER GROWTH
RATES, OUR REVENUE MAY CONTINUE TO DECLINE AND WE MAY NOT BE PROFITABLE. We
have been experiencing declines in revenue from our traditional business,
enterprise voice communications products, which represented 53% of total product
revenue in fiscal 1999. We expect, based on various industry reports, the
compound annual growth rate from 1999 to 2003 of the market segments for these
traditional products to be extremely low, at 1.2%. We are implementing a
strategy to capitalize on the higher growth opportunities in our market, such as
eBusiness communications solutions, including converged voice and data products.
Please see "Business-Strategy" for a more detailed
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description of this strategy. The success of this strategy, however, is subject
to many risks, including risks that:
- we do not develop new products or enhancements to our current products on
a timely basis to meet the changing needs of our customers;
- customers do not accept our products or new technology or industry
standards develop that make our products obsolete; or
- our competitors introduce new products before we do and achieve a
competitive advantage by being among the first to market.
The market for our products and services is characterized by rapidly
changing technology, evolving industry standards, frequent new product
introductions and changing customer requests. For example, the recent advances
in voice communications over the Internet have created a demand for converged
voice and data products that we believe generally did not exist a year ago. If
we do not develop new products or enhancements on a timely basis, or if any of
our new products or product features do not achieve market acceptance, customers
may not purchase our products. If we do not successfully market our new
products, they may not achieve market acceptance. A number of factors, including
design or manufacturing difficulties, could delay or prevent us from developing,
introducing or marketing new products or enhancements. We have fewer resources
to acquire or develop and introduce new products as a stand-alone company than
we had as a part of Lucent. We must hire additional research and development
engineers to complete our research and development capability and compete
effectively. Consequently, we may have more difficulties in the future
developing and introducing new products on a timely basis. In addition, new
product development generally requires a substantial investment before any
assurance is available as to its commercial viability. We cannot assure you that
any of the eBusiness and converged voice and data products on which we are
focusing our research and development investments will achieve broad acceptance
in the marketplace or enhance our profitability.
WE ARE SIGNIFICANTLY CHANGING THE FOCUS OF OUR COMPANY IN ORDER TO
CONCENTRATE ON THE DEVELOPMENT AND MARKETING OF EBUSINESS SOLUTIONS, INCLUDING
CONVERGED VOICE AND DATA PRODUCTS, AND THE UNCERTAINTY SURROUNDING THIS NEW
MARKET OPPORTUNITY MAY RESULT IN A DECREASE IN OUR REVENUE AND
PROFITABILITY. In April 2000, we announced that we are making a significant
change in the direction and strategy of our company to focus on the development
and sales of advanced products to be used as components of comprehensive
eBusiness communications solutions, including products that facilitate the
convergence of voice and data networks. By eBusiness, we mean the internal and
external use of communications tools and electronic networks, to interact,
collaborate and transact business with an enterprise's customers, suppliers,
partners and employees. In order to implement this change, we must:
- retrain our sales staff to sell new types of products and improve our
marketing of such products;
- develop relationships with new types of distribution partners;
- research and develop more data products and products using communications
media other than voice traffic, which has historically been our core area
of expertise; and
- build credibility among customers that we are capable of delivering
advanced communications solutions beyond our historic product lines.
Most of these items involve substantial increased costs, and we cannot
assure you that we will be successful. If we are not successful, our revenue and
profitability may decline. However, even if we are successful in making these
changes, our revenue may still decrease if the market opportunity for eBusiness
solutions, including converged voice and data products, does not develop in the
ways we anticipate. This market opportunity is in its early stages and we can
not assure you that:
- the demand for eBusiness solutions and converged voice and data products
will grow as fast as we anticipate;
- new technologies will cause the market to evolve in a manner different
than we expect; or
- we will be able to obtain a leadership position as this opportunity
develops.
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WE MAY NOT BE ABLE TO HIRE AND RETAIN HIGHLY SKILLED EMPLOYEES, WHICH COULD
AFFECT OUR ABILITY TO COMPETE EFFECTIVELY AND MAY CAUSE OUR REVENUE AND
PROFITABILITY TO DECLINE. We depend on highly skilled technical personnel to
research and develop, market and service new products. To succeed, we must hire
and retain employees who are highly skilled in the rapidly changing
communications and Internet technologies. In particular, as we implement our
strategy of focusing on eBusiness solutions and the convergence of voice and
data networks, we will need to:
- hire a significant number of researchers in order to create a group
sufficiently large to support our strategy to continue to introduce
innovative products and to offer comprehensive eBusiness solutions;
- hire more employees with experience developing and providing eBusiness
products and services;
- hire and train a customer service organization to service our
multi-service networking products; and
- retrain our existing sales force to sell converged and eBusiness products
and services.
Individuals who have these skills and can perform the services we need to
provide our products and services are scarce. Because the competition for
qualified employees in our industry is intense, hiring and retaining employees
with the skills we need is both time-consuming and expensive. We might not be
able to hire enough of them or to retain the employees we do hire. Recently, the
uncertainty surrounding our separation from Lucent has caused retention of our
employees to be even more difficult. Our inability to hire and retain the
individuals we seek could hinder our ability to sell our existing products,
systems, software or services or to develop new products, systems, software or
services. For example, a recent loss of a significant percentage of our account
managers focused on our data networking products, a product area we believe is
important to our further success, has resulted in declines in revenue from these
products in the second and third quarters of fiscal 2000. In addition, we are
experiencing difficulties in hiring and retaining individuals with these skills
in our research and development, sales and service groups. If we do not improve
our hiring in these areas, we will not be able to successfully implement many of
the strategies described under "Business-Strategy" and our revenue and
profitability may decline.
BECAUSE WE HAVE CHANGED OUR NAME, OUR CUSTOMERS AND BUSINESS PARTNERS MAY
NOT RECOGNIZE OUR NEW BRAND, WHICH COULD ADVERSELY AFFECT OUR SALES AND
MARKETING EFFORTS AND CAUSE OUR REVENUE TO DECLINE. We have changed our name to
"Avaya Inc." We will change the trademarks and trade names under which we
conduct our business to Avaya. We will only have use of the Lucent name for a
transitional period after the distribution. Because we have previously marketed
our products under the Lucent name, our existing customers and business partners
and investors generally may not recognize our new brand. We believe that the
sale of our products and services has significantly benefitted from the use of
the Lucent brand name. The impact of the change in trademarks and trade names
cannot be fully predicted and could have a materially adverse impact on our
business and results of operations. We plan to incur significant sales and
marketing expense to build a new strong brand identity and if we don't succeed,
our profitability will be harmed.
THE TERMINATION OF STRATEGIC ALLIANCES OR THE FAILURE TO FORM ADDITIONAL
STRATEGIC ALLIANCES COULD LIMIT OUR ACCESS TO CUSTOMERS AND HARM OUR REPUTATION
WITH INVESTORS. Our strategic alliances are important to our success because
they are necessary in order for us to offer comprehensive eBusiness solutions,
reach a broader customer base and strengthen brand awareness. We may not be
successful in creating new strategic alliances on acceptable terms or at all.
Under the terms of our separation from Lucent, for a period of two years
immediately after the distribution, if we enter into strategic alliances with
two named competitors of Lucent, Lucent may terminate some of the rights,
including important intellectual property rights, that they granted to us under
the agreements we are entering into with Lucent in connection with the
distribution. We cannot determine at this time whether this prohibition will
adversely affect us in the future. In addition, most of our current strategic
alliances can be terminated under various circumstances, some of which may be
beyond our control. Further, our alliances are generally non-exclusive, which
means our partners may develop alliances with some of our competitors. We may
become more reliant on strategic alliances in the future, which would increase
the risk to our business of losing these alliances.
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Because we have announced publicly our strategy to form alliances, as well as
announced the alliances we have entered into, early termination of our alliances
may harm our reputation with our customers and the investment community. This
may cause our stock price to decline, whether or not our alliances were material
to our business. Termination of alliances also may cause our revenue to decline
to the extent we are unable to deliver new products or our customer base is
reduced.
BECAUSE WE ARE TARGETING ENTERPRISES FOCUSED ON EBUSINESS, OUR SUCCESS
DEPENDS LARGELY ON THE WIDESPREAD ACCEPTANCE OF EBUSINESS AND THE INTERNET. The
use and growth of the Internet is of critical importance to our strategy of
focusing on the development and sales of eBusiness solutions, which often
involve electronic networks, applications and other business functions that use
the Internet. Because we intend to target enterprises focusing on incorporating
eBusiness into their operations, if usage of the Internet does not continue to
grow, or grows at a rate significantly lower than current trends, our business
prospects will be harmed.
The continued adoption of eBusiness and other uses of the Internet depends
on many factors that are outside our control. These factors include the
following:
- development of cost-effective technology and applications that allow
enterprises to adopt eBusiness solutions;
- availability of new technology standards that facilitate easier
integration of multiple vendors' technology and applications;
- the performance and reliability of the Internet may decline as usage
grows;
- use of the Internet may decline if security and authentication concerns
regarding transmission of confidential information over the Internet and
attempts by unauthorized users, or hackers, to penetrate online security
systems grow; and
- use of the Internet may decline if the ability to gather information
about Internet users without their knowledge or consent results in
increased concerns about privacy protection or federal, state or foreign
governments adopt restrictive laws or regulations relating to the
Internet.
An example of the potential effect of these factors on our products is the
restrictions adopted by the European Union and some European countries on the
use of customer data. If other countries, regions or states adopt legislation or
other restrictions on the use of customer data or customer profiling
technologies, or if existing legislation or restrictions become more stringent,
our customer relationship management products and services may be less useful to
our clients and our revenue from these products may decline. These customer
relationship management solutions are dependent on the use of customer data
collected from various sources, including information collected on Web sites, as
well as other data derived from customer registrations, billings, purchase
transactions and surveys.
OUR QUARTERLY FINANCIAL RESULTS ARE SUBJECT TO SIGNIFICANT FLUCTUATIONS
BECAUSE OF MANY FACTORS, ANY OF WHICH COULD ADVERSELY AFFECT OUR STOCK
PRICE. Our quarterly financial results vary from quarter to quarter, primarily
because the compensation system for our sales force focuses on achieving full
year results and because many of our customers' buying behaviors fluctuate based
on their fiscal year. For example, our product revenue in the first fiscal
quarter of 1999 and in the fourth fiscal quarter of 1999 was approximately $1.4
billion and approximately $1.9 billion, respectively. It is possible that in
some future periods our operating results may be below the expectations of
public market analysts and investors. In this event, the price of our common
stock may decline.
WE PLAN TO EXPAND OUR INTERNATIONAL SALES, WHICH WILL SUBJECT US TO
ADDITIONAL BUSINESS RISKS AND MAY CAUSE OUR PROFITABILITY TO DECLINE DUE TO
INCREASED COSTS. We intend to continue to pursue growth opportunities
internationally. In many countries outside the United States, long-standing
relationships between our potential customers and their local providers and
protective regulations, including local content requirements and type approvals,
create barriers to entry. In addition, pursuit of such international growth
opportunities may require significant investments for an extended period before
returns on such investments, if any, are realized. For example, to execute our
strategy to expand internationally we are incurring additional costs to enter
into strategic alliances focused on international sales and expanding our
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presence in high growth countries. International operations are subject to a
number of other risks and potential costs, including:
- the risks that because our new brand will not be locally recognized, we
must spend significant amounts of time and money to build a brand
identity without certainty that we will be successful;
- unexpected changes in regulatory requirements;
- inadequate protection of intellectual property in foreign countries;
- adverse tax consequences;
- dependence on developing relationships with qualified local distributors,
dealers, value-added resellers and systems integrators; and
- political and economic instability.
We cannot assure you that we will be able to overcome these barriers, or
that we will not incur significant costs in addressing these potential risks.
For example, we believe our association with the Bell Laboratories name is
particularly important in our international markets and our limited ability to
use this name after the distribution may cause a disruption in our international
sales. Sales to our international customers are denominated in either local
currency or U.S. dollars, depending on the country or channel used to fulfill
the customers' order. In addition to the foreign currency risk for our
receivables, there is additional risk associated with the fact that most of our
products or components are manufactured or sourced from the United States.
Should the U.S. dollar strengthen against a local currency, the impact may
hamper our ability to compete with other competitors, preventing us from
increasing our revenue and profitability in international markets. We manage our
net currency exposure through currency forward contracts and currency options.
Any of these factors could prevent us from increasing our revenue and
profitability in international markets.
IF WE ARE UNABLE TO PROTECT OUR PROPRIETARY RIGHTS, OUR BUSINESS AND FUTURE
PROSPECTS MAY BE HARMED. Although we attempt to protect our intellectual
property through patents, trademarks, trade secrets, copyrights, confidentiality
and nondisclosure agreements and other measures, intellectual property is
difficult to evaluate and these measures may not provide adequate protection for
our proprietary rights. Patent filings by third parties, whether made before or
after the date of our filings, could render our intellectual property less
valuable. Competitors may misappropriate our intellectual property, disputes as
to ownership of intellectual property may arise and our intellectual property
may otherwise become known or independently developed by competitors. The
failure to protect our intellectual property could seriously harm our business
and future prospects because we believe that developing new products and
technology that are unique to us is critical to our success. If we do not obtain
sufficient international protection for our intellectual property, our
competitiveness in international markets could be significantly impaired, which
would limit our growth and future revenue.
WE MAY BE SUBJECT TO LITIGATION AND INFRINGEMENT CLAIMS, WHICH COULD CAUSE
US TO INCUR SIGNIFICANT EXPENSES OR PREVENT US FROM SELLING OUR PRODUCTS OR
SERVICES. Upon completion of the distribution, we expect to become party to one
or more ongoing patent or other intellectual property infringement litigations
between Lucent and other third parties. Please see "Business -- Legal
Proceedings" for a more detailed description of the legal proceedings in which
we are or may be involved.
We cannot assure you that others will not claim that our proprietary or
licensed products, systems and software are infringing their intellectual
property rights or that we do not in fact infringe those intellectual property
rights. We may be unaware of intellectual property rights of others that may
cover some of our technology. If someone claimed that our proprietary or
licensed systems and software infringed their intellectual property rights, any
resulting litigation including the litigation we expect to become a party to
after the distribution, could be costly and time consuming and would divert the
attention of management and key personnel from other business issues. The
complexity of the technology involved and the uncertainty of intellectual
property litigation increase these risks. Claims of intellectual property
infringement also might require us to enter into costly royalty or license
agreements. However, we may be unable to obtain royalty or license agreements on
terms acceptable to us or at all. We also may be subject to significant damages
or an injunction against use of our proprietary or licensed systems. A
successful
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claim of patent or other intellectual property infringement against us could
materially adversely affect our business and profitability.
We have historically indemnified our customers for some of the costs and
damages of patent infringement in circumstances where our product is the factor
creating the customer's infringement exposure, though we generally exclude
coverage where infringement arises out of the combination of our products with
products of others. This policy could have a material adverse effect on our
business and our profitability.
OUR RELIANCE ON LUCENT AS THE SINGLE SOURCE OF SOME OF OUR MULTI-SERVICE
NETWORKING PRODUCTS COULD LEAD TO DELAYS, ADDITIONAL COSTS, PROBLEMS WITH OUR
CUSTOMERS AND POTENTIAL CUSTOMERS AND LOSS OF REVENUE. Historically, Lucent has
been the only supplier of some of our multi-service networking products,
including the Access Point(R) virtual private network product, PacketStar(TM) AX
ATM access servers, SuperPipe multi-service routers, Max3000 access switches and
our firewall/virtual private network gateway products. Multi-service networking
products are products that support network infrastructures which carry voice,
video and data over any of the protocols, or sets of procedures, supported by
the Internet on local and wide area data networks. For detailed descriptions of
these products, please see "Business -- Products and Solutions -- Multi-service
Networking." Although these products represented less than 1% of our total
product revenue in fiscal 1999, these products are important to our strategy to
provide comprehensive eBusiness solutions to our customers and we expect some of
these products to increase as a percentage of product revenue over time. In
addition, we purchase the fiber components of our SYSTIMAX structured cabling
systems and our wireless local area networking products from Lucent for resale,
and we also have purchased some semiconductor components directly from Lucent.
At the distribution, we intend to enter into agreements with Lucent to procure
these products. If, for any reason, Lucent stops selling these products to us at
commercially reasonable prices, we could experience significant delays and cost
increases, as well as product image problems. Any of these problems could damage
relationships with current or prospective customers and distribution partners
which could adversely affect our operating results in a given period and impair
our ability to generate future sales. Please see "Business-Manufacturing and
Supplies" for a more detailed description of the products for which we have a
sole supply source.
IF WE DO NOT SUCCESSFULLY IMPLEMENT OUR RESTRUCTURING PLAN, WE MAY
EXPERIENCE DISRUPTIONS IN OUR OPERATIONS AND INCUR HIGHER ONGOING COSTS, WHICH
MAY CAUSE OUR PROFITABILITY TO DECLINE. In connection with our separation from
Lucent, we are engaging in a comprehensive review of our operations, including
our organizational structure, products and services and market segments, with a
view toward improving our profitability and business performance as a
stand-alone company. As a result of this review, we expect to announce a
restructuring plan in the fourth quarter of 2000, and a related restructuring
charge. The restructuring plan also may disrupt our operations and cause our
profitability to decline.
AFTER WE IMPLEMENT OUR MANUFACTURING INITIATIVE, WE WILL DEPEND ON CONTRACT
MANUFACTURERS TO PRODUCE MOST OF OUR PRODUCTS AND IF THESE MANUFACTURERS ARE
UNABLE TO FILL OUR ORDERS ON A TIMELY AND RELIABLE BASIS, WE WILL LIKELY BE
UNABLE TO DELIVER OUR PRODUCTS TO MEET CUSTOMER ORDERS OR SATISFY THEIR
REQUIREMENTS. As part of our restructuring plan, we have announced an
initiative to outsource substantially all of our manufacturing other than
manufacturing of structured cabling systems. We will depend on contract
manufacturers to produce our products, and we have only recently begun
negotiations with these contract manufacturers to pursue this initiative. We may
experience significant disruption to our operations by outsourcing so much of
our manufacturing in what we expect to be a short period of time. If our
contract manufacturers terminate their relationships with us or are unable to
fill our orders on a timely basis, we may be unable to deliver our products to
meet our customers' orders, which could delay or decrease our revenue.
WE MAY ACQUIRE OTHER BUSINESSES OR FORM JOINT VENTURES THAT COULD
NEGATIVELY AFFECT OUR PROFITABILITY AND DILUTE EXISTING SHAREOWNERS. The
pursuit of additional technology, services or distribution channels through
acquisitions or joint ventures is an aspect of our business strategy. We may not
identify or complete these transactions in a timely manner, on a cost effective
basis or at all, and we may not realize the benefits of any acquisition or joint
venture. Also, we may be limited in the amount of our stock that we can issue to
make acquisitions, because the issuance of our stock may cause the distribution
to be
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taxable to Lucent under Section 355(e) of the Internal Revenue Code, and under
the tax sharing agreement we would be required to indemnify Lucent against that
tax. See "The Distribution -- Federal Income Tax Consequences of the
Distribution" and "Relationship Between Lucent and Our Company After the
Distribution -- Tax Sharing Agreement" for a more detailed discussions of
Section 355(e) and the tax sharing agreement between Lucent and us.
While we have been involved in acquisition activities as part of Lucent, we
will have limited experience in acquisition activities as a stand-alone company
and may have to devote substantial time and resources in order to complete
acquisitions. There may also be risks of entering markets in which we have no or
limited prior experience. In addition, if we were to make any acquisitions, we
could:
- issue equity securities that would dilute our shareowners;
- incur debt which could involve restrictive covenants;
- assume unknown or contingent liabilities; or
- experience negative effects on our reported results of operations from
acquisition-related charges and of amortization of acquired technology,
goodwill and other intangibles.
WE MAY NOT HAVE FINANCING FOR FUTURE STRATEGIC ACQUISITIONS AND INVESTMENTS
AND ANY FINANCING WE DO RECEIVE MAY INCREASE OUR DEBT OR DILUTE YOUR OWNERSHIP
OF OUR COMPANY. We may need to incur additional debt or issue equity in order
to make any strategic acquisition or investment. We cannot assure you that such
financing will be available to us on acceptable terms or at all. Our ability to
make payments on and to refinance our indebtedness, including the commercial
paper program we will assume and future indebtedness, and to fund working
capital, capital expenditures and strategic acquisitions and investments will
depend on our ability to generate cash in the future. Our ability to generate
cash is subject to general economic, financial, competitive, legislative,
regulatory and other factors that are beyond our control. Furthermore, if we
raise funds through the issuance of debt or equity securities, the securities
issued may have rights and preferences and privileges senior to those of holders
of our common stock, and the terms of the securities may impose restrictions on
our operations or dilute your ownership of us.
OUR INDUSTRY IS HIGHLY COMPETITIVE AND IF WE CANNOT EFFECTIVELY COMPETE,
OUR REVENUE MAY DECLINE. The market for our products and services is very
competitive and subject to rapid technological advances. We expect the intensity
of competition to continue to increase in the future as existing competitors
enhance and expand their product and service offerings and as new participants
enter the market. Increased competition also may result in price reductions,
reduced gross margins and loss of market share. Our failure to maintain and
enhance our competitive position would adversely affect our business and
prospects.
Following our separation from Lucent, we may compete against Lucent in some
of our current or future market segments. We also compete with a number of
equipment manufacturers and software companies in selling our communications
systems and software. Further, our customer relationship management professional
services consultants compete against a number of professional services firms.
For the names of our competitors in our various market segments, please see
"Business -- Competition." Some of our customers and strategic partners are also
competitors of ours. We expect to face increasing competitive pressures from
both current and future competitors in the markets we serve.
The sizes of our competitors vary across our market segments, as do the
resources we have allocated to the segments we target. Therefore, many of our
competitors have greater financial, personnel, capacity and other resources than
we have in each of our market segments or overall. As a result, our competitors
may be in a stronger position to respond quickly to potential acquisitions and
other market opportunities, new or emerging technologies and changes in client
requirements. Competitors with greater financial resources also may be able to
offer lower prices, additional products or services or other incentives that we
cannot match or do not offer. These competitors may be in a stronger position to
respond quickly to new or emerging technologies and may be able to undertake
more extensive marketing campaigns, adopt more aggressive pricing policies and
make more attractive offers to potential customers, employees and strategic
partners. We cannot assure you that we will be able to compete successfully
against existing or future competitors.
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THE TERMS OF OUR SEPARATION FROM LUCENT, ANTI-TAKEOVER PROVISIONS OF OUR
CERTIFICATE OF INCORPORATION AND BY-LAWS, OUR RIGHTS AGREEMENT AND PROVISIONS OF
DELAWARE LAW COULD DELAY OR PREVENT A CHANGE OF CONTROL THAT YOU MAY
FAVOR. Under the terms of the Contribution and Distribution Agreement between
us and Lucent, if a change of control of us occurs during the three years
following the distribution, Lucent could terminate or cause us to reconvey some
of the rights granted under the agreements which we are entering into with
Lucent, including important intellectual property rights. Under this agreement,
a change of control means the consummation of a merger or consolidation of all
of our company, a sale or other disposition of all or substantially all of our
assets, the acquisition of 40% or more of our voting stock or changes in the
composition of a majority of our board of directors which are not supported by
our current board of directors. This may discourage a change of control
transaction during that period.
Provisions of our certificate of incorporation and bylaws, our Rights
Agreement and provisions of applicable Delaware law, which will be in effect
after the distribution, may discourage, delay or prevent a merger or other
change of control that shareowners may consider favorable or may impede the
ability of the holders of our common stock to change our management. The
provisions of our certificate of incorporation and bylaws, among other things,
will:
- divide our board of directors into three classes, with members of each
class to be elected in staggered three-year terms;
- limit the right of shareowners to remove directors;
- regulate how shareowners may present proposals or nominate directors for
election at annual meetings of shareowners; and
- authorize our board of directors to issue preferred stock in one or more
series, without shareowner approval.
Please see "Relationship Between Lucent and Our Company After the
Distribution -- Contribution and Distribution Agreement," "Description of
Capital Stock" for a more detailed description of these agreements and
provisions.
Also, acquisition of our stock could trigger the application of Section
355(e) of the Internal Revenue Code. Under the tax sharing agreement we would be
required to indemnify Lucent for the resulting tax and this indemnity obligation
might discourage, delay or prevent a change of control that shareowners may
consider favorable. Please see "The Distribution -- Federal Income Tax
Consequences of the Distribution" and "Relationship Between Lucent and Our
Company After the Distribution -- Tax Sharing Agreement" for a more detailed
discussion of Section 355(e) and the tax sharing agreement between Lucent and
us.
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FORWARD LOOKING STATEMENTS
This information statement contains forward-looking statements that are
based on current expectations, estimates, forecasts and projections about the
industries in which we operate, management's beliefs and assumptions made by
management. Such statements include, in particular, statements about our plans,
strategies and prospects under the headings "Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business." Words such as "expects," "anticipates," "intends,"
"plans," "believes," "seeks," "estimates," variations of such words and similar
expressions are intended to identify such forward looking statements. These
statements are not guarantees of future performance and involve risks,
uncertainties and assumptions which are difficult to predict. Therefore, actual
outcomes and results may differ materially from what is expressed or forecasted
in such forward looking statements. Except as required under the federal
securities laws and the rules and regulations of the Securities and Exchange
Commission, we do not have any intention or obligation to update publicly any
forward looking statements after we distribute this information statement,
whether as a result of new information, future events or otherwise.
This information statement contains information concerning our market
segments generally which is forward-looking in nature and is based on a variety
of assumptions regarding the ways in which this market will develop. These
assumptions have been derived from information currently available to us and to
the third party market observers quoted herein. They include the following
general underlying expectations:
- eBusiness will grow significantly over the next five years;
- no catastrophic failure of the Internet will occur; and
- government regulations will not prohibit or materially adversely affect
our business.
If any one or more of the foregoing assumptions is incorrect, actual market
results may differ from those predicted. While we do not know what impact any
such differences may have on our business, our future business, results of
operations and financial condition and the market price of our shares of common
stock may be materially adversely impacted.
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DIVIDEND POLICY
We do not anticipate paying any dividends on our common stock in the
foreseeable future because we expect to retain our future earnings for use in
the operation and expansion of our business. Our payment and amount of
dividends, however, will be subject to the discretion of our board of directors
and will depend, among other things, upon our results of operations, financial
condition, cash requirements, future prospects and other factors which may be
considered relevant by our board of directors.
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CAPITALIZATION
The following table sets forth our combined capitalization as of June 30,
2000, on a historical and pro forma basis, to give effect to the distribution
and the transactions related to the distribution. This table should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operation" and the unaudited pro forma condensed financial
statements and notes thereto included elsewhere in this information statement.
For an explanation of the pro forma adjustments made to our historical combined
financial statements for the distribution and the transactions related to the
distribution to derive the pro forma capitalization described below, please see
"Unaudited Pro Forma Condensed Financial Statements."
<TABLE>
<CAPTION>
AS OF JUNE 30, 2000
--------------------------
HISTORICAL PRO FORMA
(UNAUDITED) (UNAUDITED)
----------- -----------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Commercial paper............................................ $ -- $ 700
Debt........................................................ 4 4
------ ------
Total debt........................................ 4 704
------ ------
SHAREOWNERS' EQUITY:
Common stock, par value $0.01 per share, 1,000 shares
authorized, issued and outstanding as of June 30, 2000,
shares pro forma................................ -- --
Additional paid in capital................................ -- 1,336
Owner's net investment.................................... 1,844 --
Accumulated other comprehensive loss...................... (48) (48)
------ ------
Total shareowners' equity......................... 1,796 1,288
------ ------
Total capitalization.............................. $1,800 $1,992
====== ======
</TABLE>
Pro forma commercial paper reflects the assumption by us from Lucent of
$700 million of short-term debt under a commercial paper program that Lucent
will enter into prior to the distribution. We may assume additional debt under
the commercial paper program to the extent additional debt is incurred by Lucent
under the program to fund restructuring or separation costs and expenses that we
may incur prior to the distribution. We may also assume additional debt under
the program for our working capital if there is a substantial increase in our
working capital over our current plan prior to the distribution. Upon the
distribution, Lucent will be relieved of all obligations under the program. In
addition, we currently anticipate requiring approximately $700 million of
additional financing over the next eight months to fund costs and expenses in
connection with the planned restructuring and separation, including the portion
of these costs and expenses that we may incur prior to the distribution. We have
not yet finalized the type of financing for the costs incurred after the
distribution. Accordingly, we have not made adjustments for this additional $700
million of financing in the unaudited pro forma condensed financial statements
or the capitalization table above. After the distribution, we may refinance all
or a part of this commercial paper program with long-term or other short-term
debt.
We also have not made adjustments in the unaudited pro forma condensed
financial statements or the capitalization table above for the impact of the
$400 million we expect to receive for the 4,000,000 shares of Series B
convertible participating preferred stock and the warrants to purchase shares of
our common stock we expect to issue upon consummation of the equity investment
by Warburg, Pincus Equity Partners, L.P. and related investment funds after
completion of the distribution. No amounts have yet been ascribed to potential
beneficial conversion features, as described in the "Unaudited Pro Forma
Condensed Financial Statements," which amounts will only be determinable after
the distribution. The conversion features, the accretion to liquidation value
for the Series B convertible participating preferred stock and any beneficial
conversion features will dilute both basic and fully diluted earnings per share.
For a more detailed description of this equity investment, please see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and "Related Transactions and
Equity Investment."
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Our ability to issue additional equity is constrained because our issuance
of additional common stock may cause the distribution to be taxable to Lucent
under Section 355(e) of the Internal Revenue Code, and under the tax sharing
agreement we would be required to indemnify Lucent against that tax. See "The
Distribution Federal Income Tax Consequences of the Distribution" and
"Relationship Between Lucent and Our Company After the Distribution -- Tax
Sharing Agreement" for a more detailed discussion of Section 355(e) and the tax
sharing agreement between Lucent and us. In addition, we may refinance all or a
portion of the commercial paper program we are assuming from Lucent with
long-term or other short-term debt.
On a historical basis, the amount of Lucent's net investment in us was
recorded as Owner's net investment in our combined financial statements. The pro
forma number of shares of common stock is based on each holder of Lucent common
stock receiving a dividend of one share of our common stock for every
shares of Lucent common stock and there being 3,339,511,932 shares of Lucent
common stock outstanding as of June 30, 2000.
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SELECTED FINANCIAL INFORMATION
The following table sets forth our selected financial information derived
from our unaudited combined financial statements for the fiscal year ended and
as of December 31, 1995 and for the nine months ended and as of September 30,
1996, which are not included in this information statement, the audited combined
financial statements for the fiscal years ended and as of September 30, 1997,
1998 and 1999, and our unaudited interim combined financial statements as of and
for the nine months ended June 30, 1999 and 2000, included elsewhere in this
information statement. In our opinion, all adjustments, which consist only of
normal and recurring accruals, considered necessary for a fair presentation have
been included in our unaudited combined financial statements. Per share data for
net income and dividends have not been presented because we were operated
through divisions and subsidiaries of Lucent for the periods presented. The
historical financial information may not be indicative of our future performance
as an independent company. The selected financial information should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," the unaudited pro forma condensed financial
statements and the notes thereto and the combined financial statements and the
notes thereto included elsewhere in this information statement.
In reviewing the selected financial information, please note the following:
- In fiscal 1996, we changed our fiscal year end from December 31 to
September 30.
- The selected statement of income information reflects the purchase of
Octel Communications Corporation in September 1997.
- The purchased in-process research and development is attributable to the
acquisitions of Lannet Ltd., SDX Business Systems PLC, Prominet
Corporation, Octel Communications Corporation and Agile Networks, Inc. in
1998 and 1997.
- Effective October 1, 1998, we changed our method for calculating the
market-related value of plan assets used in determining the expected
return-on-asset component of annual net pension and postretirement benefit
costs.
- Total debt represents debt attributable to our ownership in foreign
entities and does not reflect the amount of financing we will have as a
stand-alone company after the distribution.
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED YEAR ENDED SEPTEMBER 30, ENDED YEAR ENDED
JUNE 30, JUNE 30, ------------------------ SEPTEMBER 30, DECEMBER 31,
2000 1999 1999 1998 1997 1996 1995
----------- ----------- ------ ------ ------ ------------- ------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME INFORMATION:
Revenue.................. $5,664 $5,870 $8,268 $7,754 $6,413 $4,544 $5,643
Purchased in-process
research and
development............ -- -- -- 306 472 -- --
Income (loss) before
cumulative effect of
accounting change...... 168 57 186 43 (148) 176 385
Cumulative effect of
accounting change...... -- 96 96 -- -- -- --
Net income (loss)........ 168 153 282 43 (148) 176 385
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF SEPTEMBER 30, AS OF
JUNE 30, ---------------------------------------- DECEMBER 31,
2000 1999 1998 1997 1996 1995
----------- ------ ------ ------ ------------- ------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET
INFORMATION:
Total assets............. $4,076 $4,239 $4,177 $3,340 $2,391 $2,157
Total debt............... 4 10 14 25 7 2
</TABLE>
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UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS
The unaudited pro forma condensed financial statements reported below
should be read in conjunction with our "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the combined financial
statements and the notes thereto included elsewhere in this information
statement. The following unaudited pro forma condensed financial statements have
been prepared giving effect to the distribution, the assumption of short-term
debt under the Lucent commercial paper program as well as the associated
interest expense, and the inclusion in our balance sheet of the estimated net
assets and deferred taxes associated with our employee benefit plans as if these
transactions occurred as of June 30, 2000, for the unaudited pro forma condensed
balance sheet and as of October 1, 1998, for the unaudited pro forma condensed
statements of income.
The pro forma statements of income give pro forma effect to the assumption
by us from Lucent of $700 million of short-term debt under a commercial paper
program that Lucent will enter into prior to the distribution, including the
associated interest expense. We may assume additional debt under the commercial
paper program to the extent additional debt is incurred by Lucent under the
program to fund restructuring or separation costs and expenses that we may incur
prior to the distribution. We may also assume additional debt under the program
for our working capital if there is a substantial increase in our working
capital over our current plan prior to the distribution. Upon the distribution,
Lucent will be relieved of all obligations under the program. In addition, we
currently anticipate requiring approximately $700 million of additional
financing over the next eight months to fund costs and expenses in connection
with the planned restructuring and separation, including the portion of these
costs and expenses that we may incur prior to the distribution. We have not yet
finalized the type of financing for the costs incurred after the distribution.
After the distribution, we may refinance all or a part of this commercial paper
program with long-term or other short-term debt.
Commercial paper notes are senior unsecured obligations typically issued at
a discount from par value, repayable at par upon maturity. The maturities of
these obligations generally range from a few days to a few months. Commercial
paper obligations are thus short-term, fixed rate notes. However, as commercial
paper is often refinanced, or rolled over, at maturity or as outstanding
obligations increase or decrease, the average interest rate on outstanding
balances will vary from time to time, such as monthly, as interest rates vary.
The pro forma balance sheet includes the impact of the estimated net assets
and deferred taxes we will receive in connection with Lucent's prepaid pension
costs and long-term postretirement liabilities associated with the related
employees that will be transferred to us at the date of distribution. The pro
forma adjustments are based upon available information and assumptions that we
believe are reasonable. Please see the notes to unaudited pro forma condensed
financial statements for a discussion of how these adjustments are presented in
the pro forma financial statements.
These unaudited pro forma condensed financial statements do not reflect
many significant changes that may occur after the distribution in our financing
plans and cost structure, including costs or savings related to our planned
restructuring or our manufacturing initiative. In particular, we have not made
adjustments for our anticipated requirement for approximately $700 million of
additional financing over the next eight months. We have not yet finalized the
amount of additional financing we will require because we are currently
developing our restructuring plan, reviewing our capital structure and examining
other costs and expenses we may incur as a stand-alone company.
The pro forma balance sheet also does not include the impact of the $400
million we expect to receive for the 4,000,000 shares of Series B convertible
participating preferred stock and the warrants to purchase shares of our common
stock we expect to issue upon consummation of the equity investment by Warburg,
Pincus Equity Partners, L.P. and related investment funds after completion of
the distribution. Based on an agreed formula, the convertible participating
preferred stock is expected to be initially convertible into approximately 5.0%
of our fully diluted common stock, calculated using a modified treasury stock
method as of the 90th day after issuance. The warrants have an exercise price
equal to 130% of the conversion price for the Series B convertible participating
preferred stock. The warrants are exercisable for 3.6% of a total number of
shares of common stock to be calculated pursuant to an agreed upon formula as of
the 90th day after issuance. Of these warrants, warrants exercisable for 2.0% of
such total number of shares of common stock will have a four-year term and
warrants exercisable for 1.6% of
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33
such total number of shares of common stock will have a five-year term. During a
period commencing no later than June 30, 2001, until the second anniversary of
their issuance, if the market price of our common stock exceeds agreed upon
trading price levels, we can force conversion of up to 50% of the warrants.
The shares of convertible participating preferred stock will have an
aggregate initial liquidation value of $400 million and will accrete for the
first ten years at an annual rate of 6.5%, compounded quarterly. After the third
anniversary of the issue date, 50% of the accretion amount may be paid in cash
as a dividend, at our option. From the fifth anniversary of the issue date
through the tenth anniversary, we may elect to pay 100% of the accretion amount
as a cash dividend. Following the tenth anniversary of the issue date, we will
pay quarterly cash dividends at an annual rate of 12% of the then accreted
liquidation value of the Series B convertible participating preferred stock,
compounded quarterly. The convertible participating preferred shares also
participate, on an as-converted basis, in dividends paid on our common stock.
If the Series B convertible participating preferred stock or the warrants
have a conversion or exercise price that is less than the fair value of our
common stock at their measurement date, then the securities may be deemed to
have beneficial conversion features. No amounts have yet been ascribed to
potential beneficial conversion features, which will only be determinable after
the distribution. The conversion features, the accretion to liquidation value
for the Series B convertible participating preferred stock and any beneficial
conversion features will dilute both basic and fully diluted earnings per share.
For a more detailed description of this equity investment, please see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and "Related Transactions and
Equity Investment."
The unaudited pro forma condensed balance sheet and statements of income
included in this information statement have been derived from the combined
financial statements included elsewhere in this information statement and do not
purport to represent what our financial position and results of operations
actually would have been had the distribution and related transactions occurred
on the dates indicated or to project our financial performance for any future
period. Lucent did not account for us as, and we were not operated as, a
single-stand alone entity for the periods presented.
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AVAYA INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED JUNE 30, 2000
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
Revenue.................................................... $ 5,664 $ 5,664
Costs...................................................... (3,152) (3,152)
------- -------
Gross margin............................................. 2,512 2,512
Operating expenses......................................... (2,230) (2,230)
------- -------
Operating income......................................... 282 282
Other income, net.......................................... 54 54
Interest expense........................................... (59) 18(A) (41)
------- -------
Income before income taxes............................... 277 295
Provision for income taxes................................. (109) (7)(F) (116)
------- -------- -------
Net income................................................. $ 168 11 $ 179
======= ======== =======
PRO FORMA EARNINGS PER SHARE(B):
Basic (based on shares outstanding)................. $ $
======= =======
Diluted (based on shares outstanding)............... $ $
======= =======
</TABLE>
See accompanying notes to unaudited pro forma condensed financial statements.
31
35
AVAYA INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED STATEMENTS OF INCOME
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1999
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
Revenue.................................................... $ 8,268 $ 8,268
Costs...................................................... (4,564) (4,564)
------- -------
Gross margin............................................. 3,704 3,704
Operating expenses......................................... (3,335) (3,335)
------- -------
Operating income......................................... 369 369
Other income, net.......................................... 28 28
Interest expense........................................... (90) 42(A) (48)
------- -------
Income before income taxes............................... 307 349
Provision for income taxes................................. (121) (16)(F) (137)
------- ---- -------
Income before cumulative effect of accounting change..... 186 26 212
Cumulative effect of accounting change..................... 96 96
------- ---- -------
Net income................................................. $ 282 26 $ 308
======= ==== =======
PRO FORMA EARNINGS PER SHARE(B):
Basic (based on shares outstanding).............. $ $
======= =======
Diluted (based on shares outstanding)............ $ $
======= =======
</TABLE>
See accompanying notes to unaudited pro forma condensed financial statements.
32
36
AVAYA INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
AS OF JUNE 30, 2000
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
ASSETS:
Cash and cash equivalents.............................. $ 217 $ 217
Receivables, less allowances........................... 1,588 1,588
Inventories............................................ 736 736
Other current assets................................... 222 222
------ -------
Total current assets......................... 2,763 2,763
Property, plant and equipment, net..................... 727 727
Prepaid pension costs.................................. -- 659(E) 659
Other assets........................................... 586 (126)(E) 460
------ ------- -------
Total assets................................. $4,076 533 $ 4,609
====== ======= =======
LIABILITIES:
Current liabilities.................................... $1,533 $ 1,533
Commercial paper....................................... -- 700(C) 700
------ ------- -------
Total current liabilities.................... 1,533 700 2,233
Postretirement benefit liability....................... -- 341(E) 341
Long-term debt......................................... -- --
Other liabilities...................................... 747 747
------ ------- -------
Total liabilities............................ 2,280 1,041 3,321
------ ------- -------
SHAREOWNERS' EQUITY:
Preferred stock, Series A junior participating
preferred stock, par value $1.00 per share,
authorized and outstanding as of June 30, 2000,
shares pro forma.............................. -- --
Common stock, par value $0.01 per share, 1,000 shares
authorized, issued and outstanding as of June 30,
2000, shares pro forma........................
Additional paid-in capital............................. -- 1,336(D) 1,336
Owner's net investment................................. 1,844 (700)(C)
(1,336)(D)
192(E)
Accumulated other comprehensive loss................... (48) (48)
------ ------- -------
Total shareowners' equity.................... 1,796 (508) 1,288
------ ------- -------
Total liabilities and shareowners' equity.... $4,076 533 $ 4,609
====== ======= =======
</TABLE>
See accompanying notes to unaudited pro forma condensed financial statements.
33
37
NOTES TO UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS
(A) This adjustment reflects the elimination of the interest expense associated
with the assumed $1,320 million of average debt balance for fiscal 1999 and
$992 million of average debt balance for the nine months ended June 30,
2000, included in the historical statements of income, and gives effect to
the interest expense associated with the assumption by us of $700 million of
commercial paper at the time of the distribution, as described in note (C)
below. This adjustment does not reflect our anticipated requirement for
approximately $700 million of additional financing over the next eight
months to fund costs and expenses in connection with the planned
restructuring and separation. A portion of the costs and expenses associated
with the planned restructuring and separation may be incurred prior to the
distribution. These costs would be funded by Lucent through additional debt
incurred under the commercial paper program, which debt would be assumed by
us at the distribution date. We have not yet finalized the type of financing
for the costs and expenses incurred after the distribution.
<TABLE>
<CAPTION>
FOR NINE FOR FISCAL
MONTHS YEAR ENDED
ENDED JUNE 30, SEPTEMBER 30,
2000 1999
-------------- -------------------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Interest expense reflected in the historical
financial statements...................... $59 $90
Interest expense on $700 million of
commercial paper at 7.9% and 6.8% for the
nine months ended June 30, 2000, and
fiscal year ended September 30, 1999,
respectively.............................. 41 48
--- ---
Adjustment.................................. $18 $42
=== ===
</TABLE>
A variation of .125 percentage point in the interest rate charged under the
commercial paper program would result in a change of approximately $656,000
and $875,000 for the nine months ended June 30, 2000 and the year ended
September 30, 1999, respectively.
(B) The computation of pro forma basic earnings per share for the periods
presented is based upon the anticipated number of common shares outstanding
upon completion of the distribution. In addition, for purposes of
calculating pro forma basic earnings per share, net income attributable to
common shareowners has not been adjusted for the accretion to liquidation
value or any beneficial conversion features in connection with the issuance
of $400 million of Series B convertible participating preferred stock and
warrants to purchase shares of our common stock. The computation of pro
forma diluted earnings per share assumes the outstanding Lucent options held
by our employees will be converted into options to purchase our common
stock. The actual number of options assumed will not be determined until
after the distribution, when it is determined which Lucent employees have
become our employees. The calculation of the pro forma fully diluted
earnings per share also does not reflect any conversion of the Series B
convertible participating preferred stock or exercise of warrants to
purchase shares of our common stock.
(C) Represents the short-term debt of $700 million expected to be issued by
Lucent under a commercial paper program, which we will assume on the
distribution date. Lucent will retain the proceeds of all borrowings under
the commercial paper program. On the distribution date, Lucent will be
released from all of its obligations under the program and we will become
obligated to satisfy all payments and other terms under the commercial paper
program. This adjustment does not reflect the $700 million of additional
financing described in footnote (A) above.
(D) On a historical basis, this amount reflects Lucent's net investment in us,
which was recorded as Owner's net investment in our combined financial
statements.
(E) To reflect the projected assets and liabilities and the deferred taxes
associated with various existing Lucent pension and other employee benefit
plans related to the employees for which the Company is assuming
responsibility.
(F) To reflect the tax effect of the pro forma adjustments at the tax rate of
39%.
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38
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
You should read the following discussion in conjunction with the combined
financial statements and the notes thereto, and the unaudited pro forma
condensed financial statements and the notes thereto, included elsewhere in this
information statement. This Management's Discussion and Analysis of Financial
Condition and Results of Operations contains forward looking statements. Please
see "Forward Looking Statements" for a discussion of the uncertainties, risks
and assumptions associated with these statements.
OVERVIEW
We are a leading provider of communications systems and software for
enterprises, including businesses, government agencies and other organizations.
We offer voice, converged voice and data, customer relationship management,
messaging, multi-service networking and structured cabling products and
services. Multi-service networking products are those products that support
network infrastructures which carry voice, video and data traffic over any of
the protocols, or set of procedures, supported by the Internet on local area and
wide area data networks. A structured cabling system is a flexible cabling
system designed to connect phones, workstations, personal computers, local area
networks and other communications devices through a building or across one or
more campuses. We are a worldwide leader in sales of messaging and structured
cabling systems and a U.S. leader in sales of enterprise voice communications
and call center systems. We are not a leader in multi-service networking
products or in converged voice and data products. We have entered these product
areas relatively recently, and our product portfolio is less complete than the
portfolios of some of our competitors. We are implementing a strategy focused on
these products.
We report our operations in three segments: Communications Solutions,
Services and Connectivity Solutions. The Communications Solutions segment
represents our core businesses, comprised of our enterprise voice communications
systems and software, communications applications, professional services for
customer and enterprise relationship management, multi-service networking
products and product installation services. The purchase prices of our products
typically include installation. The Services segment represents our maintenance
and value-added services. The Connectivity Solutions segment represents our
structured cabling systems and our electronic cabinets. The results of our
corporate operations are recorded in corporate and other.
The following table sets forth the allocation of our revenue among our
operating segments, expressed as a percentage of total external revenue,
excluding corporate and other revenue:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED FISCAL YEAR ENDED
JUNE 30, SEPTEMBER 30,
-------------- -----------------------
2000 1999 1999 1998 1997
----- ----- ----- ----- -----
(PERCENTAGES)
<S> <C> <C> <C> <C> <C>
OPERATING SEGMENT
Communications Solutions................... 57.5% 60.2% 61.6% 59.2% 58.1%
Services................................... 25.6 23.8 23.0 22.6 23.8
Connectivity Solutions..................... 16.9 16.0 15.4 18.2 18.1
----- ----- ----- ----- -----
Total............................ 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
</TABLE>
SEPARATION FROM LUCENT
We were incorporated under the laws of the State of Delaware on February
16, 2000, as a wholly owned subsidiary of Lucent. We will have no material
assets or activities until the contribution to us by Lucent, of the businesses
described in this information statement, which is expected to occur immediately
prior to the distribution. Lucent conducted such businesses through various
divisions and subsidiaries. Following the distribution, we will be an
independent public company, and Lucent will have no continuing stock ownership
interest in us. Prior to the distribution, we will enter into several agreements
with Lucent in connection with, among other things, intellectual property,
interim services and a number of ongoing
35
39
commercial relationships, including product supply arrangements. The interim
services agreement sets forth charges generally intended to allow the providing
company to fully recover the allocated direct costs of providing the services,
plus all out-of-pocket costs and expenses, but without any profit. With limited
exceptions, these interim services are not expected to extend beyond March 31,
2001. The pricing terms for goods and services covered by the commercial
agreements will reflect negotiated prices. Please see "Relationship Between
Lucent and Our Company After the Distribution" for a more detailed discussion of
these agreements.
Our combined financial statements, which are discussed below, reflect the
historical financial position, results of operations and cash flows of the
businesses to be transferred to us from Lucent as part of the distribution. The
financial information included herein, however, may not necessarily reflect our
financial position, results of operations and cash flows in the future or what
our financial position, results of operations and cash flows would have been had
we been a stand-alone company during the periods presented.
Cash, cash equivalents, debt and interest expense. Lucent uses a
centralized approach to cash management and the financing of its operations. Our
cash deposits are transferred to Lucent on a regular basis. As a result, none of
Lucent's cash, cash equivalents or debt at the corporate level were allocated to
us in our combined financial statements. We have assumed for purposes of
calculating interest expense that we would have had average debt balances of
$992 million for the nine months ended June 30, 2000, and $1,320 million, $1,439
million and $825 million, for fiscal 1999, 1998 and 1997, respectively. The
amount of debt incurred for purposes of calculating interest expense reflects
our estimates for the amount of debt we would have needed during these periods
to fund our operations, including to fund our capital expenditures and
acquisitions. For purposes of our combined financial statements, we have assumed
average interest rates of 7.9% for the nine months ended June 30, 2000, and,
6.8%, 6.5% and 7.1% per annum, for fiscal 1999, 1998 and 1997, respectively. The
interest rates used are estimates of what we believe we would have obtained with
a "BBB" rating, the assumed credit rating of our company after the distribution.
Although we believe our estimates are reasonable, these amounts of debt and
interest rates are not necessarily indicative of the amount of debt and related
interest rates we actually would have had if we were a stand-alone company
during all periods presented.
Corporate overhead and basic research. The combined financial statements
include allocations of the assets, liabilities and expenses of Lucent's
corporate headquarters relating to our businesses. General corporate overhead
has been either allocated based on the ratio of our costs and expenses to
Lucent's costs and expenses or based on our revenue as a percentage of Lucent's
total revenue, as appropriate. General corporate overhead primarily includes
cash management, legal, accounting, tax, insurance, public relations,
advertising and data services and amounted to $276 million for the nine months
ended June 30, 2000, and $449 million, $425 million and $335 million for fiscal
1999, 1998 and 1997, respectively. We believe the costs of these services
charged to us are a reasonable representation of the costs that would have been
incurred if we had performed these functions as a stand-alone company.
The combined financial statements also include an allocation from Lucent to
fund a portion of the costs of basic research conducted by Lucent's Bell
Laboratories. This allocation was based on our revenue as a percentage of
Lucent's total revenue. This allocation amounted to $56 million, for the nine
months ended June 30, 2000, and $78 million, $66 million and $59 million for
fiscal 1999, 1998 and 1997, respectively. We believe the costs of this research
charge to us are a reasonable representation of the costs that would have been
incurred if we had performed these functions as a stand-alone company. Following
the distribution, we will satisfy our corporate overhead and basic research
requirements using our own resources or through purchased services.
We intend to invest an amount equal to approximately 9% of our total
revenue in fiscal 2001 in research and development. These investments represent
a significant increase over our investments in research and development over the
previous three fiscal years which was approximately 6% of total revenue for each
of those years. Although we will spend a significant portion of our budget on
hiring research personnel as we build our group, we believe our investments will
be more effective than historically
36
40
because our efforts will be focused on our products. As a part of Lucent, we
funded a portion of Lucent's basic research, which research was not necessarily
beneficial for our business.
Benefit obligations. At the distribution, we will assume responsibility
for pension and postretirement benefits for our active employees. Obligations
related to retired and terminated vested employees as of September 30, 2000 will
remain the responsibility of Lucent. Until the distribution, our employees are
participants in the Lucent pension plans and, upon retirement, will be
participants in Lucent's postretirement benefit plans. Lucent has managed its
employee benefit plans on a consolidated basis. Therefore, our share of the
Lucent plans' assets and liabilities are not included in our combined financial
statements. For purposes of the financial statements, the pension and
postretirement costs were based on estimated assets being equal to a
proportional share of plan obligations incurred by Lucent for employees who
performed services for us.
Income taxes. Income taxes were calculated as if we filed separate tax
returns. However, Lucent was managing its tax position for the benefit of its
entire portfolio of businesses, and its tax strategies are not necessarily
reflective of the tax strategies that we would have followed or will follow as a
stand-alone company.
REVIEW OF OPERATIONS AND RELATED CHARGES
We believe there are a number of opportunities as a stand-alone company to
significantly improve our profitability and business performance. In connection
with the distribution, we are currently engaged in a comprehensive review of our
operations, including our organizational structure, products and services and
market segments. Based on this review, we expect to begin implementing a
company-wide restructuring in the fourth quarter of fiscal 2000, with a view
toward improving our profitability and business performance as a stand-alone
company. After our restructuring plan is finalized and approved by our board of
directors, we expect to record charges in connection with this plan of $700
million to $800 million in the fourth quarter of fiscal 2000 of which
approximately 90% is expected to result in a usage of cash. In addition, we
expect to incur one time expenses in the fourth quarter of fiscal 2000 in
connection with our separation from Lucent in the range of $100 million to $150
million, of which at least the majority is expected to result in a usage of
cash. We expect to incur a portion of our total restructuring costs and
separation expenses prior to the distribution. We expect to fund our
restructuring costs and separation expenses through a combination of debt and
internally generated funds. In addition, as part of our review of operations, we
are in the process of evaluating our ongoing costs to support a contract we have
with a major customer under which we provide equipment outsourcing and related
services. At this time, we can not reasonably predict the action that may be
taken as a result of this evaluation process, however, a material cash payment
or charge could result. We expect to complete the evaluation and determine our
course of action in the fourth quarter of fiscal 2000.
Our restructuring is expected to include:
- reducing headcount in various areas, including by outsourcing some
corporate functions, redesigning our services, centralizing and
consolidating our marketing organization and consolidating our customer
call centers;
- eliminating excess capacity through consolidation of our owned and leased
real estate, involving a reduction from approximately 13 million square
feet currently occupied to approximately nine million square feet with a
corresponding reduction in our leases and a headcount reduction for real
estate management;
- reducing administrative sales support, consolidating administrative
functions and closing some of our international sales locations, as we
implement our strategy to strengthen our distribution channels;
- exiting outsourcing contracts that we currently have for our systems
infrastructure and shutting down our legacy computer systems; and
- implementing the contract manufacturing initiative described below.
37
41
Our contract manufacturing initiative will involve the outsourcing of
substantially all our manufacturing other than the manufacturing of our
structured cabling systems. By outsourcing our manufacturing to contractors
whose business is to manufacture sophisticated electronics equipment, we believe
we will be able to focus on our strengths in developing innovative software and
systems and on increasing and improving our services offerings, while still
providing high quality products to our customers. We believe that outsourcing
our manufacturing will allow us to improve our cash flow over the next few years
through a reduction of inventory and reduced capital expenditures.
ACQUISITIONS
As part of our continued efforts to broaden our portfolio of product
offerings, Lucent, on our behalf, completed the following key acquisitions
during fiscal 1999, 1998 and 1997:
<TABLE>
<S> <C>
July 1999 Merger with Mosaix, Inc., a provider of software that
manages an enterprise's various office functions. Lucent
issued 2.6 million shares of Lucent common stock, with a
value of $145 million, for all of the outstanding stock of
Mosaix. The transaction was accounted for by Lucent as a
pooling of interests.
August 1998 Acquisition of Lannet Ltd., an Israeli-based producer of
multi-service networking products. The purchase price was
$115 million in cash.
July 1998 Acquisition of SDX Business Systems PLC, a United
Kingdom-based provider of multi-service networking products.
The purchase price was $207 million in cash.
January 1998 Acquisition of Prominet Corporation, a producer of
multi-service networking products. The purchase price was
$199 million of Lucent common stock.
September 1997 Acquisition of Octel Communications Corporation, a provider
of voice, fax and electronic messaging technologies to
service providers and enterprises. The total purchase price
was approximately $1.8 billion, in cash, and the enterprise
portion of that business along with $724 million of the
purchase price was allocated to us.
October 1996 Acquisition of Agile Networks, Inc., a provider of
multi-service networking products. The purchase price was
$135 million in cash.
</TABLE>
REVENUE
We derive revenue primarily from the sales of communication systems and
software. We sell our products both directly through our worldwide sales force
and indirectly through our global network of approximately 4,300 distributors,
dealers, value-added resellers, system integrators and contractors. The purchase
price of our systems and software typically includes installation and a one-year
warranty. We also derive revenue from:
- maintenance services, including services provided under maintenance
contracts and on a time and material basis;
- professional services for customer and enterprise relationship
management; and
- value-added services for outsourcing messaging and other parts of
communication systems.
Maintenance contracts typically have terms that range from one to five
years. Contracts for professional services typically have terms that range from
two to four weeks for standard solutions and from six months to one year for
customized solutions. Contracts for value-added services typically have terms
that range from one to seven years.
Revenue from sales of communications systems and software is recognized
when contractual obligations have been satisfied, title and risk of loss has
been transferred to the customer and collection of the resulting receivable is
reasonably assured. Revenue from the direct sales of products with installation
services is recognized at the time the products are installed, after
satisfaction of all the terms and conditions of the underlying customer
contract. Our indirect sales to distribution partners are recognized at the time
of shipment if all contractual obligations have been satisfied. For our
value-added services, professional services and services performed under
maintenance contracts, we recognize revenue ratably over the term of the
underlying customer contract or at the end of the contract, when obligations
have
38
42
been satisfied. For services performed on a time and materials basis, revenue is
recognized upon performance. We accrue a provision for estimated sales returns
and other allowances as a reduction of revenue at the time of revenue
recognition, as required.
COSTS AND OPERATING EXPENSES
Our costs of product consist primarily of materials and components, labor
and manufacturing overhead. Our costs of service consist primarily of labor,
parts and service overhead. Our selling, general and administrative expenses and
research and development expenses consist primarily of salaries, commissions,
benefits and other miscellaneous items. Please see "-- Purchased In-Process
Research and Development" for a discussion of this line item.
Total operating expenses in the fiscal years ended September 30, 1999, and
September 30, 1998, were reduced due to the reversal of $33 million and $23
million, respectively, of business restructuring reserves recorded in December
1995 primarily related to favorable experiences in employee separations for
those years.
OPERATING TRENDS
We have been, and intend to continue to, increase the percentage of our
sales made through our distribution partners. To further this strategy, in March
2000, we sold our primary distribution function for our voice communications
systems for small and mid-sized enterprises to Expanets, Inc. As the percentage
of our sales through distribution partners increases, if sales volume remained
the same, our revenue would decline. We expect, however, that the reduction in
our operating costs and expenses as a result of this shift to distribution
partners should offset the decline in revenue.
RESULTS OF OPERATIONS
The following table sets forth line items from our combined statements of
income as a percentage of revenue for the periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS YEAR ENDED
ENDED JUNE 30, SEPTEMBER 30,
-------------- -----------------------
2000 1999 1999 1998 1997
----- ----- ----- ----- -----
(PERCENTAGES)
<S> <C> <C> <C> <C> <C>
Revenue.................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Costs...................................... 55.6 55.4 55.2 53.0 51.2
----- ----- ----- ----- -----
Gross margin............................... 44.4 44.6 44.8 47.0 48.8
Operating expenses
Selling, general and administrative...... 33.2 35.6 33.8 33.6 34.1
Research and development................. 6.2 6.7 6.5 5.5 5.4
Purchased in-process research and
development........................... -- -- -- 3.9 7.4
----- ----- ----- ----- -----
Total operating expenses................... 39.4 42.3 40.3 43.0 46.9
Operating income (loss).................... 5.0 2.3 4.5 4.0 1.9
Other income-net........................... 1.0 0.4 0.3 0.3 0.3
Interest expense........................... 1.1 1.1 1.1 1.2 0.9
Provision (benefit) for income taxes....... 1.9 0.6 1.5 2.5 3.6
Cumulative effect of accounting change..... -- 1.6 1.2 -- --
Net income (loss).......................... 3.0% 2.6% 3.4% 0.6% (2.3)%
</TABLE>
Included in operating income (loss) for the fiscal year ended September 30,
1999, is the $97 million received on the sale in 1999 of equipment which was
previously rented to customers, net of the equipment's book value of
approximately $2 million. This equipment consisted predominately of discontinued
product lines. This effect on the total operating income of $369 million for
fiscal 1999, represented 1.2% of fiscal 1999 revenue.
39
43
NINE MONTHS ENDED JUNE 30, 2000 COMPARED TO NINE MONTHS ENDED JUNE 30, 1999
The following table shows the change in external revenue, both in dollars
and in percentage terms:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
JUNE 30, CHANGE
------------------ ---------------
2000 1999 $ %
------- ------- ----- ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
OPERATING SEGMENT:
Communications Solutions...................... $3,255 $3,529 $(274) (7.8)%
Services...................................... 1,452 1,396 56 4.0
Connectivity Solutions........................ 955 940 15 1.6
Corporate and other............................. 2 5 (3) (60.0)
------ ------ -----
Total................................. $5,664 $5,870 $(206) (3.5)%
====== ====== =====
</TABLE>
Revenue. Revenue decreased 3.5% or $206 million, from $5,870 million for
the nine months ended June 30, 1999, to $5,664 million for the same period in
2000, due to a decrease in the Communications Solutions segment, partially
offset by increases in the Services and Connectivity Solutions segments. The
decrease in the Communications Solutions segment was the result of a $135
million reduction in sales of our Merlin Magix(TM) and Partner(R) product lines
due to the shift from a direct retail market to an indirect distribution channel
resulting from our sale of this distribution function to Expanets. In addition,
sales of our messaging products decreased by $130 million as customers purchased
a higher than usual number of systems in 1999 to upgrade their systems in
anticipation of year 2000 concerns. In addition, the Communications Solutions
segment experienced a $90 million decrease in installation revenue in line with
the reduction in product sales. These decreases were partially offset by
increases in professional services as well as in sales of our DEFINITY(R) and
customer relationship management product offerings. The increase in the Services
segment was the result of strong growth in maintenance services internationally
and in existing value-added service accounts. The Connectivity Solutions segment
increase was driven by growth in ExchangeMax(R) structured cabling systems and
electronic cabinets sales of $125 million, largely offset by a decrease in
SYSTIMAX(R) structured cabling systems.
Revenue within the United States decreased 6.3% or $301 million, from
$4,777 million for the nine months ended June 30, 1999, to $4,476 million for
the same period in 2000. Revenue increased outside the United States 8.7% or $95
million, from $1,093 million for the nine months ended June 30, 1999, to $1,188
million for the same period in fiscal 2000. Revenue outside the United States in
2000 represented 21.0% of revenue compared with 18.6% in 1999. We continued to
expand our business outside of the United States, with growth led by the
Asia/Pacific region for the nine months ended June 30, 2000.
Costs and gross margin. Total costs decreased 3.0% or $98 million, from
$3,250 million for the nine months ended June 30, 1999, to $3,152 million for
the same period in 2000 primarily due to the decrease in product sales. Gross
margin percentage remained essentially unchanged at 44.4% as compared with 44.6%
for the nine months ended June 30, 2000 and 1999, respectively.
Selling, general and administrative. Selling, general and administrative
expenses decreased 10.0% or $208 million, from $2,088 million for the nine
months ended June 30, 1999, to $1,880 million for the same period in 2000. The
decrease from 1999 is primarily due to reduced bonus compensation expenses
resulting from lower than anticipated financial performance and lower staffing
levels resulting from the realignment and integration of our sales force and our
information systems group. The headcount reductions for our information systems
group were associated with the ongoing implementation of a new computer software
platform. The majority of these reductions were associated with the shutdown and
elimination of support for obsolete and redundant computer systems.
Research and development. Research and development expenses decreased
11.8% or $47 million, from $397 million for the nine months ended June 30, 1999,
to $350 million for the same period in 2000. Increases in funding on call center
and converged voice and data products as well as spending associated
40
44
with the acquisition of Mosaix, were more than offset by reduced spending on
more mature product lines such as Partner and Merlin Magix. In addition,
spending decreased due to synergy realized in consolidation of the data product
line research and development operations of Prominet and Lannet.
Other income -net. Other income -net increased 107.7% or $28 million, from
$26 million for the nine months ended June 30, 1999, to $54 million for the same
period in 2000. This increase was primarily due to a gain of $45 million
realized in March 2000 on the sale of our U.S. sales division serving small and
mid-sized enterprises to Expanets, Inc., which represented the net cash proceeds
received related to this sale.
Provision for income taxes. The effective tax rates for the nine months
ended June 30, 2000 and June 30, 1999 were 39.4% and 40.0%, respectively.
FISCAL YEAR ENDED SEPTEMBER 30, 1999 COMPARED TO FISCAL YEAR ENDED SEPTEMBER 30,
1998
The following table shows the change in external revenue, both in dollars
and in percentage terms:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
SEPTEMBER 30, CHANGE
------------------ ---------------
1999 1998 $ %
------- ------- ----- ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
OPERATING SEGMENT:
Communications Solutions...................... $5,088 $4,583 $ 505 11.0%
Services...................................... 1,900 1,750 150 8.6
Connectivity Solutions........................ 1,274 1,408 (134) (9.5)
Corporate and other............................. 6 13 (7) (53.8)
------ ------ -----
Total................................. $8,268 $7,754 $ 514 6.6%
====== ====== =====
</TABLE>
Revenue. Revenue increased 6.6% or $514 million, from $7,754 million in
fiscal 1998 to $8,268 million in fiscal 1999 due to increases in both the
Communications Solutions segment and the Services segment. These increases were
partially offset by a decrease in the Connectivity Solutions segment. The
increase in the Communications Solutions segment was led by approximately $130
million of higher sales of DEFINITY products, increases of approximately $300
million of applications associated with our customer relationship management
products and services, multi-service networking products and unified messaging
systems, which accommodate voice, facsimile and electronic mail messages, as
well as from the sale of equipment which was previously rented to customers. The
Services segment increase was the result of increases of approximately $80
million and $70 million in sales of maintenance and value-added services,
respectively. The decrease in the Connectivity Solutions segment was the result
of $48 million, $52 million and $34 million in decreases in sales of SYSTIMAX,
ExchangeMax structured cabling systems and electronic cabinets, respectively.
Revenue within the United States increased 4.8% or $307 million, from
$6,376 million in fiscal 1998 to $6,683 million in fiscal 1999. Revenue
increased outside the United States 15.0% or $207 million, from $1,378 million
in fiscal 1998 to $1,585 million in fiscal 1999. Revenue outside the United
States in fiscal 1999 represented 19.2% of total revenue compared with 17.8% in
fiscal 1998. We continued to expand our business outside of the United States,
with growth led by the Europe/Middle East/Africa region in fiscal 1999.
Costs and gross margin. Total costs increased 11.1 % or $457 million, from
$4,107 million in fiscal 1998 to $4,564 million in fiscal 1999 primarily due to
the increase in sales. Gross margin percentage decreased 2.2 percentage points
from 47.0% to 44.8% in fiscal 1999 compared with fiscal 1998. The decrease in
gross margin percentage for the year was primarily due to price reductions,
partially offset by a more favorable product mix.
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Selling, general and administrative. Selling, general and administrative
expenses increased 7.1% or $186 million, from $2,609 million in fiscal 1998 to
$2,795 million in fiscal 1999. The dollar increase is attributable to
approximately $80 million related to the full year impact associated with the
1998 acquisitions of Lannet and SDX, and approximately $40 million of costs
associated with the implementation of a new computer software platform.
Research and development. Research and development expenses increased
27.7% or $117 million, from $423 million in fiscal 1998 to $540 million in
fiscal 1999. This was due to increases of approximately $60 million resulting
from the acquisitions of Lannet and SDX, as well as approximately $60 million of
increases in our voice and data communications over the internet products and
connectivity product lines.
Purchased in-process research and development. There was no charge in
fiscal 1999 for in-process research and development. In fiscal 1998, the charges
of $306 million were associated with the acquisitions of Lannet, Prominet and
SDX.
Other income-net. Other income-net increased 12.0% or $3 million, from $25
million in fiscal 1998 to $28 million in fiscal 1999. This increase was
primarily due to gains recorded on the sale of an Octel product line, Computer
Telephony Products.
Provision for income taxes. The effective tax rates were 39.4% and 82.1%
for the fiscal years 1999 and 1998, respectively. Excluding the impact of the
purchased in-process research and development expenses associated with the
Prominet, SDX and Lannet acquisitions in 1998, the effective tax rate for the
year ended September 30, 1998 was 36.2%. The increase to the effective tax rate
is primarily due to the tax impact of activity outside the United States.
FISCAL YEAR ENDED SEPTEMBER 30, 1998 COMPARED TO FISCAL YEAR ENDED SEPTEMBER 30,
1997
The following table shows the change in external revenue, both in dollars
and in percentage terms:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
SEPTEMBER 30, CHANGE
------------------ --------------
1998 1997 $ %
------- ------- ------ ----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
OPERATING SEGMENT:
Communications Solutions........................ $4,583 $3,721 $ 862 23.2%
Services........................................ 1,750 1,523 227 14.9
Connectivity Solutions.......................... 1,408 1,158 250 21.6
Corporate and other............................... 13 11 2 18.2
------ ------ ------
Total................................... $7,754 $6,413 $1,341 20.9%
====== ====== ======
</TABLE>
Revenue. Revenue increased 20.9% or $1,341 million, from $6,413 million in
fiscal 1997 to $7,754 million in fiscal 1998 resulting from increases in all
operating segments. The increase in the Communications Solutions segment was
primarily due to including approximately $420 million of revenue from the
messaging systems of Octel and increases of approximately $360 million in sales
of DEFINITY, multi-service networking and call center products. The increase in
the Connectivity Solutions segment was due to increases of approximately $210
million and $40 million in sales of SYSTIMAX and ExchangeMax, respectively. The
increase in the Services segment was the result of increases of $158 million and
$69 million in sales of maintenance and value-added services, respectively.
Revenue within the United States increased 19.3% or $1,033 million, from
$5,343 million in fiscal 1997 to $6,376 million in fiscal 1998. Revenue
increased outside the United States 28.8% or $308 million from $1,070 million in
fiscal 1997 to $1,378 million in fiscal 1998. Revenue outside the United States
in fiscal 1998 represented 17.8% of total revenue compared with 16.7% in fiscal
1997. We continued to expand our business outside of the United States, with
growth led by the Canadian region in fiscal 1998.
Costs and gross margin. Total costs increased 25.0% or $822 million, from
$3,285 million in fiscal 1997 to $4,107 million in fiscal 1998, primarily due to
the increase in sales. Gross margin percentage decreased 1.8 percentage points
from 48.8% to 47.0% in fiscal 1998 compared with fiscal 1997. The
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decrease in gross margin percentage was primarily due to a less favorable
product mix, with 21.6% growth in the Connectivity Solutions segment. Also
contributing to the percentage point decline were increased product price
reductions.
Selling, general and administrative. Selling, general and administrative
expenses increased 19.4% or $423 million, from $2,186 million in fiscal 1997 to
$2,609 million in fiscal 1998. The increase is due to $200 million of increases
in sales and marketing expenses as well as $200 million of increases due to the
acquisition of Octel.
Research and development. Research and development expenses increased
22.3% or $77 million, from $346 million in fiscal 1997 to $423 million in fiscal
1998. This was due primarily to the increases resulting from the acquisition of
Octel.
Purchased in-process research and development. Purchased in-process
research and development expenses decreased 35.2% or $166 million, from $472
million in fiscal 1997 to $306 million in fiscal 1998. These expenses reflect
charges associated with the acquisitions of Lannet, SDX and Prominet in 1998
and, for 1997, reflect charges associated with the acquisitions of Octel and
Agile.
Other income-net. Other income-net increased by 47.1% or $8 million, from
$17 million in fiscal 1997 to $25 million in fiscal 1998.
Provisions for income taxes. The effective tax rates were 82.1% and 280.5%
for the fiscal years 1998 and 1997, respectively. Excluding the impact of the
purchased in-process research and development expenses associated with the
Prominet, SDX and Lannet acquisitions in 1998 and the Octel and Agile
acquisitions in 1997, the effective tax rate for the year ended September 30,
1998 was 36.2% as compared to 41.3% for the year ended September 30, 1997. This
decrease is primarily due to increased research tax credits and the tax impact
of activity outside the United States.
HISTORICAL QUARTERLY PERFORMANCE FIRST FISCAL QUARTER 1998 THROUGH THIRD FISCAL
QUARTER 2000
The following table sets forth our historical quarterly revenue, gross
margin and net income (loss) from first fiscal quarter 1998 through third fiscal
quarter 2000:
<TABLE>
<CAPTION>
FISCAL YEAR QUARTERS
-------------------------------------
FIRST SECOND THIRD FOURTH
------ ------ ------- ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
FISCAL YEAR ENDING SEPTEMBER 30, 2000
Revenue.................................... $1,845 $1,934 $ 1,885 --
Gross margin............................... 868 822 822 --
Net income................................. 69 66 33 --
FISCAL YEAR ENDING SEPTEMBER 30, 1999
Revenue.................................... $1,894 $1,938 $ 2,038 $2,398(2)
Gross margin............................... 840 841 939 1,084
Income (loss) before cumulative effect of
accounting change........................ 4 (34) 87 129
Cumulative effect of accounting
change(1)................................ 96 -- -- --
Net income (loss).......................... 100 (34) 87 129
FISCAL YEAR ENDING SEPTEMBER 30, 1998
Revenue.................................... $1,865 $1,690 $ 1,918 $2,281
Gross margin............................... 919 776 850 1,102
Net income (loss).......................... 105 (97) 59 (24)
</TABLE>
(1) Effective October 1, 1998, we changed our method for calculating the
market-related value of plan assets used in determining the expected
return-on-asset component of annual net pension and postretirement
benefit costs (see Note 8 to the combined financial statements).
(2) In fiscal year 1999, we sold equipment which was previously rented to
customers for $97 million. The equipment had a net book value of
approximately $2 million and consisted predominantly of discontinued
product lines.
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Our quarterly financial results can vary from quarter to quarter, for
various factors including the compensation system for our sales force which
focuses on achieving full year results and because many of our customers' buying
behaviors can fluctuate quarter to quarter. For example, our product revenue in
the first fiscal quarter of 1999 and in the fourth fiscal quarter of 1999 was
$1,448 million and $1,895 million, respectively.
LIQUIDITY AND CAPITAL RESOURCES
We generated cash flow from operations of $347 million for the nine months
ended June 30, 2000, compared with a use of $(136) million for the same period
in 1999, and $431 million, $129 million and $359 million for fiscal 1999, 1998
and 1997, respectively. The improvement in our cash flow from operations for the
nine months ended June 30, 2000, compared with the same period in 1999, and for
the fiscal year ended 1999, compared with fiscal year ended 1998, is primarily
the result of a significant reduction in working capital driven by improvement
in accounts receivable management and increases in net income. Domestic customer
support functions, which include cash collection, were centralized into four
regional customer care centers in the second half of 1999 which resulted in
accelerated cash collections. The decrease in our cash flow from operations for
the fiscal year ended 1998 compared with fiscal year 1997 was the result of
increases in accounts receivable and inventories.
Cash flow used in investing activities was $134 million for the nine months
ended June 30, 2000 compared with cash used of $114 million for the same period
in 1999. Cash flow used in investing activities was $86 million in fiscal year
1999, compared with $459 million and $1,056 million for fiscal 1998 and 1997,
respectively. Acquisitions of businesses in 1998 and 1997 drove higher levels of
cash used in investing activities in these periods. Capital expenditures and
acquisitions of businesses are the primary components of investing activities.
Generally, we have generated sufficient cash from our operating activities to
fund our working capital and capital expenditure requirements.
Net cash (used in) provided by financing activities was $(190) million for
the nine months ended June 30, 2000 compared with $288 million for the same
period in 1999. Net cash provided by (used in) financing activities was $(257)
million, $265 million and $833 million for fiscal 1999, 1998 and 1997,
respectively. We historically have relied on Lucent to provide financing for our
operations. The cash flows from financing activities reflected herein
principally reflect changes in our assumed capital structure. These cash flows
are a reasonable representation of the cash flows that would have resulted if we
were a stand-alone company.
Following the distribution, Lucent will no longer be providing funds to
finance our operations. Prior to the distribution, Lucent intends to issue $700
million of short-term debt under a commercial paper program, which will be
assumed by us at the distribution date. The commercial paper program will be
comprised of short-term borrowings in the commercial paper market at market
interest rates. We may assume additional debt under the commercial paper program
to the extent additional debt is incurred by Lucent under the program to fund
restructuring or separation costs and expenses that we may incur prior to the
distribution. We may also assume additional debt under the program for our
working capital if there is any substantial increase in our working capital over
our current plan prior to the distribution. We do not expect to incur any
permanent financing to fund working capital for the foreseeable future. Upon the
distribution Lucent will be relieved of all obligations under the program.
Accordingly, upon distribution, we will become obligated to satisfy all payments
and other terms of this commercial paper program.
In addition, we intend to enter into two unsecured revolving credit
facilities with third party financial institutions, a 364-day credit facility
and a five-year credit facility, each allowing for borrowings of up to $1
billion. Lucent will initially be a party to each of these credit facilities,
but will have no obligations thereunder following the distribution. We will be
able to borrow funds under these revolving credit facilities for general
corporate purposes, including for the support of the commercial paper program or
repayment of other debt, working capital and acquisitions. Neither we nor Lucent
expect to make any borrowings under the revolving credit facility to support the
commercial paper program or, prior to the distribution, to make borrowings under
these facilities for any other purpose. We may refinance all or a portion of the
commercial paper program we assume from Lucent with long-term or other
short-term debt.
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We intend to file a debt registration statement in order to be able to access
the capital markets from time to time. Interest rates on our commercial paper
obligations will be variable due to the short-term nature of this financial
instrument. For a commercial paper balance of $700 million outstanding for an
entire year, a .125 percentage point increase in the average interest rate on
the obligations, also effective for an entire year, would increase pre-tax
interest expense, and reduce pre-tax income, by $875,000. Such an increase is
not expected to significantly impact our future results.
Our primary future cash needs on a recurring basis will be working capital,
capital expenditures and debt service. A portion of our restructuring and
separation costs and expenses also will be funded by internally generated funds.
We believe that our cash flows from operations will be sufficient to meet these
future cash needs. If our cash flows from operations are less than we expect, we
may need to incur additional debt. In addition, we currently anticipate
requiring approximately $700 million of additional financing in the next eight
months to fund costs and expenses in connection with the planned restructuring
and separation. We have not yet finalized the amount of additional financing we
will require because we are currently developing our restructuring plan,
reviewing our capital structure and examining other costs and expenses we may
incur as a stand-alone company. We also may from time to time issue additional
commercial paper under our $2 billion commercial paper program, if the market
permits such borrowings, make borrowings under our revolving credit facilities
or issue other long or short-term debt, if available.
On August 8, 2000, we entered into an agreement with Warburg, Pincus Equity
Partners, L.P. and related investment funds, which we refer to collectively as
the investors, to sell to them 4,000,000 shares of our Series B convertible
participating preferred stock and warrants to purchase our common stock for an
aggregate purchase price of $400 million. Based on an agreed formula, the Series
B convertible participating preferred stock is expected to be initially
convertible into approximately 5.0% of our fully diluted common stock,
calculated using a modified treasury stock method as of the 90th day after
issuance. The warrants have an exercise price equal to 130% of the conversion
price for the Series B convertible participating preferred stock. The warrants
are exercisable for 3.6% of a total number of shares of common stock to be
calculated pursuant to an agreed upon formula as of the 90th day after issuance.
Of these warrants, warrants exercisable for 2.0% of such total number of shares
of common stock will have a four-year term and warrants exercisable for 1.6% of
such total number of shares of common stock will have a five-year term. During a
period commencing no later than June 30, 2001, until the second anniversary of
their issuance, if the market price of our common stock exceeds agreed upon
trading price levels, we can force conversion of up to 50% of the warrants.
The shares of convertible participating preferred stock will have an
aggregate initial liquidation value of $400 million and will accrete for the
first ten years at an annual rate of 6.5%, compounded quarterly. After the third
anniversary of the issue date, 50% of the accretion amount may be paid in cash
as a dividend, at our option. From the fifth anniversary of the issue date
through the tenth anniversary, we may elect to pay 100% of the accretion amount
as a cash dividend. Following the tenth anniversary of the issue date, we will
pay quarterly cash dividends at an annual rate of 12% of the then accreted
liquidation value of the Series B convertible participating preferred stock,
compounded quarterly. The convertible participating preferred shares also
participate, on an as-converted basis, in dividends paid on our common stock.
At any time after the fifth anniversary of their issuance, we may force
conversion of the shares of Series B convertible participating preferred stock.
If we give notice of a forced conversion, the investors will be able to require
us to redeem the convertible participating preferred shares at 100% of the then
current liquidation value, plus accrued and unpaid dividends. Following a
change-in-control of us during the first five years after the investment, other
than a change of control transaction that is a business combination involving
the issuance of common stock, the accretion of the liquidation value of the
Series B convertible participating preferred stock through the fifth anniversary
of the issue date will be accelerated, subject to our ability to pay a portion
of the accelerated accretion in cash in some instances. In addition, for 60 days
following the occurrence of any change-of-control of us during the first five
years after the investment, the investors will be able to require us to redeem
the convertible participating preferred stock at 101% of the liquidation value,
including any accelerated accretion by of the liquidation value.
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The closing of the investment is subject to a number of conditions and we
cannot assure you that the investment will be consummated. If consummated, we
intend to use the proceeds of the equity investment to fund our operations and
execute our business strategy. For a more detailed description of this equity
investment, please see "Related Transactions and Equity Investment."
Our ability to issue additional equity is constrained because our issuance
of additional common stock may cause the distribution to be taxable to Lucent
under Section 355(e) of the Internal Revenue Code, and under the tax sharing
agreement we would be required to indemnify Lucent against that tax. See "The
Distribution Federal Income Tax Consequences of the Distribution" and
"Relationship Between Lucent and Our Company After the Distribution -- Tax
Sharing Agreement" for a more detailed discussion of Section 355(e) and the tax
sharing agreement between Lucent and us.
We may need to incur additional debt or issue equity to make any strategic
acquisition or investment. We can not assure you that such financing will be
available to us on acceptable terms or at all. Our ability to make payments on
and to refinance our indebtedness, including the commercial paper program and to
fund working capital, capital expenditures and strategic acquisitions will
depend on our ability to generate cash in the future, which is subject to
general economic, financial, competitive, legislative, regulatory and other
factors that are beyond our control. Further, the commercial paper program and
future indebtedness may impose various restrictions and covenants on us which
could limit our ability to respond to market conditions, to provide for
unanticipated capital investments or to take advantage of business
opportunities.
PURCHASED IN-PROCESS RESEARCH AND DEVELOPMENT
In connection with the acquisitions of Lannet, SDX, Prominet, Octel and
Agile in fiscal years ended September 30, 1998, and 1997, a portion of the
purchase price was allocated to purchased in-process research and development.
As part of the process of analyzing these acquisitions, we made a decision to
buy technology that had not yet been commercialized rather than develop the
technology internally. We based this decision on factors such as the amount of
time it would take to bring the technology to market. We also considered Bell
Laboratories' resource allocation and its progress on comparable technology, if
any. Our management expects to use a similar decision process in the future.
We estimated the fair value of in-process research and development for the
above acquisitions using an income approach. This involved estimating the fair
value of the in-process research and development using the present value of the
estimated after-tax cash flows expected to be generated by the purchased in-
process research and development, using risk-adjusted discount rates and revenue
forecasts as appropriate. The selection of the discount rate was based on
consideration of Lucent's weighted average cost of capital, as well as other
factors, including the useful life of each technology, profitability levels of
each technology, the uncertainty of technology advances that were known at the
time, and the stage of completion of each technology. We believe that the
estimated in-process research and development amounts so determined represent
fair value and do not exceed the amount a third party would have paid for the
projects.
Where appropriate, we deducted an amount reflecting the contribution of the
core technology from the anticipated cash flows from an in-process research and
development project. At the date of acquisition, the in-process research and
development projects had not yet reached technological feasibility and had no
alternative future uses. Accordingly, the value allocated to these projects was
capitalized and immediately expensed at acquisition. If the projects are not
successful or completed in a timely manner, management's product pricing and
growth rates may not be achieved and we may not realize the financial benefits
expected from the projects.
The development efforts related to the majority of the purchased in-process
technology projects are progressing in accordance with the assumptions
underlying the appraisals. As expected in the normal course of product
development, a number of projects have experienced delays and other projects are
being evaluated due to changes in strategic direction and market conditions.
These factors are not expected to have a material adverse effect on results of
operations and financial position in future periods.
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Set forth below are descriptions of the significant acquired in-process
research and development projects.
OCTEL
On September 29, 1997, Lucent completed the purchase of Octel for $1,819
million. The enterprise portion of Octel is a part of our business. The purchase
price that has been allocated to this business is $724 million. Octel was a
public company involved in the development of voice, fax and electronic
messaging technologies for both service providers and business enterprises. We
allocated $393 million to in-process research and development representing the
estimated fair value using the income approach described above of the in-process
research and development we acquired. This amount was allocated to the following
projects: Unified Messenger(R) $245 million, Octel network services projects for
$111 million and two other projects for $37 million in total.
At the acquisition date Octel was working on the development of Unified
Messenger and various Octel network services projects. Unified Messenger was a
messaging system for accessing both voice and e-mail messages with either a
phone or a computer. Messages are stored on a single mailbox, in which the user
could access all of their messages. The Octel network services projects
represented the development of new administrative software that would allow
Octel to provide the capabilities in its outsourcing contracts that customers
demand, and work with the new hardware of other product lines that it would be
producing.
Unified Messenger. Revenue attributable to Unified Messenger were
estimated to be $5 million in 1998 and $46 million in 1999. Revenue was expected
to peak in 2004 and decline thereafter through the end of the product's life in
2008 as new product technologies were expected to be introduced by us. Revenue
growth was expected to decrease from 179% in 2000 to 20% in 2004, and be
negative for the remainder of the projection period. At the acquisition date,
costs to complete the research and development efforts related to the initial
release of the project were expected to be $3 million.
Octel network services projects. Revenue attributable to the Octel network
services projects were estimated to be $18 million in 1998 and $93 million in
1999. Revenue was expected to peak in 2003 and decline thereafter through the
end of the product's life in 2006 as new product technologies were expected to
be introduced by us. Revenue growth was expected to decrease from 52% in 2000 to
10% in 2003, and be negative for the remainder of the projection period. At the
acquisition date, costs to complete the research and development efforts related
to the Octel network services projects were expected to be less than $1 million.
An average risk-adjusted discount rate of 20% was utilized to discount
projected cash flows.
PROMINET
On January 23, 1998, Lucent completed the purchase of Prominet for $199
million. Prominet was a participant in the gigabit ethernet networking industry.
A gigabit ethernet network is a high performance local area network used by an
enterprise to connect computers, printers, workstations and the like within a
building or campus. We allocated $157 million to in-process research and
development using the income approach described above. The $157 million was
allocated to the following projects: Phase II for $12 million, Phase III for $92
million, and Phase IV for $53 million.
At the acquisition date Prominet was working on a gigabit ethernet router
with improved technological and administrative functionality. The project was
expected to be completed in three phases, Phase II through Phase IV. Each phase
represented an effort to significantly enhance the technological and
administrative capabilities of the router.
Phase II. Revenue attributable to Phase II was estimated to be $8 million
in 1999 and $18 million in 2000. Revenue was expected to peak in 2004 and
decline thereafter through the end of the product's life in 2009 as new product
technologies were expected to be introduced by us. Revenue growth was expected
to decrease from 112% in 2000 to 8% in 2004, and be negative for the remainder
of the projection period.
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At the acquisition date, costs to complete the research and development efforts
related to the initial release of the project were expected to be $2 million.
Phase III. Revenue attributable to Phase III was estimated to be $47
million in 1999 and $99 million in 2000. Revenue was expected to peak in 2004
and decline thereafter through the end of the product's life in 2009 as new
product technologies were expected to be introduced by us. Revenue growth was
expected to decrease from 112% in 2000 to 8% in 2004, and be negative for the
remainder of the projection period. At the acquisition date, costs to complete
the research and development efforts related to the initial release of the
project were expected to be $4 million.
Phase IV. Revenue attributable to Phase IV was estimated to be $38 million
in 1999 and $79 million in 2000. Revenue was expected to peak in 2004 and
decline thereafter through the end of the product's life in 2009 as new product
technologies were expected to be introduced by us. Revenue growth was expected
to decrease from 106% in 2000 to 7% in 2004, and be negative for the remainder
of the projection period. At the acquisition date, costs to complete the
research and development efforts related to the initial release of the project
were expected to be $3 million.
An average risk-adjusted discount rate of 25% was utilized to discount
projected cash flows.
ENVIRONMENTAL, HEALTH AND SAFETY MATTERS
We are subject to a wide range of governmental requirements relating to
employee safety and health and to the handling of emission into the environment
of various substances used in our operations. We have not incurred material
capital expenditures for such matters during the past three years, nor do we
anticipate having to incur such expenditures during the current or succeeding
fiscal year.
We are currently conducting investigation and/or cleanup of known
contamination at approximately five of our facilities either voluntarily or
pursuant to government directives. We have established financial reserves to
govern environmental liabilities where they are probable and reasonably
estimable. Reserves for estimated losses from environmental matters are,
depending on the site, based primarily upon internal or third-party
environmental studies and the extent of contamination and the type of required
cleanup. Although we believe that our reserves are adequate to cover known
environmental liabilities, it is often difficult to estimate with certainty the
future cost of such matters. Therefore, we cannot be assured that the actual
amount of environmental liabilities will not exceed the amount of reserves for
such matters or will not have a material adverse effect on our financial
position, results of operations or cash flows. Please see
"Business -- Environmental, Health and Safety Matters" for a more detailed
discussion of these matters.
LEGAL PROCEEDINGS
From time to time we are involved in legal proceedings arising in the
ordinary course of business. We may be subject to litigation and infringement
claims, which could cause us to incur significant expenses or prevent us from
selling our products or services. For example, we expect to become a party to
ongoing patent infringement litigation between Lucent and Micron Technology Inc.
There are currently two actions between Lucent and Micron alleging, among other
things, patent infringement claims against each other and seeking unspecified
awards of damages and permanent injunctions against further infringement of the
patents.
In the course of pre-trial discovery, Micron has identified some of the
Lucent products that it claims are infringing the Micron patents. These products
include various enterprise voice communications systems that will be our
products following the distribution, including some of our servers, voice and
unified messaging systems and integrated voice response systems that will be
manufactured and sold by us following the distribution. Micron has indicated
that it intends to add us as a party to the litigation. We intend to defend the
actions vigorously. The litigation is in the early stages and its outcome cannot
be predicted.
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We also are currently involved in three purported class action lawsuits
related to Y2K issues. Although we believe that the outcome of these Y2K actions
will not adversely affect our business prospects, if these cases progress, they
will require expenditure of significant legal costs related to their defense. We
believe there is no litigation pending that should have, individually or in the
aggregate, a material adverse effect on our financial position or results of
operations.
RISK MANAGEMENT
We are exposed to risk from changes in foreign currency exchange rates and
interest rates that could impact our results of operations and financial
position. We manage our exposure to these market risks through our regular
operating and financing activities and, when deemed appropriate, through the use
of derivative financial instruments. We use derivative financial instruments as
risk management tools and not for speculative or trading purposes. In addition,
derivative financial instruments are entered into with a diversified group of
major financial institutions in order to manage our exposure to nonperformance
on such instruments.
We use foreign currency forward contracts, and to a lesser extent foreign
currency options, to reduce significant exposure to the risk that the eventual
net cash inflows and outflows resulting from the sale of products to non-U.S.
customers and purchases from non-U.S. suppliers will be adversely affected by
changes in exchange rates. Foreign currency exchange contracts are designated
for recorded, firmly committed or anticipated purchases and sales. The use of
these derivative financial instruments allows us to reduce our overall exposure
to exchange rate movements, since the gains and losses on these contracts
substantially offset losses and gains on the assets, liabilities and
transactions being hedged. As of September 30, 1999, our primary net foreign
currency market exposures included Canadian dollars, Euro currencies and British
pounds.
The fair value of foreign currency exchange contracts is sensitive to
changes in foreign currency exchange rates. As of September 30, 1999 and 1998, a
10% appreciation in foreign currency exchange rates from the prevailing market
rates would increase our related net unrealized gain for 1999 and loss for 1998
by approximately $8 million and $3 million, respectively. Conversely, a 10%
depreciation in these currencies from the prevailing market rates would decrease
our related net unrealized gain for 1999 and loss for 1998 by approximately $10
million and $5 million, respectively. Consistent with the nature of the economic
hedge of such foreign currency exchange contracts, such unrealized gains or
losses would be offset by corresponding decreases or increases, respectively, of
the underlying instrument or transaction being hedged.
While we hedge many foreign currency transactions, the decline in value of
non-U.S. dollar currencies may, if not reversed, adversely affect our ability to
contract for product sales in U.S. dollars because our products may become more
expensive to purchase in U.S. dollars for local customers doing business in the
countries of the affected currencies.
We may enter into interest rate swap agreements to manage the risk between
fixed, floating and variable interest rates and long-term and short-term
maturity debt instruments. There were no interest rate swap agreements in effect
during 1999 and 1998.
The Contribution and Distribution Agreement provides that, as between us
and Lucent, we have assumed all liabilities under or otherwise relating to
derivatives and similar obligations primarily related to our business.
Initially, Lucent may continue to perform obligations under such derivatives and
similar obligations on behalf of us, but all amounts paid to or received from
third parties will be charged to, or paid over or credited to us, as the case
may be.
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 both June 30, 2000 and
September 30, 1999, 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,
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and management believes that reserves for losses are adequate. We do not have
any significant exposure to any individual customer or counterparty nor any
major concentration of credit risk related to any financial instruments.
EUROPEAN MONETARY UNION -- EURO
On January 1, 1999, eleven member countries of the European Union
established fixed conversion rates between their existing sovereign currencies,
and adopted the Euro as their new common legal currency. The Euro is currently
trading on currency exchanges and the legacy currencies will remain legal tender
in the participating countries for a transition period between January 1, 1999
and January 1, 2002. During the transition period, cash-less payments can be
made in the Euro, and parties can elect to pay for goods and services and
transact business using either the Euro or a legacy currency. Between January 1,
2002 and July 1, 2002, the participating countries will introduce Euro notes and
coins and withdraw all legacy currencies so that they will no longer be
available.
We will continue to evaluate issues involving introduction of the Euro
involving accounting, tax, legal and regulatory requirements. Based on current
information and our current assessment, we do not expect that the Euro
conversion will have a material adverse effect on our business or financial
position.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities". SFAS 133 establishes new accounting and reporting
standards for derivative financial instruments and for hedging activities. SFAS
133 requires us to measure all derivatives at fair value and to recognize them
in the balance sheet as an asset or liability, depending on our rights or
obligations under the applicable derivative contract. Subsequent to the issuance
of SFAS 133, the FASB has received many requests to clarify certain issues
causing difficulties in implementation. In June 2000, the FASB issued SFAS 138
which responds to those requests by amending certain provisions of SFAS 133.
These amendments include allowing foreign-currency denominated assets and
liabilities to qualify for hedge accounting, permitting the offsetting of
selected inter-entity foreign currency exposures that reduce the need for third
party derivatives and redefining the nature of interest rate risk to avoid
sources of ineffectiveness. We will adopt SFAS 133 and the corresponding
amendments under SFAS 138 in the first quarter of fiscal year 2001. SFAS 133, as
amended by SFAS 138, is not expected to have a material impact on our combined
results of operations, financial position or cash flows.
In December 1999, the Securities and Exchange Commission staff issued Staff
Accounting Bulletin 101, "Revenue Recognition in Financial Statements." SAB 101
provides guidance on the recognition, presentation and disclosure of revenue in
financial statements and requires adoption no later than the fourth quarter of
our fiscal 2001. We are currently evaluating the impact of SAB 101 to determine
what effect, if any, it could have on our financial position and results of
operations.
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BUSINESS
OVERVIEW
We are a leading provider of communications systems and software for
enterprises, including businesses, government agencies and other organizations.
We offer voice, converged voice and data, customer relationship management,
messaging, multi-service networking and structured cabling products and
services. Multi-service networking products are those products that support
network infrastructures which carry voice, video and data traffic over any of
the protocols, or set of procedures, supported by the Internet on local area and
wide area data networks. A structured cabling system is a flexible cabling
system designed to connect phones, workstations, personal computers, local area
networks and other communications devices through a building or across one or
more campuses. We are a worldwide leader in sales of messaging and structured
cabling systems and a U.S. leader in sales of enterprise voice communications
and call center systems. We are not a leader in multi-service networking
products or in converged voice and data products. We have entered these product
areas relatively recently, and our product portfolio is less complete than the
portfolios of some of our competitors. We are implementing a strategy focused on
these products. In fiscal 1999, we had revenue of approximately $8.3 billion and
net income of approximately $300 million.
Over the last ten years, approximately 980,000 enterprises have purchased
one or more of our systems, software or services through our direct sales force.
We also have a global network of approximately 4,300 distributors, dealers,
value-added resellers, systems integrators and contractors, through which we
indirectly sell our products to enterprises. Our broad customer base includes
approximately 78% of the Fortune 500 companies.
We support our customers with comprehensive global service offerings,
including remote diagnostics testing of our advanced systems, installation of
our products, on-site repair and maintenance. We believe our global service
organization is an important consideration for customers purchasing our systems
and software and is a source of significant revenue for us, primarily from
maintenance contracts. We also offer professional services for customer
relationship management and value-added services for the outsourcing of
messaging and other portions of an enterprise's communications system.
We intend to use our leadership positions in enterprise communications
systems and software, our broad portfolio of products and services and strategic
alliances with other technology and consulting services leaders to offer our
customers comprehensive eBusiness communications solutions. By eBusiness, we
mean the internal and external use of communications tools and electronic
networks, to interact, collaborate and transact business with an enterprise's
customers, suppliers, partners and employees. We currently offer many of the
advanced products that we believe are important components of eBusiness
communications solutions. We are focusing our strong research and development
capabilities on developing new and improved eBusiness communications products
and services.
We have historically operated as part of Lucent. In connection with our
separation from Lucent, we are engaging in a comprehensive review of our
operations, including our organizational structure, products and services and
market segments, with a view toward improving our profitability and our business
performance in the near term. As a result of this review, we expect to announce
a restructuring plan, with an associated restructuring charge, in the fourth
quarter of fiscal year 2000. As a result of our restructuring plan and strategic
initiatives, we intend to:
- reduce our costs of products and services;
- reduce our corporate overhead expenses;
- increase our investment in research and development;
- implement a tax strategy tailored to our operations as a stand-alone
company; and
- increase our revenue growth by focusing our sales and product development
efforts on the higher growth segments of our market.
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We were incorporated under the laws of the State of Delaware under the name
"Lucent EN Corp.", on February 16, 2000, as a wholly owned subsidiary of Lucent.
As of June 27, 2000, our name was changed to "Avaya Inc." Lucent was formed from
the systems and technology units that were formerly a part of AT&T Corp. and the
research and development capabilities of Bell Laboratories. On September 30,
1996, Lucent became independent of AT&T when AT&T distributed all its Lucent
shares to its shareowners in a tax-free spinoff. We will have no material assets
or activities as a separate corporate entity until the contribution to us by
Lucent, immediately prior to the distribution, of the businesses described in
this information statement. Following the distribution, we will be an
independent public company, and Lucent will have no continuing stock ownership
interest in us. Prior to the distribution, we will enter into several agreements
with Lucent in connection with, among other things, intellectual property,
interim services and a number of on-going commercial relationships, including
product supply arrangements. Please see "Relationship Between Lucent and Our
Company After the Distribution" for a more detailed discussion of these
agreements.
INDUSTRY OPPORTUNITY
We currently define our market to be comprised of the enterprise voice
communications systems, communications applications, multi-service networking,
connectivity solutions, maintenance support and value-added services segments.
We estimate, based on various industry reports, that this market will grow from
approximately $113.8 billion in 1999 to approximately $176.6 billion in 2003, a
compound annual growth rate of 11.6%. We expect that these segments will grow at
rates that differ substantially from segment to segment. For example, we
estimate, based on various industry reports, that the enterprise unified
messaging, call center and traditional voice communications portions of these
segments will grow at respective compound annual growth rates of 71.5%, 30.3%
and 1.2% between 1999 and 2003.
We estimate that higher growth can be realized from the advanced enterprise
communications products in our market segments which support eBusiness
solutions. We believe there are several trends which are driving the deployment
of these advanced communications products. These trends are described below.
ADOPTION OF eBUSINESS STRATEGIES
Major advances in networking, computing and software have increased the
number and value of communications tools and have led to capabilities such as
voice mail, electronic mail, wireless communications, Web chat sessions and
voice communications over the Internet. The rapid adoption of these new
communications tools, accelerated growth in the use of the Internet and
significant expansion of the electronic marketplace for goods and services have
resulted in competitive pressures to change the way enterprises operate and
interact with their customers, suppliers, partners and employees. In order to
take advantage of the opportunities and efficiencies offered by the new
communication-based economy, enterprises are increasingly implementing eBusiness
strategies in order to:
- attract and retain customers;
- increase revenue by using the Internet to reach new markets and
customers;
- enhance relationships with suppliers, partners and employees;
- share in-house knowledge and expertise more effectively throughout their
organizations; and
- decrease their operating costs.
Many enterprises have incorporated elements of eBusiness solutions into
their operations. As the uses and complexity of eBusiness offerings continue to
rise, we expect enterprises to increasingly demand flexible communications
systems to support their operations and to enhance and personalize their
relationships with customers, suppliers and partners. We believe that most
enterprises are just beginning to deploy the advanced communications solutions
that provide the infrastructure for eBusiness. Few enterprises, however, have
the range of skills necessary in-house to implement comprehensive eBusiness
solutions and the advanced communications solutions to support them. Therefore,
enterprises are increasingly looking to outsource their professional service
needs.
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A FOCUS ON CUSTOMER RELATIONSHIP MANAGEMENT
Enterprises are increasingly focused on customer relationship management, a
business strategy for building and retaining a strong, active purchasing base of
satisfied customers through relationship oriented services and proactive
marketing and management. The development of more advanced communication tools
and the adoption of eBusiness strategies have increased an enterprise's ability
to manage its interaction with customers. The expansion of eBusiness and
resulting competitive pressures have helped focus enterprises to incorporate
customer relationship management into their strategies. Customer relationship
management strategies build upon the basic principles of customer service to use
voice, Web, facsimile and other forms of communications and software to:
- record and utilize customer preferences;
- ensure that customers are served when they prefer, using the
communications media of their choice;
- provide customer self service functionality as well as interactive
services; and
- meet customer expectations consistently and in a timely manner.
Increasingly, customer relationship management strategies rely on advanced
solutions with workflow and back-office capabilities to manage the relationship
from the initial point of contact with a customer, whether in person, on the
telephone or over the Internet, through transaction fulfillment, accounting and
ongoing customer satisfaction.
EXTENDED ENTERPRISES
The growth of eBusiness and advances in networking and software
applications have allowed enterprises to extend beyond their physical facilities
to create a broad geographical presence that requires coordination of widespread
operations. Globalization of operations and consolidation of industries through
high levels of worldwide mergers and acquisitions activity have contributed to
increased complexity of enterprises. A single enterprise may have numerous
locations that need to be linked electronically, and merged enterprises face the
challenge of coordinating their often disparate systems and organizations
quickly and effectively. These enterprises require voice communication servers
and messaging systems that can be networked together, or to the servers and
systems of other vendors, to support their dispersed operations. Communication
tools such as voice and electronic mail, facsimiles and wireless devices have
also helped to create a mobile workforce capable of working from home or other
remote locations, both during and outside traditional business hours. We believe
advanced communications systems that can grow with an enterprise and that will
integrate with existing infrastructure are needed to allow enterprises of all
sizes to extend their reach and coordinate all aspects of their operations.
EVOLUTION TOWARD CONVERGED VOICE AND DATA NETWORKS
Voice and data networks have historically been separate, using different
switching or transmission technologies because of the inherent differences in
the requirements of the traffic they support. Until recently, technology did not
exist to reliably carry voice and data traffic over a single network and satisfy
the requirements of both types of traffic. Over time, we expect voice and data
networks to converge into a single network. This convergence will be driven by
the development of eBusiness and other applications that require converged
networks as well as the potential cost savings for enterprises utilizing a
single, integrated network for their communications as well as by additional
operational benefits. However, while converged technology has begun to be
deployed, further advances in reliability are necessary before this technology
will be widely accepted. Accordingly, enterprises are seeking advanced
applications that allow their voice and data networks to work together
efficiently. These applications enable enterprises to experience some of the
benefits of a converged network without the expense of replacing their entire
communications infrastructure. We view the converged voice and data segment to
include products which provide for the transport of voice over packet switched
networks. Packet switching is the process of breaking data up into packets and
sending those packets through a network to a remote location, at which point the
packets are reassembled. These products range from voice over Internet Protocol
applications to
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single networks for voice and data and are in various stages of development.
Internet Protocol is a type of protocol, or set of procedures, for the
formatting and timing of data transmission between two pieces of equipment.
OUR OPPORTUNITY
We believe there exists a significant opportunity for a communications
company, such as our company, with a broad product portfolio, strong research
and development capabilities, extensive service offerings and a large customer
base to capitalize on the needs of enterprises for advanced communications
systems. Due to the widespread base of installed communications systems, the
implementation of eBusiness strategies and related communications systems has
been, and is expected to continue to be, an adaptive and evolutionary process.
Accordingly, we believe that our company, with its ability to offer reliable
communications systems that can grow with an enterprise and be integrated with
existing infrastructure, is well-positioned to serve the near and long term
needs of this growing market segment.
STRATEGY
Our objective is to become the leading, worldwide provider of
communications solutions for enterprises operating in the rapidly changing
eBusiness environment. To accomplish this goal, we are pursuing the following
three major strategies:
IMPROVE PROFITABILITY AND THE BUSINESS PERFORMANCE OF OUR OPERATIONS
We believe there are a number of opportunities as a stand-alone company to
improve our profitability and business performance. We expect to implement the
restructuring plan we are currently developing and other initiatives as a part
of this strategy by the end of 2001. We are a transaction intensive business in
all our activities, including manufacturing, selling, ordering, shipping,
billing, servicing and collections. We intend to focus our restructuring plan on
reducing the cost of these activities through a variety of mechanisms. We have
announced our first major initiative, the outsourcing of substantially all our
manufacturing other than the manufacturing of our structured cabling systems. By
outsourcing our manufacturing to contractors whose business is to manufacture
sophisticated electronics equipment, we believe we will be able to focus on our
strengths in developing innovative software and systems and on increasing and
improving our services offerings, while still providing high quality products to
our customers. We believe that outsourcing our manufacturing will allow us to
improve our cash flow over the next few years through a reduction of inventory
and reduced capital expenditures.
CAPITALIZE ON NEAR TERM REVENUE GROWTH OPPORTUNITIES
We intend to focus on the elements of this strategy described below, which
we believe are opportunities to increase our revenue in the near term.
Expanding our international sales. We have traditionally derived the
majority of our revenue from sales in the United States. We believe there is an
opportunity to increase our revenue by expanding our focus on international
sales. We began executing a strategy three years ago to strengthen our global
direct sales force and our worldwide network of distribution partners, and have
grown our international sales from approximately $1.1 billion in fiscal 1997 to
approximately $1.6 billion in fiscal 1999. We intend to continue to increase our
international sales by entering into additional strategic alliances focused on
international sales. We also will continue to strengthen our network of
international distribution partners, and we are seeking to expand our presence
in some of the countries where we currently have operations and believe the
market opportunity to be attractive.
Strengthening our distribution channels. With an existing customer base
that includes 78% of Fortune 500 companies, our sales force has developed
relationships with many large and multi-national enterprises that we believe are
likely to need advanced communications systems. We will continue to focus our
direct sales force primarily on national and global accounts, providing these
customers a single point of contact and centralized purchasing process with
product fulfillment and high quality local support on a
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worldwide basis. To complement our strong global direct sales force, continue to
expand our sales internationally and better serve the needs of small and
mid-sized enterprises, we intend to strengthen our worldwide network of
distribution partners. We intend to strengthen this network by developing
relationships with distribution partners that provide us with broader
geographic, product segment or customer coverage. As the communication needs of
our customers have become more complex, we believe that many small and mid-sized
enterprises worldwide are increasingly purchasing communications solutions
through, or with the advice of, companies that offer them comprehensive
eBusiness and communications services such as value-added resellers and systems
integrators that not only sell products but also design, install and test
comprehensive systems and networks, including systems integration. By focusing
our direct sales force on national and global accounts and strengthening our
indirect distribution channels, we believe we can increase sales across all
channels and better serve the needs of our customers.
Capitalizing on the demand for customer relationship management products
and services. We intend to expand our sales in the growing customer
relationship management market segment by using our leadership position in sales
of call center systems, our expanded portfolio of customer relationship
management products and our approximately 900 person group of professionals
offering customer relationship management services. In September 1999, we
expanded our product portfolio from primarily call center voice applications for
voice traffic to a new product line. This product line enables enterprises to
manage customer interactions across a variety of communication channels such as
Web chat sessions and electronic mail as well as integrate an enterprise's
internal and external office functions. We are investing in our sales teams and
consultants and expanding our relationships with distribution partners. We
intend to continue to utilize relationships our consultants have developed with
our call and contact center customers to sell our new customer relationship
management products and increase the role of our professional services
consultants.
POSITION OURSELVES TO CAPITALIZE ON LONG TERM GROWTH OPPORTUNITIES
We believe we are well-positioned to capitalize on the rapidly evolving
eBusiness communications environment. We are implementing the following
strategies in order to increase our sales in the higher growth areas of our
market.
Marketing our advanced products and services as essential components of
comprehensive eBusiness communications solutions. We currently offer many of
the advanced products and services that we believe are the important components
of comprehensive eBusiness communications solutions. By eBusiness, we mean the
internal and external use of communications tools and electronic networks, to
interact, collaborate and transact business with an enterprise's customers,
suppliers, partners and employees. Examples of these include:
- our contact center and messaging systems that allow an enterprise and its
customers, suppliers, partners and employees to communicate by voice,
electronic mail, facsimile, Web chat sessions and other means of
communication;
- our network systems and software for allocating network resources among
users and applications to maximize use of an enterprise's network
capacity;
- our communications servers that support telephone-based communications
over traditional voice networks as well as over the Internet or other
data networks; and
- our professional services consultants who can design and implement an
enterprise's customer relationship management strategy.
See "-- eBusiness Communications Solutions" for a more detailed description of
our current portfolio of eBusiness products and services.
We plan to tailor our eBusiness communications solutions both for
enterprises that seek to upgrade their existing communications systems to meet
the new requirements of eBusiness and enterprises that seek to build entirely
new communications systems using these solutions. We believe that our leading
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positions in sales of enterprise voice communications and call center systems,
as well as our reputation for reliability and our technological, diagnostic and
service expertise, will support our continued introduction of our converged
voice and data solutions and communications applications for the eBusiness
environment. In addition, we intend to establish a new brand identity for our
products through brand management and product positioning efforts.
Introducing innovative products through continued investment in our
research and development capabilities. We intend to invest an amount equal to
approximately 9% of our total revenue in fiscal 2001 in research and
development. These investments represent a significant increase over our
investment in research and development over the previous three fiscal years,
which was approximately 6% of total revenue for each of those years. We are
building a research and development capability that is intended to have
approximately 3,000 engineers, including many that currently work at Lucent's
Bell Laboratories, one of the world's leading research and development
institutions. We will spend a portion of our 2001 budget on hiring research
personnel as we build our capability. We believe our research and development
spending will be more effective than it has been historically because our
efforts will be focused on higher growth segments in our market. As a part of
Lucent, we funded a portion of Lucent's basic research, which research was not
necessarily beneficial for our businesses.
We plan on using our substantial investment in research and development to
develop new systems and software to augment our current eBusiness communications
product offerings so that, together with our strategic alliances and services,
we can offer our customers comprehensive eBusiness communications solutions. We
are particularly focused on converged voice and data solutions and applications
which support eBusiness communications needs. Our research and development group
will continue to seek opportunities to work with technology leaders from other
companies and educational and research institutions to develop uniform
technological standards as the building blocks for future communications and
related enterprise systems.
Building strategic alliances and making strategic acquisitions and
investments to develop comprehensive eBusiness communications solutions. To
further our objective of offering our customers comprehensive eBusiness
communications solutions, we have entered into a number of strategic alliances
with other technology and consulting services leaders. By linking our advanced
products and enterprise communications systems experience with the expertise of
strategic partners in eBusiness consulting, applications, infrastructure and
product development, we seek to enhance the portfolio of products we offer our
customers, better positioning us to deliver these comprehensive solutions. We
are actively pursuing additional strategic alliance opportunities with partners
whose capabilities complement our product and service offerings. We also intend
to seek acquisitions of technology, services or distribution channels in order
to accelerate our time to market of new products and solutions and increase our
worldwide presence and share of international sales. We may also make
investments in companies with products, technologies or services that compliment
our product and service portfolio.
PRODUCTS AND SOLUTIONS
We offer a broad array of communications systems, software and services
that enable enterprises to communicate with their customers, suppliers, partners
and employees through voice, Web, electronic mail, facsimile, Web chat sessions
and other forms of communication, across an array of devices. These devices
include telephones, computers, mobile phones and personal digital assistants. We
classify these products and services into the following principal categories:
- Enterprise Voice Communications Systems;
- Communications Applications;
- Multi-service Networking; and
- Connectivity Solutions.
Our broad portfolio of products includes products we have developed
internally, products we have obtained through acquisitions, products
manufactured by third parties which we resell and products we have developed
through our strategic alliances with other technology leaders. Our products
range from
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systems designed for multinational enterprises with multiple locations
worldwide, thousands of employees and advanced communications requirements to
systems designed for enterprises with a regional or local presence, a single
location, and less extensive communications requirements. We believe that the
four primary considerations for an enterprise in selecting our systems are:
- the reliability of the system;
- the availability and level of service offered around the world;
- the features or applications offered to an enterprise; and
- the system's scalability, or ability to add users, features or
applications as the needs of the enterprise change.
ENTERPRISE VOICE COMMUNICATIONS SYSTEMS
We are a U.S. leader in sales of enterprise voice communications systems,
our core voice communications products. In fiscal 1999, we derived approximately
$3.4 billion or 41% of our total revenue from these products. We estimate, based
on various industry reports, that the market segment for traditional voice
communications, such as the DEFINITY, Merlin Magix and Partner products
described below, will grow from approximately $28 billion in 1999, to
approximately $29 billion in 2003, a compound annual growth rate of 1.2%.
We offer a broad range of systems to satisfy the communications needs of a
diverse group of enterprises. We offer systems designed for under five users, as
well as systems that can be networked to accommodate an almost unlimited number
of users. Our systems are generally designed to allow an enterprise to add or
remove users and have optional features, including over 450 in our most advanced
systems, available to enable an enterprise to activate additional features as
its communications requirements change. We also design our systems to be easy to
administer and use. We provide technical support and training to our customers,
and offer the option of purchasing remote diagnostic services for some of our
products. These diagnostic services help improve the reliability of an
enterprise's systems because we can identify, through the application of
artificial intelligence, problems and potential problems with that system, often
before the customer realizes there may be a problem.
Advanced systems. Our most advanced system is our DEFINITY Enterprise
Communications Server, which is offered in a variety of configurations in
approximately 90 countries. Our DEFINITY product line is a family of products
that provides for a reliable network for voice communication which offers
integration with an enterprise's data network. Our DEFINITY servers support a
variety of voice and data applications such as call and customer contact
centers, messaging and interactive voice response systems. Interactive voice
response systems allow an individual to access information in the enterprise's
computer databases or conduct transactions verbally or using a touch-tone
telephone. Our DEFINITY servers support open and standard interfaces for
computer telephony integration applications, which are advanced applications
that assist in the making, receiving or managing of telephone calls. Our
DEFINITY servers facilitate the ongoing transition at many enterprises from
private voice telephone systems to advanced systems that integrate voice and
data traffic and deploy increasingly sophisticated communications applications.
DEFINITY products offer flexible networking options to enterprises.
Multiple DEFINITY servers can be integrated to work together in a single network
with centralized administration supporting transport over internet protocol,
asynchronous transfer mode, frame relay or integrated services digital networks.
Internet protocol, asynchronous transfer mode and frame relay refer to different
sets of procedures for the formatting and timing of data transmission between
two pieces of equipment. All three of these protocols support voice traffic over
a data network. Integrated Services Digital Networks use lines for voice, video
and data traffic installed as part of the public switched network. In the case
of enterprises with more than one type of network, DEFINITY allows an enterprise
to use the transport resources of any or all of these networks simultaneously.
In addition, our DEFINITY systems also may be networked with the systems of
other vendors, including those at remote locations.
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We primarily sell our DEFINITY systems to large enterprises with
sophisticated communications requirements. Our DEFINITY systems are also used by
small and mid-sized enterprises with advanced communications needs and as few as
five users. Our DEFINITY systems vary primarily based on the number of users,
the features desired by the enterprise and the speed of the system. Each
DEFINITY system may be upgraded to support more users and features as the
enterprise changes, enabling the enterprise to retain the value of its initial
investment, including its investment in training employees on the DEFINITY
system. Among the over 450 different features available to an enterprise are the
ability to support multimedia interactions, advanced system administration
features, abbreviated dialing among an enterprise's multiple locations and least
cost and best service call routing. We have designed our DEFINITY systems to be
easy to administer, among other things, by providing centralized administration
of DEFINITY systems deployed across multiple locations and clear, graphical
screens that the administrator uses to monitor and adjust the systems.
Furthermore, through the DEFINITY diagnostic software and our expert systems, we
have the capabilities to resolve a substantial portion of the problems with our
customers' DEFINITY systems without dispatching a technician to that customer's
site. We are also in the final stages of testing a feature that will allow
DEFINITY servers to be configured automatically from an enterprise's human
resources directory, for example, that conforms to the emerging industry
standard interface for directories.
Converged voice and data products. Our DEFINITY product line includes the
DEFINITY IP(R) Solution and DEFINITY ATM(R), which both allow an enterprise with
separate voice and data networks to converge all or a portion of its voice
traffic on its data network. The DEFINITY IP solution consists of software and
hardware that gives our DEFINITY products the capability to operate as:
- a gateway, or point of entry to a network;
- a gatekeeper, or provider of management and flow control across an
enterprise's different types of communications networks; and
- a multipoint conferencing unit, allowing telephone traffic to be carried
along with data in a single multiprotocol network.
In addition, DEFINITY IP Solution monitors the network, and if, at any
time, the Internet Protocol network's performance is not acceptable for voice,
it will reroute the voice traffic over its alternate voice network supporting
the DEFINITY system. An enterprise with an existing DEFINITY system may upgrade
its system by adding DEFINITY IP Solution, and a purchaser of a new DEFINITY
system has the option to include DEFINITY IP Solution as a part of its DEFINITY
system or to buy a DEFINITY system exclusively comprised of Internet Protocol
telephones. Additionally, our DEFINITY ATM solution, among other capabilities,
enables a customer to utilize a single DEFINITY switch for voice communications
in conjunction with its ATM network across multiple geographic locations. This
capability gives our customers the benefit of using geographically dispersed
human resources while getting the benefits of a centralized family of
application servers.
Primarily in Europe, Australia and Japan, we offer two other advanced
systems, the INDeX and Alchemy product lines, which are targeted to small to
mid-sized enterprises. These systems are price sensitive offerings and provide a
variety of integrated voice and data applications. INDeX, for enterprises with
20 to 400 users, supports such functions as Internet Protocol telephony and
customer contact center capability with real time reporting and interactive
voice response systems. Alchemy systems provide basic voice and data
communication capabilities in a single system for small to mid-sized enterprises
with two to 192 users. As part of the system, a variety of data functions are
packaged including network routing and a corporate firewall. A firewall is a
combination of hardware and software which functions as a security mechanism
both to limit the exposure of a network to unauthorized infiltration and to
prevent internal users from transmitting information to unauthorized sources
outside the network. This combination simplifies the purchase and use of
advanced network functionality for a small enterprise.
Additional systems. In addition to our advanced systems, we offer two
primary voice communications systems, our Merlin Magix and Partner product
lines, targeted at small and mid-sized enterprises with less extensive to
moderately sophisticated communications requirements. As opposed to our DEFINITY
servers, which utilize a switch to allow for the sharing of outside lines to
which the user
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typically gains access by dialing "9", the selection of an available line and
setting up the connection, these products are key/hybrid systems, which require
that the user make the selection of an available outside line by pressing an
unlit line-selection button on their telephone.
Our Merlin Magix product line offers an array of features for an enterprise
with moderately sophisticated communications requirements. These features
include the ability to network more than one system at a single or multiple
locations with other Merlin Magix or with DEFINITY systems for the purpose of
sharing centralized voice messaging or providing a uniform dial plan. Merlin
Magix systems support up to 200 users and provide networking access to the
public switched telephone network using a variety of technologies. Merlin Magix
also offers the ability to support wireless technology and Internet applications
such as a router, a firewall, an enterprise's own electronic mail and Web
hosting. This product line has optional features for small and mid-sized
enterprises that seek to integrate their voice and data networking including
software to support applications such as interactive voice response systems.
According to a 2000 Monitor report by Eastern Management Group, our sales of
Merlin Magix products in 1999 represented approximately 23% of total new sales
of key/hybrid communications systems to enterprises with 11 to 40 telephones in
the United States and approximately 20% of total new sales of key/hybrid
communications systems to enterprises with more than 40 telephones.
Our Partner products include features suitable for a small, single location
enterprise with less extensive communications needs but which still requires a
system that facilitates communication internally and with customers. These
systems are priced to provide good value relative to the features offered, which
include voice mail and conference calling. According to the same report by
Eastern Management Group, our sales of Partner products in 1999 represented an
estimated 46% share of total sales of key/hybrid communications systems to
enterprises with two to ten telephones in the United States. Each of these
product lines is designed to be easy to use and administer, including providing
an administrator the ability to make moves, adds and changes without the use of
an on-site technician.
Business telephones. According to a report by Eastern Management Group, we
were the leading United States manufacturer of business telephones in 1999,
shipping 29% of the 15.9 million business telephones shipped in the United
States during that year. Our business telephones are primarily sold in
conjunction with our enterprise voice communications systems. Our telephones are
available worldwide in a variety of styles and support a number of languages.
COMMUNICATIONS APPLICATIONS
We offer a broad range of communications applications products which
enhance an enterprise's interactions with its customers, suppliers, partners and
employees. In fiscal year 1999, we derived approximately $1.3 billion or 16% of
our total revenue from our communications applications products. We estimate,
based on various industry reports, that the market segment for customer
relationship management will grow from approximately $11.5 billion in 1999, to
approximately $33.2 billion in 2003, a compound annual growth rate of 30.3%. We
also estimate, based on various industry reports, that the market segment for
traditional voice messaging will grow from approximately $3.8 billion in 1999 to
approximately $6.1 billion in 2003, a compound annual growth rate of 12.6%, and
that the market segment for enterprise unified messaging will grow from
approximately $57 million in 1999, to approximately $490 million in 2003, a
compound annual growth rate of 71.5%.
Customer relationship management solutions. We offer products that are
essential components of many customer relationship management, or CRM,
solutions, including:
- call and customer contact center systems;
- customer self-service applications, including the integration of voice
communications;
- Web collaboration;
- electronic mail response management;
- Web chat; and
- workflow and business process automation products.
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We believe our leading products and our portfolio of advanced applications
position us to capitalize on the growing importance of customer relationship
management in the eBusiness environment and on the increased focus within
customer relationship management solutions on workflow and administrative
capabilities. We also offer professional services that assist our customers in
integrating our products into their specific business environments and
comprehensive customer relationship management solutions. Typically, a customer
that purchases our customer relationship management products purchases
customization and integration services from our professional services group. We
believe that our ability to provide these professional services is an important
consideration in selecting our communications applications.
According to a Cahners In-Stat report in 2000, we are a U.S. leader in
sales of call center systems based on their estimates that our sales of systems
in 1999 represented approximately 27% of total U.S. sales and our call center
systems support approximately 46% of the total number of U.S. customer agent
seats. We are particularly strong in the sale of systems that support over 400
agent seats. We also are a leading provider of automatic call distribution, or
ACD systems, which route incoming call traffic. According to a Cahners In-Stat
report in 2000, we are the leader in interactive voice response products, having
11% of the total global sales of interactive voice response systems sold in
1999. We believe that the deployment of these products gives us an important set
of customer relationships that we can use to sell our other customer
relationship management products as well as upgrades to existing systems.
CUSTOMER CONTACT CENTERS
Our core product offerings are hardware and software systems and software
applications for customer contact centers, which are a key component of many
customer relationship management solutions. By customer contact center, we are
referring to the customer service and support function served by the combination
of customer agents, an enterprise's voice and data communications systems, as
well as an enterprise's related software applications, such as software
applications designed to respond to customer requests for information and to
service their needs. Database servers, which contain customer records, product
information and trouble-shooting tips, and any related peripheral equipment,
such as the agent's telephone and personal computer are also integrated into the
customer contact center system. The integration of multimedia interactions into
traditional call centers has led to the emergence of customer contact centers.
We use the term contact center to refer to traditional call centers, which
primarily manage an enterprise's interactions with customers via the telephone,
and to contact centers that allow a customer to interact with an enterprise
using multiple mediums of communication, including electronic mail, access from
a Web site, chat rooms, interactive voice response systems, telephone calls and
facsimiles. For example, our customer contact center products can be implemented
so that a potential customer can browse through our customer's existing Web
page, enter a chat room and then click on an icon to reach the customer service
representative. Our customer contact center solutions include software that
manages customer interactions from the initial point of contact through the
operational functions, such as order processing and billing, to fulfillment of
the transaction with the customer, as well as any subsequent accounting or
tracking that needs to be done.
Our customer contact centers are scalable and can support as few as ten
customer service representatives in a single location, to thousands of customer
service representatives spanning multiple physical locations. We have
traditionally sold our solutions to large and mid-sized enterprises in single or
multiple locations. Due to the growth of eBusiness and the increased focus on
customer relationship management, however, we are expanding our focus to include
selling our products to smaller enterprises which are seeking to enhance
relationships with customers, suppliers, partners and employees and to improve
operational efficiencies through automation of some customer service and
back-office functions.
A contact center requires a variety of hardware, such as an enterprise
communications server or switch to route traffic. Our core customer contact
center voice communications applications currently work only with our DEFINITY
servers. We are developing new versions of some of these products to be
compatible with servers of multiple vendors. Our customers' comprehensive
customer relationship management solution typically includes automated sales and
services systems that are linked to contact
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center technology, complemented by one or more databases that store the
information generated through the automated sales system and contact center. Our
customer contact center solutions integrate with these other third party
applications and major databases, such as Oracle and Sybase.
STAND-ALONE CUSTOMER RELATIONSHIP MANAGEMENT APPLICATIONS
We offer a number of products that can be used either as part of a customer
contact center or on a stand-alone basis. Our customer self-service products
include interactive voice response systems and Web-based self-service
applications. Interactive voice response systems allow an individual to access
information in the enterprise's computer databases or conduct transactions
verbally or using a touch-tone telephone. We also offer our workflow and
business process automation applications separately from our customer contact
center solutions to perform functions such as order processing, billing,
document processing and accounts payable integration. These applications are
often used by government agencies and companies in the financial services,
health care, and utilities industries.
KEY CUSTOMER RELATIONSHIP MANAGEMENT PRODUCT OFFERINGS
We offer a broad range of applications to meet the needs of enterprises of
various types and sizes. These products can be implemented for specific,
stand-alone functionality and can also be implemented in combinations for
broader solutions. For example, the CentreVu product line for contact centers
can be expanded with products including CRM Central 2000 outbound contact
systems and interactive voice response product lines. CRM Central 2000 adds
workflow and advanced computer telephony applications to our CentreVu portfolio.
CRM Central 2000 can also be used stand-alone for multimedia business process
automation functionality. Our applications are generally customized for each
enterprise by our professional services consultants. Our product portfolio
includes the following customer contact center solutions and stand-alone
products:
- CentreVu. Our CentreVu product line is a suite of customer contact
products offering predictive and adaptive routing of inbound customer
interactions, primarily via telephone. CentreVu also offers capabilities
to support other types of customer interactions, such as Web chat,
Internet Protocol telephony and electronic mail management which
enterprises can utilize as they slowly expand towards servicing their
customers with multi-media interactions. This suite of products
effectively manages contact centers and enables enterprises to pursue
their business strategies through the integration of Internet-based
interactions. Customers are then able to interact with the enterprise in
the manner they prefer. Our CentreVu product line also includes software
that intelligently routes inbound communications to the agent best suited
to handle the interaction, based on service levels, business rules,
customer profiles and the agent's skill set, work load and usage and
software which allows agents to operate from remote locations. This suite
of voice communications applications can only be used on our DEFINITY
servers.
- CRM Central 2000. Our CRM Central 2000 software is a suite of
applications designed for enterprises that interact with their customers
over a variety of communications media and provides the related office
management required to process and fulfill customer requests. These
interactions include:
- telephone calls;
- Internet Protocol telephony;
- Web chat;
- data sharing;
- Web collaboration; and
- electronic mail management and response activities.
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This suite of solutions is in an early stage of adoption by customers. CRM
Central 2000 is an integrated solution which is comprised of five key
software components, the combination of which provide customized,
integrated capabilities for managing customer-oriented work process across
an enterprise and helping an enterprise build lasting, profitable customer
relationships. Our current version of CRM Central 2000 can integrate with
many third party applications, such as interactive voice response systems
and can be used with our DEFINITY server to support voice communications.
We are developing a new version which will be able to integrate voice
communications on other vendors' servers. This application can be used
either on a stand-alone basis or as part of a customer contact center.
- Viewstar(R). Our Viewstar 5.0 workflow and business process software
automates the business processes associated with delivering quality
customer service and is typically used on a stand-alone basis. Viewstar
reduces costs and shortens turn around times for critical business
applications such as loan origination, claims processing and order entry.
- Mosaix(TM). Our Mosaix product line automates and synchronizes the
outbound and inbound telephone calls in contact centers and includes
associated call progress analysis tools. Sophisticated calling "campaign"
management and unique call blending applications with multiple options
for integrating inbound and outbound calls are enabled through these
products. Mosaix allows an enterprise to handle sporadic inbound call
overloads and to reduce down time of the customer service agents.
- CONVERSANT(R). Our CONVERSANT Interactive Voice Response System is an
integrated solution that automates common customer interactions for
customers to choose service options themselves, enables people to speak
with computers over the telephone and supports eBusiness with access to
self-service applications. This system can assume some of an enterprise's
repetitive and time consuming tasks such as giving directions or hours of
operation or faxing back order confirmations, which reduces the number of
customer agents an enterprise needs and allows agents to handle matters
which require their knowledge and personal attention. Some small and
mid-sized companies use this product as a stand-alone self-service
application. Further, CONVERSANT can be run with DEFINITY or with other
vendors' servers.
PROFESSIONAL SERVICES
We have a team of approximately 900 consultants dedicated to assisting
enterprises in improving their customer relationship management, technology and
execution. Approximately 90% of our consultants are employees, with the
remainder being independent contractors. Our services range from designing and
implementing an enterprise's customer relationship management technology
strategy to setting up and integrating software applications that an enterprise
purchases from us as part of its customer contact center. Our consultants also
work with our sales force in selling our customer relationship management
products. We estimate, based on various industry reports, that customer
relationship management professional services will grow from approximately $7.4
billion in 1999, to approximately $22.6 billion in 2003, a compound annual
growth rate of 32.2%.
Typically, a customer that purchases our customer relationship management
products purchases consulting services from us. We generally provide our
services on a time and materials basis, but occasionally enter into fixed-price
arrangements. The majority of our consulting services are related to our
software and other products. Our service capabilities are a critical part of the
solutions we implement and deliver in connection with our customer relationship
management products. We work with our clients to customize and integrate our
solutions into their contact centers and operations in order to maximize
performance from their processes and systems.
Another key aspect of our business is our relationships with system
integrators. Our practice is structured to not only provide subject matter
advice to systems integrators as part of an overall customer relationship
management strategy, but also to provide guidance to achieve the integration of
multi-vendor solutions. We also provide our services to systems integrators that
seek to integrate their office applications
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with our software systems. The extent of our services in these engagements is
determined by the systems integrator.
Voice and unified messaging solutions. We offer a wide variety of voice
messaging and unified messaging solutions designed to serve the telephone call
answering, voice, facsimile and unified messaging communications needs of
enterprises. Unified messaging is an advanced messaging solution that delivers
the convenience and benefits of combining the storage of more than one type of
message, including voice, facsimile and electronic mail. This facilitates access
to these messages through the most convenient device, including Internet
browsers, LAN-based personal computers and wireline or wireless telephones,
using text-to-speech technology for telephonic e-mail retrieval. These products
are marketed under a number of brands, including our primary brands, Octel
Messaging and INTUITY(TM) AUDIX(R) Messaging. The ease and speed of our voice
and facsimile messaging can improve an enterprise's efficiency by allowing
messages to be sent instantly to teams, groups or an entire workforce across
multiple locations.
We believe that, within a given price range, enterprises purchase our
systems primarily based on:
- reliability;
- the availability of local installation and maintenance;
- the advanced set of features, such as our flexible voice mail networking
capabilities
- the ease and familiarity of our Octel and AUDIX messaging user
interfaces; and
- the ability to configure a system that meets the needs of enterprises of
virtually any size.
While most enterprises require only one voice messaging system per site,
larger companies will generally cluster two to six systems per site, and may
network clusters located at several sites, to meet the service levels required
by the size and communications needs of the enterprise. All of our messaging
servers can be networked, over the Internet or public or private voice networks,
to provide enterprise-wide voice and facsimile messaging through a single
system. Message networking delivers cost savings as compared to direct telephone
or facsimile calls, especially for international communications or
communications with large groups.
We are the worldwide leader in sales of messaging systems. According to a
Cahners In-Stat report in 2000, that our sales of voice messaging systems in
1999 represented approximately 28% of voice messaging mailbox capacity shipped
worldwide to enterprises by the suppliers of such systems in the United States.
This latter share is almost twice that of our nearest competitor. By the end of
fiscal year 1999, we had sold over 200,000 systems worldwide since 1993,
representing a total of over 100 million messaging mailboxes. Our broad family
of messaging products is serving enterprises today with systems that range from
supporting as few as two users to systems supporting up to 50,000 users and
networks of over 100,000 users. Messaging systems include message servers and
their associated server software and messaging-based applications. These systems
are configured both as stand-alone servers or as embedded software or hardware
in communications servers. Many of our messaging systems are compatible with the
voice communications systems of other vendors so that an enterprise may choose
our messaging system as the standard for all its locations. Most of our products
provide spoken prompts in multiple languages for greeting callers and for user
retrieval of messages and are compatible with international standards.
Our unified messaging capability, which accommodates voice, facsimile and
electronic mail messages, is available for our Octel Messaging and INTUITY AUDIX
systems and is also provided by our innovative Octel Unified Messenger for
Microsoft Exchange, developed in cooperation with Microsoft Corporation. The
Octel Unified Messenger system is a unified messaging system software solution
that stores voice and facsimile messages directly in a user's Microsoft Exchange
electronic mailbox and enables user access to this mailbox by telephone or fax
machine. The Octel Unified Messenger system is designed to reduce overhead by
providing a single directory, common administration and a single system for all
voice, facsimile and electronic mail messages and is intended to enhance
productivity by combining pertinent task information in a single working
environment.
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Our messaging systems also support a number of enhanced business
applications. Using auto-attendant features, Octel Designer and Octel Access
Server systems, customers have implemented telephone-based transaction
processing, workflow and business process management applications. These
applications include purchase order approvals, sales tracking and automated
customer service. In June 2000, we will begin commercially offering the Web
Communications Server for our Merlin Magix small business system to provide a
small business with a complete Web presence, including hosted Web home pages and
electronic commerce support for on-line customer purchases. Operating in
conjunction with an application service provider, or ASP, we believe this is a
unique offering for small enterprises.
Internet Protocol applications and conferencing. We are developing and
delivering new communications solutions that use the advantages of the Internet
Protocol operating on the Internet, wireless networks and telephone networks.
These solutions are being designed to serve new areas of customer communications
needs. One of these solutions is our iCosm(TM) suite of communications
applications. iCosm is intended to reshape how individuals organize their days,
both personally and professionally, through new applications for scheduling
meetings with others, for filtering incoming calls, for organizing, scheduling
and routing incoming calls and messages and for advanced forms of conferencing.
iCosm solutions are intended for use both on standard enterprise servers and via
application service providers. Several iCosm applications are currently
available, and we plan to release additional applications later this year.
We also provide audio, video and data conferencing products for enterprises
of varying sizes. These products enable customers to conduct multimedia
communication sessions with a geographically dispersed workforce or across
company boundaries, thereby making possible cost savings over typical in-person
meetings and productivity increases over traditional voice-only modes of
communication. Through partners and internal development, we offer our customers
a broad portfolio of multimedia collaboration solutions, backed by the full
support capability of our nationwide services organization. Our products include
the feature-rich multipoint conferencing unit, a highly-reliable server for
multipoint video conferencing. We also offer the DEFINITY AnyWhere software
product, which, when used in conjunction with our DEFINITY server, enables
spontaneous audio and data conferencing capability for office workers and
telecommuters. Through our purchase of products from third party manufacturers,
we have broadened our portfolio to include a family of industry-leading video
endpoints and a line of highly-scalable audio conferencing products, ranging
from 24 to 1,152 endpoints.
MULTI-SERVICE NETWORKING
We offer a portfolio of products to support multi-service network
infrastructures which carry voice, video and data traffic over any of the
protocols supported by the Internet on local area and wide area data networks.
In fiscal 1999, we derived $269 million or 3.3% of our total revenue from these
products. We are not a leader in multi-service networking products or in
converged voice and data products. We have entered these product areas
relatively recently, and our product portfolio is less complete than the
portfolios of some of our competitors. We are implementing a strategy focused on
these products. We estimate, based on various industry reports, that the market
segment for multi-service networking will grow from approximately $35.3 billion
in 1999, to approximately $50.7 billion in 2003, a compound annual growth rate
of 9.5%. Our multi-service networking products are sold primarily to enterprises
with a future emphasis on application service providers and internet service
providers that are focused on hosted networks and applications. We believe our
products are attractive to customers because of their performance, reliability
and centralized management capabilities.
Local area network solutions. Our Cajun(TM) switches support voice, video
and data traffic over a local area network. Each switch is designed for
interoperability with the hardware of numerous other vendors and is comprised of
hardware and software that enable the switch to perform configuration, fault
management and traffic prioritization functions. Configuration is the adding,
deleting and modifying of connections and supported addresses within a network.
Fault management is the detection and correction of network faults.
Prioritization is the capability to consider the nature of the requirements of
various transmissions to determine the relative order and priority of dealing
with several different types of
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transmissions. Some transmissions, such as voice transmissions, tolerate little
to no delay for quality reasons and a higher level of priority is assigned to
those transmissions.
Our Cajun switches also support additional advanced applications, such as
our switch monitoring, known as SMON, the industry standard network monitoring
software for switched network infrastructures, which was developed by Lucent.
SMON is an open standard application which allows simultaneous real time
monitoring of traffic across multiple switches in a network. As an analytical
tool, SMON enables network managers to review global traffic across an entire
network as well as individual connectivity between two users.
Wide area network solutions. We offer wide area network solutions,
including Access Point virtual private network routers. A virtual private
network allows an enterprise to transport voice, video or data over a public or
shared network at a level of security substantially equivalent to the traffic
traveling over that enterprise's own private network. This increased level of
security is accomplished through encryption and encapsulation of this voice,
video or data traffic into a format which is protected from unauthorized access.
Our wide area network access products are sold to many types of enterprises and
are designed to meet varying access needs. Our virtual private network routers
are used primarily by enterprises with remote workers and branch or home
offices. Like our switches, our wide area network access products are compatible
with a variety of industry products and provide excellent security, scalability
and reliability.
In addition, we offer firewall hardware and software which function as a
security mechanism to limit the exposure of a network to unauthorized
infiltration. The firewall regulates internal and external network resources and
filters network content. Our firewall products have been designed to meet the
testing standards of the U.S. federal government and allow for a single
administrator to manage multiple firewalls for an entire network from a single
location.
Policy management software. We offer automated policy management software
called RealNet Rules. RealNet Rules allows network managers to define, manage
and enforce policies which establish priorities and levels of security for
network traffic, based on parameters such as traffic type, application or user
identification. Examples include a policy which gives voice traffic priority
over data traffic in a network, a policy which gives finance applications
priority at the end of a reporting period, a policy that gives bandwidth
priorities to designated users, such as senior management, or policies that
restrict access to sensitive applications, such as human resources applications,
to only authorized users. Our policy management software products are designed
to allow a single administrator to set policies for all users and locations from
a central location.
CONNECTIVITY SOLUTIONS
As communications technology requirements have increased over recent years
and as moves, adds and changes have become regular events within enterprises,
enterprises have increasingly required flexible cabling systems solutions for
wiring phones, workstations, personal computers, local area networks and other
communications devices through their buildings or across their campuses. To meet
these needs, we market our SYSTIMAX product line of structured cabling systems
primarily to enterprises of various sizes and our ExchangeMAX product line
primarily to central offices of service providers, such as telephone companies
or Internet service providers. We also offer electronic cabinets to enclose an
enterprise's electronic devices and equipment. In fiscal 1999, we derived $1.3
billion or approximately 16% of total revenues from our connectivity solutions.
We estimate, based on various industry reports, that the market segment for
connectivity solutions will grow from approximately $12.1 billion in 1999 to
approximately $16.9 billion in 2003, a compound annual growth rate of 8.7%.
SYSTIMAX structured cabling systems. We estimate, based on a Phillips
InfoTech report in 1999, which is the most recent report currently available,
that we are the worldwide leader in sales of structured cabling systems to
enterprises. We primarily market these products under the brand name SYSTIMAX.
In fiscal 1999, we derived approximately 45% of our SYSTIMAX revenue from sales
domestically and approximately 55% internationally. Our SYSTIMAX cabling systems
provide high speed multifunctional local area network interconnections within a
single building or a campus through an infrastructure of
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copper or fiber cabling and associated connecting apparatus. The SYSTIMAX copper
and fiber apparatus portfolio includes a broad line of distribution boxes,
interconnects, shelves, racks, connectors and outlets necessary to connect and
manage large building infrastructure networks.
We believe that through our SYSTIMAX products we are well-positioned to
capitalize on the increasing use by enterprises of advanced data applications
which require a reliable infrastructure that can provide high speed data
transmission. The current SYSTIMAX product line includes PowerSum and
GigaSPEED(R), which are copper cable systems, and LazrSPEED(TM) and
OptiSPEED(TM), which are optical fiber cable systems. PowerSum and OptiSPEED
each support up to one gigabit transmission and are targeted to price sensitive
customers. GigaSPEED and LazrSPEED are the performance leaders in their
respective markets. GigaSPEED allows the implementation of gigabit ethernet, a
high performance protocol for data transmission, within a building using low
cost network electronics. LazrSPEED offers the industry's first 10 gigabit
capability.
Our SYSTIMAX systems compete on the basis of performance, flexibility,
reliability and overall customer value. A key component of our marketing
strategy is to highlight SYSTIMAX's ability to support the future bandwidth
needs of an enterprise. Another of the SYSTIMAX systems' selling points is that
the need to recable and the costs relating to recabling can be reduced by
installing a high quality structured cabling system that is designed to
accommodate an enterprise's move to more advanced applications. We believe that
the SYSTIMAX brand name is recognized worldwide by our customers and competitors
as the technology leader in the structured cabling system industry. We provide a
warranty that our SYSTIMAX cabling systems will support an enterprise's
standards-based applications and that our products are free of manufacturing
defects for 20 years.
In addition to cabling systems, SYSTIMAX also offers the alternative of
implementing a wireless local area network infrastructure. These products
provide high speed wireless in-building connectivity in situations where cabling
is impractical. The capability to include wireless LAN connectivity in the total
SYSTIMAX system provides customers with increased flexibility to expand their
existing networks.
ExchangeMAX structured cabling system. We sell our ExchangeMAX structured
cabling systems primarily to central offices of service providers such as
telephone companies or Internet service providers. Central offices are locations
that house switches to serve the subscribers of a service provider. Our
ExchangeMAX system combines our family of high quality central office
connectivity products with an overall system architecture to support the copper
and fiber cable distribution networks of a central office. Our products include
copper distributing frames, copper cable, connectors, patchcords and cable
management software. The ExchangeMAX product line is engineered to meet the
site-specific needs of our customers, and may be utilized either to address the
discreet maintenance and upgrading needs of a central office or to serve as the
foundation of a central office's comprehensive wire center modernization. Like
our SYSTIMAX product line, we believe that customers choose our ExchangeMAX
systems on the basis of performance, flexibility, reliability and overall
customer value.
Electronic cabinets. An electronic cabinet is a sturdy environmental
enclosure for electronics devices and equipment, designed to optimize system
integration performance, including thermal characteristics. We have developed an
extensive cabinet product portfolio to meet application needs with respect to
protecting its current electronic networking as well as providing the thermal
capacity to protect network technology. Our product portfolio, combined with our
extensive experience, allows us to integrate the electronics products of
numerous manufacturers. Further, our cabinets are designed to meet environmental
challenges, both expected and unexpected, as well as the technological
challenges of network evolution.
VALUE-ADDED SERVICES
Our value-added services are outsourcing services we provide to both
enterprises and to communications service providers, such as local exchange
carriers, or telephone companies, or Internet service providers, worldwide to
operate and maintain a portion of their communications systems. In fiscal year
1999, we derived approximately $235 million or 3% of our total revenue from our
value-added services. We estimate, based on various industry reports, that the
market segment for value-added services
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will grow from approximately $4.6 billion in 1999, to approximately $8.7 billion
in 2003, a compound annual growth rate of 17.3%.
Our enterprise customers which use our value-added services are generally
large and mid-sized businesses. For enterprise customers, we provide outsourcing
of messaging systems, portions of voice communications systems and contact
centers. We offer these customers a full range of maintenance, management and
support services. We provide either managed services where the customer owns the
communications system or outsourcing services where we both manage and own the
communications system. Our services include the following:
- fault management, including maintenance and help desk support;
- remote provisioning and administration, such as establishment of voice
mail boxes;
- remote monitoring; and
- recording, reporting and billing.
For service providers, we primarily outsource the operation of their
messaging systems. We outsource messaging systems for established service
providers, emerging service providers and other competitive local exchange
carriers. Currently, we derive the majority of our revenue in value-added
services from customers in the United States.
We contract with our clients to provide these services, in varying levels,
under agreements that require us to meet service level requirements that vary
from agreement to agreement. Fee arrangements vary by contract, but are
generally made on a per unit or per subscriber basis, with up front charges to
cover initial expenses. These agreements typically have terms ranging from five
to seven years with varying termination provisions.
STRATEGIC ALLIANCES
In order to offer our customers comprehensive eBusiness communications
solutions, we are creating strategic alliances with other technology and
technology consulting services leaders. Listed below are the principal alliances
we have entered into or are currently negotiating in connection with our
strategy. The agreements underlying these alliances to which Lucent is a party
will be assigned to us at the time of the distribution. We have generally
entered into alliances for one to three year terms with various provisions to
extend the initial terms. We are actively pursuing additional strategic
alliances. Under the terms of our separation from Lucent, Lucent may terminate
some of the rights, including important intellectual property rights, that they
granted to us if we enter into strategic alliances with two named competitors of
Lucent. Except for our alliance with NICE Systems, Inc. described below, all of
our alliances for which we have entered agreements have been entered into within
the last year and are still in their initial stages of planning and development.
Alliances which we have announced but do not yet have definitive agreements are
under negotiation.
TECHNOLOGY ALLIANCES
Blue Pumpkin Software, Inc. In April 2000, we entered into an agreement
with Blue Pumpkin to provide solutions that help enterprises successfully
allocate and balance workload across human resources in multimedia contact
centers. Under the agreement, Blue Pumpkin has granted us a non-exclusive
license, for a fee, to resell Blue Pumpkin's workforce management software by
incorporating it into our suite of customer relationship management solutions.
In addition, Blue Pumpkin will be developing customized versions of its products
to enhance the capabilities of our combined products.
eLoyalty Corporation. We have announced our intention to work with
eLoyalty to develop, sell and integrate enterprise-wide eBusiness solutions.
Microsoft Corporation. In October 1999, we entered into an agreement with
Microsoft Corporation to provide a new unified messaging solution to service
providers based on Microsoft Exchange and our Octel Unified Messenger systems.
Under the agreement, Microsoft has granted us a non-exclusive, worldwide license
to resell Microsoft Exchange, an electronic mail platform, to service providers.
Our product is intended to provide customers with a single point of access to
voice mail, facsimile and
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electronic mail messages. Service providers in turn will be able to offer our
unified messaging solutions, which may include hardware, software, services and
support, to enterprises both as a hosted application where hardware and software
resides on a service provider's network or as an on-premises managed service,
where the equipment is located at an enterprises's location and the service
provider provides managers and maintains the equipment remotely.
NICE Systems, Inc. In October 1997, we entered into a non-exclusive
worldwide distribution agreement with NICE Systems to re-sell some of NICE's
computer telephony integration products, used in call and contact centers, to
provide high reliability call logging, quality monitoring and customer
management solutions for voice and data. We believe these products enable
enterprises to improve the quality of the relationship with their customers
focusing on contact center customer interactions. We are currently selling these
products in the United States and are developing a strategy with NICE to
coordinate sales of these products outside the United States.
Siebel Systems. In August 1999, we entered into an alliance with Siebel
Systems, a leading provider of eBusiness application software, in which we will
jointly market our workflow management applications with Siebel's eBusiness
applications software to provide a complete multi-channel contact center
solution.
Sun Microsystems. In December 1999, we announced our intention to form an
alliance with Sun Microsystems to jointly package and market communications
networking systems and Internet services and solutions that will assist
enterprises and network services providers to host applications and to create
hosted "market places" that centralize the management of customer interactions.
It is intended that our alliance will create solutions relating to intelligent
customer relationship management and intelligent policy-enabled electronic
commerce.
CONSULTING SERVICES ALLIANCES
Andersen Consulting LLP. We have announced our intention to work with
Anderson Consulting to develop, sell and integrate enterprise-wide eBusiness
solutions.
Origin International. In April 2000, we entered into an agreement with
Origin International, an information consulting and services company based in
the Netherlands, to jointly develop and market eBusiness solutions to enterprise
customers in Europe. The alliance will bring together our eBusiness
communications solutions and Origin's worldwide customer relationship management
and eBusiness consulting and systems integration capabilities. Under the
alliance, we intend to create solutions which will include offerings in the
areas of eBusiness, customer relationship management, multi-channel customer
interaction and unified messaging.
SEMA Group plc. In April 2000, we entered into an agreement forming a
worldwide strategic alliance with SEMA Group, an information technology and
business service company based in Europe. Under this strategic alliance, we will
create comprehensive solutions for enterprises that will include
jointly-developed or complementary offerings in the areas of electronic
commerce, customer relationship management, integrated messaging, data and voice
convergence, one-to-one marketing, network management and customer care and
billing. Under the agreement, SEMA Group will furnish to us its convergent
customer care and billing applications, its messaging products and its mobile
commerce offering, in addition to its worldwide systems integration
capabilities. We will furnish to SEMA Group our converged voice and data
networking technology, including our enterprise infrastructure, communications
and networking software, as well as our systems engineering and technical
support capabilities.
eBUSINESS COMMUNICATIONS SOLUTIONS
We define eBusiness as the internal and external use of communications
tools and electronic networks to interact, collaborate and transact business
with an enterprise's customers, suppliers, partners and employees. As
individuals and enterprises increasingly utilize a wide array of communications
devices, including telephones, computers, mobile phones, personal digital
assistants and other wireless devices, there is a growing need to integrate the
applications and services and to allow these applications and services to
communicate with any device being used to interact with the enterprise. A
fundamental goal of eBusiness communications solutions is
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to overcome the traditional limitations of particular communications devices,
infrastructures or applications and enable users to access information in a
media form not customarily supported by those devices, infrastructures or
applications. Such interactions give rise to previously unrealized flexibility
allowing, for example, conversion of electronic mail or other text to spoken
word for access via wireless telephone or conversion of voice messages to text
for access through an electronic mailbox.
We believe that the development of open industry standards for
communications products that facilitate interactions between products and
applications from multiple vendors is critical to the widespread adoption of
eBusiness. We are actively working with technology leaders from other companies,
as well as educational and research institutions, to promote and continue to
develop open standards necessary to provide consistent communications
integration. We also are making the development of a greater number of products
that can work with other vendors' products a priority for our product
development group.
We believe there are four layers of capabilities and services that together
form the components of an integrated, flexible communications system that
supports and delivers real eBusiness solutions. The following table describes
these four layers and lists the capabilities and services we offer today to
enable customers to begin to reap the benefits of this communication
integration.
<TABLE>
<CAPTION>
SYSTEM LAYER OUR CAPABILITIES AND SERVICES
<S> <C>
Portals and Other Integrated Access - our interactive voice response systems and
Capabilities: capabilities which allow users telephone user interfaces, which allow
using various devices to access the users to access computer information or
information and services they need and conduct transactions verbally or using a
alleviate potential discontinuities resulting touch-tone telephone
from the interaction of different modes of - our graphical user interfaces, which use
communication graphics to enable users to access computer
information using a pointing device, such
as a mouse
- our Internet browser based calling,
conferencing and data collaboration product,
DEFINITY AnyWhere
- our Internet browser based messaging
product, used in conjunction with our Octel
message services, www.messenger(TM)
- our voice browser, which enables Web sites
and other electronic applications to respond
to voice commands
- our computer telephone integration
products, which coordinate interactions
between telephone and computers within an
enterprise
- our Internet Protocol softphones, which use
software applications allowing for
telephone-style communications over the
Internet through a personal computer
Applications and Services: capabilities - our range of customer care capabilities
designed to provide operational benefits, to that provide multimedia access and response,
address enterprise processes and to support operational support and management of
the interactions between the communications contact centers and related workflow
devices and network infrastructures automation, CentreVu, CRM Central(TM) 2000,
and Customer Care Solutions
- our range of voice and integrated messaging
capabilities, Octel, INTUITY, Unified
Messenger,
</TABLE>
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<TABLE>
<CAPTION>
SYSTEM LAYER OUR CAPABILITIES AND SERVICES
<S> <C>
MERLIN Mail(R) and INDeX
- our personal productivity solutions which
organize personal and relationship-based
communications, our iCosm solutions
- our capabilities which allow users to
create customized telephone applications
using a range of our messaging services,
our Octel software designer - our
capabilities which automate common customer
interactions,
allowing for
communications
across a
variety of
media,
CONVERSANT
IVR
Network Infrastructure: capabilities and - our enterprise communications systems,
services supporting integrated eBusiness Merlin Magix, INDeX and IP Exchange(R)
applications and services, including voice, - our local area network switching
data and converged voice and data capabilities, supporting multiple network
applications, local area network access, protocols and speeds, Cajun local area
interaction between local and wide area network switching devices
networks, policy management and security - our policy management products, RealNet
Rules
- our firewall solutions which function as a
security mechanism both to limit the exposure
of a network to unauthorized infiltration
and to prevent internal users from
transmitting information to unauthorized
sources outside the network
- our SMON switch monitoring products
- our wide area network capabilities, which
provide bandwidth, speed, protocol support
and security to connect and transmit voice
and data traffic from the local area
network across the wide area network
- our structured cabling system, SYSTIMAX,
which is a flexible enabling system designed
to connect phones, workstations, personal
computers, local area networks and other
communications devices within a building or
across one or more campuses
Business and Technology Consulting Services: - our customer relationship management
expertise to help an enterprise integrate professional services
these separate categories of capabilities and - our strategic alliances with technology
services consulting companies
</TABLE>
Please see "-- Products and Solutions" and "-- Strategic Alliances" for a
more detailed description of many of the products and services described above.
CUSTOMER SERVICE, INSTALLATION AND MAINTENANCE
We have customer service, installation and maintenance organizations in the
United States and internationally, with approximately 11,500 employees engaged
in these services as of March 31, 2000. Our service organization is designed to
provide a comprehensive set of services in support of direct and indirect
channels, which we believe is an important consideration for many customers
which purchase our products. We provide these services globally either directly
or through our distribution partners. Installation generally is included in the
purchase price of our products, and most of our products have a one year
warranty. For
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additional service, our customers can elect to enter into maintenance contracts
with us or, if they do not choose to enter into such contracts, may have us
provide service for them on a time and materials basis. In fiscal 1999, we
derived approximately $1.9 billion or 23% of total revenue from these services,
not including the installation services. In addition, we offer value-added
services for the outsourcing of messaging and other portions of an enterprise's
communications system to our existing customer base. We estimate, based on
various industry reports, that the market segment for services other than
value-added services, but including installation services, will grow from $13.9
billion in 1999, to $16.7 billion in 2003, a compound annual growth rate of
4.6%.
U.S. SERVICES
Our U.S. service organization is comprised of our Field Services
Organization, our National Customer Care Centers and our Technical Services
Organization, with approximately 10,700 employees as of March 31, 2000.
Installation and repair of our products are performed primarily by our Field
Services Organization. Account support in the United States is conducted
primarily through our National Customer Care Centers. Technical support and
maintenance under contracts for our voice communications products are provided
by our Technical Services and Field Service Organizations. We use Lucent and our
distribution partners to service our converged voice and data products. We are
currently establishing our own internal data service capabilities, using as a
base, the data service technicians and managers that will be transferred to us
from Lucent in connection with the distribution.
Field Services Organization. Our Field Services Organization provides
installation, on-site repair and move, add and change services for our
customers, and represents the largest part of our U.S. services organization.
This organization is uniform across the 48 contiguous states, which allows our
national accounts to receive the same type and level of support in each
location. Most of our Field Services Organization employees are based in the
field, performing site visits to customer premises. When on-site technical
presence is required for a repair, a customer service representative from our
Technical Services Organization will dispatch a technician or a team of
technicians from our Field Services Organization, which provides installation
and provisioning support to the customer. Installation and aftermarket moves,
adds and changes will be dispatched to the Field Services Organization from a
National Customer Care Center. At installation of a system, our Field Services
Organization, directly or through third parties, also provides training on the
system that is tailored to the individual needs of our customers to assist them
in maximizing performance of our products.
National Customer Care Centers. We have three primary National Customer
Care Centers in the United States, as well as several smaller centers for
specific market segments such as centers that service some of our federal
government customers. Our National Customer Care Centers serve as the hub of our
domestic customer service operations. Customers can contact us at these centers
to place orders for parts relating to our products or systems or to request
other services. As needed, service representatives at these centers route calls
from customers to the appropriate office such as requests for maintenance
contracts or repairs, which are directed to the Technical Services Organization.
Our billing and collection activities also are administered at our National
Customer Care Centers.
In addition to supporting our customers, our National Customer Care Centers
are designed to generate revenue for us. Our customer service representatives at
these centers have frequent interactions with our customers and are trained to
market product and systems upgrades during these interactions, routing to the
account teams as appropriate. We also generate revenue from customers which do
not have maintenance contracts with us but which call our National Customer Care
Centers seeking moves, adds and changes to their systems. Our customer service
representatives will dispatch technicians to these customers to provide the
services requested and these customers will in turn be billed for the
technicians' time and the materials used.
Technical Services Organization. We have three Technical Services
Organization Centers in the United States. Customers can contact us at these
centers to obtain remote technical assistance, request on-site technical
support, or request maintenance or repair services.
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In addition to routine maintenance and support, we offer our customers a
remote diagnostic service which is administered by our Technical Service
Centers. We have developed systems that can access a customer's systems
remotely, whether purchased directly from us or from one of our distribution
partners, and can identify, through the application of artificial intelligence,
problems and potential problems with that system often before the customer
realizes that there may be a problem. We can often solve the problems that we
identify without the customer ever knowing that we intervened. If we cannot
solve the problem remotely, we arrange to have a technician from our Field
Services Organization dispatched to the customer's premises to provide the
necessary solution. This service is covered under the terms of the customer's
maintenance contracts, and is charged on an hourly time and materials basis if
the customer is not under our warranty or maintenance terms. Maintenance
contracts are administered and contract entitlement verification is conducted by
our Technical Services Organization. Generally, these maintenance contracts have
terms of one to four years and are entered into when a customer purchases one of
our systems. The more complex the product or system, the more likely the
customer will enter into a maintenance contract.
For our less sophisticated products and systems, customers enter into
maintenance contracts or, more often, receive service from us on a time and
materials basis or from third parties. We have entered into agreements with
Expanets, by which we have sold them the maintenance contracts for some of our
less sophisticated products and have allowed them to provide maintenance
services to those customers to which they sell products and systems, or
customers which do not have maintenance contracts with us. We have agreed to
provide outsourcing services for the maintenance contracts we transferred to
Expanets until March 31, 2003, and for remote diagnostics and maintaining
technical support for their contracts until March 31, 2005.
We are developing our own Data Technical Services Organizations in the
United States, using as a base the field data service technicians and managers
that will be transferred to us from Lucent in connection with the distribution.
Currently, Lucent's technical support organization provides technical support
for our converged applications. Until we build our own capability, Lucent will
continue to provide us outsourcing services for remote technical support. We
will provide outsourcing services to Lucent for field technicians for their data
service organization.
INTERNATIONAL SERVICES
Our international service organization is comprised of Field Services
Organizations, a Global Support Organization and a Customer Support Center which
provide installation, maintenance and customer service support, with
approximately 850 employees, as of March 31, 2000. Our international service
organization is divided into four regions which are (1) Asia Pacific, (2)
Canada, (3) the Caribbean and Latin America and (4) Europe, Middle East and
Africa.
Field Services Organizations. We have our own Field Services Organizations
in 21 countries. Our Field Services Organizations currently provide
installation, on-site and remote maintenance, and some training for our voice
and data products. These organizations primarily support customers which have
purchased from us directly. In those countries in which we have no direct
services presence, customers of our products rely on local distribution partners
which have been trained and certified by us. Our Field Services Organizations
supplement their engineer and technician resource requirements via the use of
sub-contractors on an as needed basis for responsive service levels and broad
geographic coverage.
Customer service also is currently performed by the Field Service
Organizations. Their services include customer call receipt, contract
entitlement verification, quoting of service rates, administering of maintenance
agreements, providing remote maintenance support on communications systems and
software applications, dispatching engineers and technicians and billing and
collection. Some of these activities will be transitioned to our Customer
Support Centers in the future.
Global Support Organization. Similar to our U.S. Technical Services
Organization, our Global Support Organization is a network of support centers
which provide remote technical and engineering support to the Field Service
Organizations, distributors and resellers and select multi-national customers
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with multi-national maintenance agreements. This organization is comprised of
twelve regional centers, which we call "Centers of Excellence," which are
located to provide wide geographic coverage to our international customers.
These twelve centers provide a higher level of skilled technical and
engineering support to Field Services Organizations and distribution partners on
complex communications products, such as voice, data and video and application
solutions for both installation and maintenance services. Each Center of
Excellence utilizes a sophisticated suite of desktop technology, tools and
software applications to deliver high quality, effective remote support. Our
distribution partners are responsible for providing installation and basic
maintenance support to their customers for products sold by them. Our Global
Support Organization provides remote installation and maintenance support to the
international services organizations and our network of international
distribution partners.
The Global Support Organization is in the process of integrating our data
oriented remote technical support organizations to deliver technical support for
integrated data and voice communications solutions. We expect integration of
these organizations will be completed by the end of 2000.
Customer Support Centers. We have established a Customer Care Center in
our Europe, Middle East and Africa region and expect to open an additional
Customer Care Center in our Asia Pacific region by the end of 2001. We intend
the level of customer service to be provided at our Customer Care Centers to
include servicing requests received via telephone, facsimile and electronic
mail, receipt of product orders, order fulfillment and tracking, contract
management and administration, contract entitlement verification, invoicing,
billing and collection. We expect some of the support functions currently
performed by the Field Service Organizations also will migrate to the Customer
Support Centers by the end of 2001.
CUSTOMERS, SALES AND DISTRIBUTION
CUSTOMERS
Over the past ten years, approximately 980,000 worldwide customers have
purchased one or more of our systems, software or services directly from us. Our
customer base includes approximately 78% of the Fortune 500 companies. A broad
set of enterprises ranging from large, multinational enterprises to small and
mid-sized enterprises to governments and schools are our customers. They include
established enterprises, dot.coms and other start-up ventures, as well as
service providers, including application service providers and Internet service
providers.
SALES AND DISTRIBUTION
In fiscal 1999, we derived 81% or approximately $6.7 billion of our total
revenue from sales in the United States and 19% or approximately $1.6 billion
from international sales. Our products other than our SYSTIMAX structured
cabling systems are sold both directly and through our worldwide network of
distribution partners. Our SYSTIMAX structured cabling systems are sold only
indirectly through a worldwide network of distribution partners. Our ExchangeMAX
structured cabling systems and our value-added messaging services are sold to
service providers and enterprises worldwide. With respect to service providers,
our value-added services are marketed primarily through the Lucent service
provider sales organization and we are currently analyzing alternatives to our
current distribution channel. We also have a Government Solutions Group that
focuses on sales of our products and services, including our connectivity
solutions, to government and government agencies in the United States and
internationally.
Our multi-channel sales organization, including our direct sales force and
our network of distribution partners, is described below.
Direct sales. Our worldwide direct sales organization markets and sells
our voice, data, messaging and customer relationship management products and
services, as well as our value-added services. As of March 31, 2000, our
worldwide sales organization was comprised of approximately 6,100 individuals,
including managers, sales representatives, technical and operational support
personnel, and indirect channel support. Within the United States, the majority
of our large, end-user customers are served directly
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through direct sales account managers. Outside the United States, we conduct
direct sales focused on large enterprises in major areas, including Western
Europe, South America, Mexico, Australia, Central America and Russia with other
customers and geographic areas served by our network of distribution partners.
Our account managers are responsible for selling our systems, software and
professional services as well as managing customer relationships on an on-going
basis. Until recently, the majority of our account managers focused on our voice
communications products. We are implementing programs to train our account
managers also to sell our multi-service networking products, applications and
eBusiness solutions. In addition, our data sales and technical specialists work
with our account managers to provide sales support in this area. We believe our
sales force has developed relationships with many of the large, multinational
enterprises that are likely to seek advanced, comprehensive eBusiness solutions.
We intend to improve the efficiency and expand the capacity and capabilities of
the direct sales force by utilizing our growing network of global partners to
provide product fulfillment and to deliver high quality local service on a
worldwide basis.
Within this sales organization, our Government Solutions Group focuses on
sales of our products and services to governments and government agencies
worldwide. In the United States, the Government Solutions Group is responsible
for selling our entire line of products and services to federal government
agencies. Internationally, the Government Solutions Group sells our products and
services both to foreign governments and to federal government offices located
outside of the United States.
Indirect Sales. We have a worldwide network of distribution partners which
comprise our indirect sales channel. When selling our products indirectly, we
primarily sell our products through approximately 20 distributors worldwide from
whom our network of approximately 2,800 dealers, value-added resellers and
system integrators purchase and resell our products to the end user. Our
relationships with distributors, dealers, value-added resellers and systems
integrators for our voice and data products and our structural cabling systems
are generally not exclusive. We typically enter into agreements with our
distributors, dealers and value-added resellers that generally set forth sales
quotas and service levels, with terms of one to two years and rights to
terminate by either party upon 120 days notice. Specific terms vary from
agreement to agreement. We are in the process of developing formal global
alliance agreements with our systems integrator partners. We intend that these
agreements will be structured as joint-development, joint-marketing and/or
joint-sales-and-delivery agreements. We expect these agreements will vary by
alliance.
DISTRIBUTORS
Distributors generally purchase products from us directly and pass those
products on to dealers, value-added resellers and system integrators which sell
our products to the end user. Internationally, distributors also may support our
direct sales by supplying or installing products sold by our account managers.
As of March 31, 2000, we had relationships with approximately 10 distributors in
the United States and approximately 10 distributors internationally that
resulted in sales of our systems and software, which were material relative to
total distributor sales. Many of our distributors only resell our products to
resellers such as dealers and value-added resellers and do not sell to the
end-user customer.
DEALERS, VALUE-ADDED RESELLERS AND SYSTEMS INTEGRATORS
Dealers and value-added resellers primarily purchase our products from our
network of distributors to sell our products to customers on a retail basis. As
of March 31, 2000, we had relationships with approximately 1,200 dealers and
value-added resellers in the United States. Approximately 800 of these
distribution partners sell one or more of our voice products and approximately
300 sell one or more of our converged voice and data products. Internationally,
we generally have relationships with dealers and value-added resellers on a
country-by-country basis, with the number per country ranging based on the sales
potential.
Our principal U.S. dealer is Expanets, which in March 2000, purchased the
sales function of our voice communications systems for small and mid-sized
enterprises with 250 or fewer employees. Expanets is the
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largest dealer for this market segment in the United States. These sales were
formerly conducted by us using a direct sales force of approximately 1,800
employees, including sales associates, sales support and management,
substantially all of whom were transferred to Expanets. This sale was part of
our strategy to use multiple distribution channels designed to better serve our
customers by using their preferred distribution channel. We believe small to
mid-sized enterprises increasingly prefer to purchase through distributors,
dealers, value-added resellers and systems integrators rather than from our
direct sales force because the distribution partners are better able to focus on
their specific customer segment and can provide a variety of technologies and
services aimed at small and mid-sized enterprises. Our sale to Expanets was also
part of our efforts to focus our direct sales force on segments of the market
that we can more cost effectively serve.
Systems integrators generally design complete, made-to-order communications
and eBusiness communications systems and solutions, often utilizing the products
of several manufacturers. Systems integrators primarily recommend our systems
and software to customers as part of a system, and we bill the customers
directly. They also purchase products from our distribution partners directly
for incorporation into their systems. We have partnered with both local systems
integrators, which provide services catered to the individual needs of our
geographically diverse customer base, as well as regional and global systems
integrators to meet the technology and application driven needs of our large,
multinational customers. As of March 31, 2000, we had relationships with
approximately 20 global systems integrators, as well as with smaller local and
regional system integrators.
SYSTIMAX STRUCTURED CABLING SALES CHANNEL
Substantially all of our SYSTIMAX structured cabling systems are sold
through our approximately 50 distributors, and a majority of these sales are
through two of these distributors. The distributors sell both to our worldwide
network of approximately 2,400, dealers, value-added resellers, systems
integrators and contractors and to end-user customers. If our relationship with
either of our two main distribution partners should terminate, we may experience
short-term delays in the United States, but we believe we could use other
parties to replace these distributors. Internationally, we generally have
relationships with our distribution partners on a country-by-country basis, with
the number per country ranging based on the sales potential.
RESEARCH AND DEVELOPMENT
We intend to invest an amount equal to approximately 9% of our total
revenue in fiscal 2001 in research and development. These investments represent
a significant increase over our investments in research and development over the
previous three fiscal years, which was approximately 6% of total revenue for
each of those years. We are building a research and development capability that
is intended to have approximately 3,000 engineers, including many that currently
work at Lucent's Bell Laboratories, one of the world's leading research and
development institutions. After the distribution, our research engineers will
form a group with centralized management. Our product development engineers will
work in various divisions and report to the management of those divisions.
Although we will spend a significant portion of our budget on hiring
research and development personnel as we build our capability, we believe our
investments will be more effective than they have been historically because our
efforts will be focused on higher growth segments in our market. As a part of
Lucent, we funded a portion of Lucent's basic research, which research was not
necessarily beneficial for our businesses. We currently perform our research and
development activities, including prototype testing, in 24 facilities located in
the United States, Israel, United Kingdom, Australia, Ireland and India.
We plan on using a significant portion of our investments in research and
development to develop new systems and software to augment our current eBusiness
communications product offerings so that, together with our strategic alliances,
we can offer our customers comprehensive eBusiness communications solutions. We
are particularly focused on converged voice and data solutions and applications
which support eBusiness communications solutions. Our research and development
group will continue to seek
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opportunities to work with other technology leaders to develop uniform
technological standards as the building blocks for future communications and
related enterprise systems.
MANUFACTURING AND SUPPLIES
Currently, we employ approximately 5,000 employees to perform our
manufacturing in 11 facilities located in China, France, India, Ireland, Israel,
the United Kingdom, the United States, Australia and Venezuela. Of these
employees, approximately 2,900 employees are engaged in the manufacturing of our
connectivity solution product offerings in four facilities located in China, the
United States, Australia and Venezuela. As part of our manufacturing initiative,
we intend to outsource substantially all of our manufacturing, including
assembly and testing, other than the manufacturing of our connectivity solution
product offerings. We believe that outsourcing our manufacturing will enable us
to improve our cash flow over the next few years through a reduction in
inventory and reduced capital expenditures. This will allow us to focus our
internal resources on new product development, as we continue to offer high
quality products to our customers.
Products which we purchase from third party manufacturers for resale
account for approximately 5% of our total revenue. We believe we have adequate
sources for the supply of the components of our products and for the finished
products that we purchase from these third parties. We currently have only a
single source of supply for several of our wide area network multi-service
networking products, including the Access Point virtual private network product,
PacketStar AX ATM access servers, SuperPipe multi-service routers, Max3000
access switches and our firewall/virtual private network gateway products. As
part of the distribution, we expect to enter into a long-term relationship with
Lucent to purchase some of these products as well as other local area networking
products. In addition, we purchase the fiber components of our SYSTIMAX
structured cabling systems and our wireless local area networking products from
Lucent. Also, we will enter into an agreement with Lucent for the supply of
various semiconductor components. These contracts will be terminable upon
customary terms such as material breach or insolvency. We intend to continue to
purchase our ClearTrac frame relay voice access devices from ACT Networks, Inc.
and our wide area networking devices from Paradyne Corporation. Our contract
with ACT Networks allows us to purchase similar products from alternative
manufacturers as needed. Our contract with Paradyne restricts our ability to
purchase similar products. Each contract expires in 2001 and is terminable upon
customary terms such as material breach or insolvency. We intend to renegotiate
each of these contracts prior to their expiration. After the distribution, we
intend to expand our own wide area network capabilities.
If we were unable to purchase products for which we have a single source of
supply, it would be difficult to replace them and our competitive position in
supplying converged voice and data products would be harmed. Because of the
growing importance of converged voice and data products, our overall competitive
position also may be harmed if a termination occurs unless we develop our own
products or find other similar products on a timely basis. We may offer
additional products for sale in the future purchased from a single source of
supply.
For detailed descriptions of the products described in this section, please
see "-- Products and Solutions."
COMPETITION
The market for communications systems and software is quickly evolving,
highly competitive and subject to rapid technological change. Because we offer a
wide range of systems and software for several types of enterprises, we have a
broad range of competitors. Many of our competitors are substantially larger
than we are and have significantly greater financial, sales, marketing,
distribution, technical, manufacturing and other resources. Competition for one
or more of our communications systems and software, other than our structured
cabling systems, include products manufactured or marketed by a number of large
communications equipment suppliers, including Nortel Networks Corporation, Cisco
Systems, Inc., Siemens Aktiengesellschaft, Alcatel and LM EricssonAB, as well as
by a number of other
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companies, some of which focus on particular segments of the market such as
customer relationship management. Some of our other competitors include Aspect
Communication Corporation and NEC Corporation. Our structured cabling systems'
primary competitors are ADC Telecommunications, Inc., Siecor Corporation,
Marconi plc, Nordx/CDT, Commscope, Inc. and Belden Inc. Our professional
services compete primarily with services from vendors such as Nortel Networks
Corporation, eLoyalty Corporation, PricewaterhouseCoopers LLC, Cap Gemini S.A.,
IBM Global Services, Oracle Corporation and Alcatel that offer similar products
and professional services. Our value-added services compete with Cisco Systems,
Inc., Williams Communications Group, Inc., Nortel Networks Corporation, Siemens
Aktengesellschaft, KPMG Consulting, Inc., Compaq Computer Corporation and Amteva
Technologies, Inc. We expect to face increasing competitive pressures from both
current and future competitors in the markets we serve.
Our competitive position varies depending on the segment of our market. We
are a leader worldwide in messaging and structured cabling systems and the U.S.
leader in call center and enterprise communications systems. With respect to the
data communications products segment, we are relatively new and our product
portfolio is less complete than that of many of our competitors. Our
professional services and value-added service groups primarily serve customers
which purchase our systems and software and are relatively small as compared to
our competitors. As part of the distribution, our name will change. We believe
that the Lucent name has significant value and has enhanced our competitive
position historically. It is too early to assess whether this change will affect
our competitive position. We will have agreements with Lucent that allow us to
use Lucent's name and logo and to verbally describe our previous relationship
with Lucent for a period of time following the distribution. Please see
"-- Patents, Trademarks and Other Intellectual Property" for a discussion of
these agreements.
Technological developments and consolidation within the communications
industry result in frequent changes to our group of competitors. The principal
competitive factors in the product segment of our market include:
- product features and reliability;
- customer service and technical support.
- relationships with distributors, value-added resellers and systems
integrators;
- an installed base of similar or related products;
- relationships with buyers and decision makers;
- price;
- brand recognition;
- the ability to integrate various products into a customer's existing
network; and
- the ability to be among the first to introduce new products;
The principal competitive factors in the professional services segment of
our market include:
- focus on the customer's specific needs;
- project management and change management skills;
- business model as well as technical architecture and information systems
design skills;
- product-specific expertise;
- eBusiness experience and expertise;
- speed of delivery;
- industry, business process and general business expertise; and
- objectivity of advice provided.
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PATENTS, TRADEMARKS AND OTHER INTELLECTUAL PROPERTY
Upon consummation of the distribution, we will own rights to a number of
patents, trademarks, copyrights, trade secrets and other intellectual property
directly related to and important to our business. Lucent and its subsidiaries
also will grant rights and licenses to those of their patents, trademarks,
copyrights, trade secrets and other intellectual property which enable us to
manufacture, market and sell all our products. In addition, Lucent will convey
to us numerous sublicenses under patents of third parties.
Under the intellectual property agreements we are entering into with Lucent
as part of the distribution, Lucent and one of its subsidiaries will assign to
us approximately 1,500 U.S. patents and patent applications and their respective
corresponding foreign patents and patent applications. In connection with these
patents, we will enter into a cross license agreement with Lucent. In addition
Lucent will assign to us numerous trademarks, both in the United States and in
foreign countries. It is contemplated that the primary trademarks used in the
sale of our products and services will be transferred to us, except for the
Lucent or Bell Laboratories names.
We have commenced marketing our products under our new name, "Avaya".
However, for three months after the distribution, we will have the limited
ability to use Lucent's corporate mark and logo on a royalty-free basis without
other marks, and in conjunction with the name "Avaya" and trademarks in a
transition mark or logo. With respect to the manufacture of certain products,
this period will be nine months. Beginning three months after the distribution
date, for an additional six months in the United States and twelve months
outside of the United States, we will have the limited ability to refer to
Lucent's corporate name without use of Lucent's logo on a royalty-free basis
without other marks and in conjunction with our own trade name and trademarks.
The rights granted to use the Lucent name and logo are applicable only to our
current products and not to any products developed by us after the distribution.
Our intellectual property policy will be to protect our products and
processes by asserting our intellectual property rights where appropriate and
prudent. We will also obtain patents, copyrights, and other intellectual
property rights used in connection with our business when practicable and
appropriate.
PROPERTIES
As of March 31, 2000, we operated 8 manufacturing facilities, 68 warehouse
locations and 3 repair sites in the United States and 21 other countries. We
also have 536 offices located in 50 countries and 24 research and development
facilities located in Australia, India, Israel, France, Singapore, the United
Kingdom and the United States. Our principal manufacturing facilities are
located in Australia, China, France, India, Ireland, Israel, the United Kingdom,
the United States and Venezuela. We also have a 25.5% interest in one joint
venture located in Gandhinagar, India which is predominantly used as a
manufacturing site and is mostly on owned property. These facilities have an
aggregate floor space of approximately 13 million square feet, of which
approximately 4 million square feet is owned and approximately 9 million square
feet is leased. Our lease terms range from monthly leases to 19 years. In
connection with our restructuring initiative to outsource the manufacturing of
our systems and software other than our structured cabling systems, we are
assessing the potential disposition of manufacturing sites by the end of 2001.
We believe that all of our facilities and equipment are in good condition and
are well maintained and able to operate at present levels.
EMPLOYEES
As of March 31, 2000, we employed approximately 34,000 full-time employees,
including approximately 4,300 research and development employees, 3,400 account
managers, 6,700 field service employees and 800 employees in professional
service. Of these 34,000 employees approximately 20,000 are management and
non-union-represented employees and approximately 14,000 are U.S.
union-represented employees covered by collective bargaining agreements. On May
31, 1998 Lucent entered into a collective bargaining agreement with the
Communications Workers of America and the International Brotherhood of
Electrical Workers. In connection with the distribution, we will assume the
obligations under the agreement with respect to our union-represented employees.
The agreement will be effective until May 31,
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2003 unless the parties reach a mutual agreement to amend its term. We believe
that we generally have a good relationship with our employees and the unions
that represent them. We are subject from time to time to unfair labor charges
filed by the unions with the National Labor Relations Board. If we are
unsuccessful in resolving these charges, our operations may be disrupted, or we
may incur additional costs that may decrease our profitability.
BACKLOG
Our backlog, which represents the aggregate of the sales price of orders
received from customers, but not yet recognized as revenue, was approximately
$788 million and $786 million on September 30, 1999 and September 30, 1998,
respectively. At June 30, 2000, our backlog was $538 million. The majority of
these orders are fulfilled within two months. However, all orders are subject to
possible rescheduling by customers. Although we believe that the orders included
in the backlog are firm, some orders may be cancelled by the customer without
penalty, and we may elect to permit cancellation of orders without penalty where
management believes it is in our best interests to do so. We expect our backlog
will grow for the remainder of the year, reflecting the traditionally stronger
second half of our annual business cycle.
ENVIRONMENTAL, HEALTH AND SAFETY MATTERS
We are subject to a wide range of governmental requirements relating to
employee safety and health and to the handling and emission into the environment
of various substances used in our operations. Our facilities are subject to
regular internal audits governing all aspects of employee protection, materials
handling and environmental compliance. In addition, many of our facilities are
subject to third-party certified 14001 environmental compliance programs. Based
upon these reviews, we believe that we are in substantial compliance with all
applicable environmental, health and safety laws. We have not incurred material
capital expenditures for such matters during the past three years, nor do we
anticipate having to incur such expenditures during the current or succeeding
fiscal year.
We are subject to environmental laws, particularly in the United States,
governing the cleanup of soil and groundwater contamination. Such provisions
impose liability on us for the costs of investigating and remediating releases
of hazardous materials at sites currently or formerly owned, operated or leased
by us. This liability may also include the cost of cleaning up historical
contamination, whether or not caused by us. Some of our facilities are located
in areas where industrial activities have been ongoing for many years.
We are currently conducting investigation and/or cleanup of known
contamination at approximately five of our facilities, either voluntarily or
pursuant to government directives. We have established financial reserves to
cover environmental liabilities where they are probable and reasonably
estimable. Reserves for estimated losses from environmental matters are,
depending on the site, based primarily upon internal or third-party
environmental studies and the extent of contamination and the type of required
cleanup. Although we believe that our reserves are adequate to cover known
environmental liabilities, it is often difficult to estimate with certainty the
future cost of such matters. Therefore, we cannot be assured that the actual
amount of environmental liabilities will not exceed the amount of reserves for
such matters or will not have a material adverse effect on our financial
position, results of operations or cash flows.
LEGAL PROCEEDINGS
From time to time we are involved in legal proceedings arising in the
ordinary course of business. We may be subject to litigation and infringement
claims, which could cause us to incur significant expenses or prevent us from
selling our products or services. For example, we expect to become a party to
ongoing patent infringement litigation between Lucent and Micron Technology Inc.
There are currently two actions between Lucent and Micron alleging, among other
things, patent infringement claims against each other and seeking unspecified
awards of damages and permanent injunctions against further infringement of the
patents.
In the course of pre-trial discovery, Micron has identified some of the
Lucent products that it claims are infringing the Micron patents. These products
include various enterprise voice communications systems
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that will be our products following the distribution, including some of our
servers, voice and unified messaging systems and integrated voice response
systems that will be manufactured and sold by us following the distribution.
Micron has indicated that it intends to add us as a party to the litigation. We
intend to defend the actions vigorously. The litigation is in the early stages
and its outcome cannot be predicted.
We also are currently involved in three purported class action lawsuits
related to Y2K issues. Although we believe that the outcome of these Y2K actions
will not adversely affect our business prospects, if these cases progress, they
will require expenditure of significant legal costs related to their defense. We
believe there is no litigation pending that should have, individually or in the
aggregate, a material adverse effect on our financial position or results of
operations.
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RELATIONSHIP BETWEEN LUCENT AND OUR COMPANY
AFTER THE DISTRIBUTION
In connection with the distribution, we will enter into the Contribution
and Distribution Agreement and a number of ancillary agreements with Lucent for
the purpose of accomplishing the contribution to us of the businesses described
in this information statement and the distribution. These agreements will govern
the relationship between Lucent and us subsequent to the distribution and
provide for the allocation of employee benefit, tax and other liabilities and
obligations attributable to periods prior to the distribution. The ancillary
agreements include:
- Interim Services and Systems Replication Agreement;
- Global Purchase and Service Agreement;
- General Sales Agreement;
- Microelectronics Product Purchase Agreement;
- Reseller Agreements;
- Master Subcontracting Agreement;
- Master Services Agreement;
- Original Equipment Manufacturing and Value Added Reseller Agreement;
- Employee Benefits Agreement;
- Trademark License Agreement;
- Trademark and Service Mark Assignment;
- Trade Dress Assignment;
- Patent and Technology License Agreement;
- Patent Assignment;
- Technology Assignment and Joint Ownership Agreement;
- Development Project Agreement;
- Tax Sharing Agreement; and
- Real Estate Agreements.
In addition, the current Federal Tax Allocation Agreement and the current
State and Local Income Tax Allocation Agreement by and among Lucent and its
subsidiaries governing the allocation of income taxes among Lucent and its
subsidiaries will continue to apply to us for taxable periods prior to and
including the distribution. Of the agreements summarized below, the material
agreements have been filed as exhibits to the registration statement of which
this information statement forms a part and the summaries of such agreements are
qualified in their entirety by reference to the full text of such agreements.
CONTRIBUTION AND DISTRIBUTION AGREEMENT
The Contribution and Distribution Agreement will set forth the agreements
between us and Lucent with respect to the principal corporate transactions
required to effect the contribution and the distribution, and other agreements
governing the relationship between Lucent and us.
THE CONTRIBUTION
To effect the contribution, Lucent will transfer or agree to transfer, or
to cause its subsidiaries to transfer, the assets of the businesses described in
this information statement. We will assume, or agree to
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assume, and will agree to perform and fulfill all of the liabilities of the
contributed businesses in accordance with their respective terms. Except as
expressly set forth in the agreement or in any other ancillary agreement,
neither we nor Lucent will make any representation or warranty as to the assets,
businesses or liabilities transferred or assumed as part of the contribution, as
to any consents or approvals required in connection with the transfers, as to
the value or freedom from any security interests of any of the assets
transferred, as to the absence of any defenses or freedom from counterclaim with
respect to any claim of either us or Lucent, or as to the legal sufficiency of
any assignment, document or instrument delivered to convey title to any asset
transferred. Except as expressly set forth in any other ancillary agreement, all
assets will be transferred on an "as is," "where is" basis, and the respective
transferees will agree to bear the economic and legal risks that any conveyance
is insufficient to vest in the transferee good and marketable title, free and
clear of any security interest and that any necessary consents or approvals are
not obtained or that requirements of laws or judgments are not complied with.
THE DISTRIBUTION
The Contribution and Distribution Agreement will provide that, subject to
the terms and conditions contained in the agreement, we and Lucent will take all
reasonable steps necessary and appropriate to cause all conditions to the
distribution to be satisfied, and to effect the distribution as of 11:59 p.m. on
September 30, 2000. Lucent's agreement to consummate the distribution will be
subject to the satisfaction or waiver by the Lucent board, in its sole
discretion, of the following conditions:
- a private letter ruling from the IRS, which we obtained on August 4,
2000, 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 Internal Revenue Code and
the transfer to us of the assets and the assumption by us of the
liabilities in connection with the contribution will not result in
recognition of any gain or loss for federal income tax purposes to
Lucent, us or Lucent's or our shareowners, and such ruling shall be in
form and substance satisfactory to Lucent, in its sole discretion;
- any material governmental approvals and consents necessary to consummate
the distribution shall have been obtained and be in full force and
effect;
- 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 Lucent shall have occurred or failed to occur that
prevents the consummation of the distribution; and
- no other events or developments shall have occurred that, in the judgment
of the board of directors of Lucent, would result in the distribution
having a material adverse effect on Lucent or Lucent's shareowners.
If the Lucent board of directors waives a material condition to the
distribution after the date of this information statement, we intend to issue a
press release disclosing this waiver and file this press release in a Form 8-K
with the Securities and Exchange Commission.
RELEASES AND INDEMNIFICATION
The Contribution and Distribution Agreement will 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 date of the agreement, between or among us or any of our
subsidiaries or affiliates, on the one hand, and Lucent or any of its
subsidiaries or affiliates other than us, on the other hand, except as expressly
set forth in the agreement. The liabilities released or discharged will include
liabilities arising under any contractual agreements or arrangements existing or
alleged to exist between or among any such members on or before the date of the
agreement.
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We will agree to indemnify, hold harmless and defend Lucent, each of its
affiliates and each of their respective directors, officers and employees, from
and against all liabilities relating to, arising out of or resulting from:
- the failure of us or any of our affiliates or any other person to pay,
perform or otherwise promptly discharge any liabilities associated with
the contributed businesses, or any contracts associated with the
contributed businesses, in accordance with their respective terms;
- the contributed businesses, liabilities or contracts;
- any material breach by us or any of our affiliates, of the agreement or
any of the other ancillary agreements; and
- 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 in the registration statement or this information statement or
necessary to make the statements in the registration statement or this
information statement not misleading.
Also, we will indemnify Lucent and its affiliates, subject to limited
exceptions, against any claims of patent, copyright or trademark infringement or
trade secret misappropriation with respect to any product, software or other
material provided by or ordered from the contributed businesses prior to the
distribution.
Lucent will agree to indemnify, hold harmless and defend us, each of our
affiliates and each of our respective directors, officers and employees from and
against all liabilities relating to, arising out of or resulting from:
- the failure of Lucent or any affiliate of Lucent or any other person to
pay, perform or otherwise promptly discharge any liabilities of Lucent or
its affiliates other than liabilities associated with the contributed
businesses;
- the Lucent businesses or any liability of Lucent or its affiliates other
than liabilities associated with the contribution of the businesses; and
- any material breach by Lucent or any of its affiliates of the agreement
or any of the other ancillary agreements.
Also, Lucent will indemnify us and our affiliates, subject to limited
exceptions, against any claims of patent, copyright or trademark infringement or
trade secret misappropriation with respect to any product, software or other
material provided by or ordered from Lucent's retained businesses prior to the
distribution.
The Contribution and Distribution Agreement also will specify procedures
with respect to claims subject to indemnification and related matters.
CONTINGENT LIABILITIES AND CONTINGENT GAINS
The Contribution and Distribution Agreement will provide for
indemnification by us and Lucent with respect to contingent liabilities
primarily relating to our respective businesses or otherwise assigned to each of
us, subject to the sharing provisions described below. In the event the
aggregate value of all amounts paid by us or Lucent, in each case, together with
any affiliates in respect of any single contingent liability or any set or group
of related contingent liabilities is in excess of $50 million, we and Lucent
will share portions in excess of the threshold amount based on agreed upon
percentages.
The Contribution and Distribution Agreement will also provide for the
sharing of some contingent liabilities, which are defined as:
- any contingent liabilities that are not primarily contingent liabilities
of Lucent or contingent liabilities associated with the contributed
businesses;
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- some specifically identified liabilities, including liabilities relating
to terminated, divested or discontinued businesses or operations; and
- shared contingent liabilities within the meaning of the separation and
distribution agreement with AT&T Corp.
Lucent will assume the defense of, and may seek to settle or compromise,
any third party claim that is a shared contingent liability, and those costs and
expenses will be included in the amount to be shared by us and Lucent.
The Contribution and Distribution Agreement will provide that we and Lucent
will have the exclusive right to any benefit received with respect to any
contingent gain that primarily relates to the business of, or that is expressly
assigned to, us or Lucent respectively.
The Contribution and Distribution Agreement will provide for the
establishment of a contingent claims committee comprised of one representative
designated from time to time by each of Lucent and us and sets forth procedures
for the purpose of resolving disagreements among the parties as to contingent
gains and contingent liabilities.
DISPUTE RESOLUTION
The Contribution and Distribution Agreement will contain provisions that
govern, except as otherwise provided in any ancillary agreement, the resolution
of disputes, controversies or claims that may arise between us and Lucent. These
provisions contemplate that efforts will be made to resolve disputes,
controversies and claims by escalation of the matter to senior management or
other mutually agreed representatives of us and Lucent. If such efforts are not
successful, either we or Lucent may submit the dispute, controversy or claim to
non-binding mediation, subject to the provisions of the agreement.
RESTRICTIONS ON BUSINESS TRANSACTIONS
Subject to Lucent's ability to terminate some of the rights, including
important intellectual property rights granted to us and our affiliates under
the ancillary agreements, the Contribution and Distribution Agreement will
provide that none of Lucent, us, or our respective subsidiaries or affiliates
will have any duty to refrain from engaging in similar activities or lines of
business, or from doing business with any potential or actual supplier or
customer of any other person.
CHANGE OF CONTROL; RESTRICTIONS ON STRATEGIC ALLIANCES
In the event that, at any time prior to the third anniversary of the
distribution, there is a change of control of us as defined in the Contribution
and Distribution Agreement or, if prior to the second anniversary of the
distribution, we or any of our affiliates enters into a strategic alliance with
two named competitors of Lucent or any of their respective affiliates, then
Lucent could terminate or cause us to reconvey some of the rights, including
important intellectual property rights granted to us under the agreements which
we are entering into with Lucent.
PROVISIONS RELATING TO THIRD-PARTY INTELLECTUAL PROPERTY LICENSE AGREEMENTS
The Contribution and Distribution Agreement will provide, generally, for
the grant by Lucent to us of a sublicense under numerous third-party
intellectual property license agreements. The Patent and Technology License
agreement will provide similar grants to us from Lucent's subsidiary, Lucent
Technologies GRL Corporation, with respect to third party patent license
agreements executed by that subsidiary.
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EXPENSES
Except as expressly set forth in the Contribution and Distribution
Agreement or in any other ancillary agreement, whether or not the distribution
is consummated, all third party fees, costs and expenses paid or incurred in
connection with the distribution will be paid by us.
TERMINATION
The Contribution and Distribution Agreement may be terminated and the
distribution may be amended, modified or abandoned at any time prior to the
distribution date in the sole discretion of Lucent without our approval or the
approval of the shareowners of Lucent. In the event of such termination, no
party shall have any liability of any kind to any other party or any other
person. After the distribution date, the agreement may not be terminated except
by an agreement in writing signed by both Lucent and us.
AMENDMENTS AND WAIVERS
No provisions of the Contribution and Distribution Agreement or any other
ancillary agreement will be deemed waived, amended, supplemented or modified by
any party, unless such waiver, amendment, supplement or modification is in
writing and signed by the authorized representative against whom it is sought to
enforce such waiver, amendment, supplement or modification.
FURTHER ASSURANCES
In addition to the actions specifically provided for elsewhere in the
Contribution and Distribution Agreement, both we and Lucent will agree to use
our reasonable best efforts, prior to, on and after the distribution date, to
take, or cause to be taken, all actions, and to do, or cause to be done, all
things, reasonably necessary, proper or advisable under applicable laws,
regulations and agreements to consummate and make effective the transactions
contemplated by the agreement and the other ancillary agreements.
INTERIM SERVICES AND SYSTEMS REPLICATION AGREEMENT
We and Lucent will enter into an Interim Services and Systems Replication
Agreement to provide each other, on an interim, transitional basis, with various
data processing services, telecommunications services and corporate support
services, including: accounting, financial management, information systems
management, tax, payroll, legal, human resources administration, procurement and
other general support. Furthermore, under the terms of this agreement Lucent
will provide us with technical support for our converged voice and data products
for an agreed upon period of time. The agreed upon charges for such services are
generally intended to allow the providing company to fully recover the allocated
direct costs of providing the services, plus all out-of-pocket costs and
expenses, without profit.
The Interim Services and Systems Replication Agreement also provides for
the replication and transfer of designated computer systems used for
administrative support or used in our businesses or Lucent's businesses. The
systems include hardware, software, data storage or maintenance and support
components. Costs and expenses of purchasing new hardware or obtaining new
software licenses will be borne by the party purchasing the new hardware or
licensing the new software.
In general, the services shall commence on October 1, 2000 and shall expire
on March 31, 2001 unless an earlier termination date has been agreed upon with
respect to a particular service. The agreement may be extended by the parties in
writing either in whole or in part. The company receiving data processing
services, telecommunications services and corporate support services may
terminate the agreement with respect to one or more of those services upon
ninety days notice. The company receiving systems replication and transfer
services may terminate the agreement immediately, with respect to those
services, upon written notice to the providing company. A small number of
corporate support services related to accounts receivable, accounts payable and
payroll processing that are currently performed by Lucent non-management
employees, and some other corporate support services related to administration
of
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programs for the benefit of non-management employees that become our employees
or their beneficiaries, may extend until May 31, 2003.
COMMERCIAL AGREEMENTS
We and Lucent will enter into a Global Purchase and Service Agreement, a
General Sales Agreement, a Microelectronics Product Purchase Agreement, two
Reseller Agreements, a Master Subcontracting Agreement, a Master Services
Agreement and an Original Equipment Manufacturing and Value Added Reseller
Agreement. The pricing terms for the products and services covered by the Global
Purchase and Service Agreement and all other ancillary commercial agreements
will reflect negotiated prices.
Under the Global Purchase and Service Agreement we will provide to Lucent
communications and other related products for Lucent's internal operational use.
These products include some of our enterprise voice communications products and
our multi-service networking products. Under the agreement, we will also provide
warranty and post-warranty maintenance support services for products that are
already installed in Lucent offices as well as for new products installed
thereafter. The agreement neither grants to us an exclusive right to provide
Lucent any or all of these products or services, nor does it require the
procurement of products or services from us by Lucent. The agreement shall
commence on October 1, 2000, and will expire on September 30, 2003. We and
Lucent may extend this agreement for additional one year periods with a written
mutual agreement.
The General Sales Agreement and the Microelectronic Product Purchase
Agreement govern transactions pursuant to which Lucent will provide goods and
services that are part of the businesses not being transferred to us. These
agreements neither grant to Lucent an exclusive right to provide us with any or
all products, or services, nor require the procurement of products, or services
from Lucent by us. The General Sales agreement and the Microelectronic Product
Purchase Agreement will commence on October 1, 2000, and expire on September 30,
2003. We and Lucent may extend both of these agreements for additional one year
periods with written mutual agreements.
The Reseller Agreements govern transactions in which either we or Lucent
furnish items to the other for resale. Each agreement covers specified products
and licensed materials of both Lucent and ours, respectively. Either party may
add to or delete products upon ninety days notice. The agreements do not grant
to either us or Lucent an exclusive right to resell the products, and both we
and Lucent may contract with others. The pricing in each Reseller Agreement
shall be determined by our or Lucent's list price in effect on the date of the
applicable reseller's receipt of an order less any applicable reseller
discounts. These agreements will be effective as of October 1, 2000 and shall
expire on September 30, 2003. We and Lucent may extend these agreements for
additional one year periods with a written mutual agreement. Either we or Lucent
may terminate these agreements without cause upon sixty days written notice.
The Global Purchase and Service Agreement, General Sales Agreement,
Microelectronic Sales Agreement and Reseller Agreement also contain provisions
governing:
- ordering and delivery;
- payment terms;
- intellectual property matters;
- product warranties;
- product support and documentation;
- engineering, installation, maintenance and other services;
- dispute resolution; and
- liability issues.
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The Master Subcontracting Agreement sets forth the terms by which we and
Lucent may subcontract for services and related deliverables from each other to
support our respective customers. The prime contractor will pay the
subcontractor according to the rates established in the statement of work. The
subcontractor may not subcontract any portion of the services or deliverables
without advising the prime contractor first. The agreement also covers
intellectual property matters, warranties, dispute resolution and liability
issues. This agreement will be effective as of October 1, 2000 and shall expire
on September 30, 2003. This agreement may be extended for additional one year
periods upon ours and Lucent's written mutual consent.
The Master Services Agreement covers any order for services not addressed
in any other commercial agreement between us and Lucent. Under this agreement
either we or Lucent or our or Lucent's affiliates may place orders for services
from the other party including maintenance service, professional services,
changes in services, and extension of services. Prices shall be set forth in a
statement of work and paid for by the ordering party. The agreement also covers
intellectual property matters, warranties, dispute resolution, and liability
issues. This agreement is effective as of October 1, 2000 and shall expire on
September 30, 2003. We and Lucent may extend this agreement for additional one
year periods with a written mutual agreement.
The Original Equipment Manufacturing and Value Added Reseller Agreement
governs transactions pursuant to which we and Lucent will buy, on an ordered
basis, products from each other for integration into finished products for sale
or resale or for resale in combination with enhancements added by the other
party. The agreement neither grants to the supplier an exclusive right to sell
to the buyer any or all products nor does it require the purchase of products
from the supplier by the buyer. The agreement also covers intellectual property
matters, warranties, dispute resolution, and liability issues. This agreement is
effective as of October 1, 2000 and shall expire September 30, 2003. This
agreement may be extended for additional one year periods upon our and Lucent's
written mutual consent.
EMPLOYEE BENEFITS AGREEMENT AND PLANS
We will adopt a variety of employee benefit plans in connection with the
distribution.
EMPLOYEE BENEFITS AGREEMENT
We will enter into an employee benefits agreement with Lucent, pursuant to
which we will create independent pension and other employee benefit plans that
are substantially similar to Lucent's existing pension and other employee
benefit plans. This agreement will provide for the transfer of assets and
liabilities of various existing Lucent pension and other employee benefit plans
covering Lucent employees who are transferring to us. Generally, following the
distribution, Lucent will cease to have any liability or obligation to our
active employees and their beneficiaries, and to our employees who leave our
employ after September 30, 2000 under any of Lucent's benefit plans, programs or
practices. Our benefit plans will assume and be responsible for liabilities and
obligations to those employees under all these benefit plans, programs and
practices which we may adopt. The employee benefits agreement does not preclude
us from discontinuing or changing such plans at any time thereafter, subject to
the exceptions noted below.
RETIREMENT PLANS
We will establish and administer defined benefit pension plans for our
employees who, immediately prior to the distribution, participated in Lucent's
retirement plans. Lucent has agreed to transfer particular assets and
liabilities, based on formulas set forth in the employee benefits agreement,
from the trust for Lucent's defined benefit pension plans to the trust for our
defined benefit pension plans. Each of our eligible employees will, for all
purposes under our defined benefit pension plans, be credited with the service
and any accrued benefit credited to him or her under the terms of the
corresponding Lucent plans as of the distribution.
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SAVINGS PLANS
We will establish defined contribution savings/401(k) plans. Our
savings/401(k) plans will include all active employees who immediately prior to
the distribution date were participants in Lucent's savings/401(k) plans. Each
employee who participates in savings/401(k) plans will be credited with the
service and the account balance credited to him or her as of the distribution
date under the terms of Lucent's savings/401(k) plans. Lucent will transfer
those account balances from its savings/401(k) plans to our savings/401(k)
plans.
WELFARE PLANS
We will adopt appropriate welfare benefit plans to provide welfare
benefits, including retiree medical and life benefits, to our employees and
retirees. The assets funding such liabilities under these plans, including
assets held in trusts constituting voluntary employee beneficiary associations,
will be transferred from trust and other funding vehicles associated with
Lucent's plans to the corresponding trusts and other funding vehicles associated
with our plans according to formulas set forth in the employee benefits
agreement.
LUCENT STOCK OPTIONS AND RESTRICTED STOCK UNITS
Pursuant to the employee benefits agreement, unvested Lucent stock options
and restricted stock units held by our employees will be converted to our stock
options and restricted stock units at the time of the distribution. As part of
the conversion, we will multiply the number of shares purchaseable under each
converted stock option by a ratio determined at the time of the distribution and
divide the exercise price per share of each option by the same ratio. The number
of shares covered by each restricted stock unit will be multiplied by the same
ratio. Fractional shares will be rounded down to the nearest whole number of
shares. All other terms of the converted stock options and restricted stock
units will remain the same as those in effect immediately prior to the
distribution. Vested Lucent stock options will remain options to acquire Lucent
common stock, subject to adjustments based on the same ratio.
DEFERRED COMPENSATION PLANS
Account balances of our employees under the Lucent deferred compensation
plans will be credited to them under a frozen deferred compensation plan, and we
will thereafter be solely responsible for such obligations.
TRADEMARK LICENSE AGREEMENT; TRADEMARK AND SERVICE MARK ASSIGNMENT; TRADE DRESS
ASSIGNMENT
It is contemplated that the primary trademarks used in the sale of our
products and services will be transferred to us, except for Lucent's name and
logo and the Bell Laboratories name. We also expect to have the use of the
Lucent name and logo, but not the Bell Laboratories name, on a royalty-free
basis, for a transitional period.
TECHNOLOGY ASSIGNMENT AND JOINT OWNERSHIP AGREEMENT
On or prior to the distribution date, we and Lucent will execute and
deliver assignments and other agreements, including the technology assignment,
related to technology currently owned or controlled by Lucent and its
subsidiaries. Technology will include copyrights, mask works and other
intellectual property other than trademarks, trade names, trade dress, service
marks and patent rights. The technology assignment will generally divide
ownership of technology between us and Lucent, with each owning technology that
was developed by or for, or purchased by, each company for their respective
businesses. Other technology will be owned jointly by us and Lucent.
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PATENT ASSIGNMENT
On or prior to the distribution date, we and Lucent will execute and
deliver patent assignments and other agreements, related to patents currently
owned or controlled by Lucent and its subsidiaries. The patent assignments will
divide ownership of patents, patent applications and foreign counterparts
between us and Lucent.
The ownership of patents will be divided as follows. First, a Lucent
subsidiary, Lucent Technologies Guardian Corp., will transfer to Avaya
Technologies Corporation approximately 800 patents and approximately 500 patent
applications that relate principally to our businesses. Second, Lucent will
transfer to Avaya Technologies Corporation several hundred patent applications
and a small number of issued patents held by Lucent that relate principally to
our businesses. Third, the shares of Avaya Technologies Corp. will be
contributed to us under the Contribution and Distribution Agreement. Lucent and
its other subsidiaries including Guardian, will retain ownership of all other
patents and patent applications. Fourth, the patents held by some of the wholly
owned subsidiaries of Lucent will be transferred to us as a result of the
transfer of shares of the subsidiaries to us.
PATENT AND TECHNOLOGY LICENSES AND RELATED MATTERS
The Contribution and Distribution Agreement provides that we and Lucent
will execute and deliver a Patent and Technology License Agreement, related to
patents and technology currently owned or controlled by Lucent and its
subsidiaries.
The Patent and Technology License Agreement to be entered into by us and
Lucent provides for cross-licenses to each company, and a balancing payment to
Lucent to reflect the balance of values exchanged by us and Lucent under the
agreement. We and Lucent will grant to each other, under the patents that each
of us has, a nonexclusive, personal, nontransferable license to make, have made,
use, lease, import, offer to sell, and sell any and all products and services of
the businesses in which the licensed company, including related companies, is
now or hereafter engaged. The cross-licenses also permit each company, subject
to limitations, to have third parties make items under the other company's
patents, as well as to pass through to customers rights under the other
company's patents with respect to products and services furnished to customers
by the licensed company. The right to sublicense to unaffiliated third parties
will not be granted under the cross-licenses, except for limited rights to
sublicense a divested business. The cross-licenses between us and Lucent cover
all of each company's patents, including patents issued on patent applications
with a filing date prior to October 1, 2002.
The Patent and Technology License Agreement will also provide for personal,
worldwide, nonexclusive, and non-transferable cross-licenses to each company to
designated technology existing as of the distribution date. These rights include
the right to copy, modify and improve any portion of the licensed technology.
Subject to exceptions set forth in the agreement, no right will be granted to
sublicense any of the technology other than in connection with the sale or
licensing of products. Subject to restrictions set forth in the agreement, this
agreement will further grant to us joint ownership rights in other designated
technology. This agreement becomes effective October 1, 2000.
DEVELOPMENT PROJECT AGREEMENT
We and Lucent will enter into a Development Project Agreement governing
Lucent's and our future commercial relationship under which Bell Laboratories
will perform some research and development activities for us. Under this
agreement, Bell Laboratories will perform specific research and development
projects on a contract basis for us. The fees paid under this agreement are
expected to be comparable to those that would be agreed upon by unrelated
parties. The agreement will commence on October 1, 2000 and expire on September
30, 2003. We and Lucent may extend this agreement for additional one year
periods with a written mutual agreement. The agreement will terminate at any
time if either we or Lucent materially breaches the agreement, and fails to cure
the default sixty days after written notice has been given.
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TAX SHARING AGREEMENT
We and Lucent will enter into a Tax Sharing Agreement which will govern
Lucent's and our respective rights, responsibilities and obligations after the
distribution with respect to taxes for the periods ending on or before the
distribution. Generally, pre-distribution taxes that are clearly attributable to
the business of one party will be borne solely by that party, and other
pre-distribution taxes will be shared by the parties based on a formula set
forth in the Tax Sharing Agreement. In addition, the Tax Sharing Agreement will
address the allocation of liability for taxes that are incurred as a result of
restructuring activities undertaken to implement the distribution. If the
distribution fails to qualify as a tax-free distribution under Section 355 of
the Internal Revenue Code because of an acquisition of our stock or assets, or
some other actions of ours, then we will be solely liable for any resulting
corporate taxes. The Tax Sharing Agreement will commence on October 1, 2000.
REAL ESTATE AGREEMENTS
Lucent's real estate has been divided between Lucent and us. After the
distribution, however, we and Lucent will continue to share some current work
locations for our respective work forces. The shared locations will be
approximately 100 of Lucent's 1,300 real estate locations. Approximately 15% of
these shared locations will continue to be owned by either Lucent or us; the
remaining 85% will continue to be leased commercially.
Generally, ownership of Lucent's buildings and assignment of commercially
leased buildings has been divided between Lucent and us based on which company
is the primary user of the respective building. Based on that allocation method,
we and Lucent currently contemplate that, out of approximately 60 million square
feet of space, Lucent would be the landlord or sublandlord of us for
approximately 1.2 million square feet of space, and we will be the landlord or
sublandlord of Lucent for approximately 700,000 square feet of space.
A standard form of lease and a standard form of sublease based on
commercial models and comparable to arm's-length agreements has been employed
regardless of which company owns a building or is the assignee for a leased
building. Subleases for space in commercially leased locations have varying
terms generally to match the terms of the underlying leases. All commercial
landlord charges, such as rent, additional rent, building services and taxes
paid directly by the sublandlord, will be based on the proportionate share of
space occupied by the subtenant and marked up by a management fee payable to the
sublandlord intended to cover the costs of administering the sublease. Any other
building services provided by the sublandlord to the subtenant will be at cost
plus an administrative fee, increased annually to match the consumer price
index.
Subject to limited exceptions, leases for space in owned buildings have a
two-year term if the space occupied by the tenant is 20,000 square feet or less
and a three-year term if the space occupied by the tenant is greater than 20,000
square feet. In general, rent in owned buildings is at market price for
comparable tenants. Real estate taxes will be allocated proportionately to the
tenant, subject to a management fee. Any building services provided by the
landlord will be at cost plus an administrative fee, increased annually to match
the consumer price index.
It is contemplated that all necessary leases and subleases for transitional
shared real estate will be effective October 1, 2000. The tenant in owned
buildings and the subtenant in commercially leased buildings will be responsible
for their proportionate share of the full lease obligation, except that:
- for space occupied by a tenant or subtenant equal to or less than 5
percent of the total space, not to exceed 5,000 square feet, the tenant
or subtenant may cancel its lease or sublease on 90-day written notice
without further liability;
- for space occupied by a tenant or subtenant equal to or less than 5
percent of the total space, not to exceed 15,000 square feet, the
tenant/subtenant or landlord/sublandlord may cancel the lease or sublease
on 9 months written notice without further liability; and
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- for property owned in fee by a landlord which is sold, conveyed or
transferred, the rent will then increase to fair market value, after
which determination the tenant may cancel the lease on six months'
written notice, without further liability.
OTHER AGREEMENTS
We and Lucent will continue the existing State and Local Income Tax
Allocation Agreement and the existing Federal Tax Allocation Agreement by and
among Lucent and its subsidiaries. These tax agreements govern the allocation of
state, local and federal income taxes for periods prior to and including the
distribution date. In addition, after the distribution, we will become a party
to Lucent's two existing collective bargaining agreements. See
"Business -- Employees" for a description of these collective bargaining
agreements and how they will operate after the distribution.
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MANAGEMENT
OUR DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information as to persons who serve or who
are expected to serve as our directors, executive officers or key employees
immediately following the distribution. Our board of directors will be comprised
of up to eight directors, only one of whom will be an executive officer.
Currently, three individuals who are employees of Lucent are serving as
directors. These individuals will resign and, Donald K. Peterson, Henry B.
Schacht and up to six non-employee directors will be elected to the board prior
to the distribution date. After consummation of the equity investment in us by
Warburg, Pincus Equity Partners, L.P. and related investment funds, these
investors will be entitled to designate for election one individual to our board
of directors and to have one observer attend meetings of our board of directors
as long as the investors and their permitted transferees maintain ownership of a
combination of shares of convertible participating preferred stock and common
stock that, in the aggregate, on an as-converted basis, represent at least 50%
of the shares of our common stock initially issuable on conversion of all the
shares of convertible participating preferred stock purchased by them. Our board
of directors will use reasonable efforts to cause the designee of Warburg,
Pincus Equity Partners, L.P. to be elected.
Our board of directors will be divided into three classes. Commencing with
the annual meeting of shareowners to be held in fiscal 2001, directors for each
class will be elected at the annual meeting of shareowners held in the year in
which the term for such class expires and thereafter will serve for a term of
three years.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Henry B. Schacht....................... 65 Chairman of the Board
Donald K. Peterson..................... 50 President and Chief Executive Officer
Steve Aaronson......................... 48 Vice President of Communications
Dana Becker-Dunn....................... 49 Vice President of Transition Operations
Pamela F. Craven....................... 46 Director, Vice President, General Counsel and
Secretary
Michael A. Dennis...................... 41 Vice President of U.S. Services
Maryanne DiMarzo....................... 49 Vice President of Human Resources
David P. Johnson....................... 40 Vice President of Worldwide Sales and International
Services
Karyn Mashima.......................... 46 Vice President of Global Strategy and Technology
Garry K. McGuire Sr. .................. 53 Chief Financial Officer
Jean F. Rankin......................... 41 Director
Richard J. Rawson...................... 47 Director
Ravi Sethi............................. 52 Vice President of Research
</TABLE>
Henry B. Schacht will be our Chairman of the Board following the
distribution. Mr. Schacht has been a director for Lucent since February 1996,
and will resign this position upon taking office with us. He was Chairman of the
Lucent Board from February 1996 to February 1998 and Chief Executive Officer of
Lucent from February 1996 until October 1997. Mr. Schacht also served as Senior
Advisor to Lucent from February 1998 to February 1999. Mr. Schacht was a
director of Cummins Engine Company, Inc. from 1977 to April 2000, and was Chief
Executive Officer of Cummins from 1973 to 1994 and Chairman of the Board for
Cummins from 1977 to 1995. Mr. Schacht was a member of the AT&T Corp. board of
directors from 1981 until taking office with Lucent in 1996 prior to its
spin-off from AT&T. Mr. Schacht is a managing director and senior advisor of
E.M. Warburg, Pincus and Company, LLC., and a director of The Chase Manhattan
Corporation and the Chase Manhattan Bank, N.A., Alcoa, Inc., Johnson and Johnson
Corporation, Knoll Inc. and the New York Times Company.
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Donald K. Peterson will be our President and Chief Executive Officer
following the distribution. Mr. Peterson has been Executive Vice President and
Chief Executive Officer of Lucent's Enterprise Networks Group since March 1,
2000. Previously, he was Executive Vice President and Chief Financial Officer
for Lucent since February 1996. He joined AT&T in 1995 and moved to Lucent
following its spin-off in 1996. While at AT&T, Mr. Peterson held the positions
of Vice President and Chief Financial Officer of the AT&T Communications
Services Group from September 1995 until January 1996. Prior to that time, Mr.
Peterson held various senior executive positions at Northern Telecom Inc., where
he worked from 1976 through September 1995. His responsibilities included
President of Nortel Communications Systems, Inc., from January 1993 to September
1995, Vice President of Finance of Northern Telecom Inc., from January 1991 to
January 1993, and Group Vice President of Northern Telecom Inc., from September
1987 to January 1991.
Steve Aaronson will be our Vice President of Communications following the
distribution. Mr. Aaronson has been Vice President of Communications for
Lucent's Enterprise Networks Group since April 2000. Previously, he was Vice
President of Service Provider Networks Public Relations for Lucent and also
served as Vice President of Global Corporate Public Relations. He joined AT&T in
1978 and moved to Lucent following its spin-off in 1996. While at AT&T, Mr.
Aaronson held various positions including Public Relations Vice President in the
Asia/Pacific region.
Dana Becker-Dunn will be our Vice President of Transition Operations
following the distribution. Ms. Becker-Dunn has been the Vice President of
Transition Operations for Lucent's Enterprise Networks Group since March 2000.
She joined AT&T in 1972 and moved to Lucent following its spin-off in 1996. She
has held various positions at Lucent, including Vice President, Growing and
Emerging Markets Division, Vice President, Marketing and Strategic Business
Planning, and Vice President, Multi-Media Markets Organization. At AT&T, Ms.
Becker-Dunn held various positions including Vice President of Consumer
Communications Services' Strategic Planning and New Business Development
Organization and Chief Technical Officer of the Call Servicing Organization.
Pamela F. Craven is presently a director, and will be our Vice President,
General Counsel and Secretary following the distribution. Mrs. Craven has been
Vice President, General Counsel and Secretary of Lucent's Enterprise Networks
Group since March 2000. Mrs. Craven served as Vice President, Law and Secretary
for Lucent from February 1, 1999 to April 2000. She joined AT&T in 1992 and
moved to Lucent following its spin-off in 1996. Mrs. Craven held the position of
Vice President, Law and Assistant Secretary for Lucent until January 1999. At
AT&T, Mrs. Craven served as a General Attorney responsible for mergers and
acquisitions.
Michael A. Dennis will be our Vice President of U.S. Services following the
distribution. Mr. Dennis has been Vice President of U.S. Services for Lucent's
Enterprise Networks Group since April 2000. He joined AT&T in July 1981 and
moved to Lucent following its spin-off in 1996. Mr. Dennis has held various
positions at Lucent including Sales Vice President and Field Services Vice
President. At AT&T, Mr. Dennis held various positions including General Manager
of Global Business Communications Systems.
Maryanne DiMarzo will be our Vice President of Human Resources following
the distribution. Ms. DiMarzo has been Vice President of Human Resources for
Lucent's Enterprise Networks Group since April 2000. She joined Lucent in August
1996 and served as Director of Human Resources from August 1996 to March 1997,
when she was named Human Resources Vice President Corporate Centers, until April
2000. Prior to working at Lucent, Ms. DiMarzo served as the Director of Human
Resources for AlliedSignal, now known as Honeywell.
David P. Johnson will be our Vice President of Worldwide Sales and
International Services following the distribution. Mr. Johnson has been Vice
President of Worldwide Sales for Lucent's Enterprise Networks Group since April
2000. He joined AT&T in 1982 and moved to Lucent following its spin-off in 1996.
Mr. Johnson has held various positions at Lucent, including International
President of Enterprise Networks and Regional President of Asia/Pacific Region.
At AT&T, Mr. Johnson served as Regional President of the Asia/Pacific Region and
as Strategic Marketing Director.
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Karyn Mashima will be our Vice President of Global Strategy and Technology
following the distribution. Ms. Mashima has been Vice President of Strategy and
Technology for Lucent's Enterprise Networks Group since March 2000. She joined
AT&T in 1994 and moved to Lucent following its spin-off in 1996. Ms. Mashima has
held various positions at Lucent, including Vice President of Advanced Multi-
Media Communications Systems, Vice President of the Enterprise Systems Group and
Vice President and Chief Technical Officer.
Garry K. McGuire Sr., will be our Chief Financial Officer following the
distribution. Mr. McGuire has been Chief Financial Officer for Lucent's
Enterprise Network Group since May 2000. Mr. McGuire was a consultant to
Kleiner, Perkins, Caufield and Byers/Broadband Office from August 1999 to
December 1999. He was President and Chief Executive Officer of Williams
Communications Solutions, LLC, from April 1997 to July 1999, and was President
of Nortel Communications Systems, LLC, from September 1995 until April 1997.
Prior to that, Mr. McGuire served as President of Bell Atlantic Meridian Systems
from January 1995 to September 1995.
Ravi Sethi will be our Vice President of Research following the
distribution. Dr. Sethi has been Vice President of Research for Lucent's
Enterprise Networks Group since May 2000. Dr. Sethi had been Senior Vice
President of Communications Science Research for Lucent since December 1999. He
joined AT&T in 1976 and worked in Bell Laboratories in areas such as data
networks, software systems and network management. In 1997, Dr. Sethi took on
the additional role of Chief Technical Officer of Lucent's Communications
Software Group.
Effective with the distribution, Ms. Rankin, Mrs. Craven and Mr. Rawson,
who have been members of our board of directors since February 16, 2000, will
cease to be members of our board.
ANNUAL MEETING
Our amended and restated by-laws provide that beginning with the 2001
fiscal year, there will be an annual meeting of shareowners for the election of
directors. The annual meeting will be held at our principal office or at such
other place and on such date as may be fixed from time to time by resolution of
our board of directors.
COMMITTEES OF THE BOARD OF DIRECTORS
We will be managed under the direction of our board of directors. Our board
of directors has established two committees: an audit and finance committee and
a corporate governance and compensation committee.
AUDIT AND FINANCE COMMITTEE
The audit and finance committee will be comprised solely of directors that
are not our employees or employees of any of our subsidiaries. This committee
will meet with our management periodically to consider the adequacy of our
internal controls and the objectivity of our financial reporting. This committee
will also meet with the independent auditors and with our own appropriate
financial personnel and internal auditors regarding these matters. Both the
independent auditors and the internal auditors will regularly meet privately
with this committee and have unrestricted access to this committee. The audit
and finance committee will recommend to our board of directors the appointment
of the independent auditors. The audit and finance committee will review our
financing plans and reports recommendations to our full board for approval and
to authorize action.
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CORPORATE GOVERNANCE AND COMPENSATION COMMITTEE
Our corporate governance and compensation committee will be comprised
solely of directors that are not our employees or employees of any of our
subsidiaries. The functions of this committee include:
- recommending to our full board of directors nominees for election as
directors;
- making recommendations to our board of directors from time to time as to
matters of corporate governance;
- administering management incentive compensation plans;
- establishing the compensation of officers; and
- reviewing the compensation of directors.
This committee will consider qualified candidates for director suggested by
shareowners in written submissions to our corporate secretary.
DIRECTOR COMPENSATION
Following the distribution date, all non-employee directors will receive an
annual retainer of $80,000. The chair of each committee will receive an
additional annual retainer of $10,000. Directors will not receive separate
meeting fees. Directors must elect to receive between 50% and 100% of their
retainers in our common stock or an option to purchase our common stock or a
combination of common stock and an option. Any remaining amount may be paid in
cash, but shall not exceed 50% of the retainer. If a director elects to receive
an option, the number of shares purchaseable under the option will be determined
pursuant to the following formula:
Dollar value of retainer taken as an option
Number of shares = 3 x -----------------------------------------------
fair market value of our stock on date of grant
The exercise price per share under the option will be the fair market value
of a share on the date of grant. Options will generally become exercisable on
the six-month anniversary of the date of grant and have a 10-year term.
We will assume the rights and obligations of Lucent under the Lucent
Technologies Inc. Directors' Individual Life Insurance Program with respect to
an existing policy covering Henry B. Schacht, wherein we will pay one-half of
the annual premium for Mr. Schacht's policy and he will pay one-half of the
annual premium. Otherwise, we will not offer a life insurance program for
directors.
We also provide non-employee directors with travel accident insurance when
traveling on our business.
EXECUTIVE COMPENSATION
The compensation of our executive officers will be approved by our
corporate governance and compensation committee of our board of directors. Our
corporate governance and compensation committee will consist entirely of
non-employee directors. Our corporate governance and compensation committee has
not yet established the compensation of our executive officers. We expect,
however, that the compensation of the executive and other officers will consist
principally of base salary, annual cash bonus and long-term equity-based
incentive compensation.
Salaries of the executive officers will be based, among other factors, on
our corporate governance and compensation committee's assessment of the
executive's responsibilities, experience and performance, compensation data of
other companies, and the competitive environment for attracting and retaining
executives.
We expect that cash bonuses for executive officers will be determined each
year at or following the end of our fiscal year, in accordance with targets
established at or near the beginning of the fiscal year.
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Factors which may be considered in determining the amount of cash bonuses paid
to officers will be, among others, the executive officer's individual
performance, including the quality of strategic plans, organizational and
management development, special project leadership and similar indicators of
individual performance, and our financial performance, which may be measured by
earnings per share, return on equity and total return to the shareholders in the
form of stock price appreciation and dividends, if paid.
Our equity-based awards will consist principally of stock options and
restricted stock unit awards which will be granted from time to time under our
2000 Long Term Incentive Plan. We anticipate that our corporate governance and
compensation committee will base grants of stock-based awards on various
factors, including the number of shares of common stock outstanding, the number
of shares of common stock authorized under the 2000 Long Term Incentive Plan,
the executive officer's ability to contribute to our future services and the
other elements of the executive's compensation.
We are a recently formed subsidiary of Lucent, formed on February 16, 2000.
We were not in existence on September 30, 1999, the end of Lucent's last fiscal
year. Although certain of the individuals who will be serving as our executive
officers were performing services in connection with our businesses during the
last fiscal year, those individuals were employed by Lucent during such period,
were not dedicated exclusively to our businesses, and, in fact, devoted
substantial time and effort to other Lucent businesses or to the Lucent
organization in general. Our businesses had no formalized executive management
structure prior to our formation, and certain of the individuals who would have
constituted the most highly compensated individuals providing services to our
businesses as of the end of the last fiscal year are not, in fact, our executive
officers. Accordingly, no information on the compensation of executive officers
for periods prior to September 30, 1999 is reported. Our Annual Report on Form
10-K for fiscal year 2001 will contain information on compensation paid to our
executive officers in fiscal year 2001.
We describe below the current compensation arrangements for our chief
executive officer and our four other most highly compensated executive officers,
as measured by their base salaries, calculated on an annualized basis, and
target bonus amounts. Although we expect that the compensation of our executive
officers will consist principally of base salary, annual cash bonus and
long-term equity-based incentive compensation, the compensation arrangements
established by our corporate governance and compensation committee may differ
from the compensation arrangements described below. Although certain of the
individuals who will be serving as our executive officers were performing
services in connection with our businesses during the fiscal year ending
September 30, 2000, those individuals were employed by Lucent during such
period, were not dedicated exclusively to our businesses and, in fact, devoted
time and effort to other Lucent businesses or to the Lucent organization in
general. In connection with the current compensation arrangements for our
executive officers described below:
- Base salary represents the executive officer's current base salary on an
annualized basis.
- Target bonus percentage represents the targeted percentage of annual base
salary payable in the form of a bonus for the fiscal year ending
September 30, 2000. Such percentage may be adjusted upward or downward
based on a combination of the financial performance of Lucent and the
organizations in which each individual was employed for the fiscal year
ending September 30, 2000 and the indicators of individual performance
described above for the same period.
- Option grants were made under Lucent's stock option plans and restricted
stock awards were granted under Lucent restricted stock plans. A portion
of the option grants for all executive officers, other than Mr. McGuire,
were performance based awards for the fiscal year ended September 30,
1999. The remaining option grants and restricted stock awards were
granted in connection with such executive officer's acceptance of
employment with Avaya. Such option grants and awards may not be
indicative of future grants and awards to our executive officers.
Outstanding vested options for Lucent common stock will remain as Lucent
stock options, subject to adjustment based on the same ratio. All
unvested options and unvested restricted stock units will be converted to
options for Avaya common stock and Avaya restricted stock units as
described in "Relationship Between Lucent and Our Company After the
Distribution -- Employee Benefits Agreement and Plans -- Lucent Stock
Options and Restricted Stock Units."
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The current compensation for our chief executive officer and our four other
most highly compensated officers is as follows:
- Donald K. Peterson, who will serve as our President and Chief Executive
Officer following the distribution, currently receives a base salary
equal to $800,000 on an annualized basis. Mr. Peterson's targeted bonus
percentage is 125%. Since September 30, 1999, Mr. Peterson has received
1,100,000 options to purchase common stock of Lucent and 150,000
restricted shares of Lucent common stock.
- Garry K. McGuire Sr., who will serve as our Chief Financial Officer
following the distribution, currently receives a base salary equal to
$370,000 on an annualized basis. Mr. McGuire's targeted bonus percentage
is 85%. Since September 30, 1999, Mr. McGuire has received 300,000
options to purchase common stock of Lucent and 25,000 restricted shares
of Lucent common stock.
- David P. Johnson, who will serve as our Vice President of Worldwide Sales
and International Services following the distribution, currently receives
a base salary equal to $350,000 on an annualized basis. Mr. Johnson's
targeted bonus percentage is 75%. Since September 30, 1999, Mr. Johnson
has received 355,000 options to purchase common stock of Lucent and
30,000 restricted shares of Lucent common stock.
- Karyn Mashima, who will serve as our Vice President of Global Strategy
and Technology following the distribution, currently receives a base
salary equal to $350,000 on an annualized basis. Ms. Mashima's targeted
bonus percentage is 75%. Since September 30, 1999, Ms. Mashima has
received 325,000 options to purchase common stock of Lucent and 30,000
restricted shares of Lucent common stock.
- Michael A. Dennis, who will serve as our Vice President, U.S. Services
following the distribution, currently receives a base salary of $325,000
on an annualized basis. Mr. Dennis' targeted bonus percentage is 70%.
Since September 30, 1999, Mr. Dennis has received 349,000 options to
purchase common stock of Lucent and 30,000 restricted shares of Lucent
common stock.
PENSION PLANS
Prior to the distribution, most of our U.S. management employees, including
executive officers, are participants in Lucent's retirement income plan.
Effective at the time of the distribution, we will adopt a retirement income
plan that will replicate, in all material respects, the Lucent retirement income
plan, and that will be a non-contributory pension plan which covers management
employees, including the executive officers. We also will adopt a
non-contributory supplemental pension plan that will replicate in all material
respects Lucent's supplemental pension plans. The following is a summary
description of the expected terms of our retirement income plan and our
supplemental pension plan.
Participants will be given full credit under our retirement income plan for
service and compensation accrued under the Lucent retirement income plan. Under
our retirement income plan, annual pensions will be computed on an adjusted
career average pay basis. A participant's adjusted career average pay will be
equal to 1.4% of the sum of the individual's:
- average annual pay for the five years ending December 31, 1998, excluding
the annual bonus award paid in December 1997, times the number of years
of service prior to January 1, 1999;
- pay subsequent to December 31, 1998; and
- annual bonus award paid in December 1997.
The normal retirement age under our retirement income plan will be 65.
However, employees who are at least age 50 with at least 15 years of service can
retire with reduced benefits. If an employee's age is at least 50 and, when
added to service, is equal to or greater than 75, the employee may retire with
unreduced pension benefits. A reduction equal to 3% is made for each year age
plus service is less than 75. Pension amounts under our retirement income plan
will not be subject to reductions for social security benefits or other offset
amounts.
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Average annual pay includes base salary and annual bonus awards. However,
federal laws place limitations on compensation amounts that may be included
under this plan. In 2000, up to $170,000 in eligible base salary and annual
bonus could be included in the calculation under this plan.
Pension amounts based on our retirement income plan formula which exceed
the applicable limitations will be paid under our supplemental pension plan.
Compensation and benefit amounts which exceed the applicable federal limitations
will be taken into account, and pension amount related to annual bonus awards
payable to executive officers will be paid, under our supplemental pension plan.
This plan will be a non-contributory plan, and will use the same adjusted career
average pay formula and eligibility rules as our retirement income plan to
provide supplemental pension benefits to our management employees, including our
executive officers.
Our supplemental pension plan will provide executive officers and other of
our eligible employees with minimum pensions. Eligible retired executive
officers and surviving spouses may receive an annual minimum pension equal to
15% of the sum of final base salary plus annual bonus awards. This minimum
pension will be offset by amounts received by plan participants as pensions
under all our pension plans.
Pursuant to the terms of an arrangement provided by AT&T and assumed by
Lucent and, at the time of the distribution, by us, Mr. Peterson will also be
entitled to a supplemental pension benefit under our supplemental pension plan.
This benefit will be available to certain management employees who were hired
generally at or over age 35 and who terminate with at least five years service
at such level. This plan will provide additional pension credits equal to the
difference between age 35 and the maximum possible years of service attainable
at age 65, but not to exceed actual net credited service, at one-half the rate
in our retirement income plan.
It is anticipated that some of our non-qualified executive benefit plans
will be supported by a benefits protection trust, the assets of which will be
subject to the claims of our creditors. In the event of a change in control or a
potential change in control of our company, certain additional funds might be
required to be contributed to such trust to support benefits under such plans.
2000 COMPANY LONG TERM INCENTIVE PLAN
We intend to adopt, with the approval of Lucent in its capacity as our sole
stockholder, the 2000 Long Term Incentive Plan, for the benefit of our executive
officers and some of our other employees. The plan is distinct from any other
broad-based plan that we may adopt for the grant of stock options to our
employees more generally. After the distribution, the 2000 Long Term Incentive
Plan will be administered by our corporate governance and compensation
committee. In order to ensure that compensation paid pursuant to the 2000 Long
Term Incentive Plan can qualify as "performance-based compensation" not subject
to the limitation on deductibility of executive compensation in excess of $1
million, we intend to seek shareowner approval of the 2000 Long Term Incentive
Plan at our 2001 annual meeting of shareowners.
The following description of the 2000 Long Term Incentive Plan is qualified
by reference to the full text thereof, a copy of which will be filed as an
exhibit to the registration statement.
AWARDS
The 2000 Long Term Incentive Plan for officers and executives provides for
the grant of incentive stock options that qualify under Section 422 of the Code
and non-statutory stock options, stock appreciation rights, restricted stock
awards, performance awards, and other stock unit awards, as such terms are
defined in the 2000 Long Term Incentive Plan. No determination has yet been made
as to the number of our employees who will be eligible to participate in such
2000 Long Term Incentive Plan. However, as described under "Relationship Between
Lucent and Our Company After the Distribution -- Employee Benefits Agreement and
Plans," our approximately 85 officers and executives who hold unvested Lucent
stock awards are expected to receive in substitution therefor, following
consummation of the distribution, awards under the 2000 Long Term Incentive
Plan.
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SHARES AVAILABLE
The total number of shares of our common stock available for awards granted
under the 2000 Long Term Incentive Plan will be shares. During the
five-year term of the long term plan, no more than shares of our common
stock will be available for the grant of incentive stock options and no more
than shares of our common stock may be the basis of stock appreciation
rights not granted in connection with options, restricted stock awards,
performance shares and other stock unit awards. No individual may be granted
awards with respect to more than shares of our common stock over the
five-year term of the long term plan. In addition, the maximum value of
property, including cash, that may be paid or distributed to any participant
pursuant to a grant of performance units and/or other stock unit awards that are
valued with reference to property other than shares of our common stock made in
any one calendar year is $ .
Any shares issued by us through the assumption or substitution of
outstanding grants from Lucent or an acquired company will not reduce the number
of shares of our common stock available for grants under the 2000 Long Term
Incentive Plan. Any shares of our common stock issued under the 2000 Long Term
Incentive Plan, including in connection with substitute awards may consist, in
whole or in part, of authorized and unissued shares of our common stock or
treasury shares of our common stock or shares of our common stock purchased in
the open market. If any shares of our common stock subject to any award are
forfeited or such award otherwise terminates without the issuance of such shares
of our common stock or of other consideration in lieu of such shares, the shares
of our common stock subject to such award, to the extent of any such forfeiture
or termination, will again be available for grant under the 2000 Long Term
Incentive Plan. In the event of any merger, reorganization, consolidation,
recapitalization, stock dividend, or other change in corporate structure
affecting the shares of our common stock, such adjustment will be made in the
aggregate number and class of shares of our common stock which may be delivered
under the 2000 Long Term Incentive Plan, in the individual limit described
above, in the number, class and option price of shares of our common stock
subject to outstanding options thereunder, and in the value of, or number or
class of shares of our common stock subject to, awards as may be determined to
be appropriate by the compensation committee, in its sole discretion; provided
that the number of shares of our common stock subject to any award will always
be a whole number.
PLAN ADMINISTRATION
The members of our corporate governance and compensation committee, will
administer the 2000 Long Term Incentive Plan. Our corporate governance and
compensation committee may delegate to one or more directors the power to grant
and administer awards to participants who are not executive officers.
OPTIONS; STOCK APPRECIATION RIGHTS
Options to purchase shares of our common stock may be granted under the
2000 Long Term Incentive Plan, either alone or in addition to other awards.
Except in the case of substitute awards, the purchase price per share of our
common stock purchasable under an option will be determined by our compensation
committee, in its sole discretion; provided that such purchase price will not be
less than the fair market value, as defined in the 2000 Long Term Incentive
Plan, of a share of our common stock on the date of the grant of the option. The
term of each option will be fixed by our corporate governance and compensation
committee in its sole discretion; provided that no incentive stock option will
be exercisable after the expiration of 10 years from the date the option is
granted. Options will be exercisable at such time or times as determined by our
corporate governance and compensation committee at or subsequent to grant.
Subject to the other provisions of the 2000 Long Term Incentive Plan and any
applicable award agreement, any option may be exercised by the participant in
such form or forms, including, without limitation, payment by delivery of cash,
shares of our common stock or other consideration including, where permitted by
law and our corporate governance and compensation committee, awards having a
fair market value on the exercise date equal to the total option price, or by
any combination of cash, shares of our common stock and other consideration as
our corporate governance and compensation committee may specify in the
applicable award agreement.
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As of the time of the grant, the aggregate fair market value of the shares
of our common stock with respect to which incentive stock options held by any
participant become exercisable for the first time by such participant during any
calendar year under the 2000 Long Term Incentive Plan, including under any of
our other benefit plans or of any of our parent or subsidiary corporations, will
not exceed $100,000 or, if different, the maximum limitation in effect at the
time of grant under Section 422 of the Internal Revenue Code, or any successor
provision, and any regulations promulgated thereunder. In its sole discretion,
our corporate governance and compensation committee may provide, at the time of
grant, that the shares of common stock to be issued upon an option's exercise
will be in the form of restricted stock or other similar securities, or may
reserve the right so to provide after the time of grant.
Stock appreciation rights may be granted to participants either alone or in
addition to other awards and may, but need not, relate to a specific option. Any
stock appreciation rights related to an option other than an incentive stock
option may be granted at the same time such option is granted or at any time
thereafter before exercise or expiration of such option. Any stock appreciation
right related to an incentive stock option must be granted at the same time such
option is granted. In the case of any stock appreciation right related to any
option, the stock appreciation right or applicable portion thereof will
terminate and no longer be exercisable upon the termination or exercise of the
related option, except that any stock appreciation right granted with respect to
less than the full number of shares of our common stock covered by a related
option will not be reduced except to the extent that the number of shares of our
common stock affected by the exercise or termination of the related option
exceeds the number of shares of our common stock not covered by the stock
appreciation right. Any option related to any stock appreciation right will no
longer be exercisable to the extent the related stock appreciation right has
been exercised. Our compensation committee may impose such conditions or
restrictions on the exercise of any stock appreciation right as it may deem
appropriate.
PERFORMANCE SHARES OF COMMON STOCK
Performance-based equity awards may be issued to participants, for no cash
consideration or for such minimum consideration as may be required by applicable
law, either alone or in addition to other awards granted under the 2000 Long
Term Incentive Plan. The performance criteria to be achieved during any
performance period under the 2000 Long Term Incentive Plan and the length of the
performance period will be determined by our corporate governance and
compensation committee upon the grant of each performance award. Performance
awards will generally be distributed only after the end of the relevant
performance period. Performance awards may be paid in cash, shares of our common
stock, other property or any combination thereof, in the sole discretion of our
corporate governance and compensation committee at the time of payment.
Performance awards may be paid in a lump sum or in installments following the
close of the performance period.
OTHER STOCK UNIT AWARDS
Other awards of shares of common stock and other awards that are valued in
whole or in part by reference to, or are otherwise based on, shares of our
common stock or other property may be granted to participants, either alone or
in addition to other awards. Other stock unit awards may be paid in shares of
our common stock, other securities, cash or any other form of property as the
corporate governance and compensation committee may determine. Our corporate
governance and compensation committee may impose these conditions or
restrictions on the exercise of any other stock award as the committee may deem
appropriate.
Shares of our common stock, including securities convertible into shares of
our common stock, subject to other stock unit awards may be issued for no cash
consideration or for such minimum consideration as may be required by applicable
law; shares of our common stock, including securities convertible into such
shares of our common stock purchased pursuant to such a purchase right will be
purchased for such consideration as our corporate governance and compensation
committee may, in its sole discretion, determine, which except in the case of
substitute awards will not be less than the fair market value of such shares of
our common stock or other securities as of the date such purchase right is
awarded.
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RESTRICTED SHARES OF COMMON STOCK
Restricted stock awards may be issued to participants, for no cash
consideration or for such minimum consideration as may be required by applicable
law, either alone or in addition to other awards granted under the 2000 Long
Term Incentive Plan. Except as otherwise determined by our compensation
committee at the time of grant, upon termination of employment for any reason
during the restriction period, all restricted stock awards still subject to
restriction will be forfeited by the participant and reacquired by us.
CHANGE IN CONTROL
The 2000 Long Term Incentive Plan will generally provide that, unless our
corporate governance and compensation committee determines otherwise at the time
of grant with respect to a particular award, in the event of a change in
control,
- any options and stock appreciation rights outstanding as of the date the
change in control is determined to have occurred will become fully
exercisable and vested;
- the restrictions and deferral limitations applicable to any restricted
stock awards will lapse;
- all performance awards will be considered to be earned and payable in
full, and any deferral or other restriction will lapse and such
performance awards will be immediately settled or distributed; and
- the restrictions and deferral limitations and other conditions applicable
to any other stock unit awards or any other awards will lapse, and such
other stock unit awards or other awards will become free of all
restrictions, limitations or conditions and become fully vested and
transferable.
The 2000 Long Term Incentive Plan defines change in control to mean,
generally:
- an acquisition by any individual, entity or group of beneficial ownership
of 20% or more of either the then outstanding shares of our common stock
or the combined voting power of our then outstanding voting securities
entitled to vote generally in the election of directors;
- a change in the composition of the board during any two-year period, such
that the individuals who, as of the beginning of such two-year period,
constitute our board, cease for any reason to constitute at least a
majority of the board;
- the approval by the shareholders of a merger, reorganization or
consolidation or sale or other disposition of all or substantially all of
our assets of or, if consummation of such corporate transaction is
subject, at the time of such approval by shareholders, to the consent of
any government or governmental agency, the obtaining of such consent
either explicitly or implicitly by consummation; or
- the approval of the shareholders of our complete liquidation or
dissolution.
The 2000 Long Term Incentive Plan defines change in control price,
generally, as the higher of the highest price of a share of common stock during
the 60-day period prior to and including the date of a change in control or if
the change in control is the result of a tender or exchange offer or a corporate
transaction, the highest price per share paid in such tender or exchange offer
or corporate transaction.
OTHER PROVISIONS
Our board of directors may amend, alter or discontinue the 2000 Long Term
Incentive Plan, but no amendment, alteration, or discontinuation may be made
that would impair rights under an award theretofore granted without the
participant's consent, or that, without the approval of the stockholders, would
increase the total number of shares of our common stock reserved thereunder,
except pursuant to the provisions providing for anti-dilution adjustments, or
change the employees or class of employees eligible to participate therein. Our
corporate governance and compensation committee may amend the
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terms of any award theretofore granted, prospectively or retroactively, but no
such amendment may impair the rights of any participant without his or her
consent. Except in the event of a change in corporate structure affecting
shares, our corporate governance and compensation committee will not have the
authority to cancel any outstanding option and issue a new option in its place
with a lower exercise price.
Our corporate governance and compensation committee will be authorized to
make adjustments in performance award criteria or in the terms and conditions of
other awards in recognition of unusual or nonrecurring events affecting us or
our financial statements or changes in applicable laws, regulations or
accounting principles.
Subject to the provisions of the 2000 Long Term Incentive Plan and any
award agreement, the recipient of an award, including, without limitation, any
deferred award may, if so determined by our corporate governance and
compensation committee, be entitled to receive, currently or on a deferred
basis, interest or dividends, or interest or dividend equivalents, with respect
to the number of shares of our common stock covered by the award, and our
corporate governance and compensation committee may provide that such amounts,
if any, will be deemed to have been reinvested in additional shares of our
common stock or otherwise reinvested.
EMPLOYMENT AGREEMENTS
The employment agreement entered into by Mr. Peterson and AT&T,
subsequently assumed by Lucent, in 1995 required Lucent to establish a special
deferred compensation account in the amount of $190,000. In connection with the
distribution, we will assume Lucent's obligations under Mr. Peterson's
employment agreement. Interest is compounded as of the end of each calendar
quarter for as long as any sums remain in the account, and the quarterly rate of
interest applied at the end of any calendar quarter is one-quarter of the
average 30-year Treasury note rate for the previous quarter. The amounts
credited to the account vested in October 1999, and will be paid out following
Mr. Peterson's termination of employment with us.
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OWNERSHIP OF OUR COMMON STOCK
All of the outstanding shares of our common stock are and will be prior to
the distribution, held beneficially and of record by Lucent. The following
tables set forth information concerning shares of our common stock projected to
be beneficially owned after the distribution date by:
- each person or entity known by us to own more than five percent of the
outstanding our common stock;
- each person who will be our director at the time of the distribution; and
- all persons who will be our directors and executive officers at the time
of the distribution as a group.
Upon completion of the distribution, there is not expected to be any person
that will own more than five percent of our outstanding common stock. However,
as described more fully under "Related Transactions and Equity Investment," we
have agreed to sell to Warburg, Pincus Equity Partners, L.P. and related
investment funds an aggregate of 4,000,000 shares of our Series B convertible
participating preferred stock and warrants to purchase shares of our common
stock. Based on an agreed formula, these shares of convertible participating
preferred stock are expected to be initially convertible into approximately 5.0%
of our fully diluted common stock, calculated using a modified treasury stock
method as of the 90th day after issuance. The warrants are expected to be
exercisable for 3.6% of a total number of shares of common stock calculated
pursuant to an agreed upon formula as of the 90th day after issuance. Subject to
the satisfaction of agreed upon conditions, these shares of convertible
participating preferred stock and warrants will be issued, and this equity
investment will be consummated, immediately after consummation of the
distribution. By virtue of their ownership of these shares of convertible
participating preferred stock and these warrants, as of the date of this
information statement, Warburg, Pincus Equity Partners, L.P. and the related
investment funds may be deemed, individually or collectively, to beneficially
own more than 5.0% of our common stock.
The share amounts in the table below reflect the distribution ratio of one
share of our common stock for every shares of Lucent common stock currently
held by the listed individuals. The percentage ownership of our common stock of
each person named below immediately following the distribution will be
approximately the same as the percentage ownership of such person or entity
immediately prior to the distribution and is calculated based on the number of
shares of Lucent common stock outstanding as of August 4, 2000. No individual
director or officer identified above beneficially owns 1% or more of our
outstanding common stock, nor do our directors and executive officers as a
group. Unless otherwise indicated in the footnotes below, each person or entity
has sole voting and investment power with respect to the shares of common stock
set forth opposite such person's or entity's name. Also included in the figures
are shares of common stock which may be acquired within 60 days of August 4,
2000 through the exercise of employee stock options, if any.
DIRECTORS AND EXECUTIVE OFFICERS AND FIVE PERCENT HOLDERS
<TABLE>
<CAPTION>
OUR COMMON STOCK UNVESTED LUCENT
NAME BENEFICIALLY OWNED(1) STOCK OPTIONS(2)
---- --------------------- ----------------
<S> <C> <C>
Henry B. Schacht............................ 84,376(3)
Donald K. Peterson.......................... 5,906(4)
Directors and executive officers as a group,
including those named above (11
persons).................................. 1,003,923(5)
</TABLE>
---------------
(1) The amounts included in this table represent the shares of Lucent common
stock beneficially owned by the listed individuals. Once the distribution
ratio is determined, the amounts in the table will reflect beneficial
ownership of our common stock.
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(2) Unvested Lucent stock options will be converted into options for our common
stock in amounts and on terms as described in "Relationship Between Lucent
and Our Company After the Distribution -- Employee Benefits Agreement and
Plans -- Lucent Stock Options and Restricted Stock Units."
(3) Includes 12,664 shares held in a deferred share account and includes 68,000
shares held in trust for the benefit of family members.
(4) Includes 5,904 shares held in a deferred share account.
(5) Includes 22,055 shares held in deferred share accounts.
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DESCRIPTION OF CAPITAL STOCK
The following information reflects our certificate of incorporation and
by-laws as these documents will be in effect at the time of the distribution.
OUR AUTHORIZED CAPITAL STOCK
Immediately after the distribution, our authorized capital stock will
consist of 200,000,000 shares of preferred stock, par value $1.00 per share, and
1,500,000,000 shares of common stock, par value $0.01 per share. Immediately
following the distribution, approximately shares of our common stock
will be outstanding. Thereafter, upon consummation of the equity investment of
Warburg, Pincus Equity Partners, L.P. and related investment funds, these
investors will own 4,000,000 shares of our Series B convertible participating
preferred stock and warrants to purchase common stock. For a more detailed
description of this equity investment, please see "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" and "Related Transactions and Equity Investment."
OUR COMMON STOCK
The holders of our common stock will be entitled to one vote for each share
on all matters voted on by shareowners, including elections of directors, and,
except as otherwise required by law or provided in any resolution adopted by our
board with respect to any series of preferred stock, the holders of such shares
will possess all voting power. Our certificate of incorporation does not provide
for cumulative voting in the election of directors. Subject to any preferential
rights of any outstanding series of our preferred stock created by our board
from time to time, the holders of common stock will be entitled to such
dividends as may be declared from time to time by our board from funds available
therefor, and upon liquidation will be entitled to receive pro rata all assets
available for distribution to such holders. For a more complete discussion of
our dividend policy, please see "Dividend Policy."
OUR PREFERRED STOCK
Our certificate of incorporation authorizes our board of directors to
establish one or more series of our preferred stock and to determine, with
respect to any series of our preferred stock, the terms and rights of such
series, including:
- the designation of the series,
- the number of shares of the series, which number our board may thereafter
except where otherwise provided in the applicable certificate of
designation, increase or decrease, but not below the number of shares
thereof then outstanding,
- whether dividends, if any, will be cumulative or noncumulative, and, in
the case of shares of any series having cumulative dividend rights, the
date or dates or method of determining the date or dates from which
dividends on the shares of such series shall be cumulative,
- the rate of any dividends or method of determining such dividends payable
to the holders of the shares of such series, any conditions upon which
such dividends will be paid and the date or dates or the method for
determining the date or dates upon which such dividends will be payable,
- the redemption rights and price or prices, if any, for shares of the
series,
- the terms and amounts of any sinking fund provided for the purchase or
redemption of shares of the series,
- the amounts payable on and the preferences, if any, of shares of the
series in the event of any voluntary or involuntary liquidation,
dissolution or winding up of our affairs,
- whether the shares of the series will be convertible or exchangeable into
shares of any other class or series, or any other security, of us or any
other corporation, and, if so, the specification of such
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other class or series or such other security, the conversion or exchange price
or prices or rate or rates, any adjustments thereof, the date or dates as of
which such shares will be convertible or exchangeable and all other terms and
conditions upon which such conversion or exchange may be made,
- restrictions on the issuance of shares of the same series or of any other
class or series,
- the voting rights, if any, of the holders of the shares of the series,
and
- any other relative rights, preferences and limitations of such series.
We believe that the ability of our board of directors to issue one or more
series of our preferred stock will provide us with flexibility in structuring
possible future financings and acquisitions, and in meeting other corporate
needs which might arise. The authorized shares of our preferred stock, as well
as shares of our common stock, will be available for issuance without further
action by our shareowners, unless such action is required by applicable law or
the rules of any stock exchange or automated quotation system on which our
securities may be listed or traded. The New York Stock Exchange currently
requires shareowner approval as a prerequisite to listing shares in several
instances, including where the present or potential issuance of shares could
result in an increase in the number of shares of common stock, or in the amount
of voting securities, outstanding of at least 20%. If the approval of our
shareowners is not required for the issuance of shares of our preferred stock or
our common stock, our board may determine not to seek shareowner approval.
Although our board of directors has no intention at the present time of
doing so, it could issue a series of our preferred stock that could, depending
on the terms of such series, impede the completion of a merger, tender offer or
other takeover attempt. Our board of directors will make any determination to
issue such shares based on its judgment as to the best interests of us and our
shareowners. Our board of directors, in so acting, could issue our preferred
stock having terms that could discourage an acquisition attempt through which an
acquiror may be able to change the composition of our board of directors,
including a tender offer or other transaction that some, or a majority, of our
shareowners might believe to be in their best interests or in which shareowners
might receive a premium for their stock over the then current market price of
such stock.
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
As of the distribution date, shares of our Series A junior
participating preferred stock will be reserved for issuance upon exercise of
rights under our rights agreement. For a more detailed discussion of our rights
agreement and our Series A junior participating preferred stock, please see
"-- Rights Agreement."
SERIES B CONVERTIBLE PARTICIPATING PREFERRED STOCK
After the distribution, 4,000,000 shares of our Series B convertible
participating preferred stock will be issued to Warburg, Pincus Equity Partners,
L.P. and several related investment funds. The terms of the Series B convertible
participating preferred stock are set forth in a certificate of designation and
are described below.
RANK. With respect to payments of dividends, redemption payments and
rights upon our liquidation, dissolution or the winding up of our affairs, our
Series B convertible participating preferred stock will rank senior to our
common stock. In the future, we may authorize and issue preferred stock which
ranks senior to, in parity with or junior to the Series B convertible
participating preferred shares. We may only issue parity securities in excess of
$400 million or senior securities with the consent of the holders of a majority
of the outstanding shares of Series B convertible participating preferred stock.
DIVIDENDS. The holders of our Series B convertible participating preferred
shares are entitled to receive dividends when declared by our board of
directors, out of funds legally available for the payment of dividends as
described below.
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- For so long as the Series B convertible participating preferred stock is
outstanding, holders of Series B convertible participating preferred
stock shall receive dividends equally and ratably with the holders of our
common stock. Equal and ratable dividends are calculated on an as
converted basis, meaning we assume for the purposes of the calculation
that the Series B convertible participating preferred stock were
converted into shares of our common stock on the record date for the
common stock dividend.
- During the fourth and fifth years after issuance, we will have the option
to pay a quarterly cash dividend on each share of Series B convertible
participating preferred stock at an annual rate of 3.25%, compounded
quarterly, of the liquidation value of a share of Series B convertible
participating preferred stock.
- During the sixth through tenth years after issuance, we will have the
option to pay a quarterly cash dividend on each Series B convertible
participating preferred share at an annual rate of 6.5%, compounded
quarterly, of the liquidation preference of the Series B convertible
participating preferred stock.
- After the tenth anniversary of issuance, we will be required to pay a
quarterly cash dividend on each Series B convertible participating
preferred share at an annual rate of 12%, compounded quarterly, of the
liquidation preference of the Series B convertible participating
preferred stock.
LIQUIDATION PREFERENCE. The initial liquidation preference for each Series
B convertible participating preferred share will be $100. From the date on which
these shares are issued, until the tenth anniversary of that date, the
liquidation preference for each share will increase at an annual rate of 6.5%,
compounded quarterly. The increase in the liquidation preference for any quarter
will be reduced by the amount of any cash dividends we pay on the Series B
convertible participating preferred stock, other than dividends on our common
stock in which the Series B convertible participating preferred stock
participate.
Following a change-in-control of us during the first five years after the
investment, other than a change-in-control transaction that is a business
combination involving solely the issuance of common stock, some or all of the
liquidation value of the Series B convertible participating preferred stock that
would otherwise accrete through the fifth anniversary of the issue date, will be
accelerated, subject to our ability to pay a portion of the accelerated
accretion in cash in some instances.
A change-in-control includes any of the following:
- the acquisition of 50% or more of either our common stock or the combined
voting power of our then outstanding securities entitled to vote in an
election of our directors;
- changes in the composition of a majority of our board of directors which
are not supported by our current board of directors;
- a reorganization, consolidation, or merger or the sale or other
disposition of all or substantially all of our assets unless, following
the transaction, the holders of our common stock and voting securities
prior to the transaction own more than 50% of our common stock and voting
securities resulting from the transaction, they maintain their
proportionate ownership in us and no person or entity owns 50% or more of
our then-outstanding shares of our common stock or voting securities
resulting from this transaction; and
- approval by our shareowners of a complete liquidation or dissolution of
our company.
REDEMPTION. At any time after the fifth anniversary of the issuance, we
can force the holders of shares of Series B convertible participating preferred
stock to convert their shares into common stock. If we give a notice of
mandatory conversion, the holders of our shares of Series B convertible
participating preferred stock have the right to require us to redeem their
shares for cash, in whole or in part, at their option, at a cash redemption
price equal to:
- the liquidation value in effect on the redemption date; plus
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- except to the extent that a dividend has been declared for the applicable
quarter, an amount equal to the unrecognized accretion and dividends
accrued and unpaid on the Series B convertible participating preferred
shares up to but not including the redemption date.
For 60 days following the occurrence of a change in control transaction,
the holders of our shares of Series B convertible participating preferred shares
have the right to require us to redeem their shares for cash, in whole or in
part, at their option, at a cash redemption price equal to:
- 101% of the liquidation value, as increased pursuant to the provisions
described under "Liquidation Preference", in effect on the redemption
date; plus
- except to the extent that a dividend has been declared for the applicable
quarter, an amount equal to the unrecognized accretion and dividends
accrued and unpaid on the Series B convertible participating preferred
shares up to but not including the redemption date.
CONVERSION. Holders of shares of Series B convertible participating
preferred stock may convert their shares into shares of our common stock at any
time. The number of shares of our common stock into which each share of Series B
convertible participating preferred stock shall be convertible is determined by
dividing the amount of the liquidation preference at the time of the conversion
of that share by the conversion price determined as described below.
From and after the fifth anniversary of the date of issuance of the
Series B convertible participating preferred shares, we will have the right to
require the holders of Series B convertible participating preferred shares, at
our option, to convert any or all of their shares, into shares of our common
stock at the conversion price determined as described below.
The initial conversion price is calculated as of 90 days after the issuance
by dividing $7.6 billion by the number of fully diluted shares outstanding,
calculated on a modified treasury stock basis. The number of fully diluted
shares calculated on a modified treasury stock basis is equal to the sum of:
- the number of shares of our common stock outstanding immediately after
the distribution; and
- all shares of common stock issuable upon exercise or conversion of all
options and convertible securities issued and outstanding as of the time
immediately following the distribution that are held by our employees,
officers and directors and with respect to which the exercise price is
less than or equal to the average trading price of our common stock over
the last 20 trading days during the period ending on the 90th day after
the issue date; and
- all shares and restricted shares of common stock and all shares of common
stock issuable upon exercise or conversion of all options and convertible
securities issued, sold or granted during the 90 days following the
distribution to our employees, officers and directors and with respect to
which the exercise price, or in the case of shares or restricted shares,
the purchase price, is less than or equal to the average trading price of
our common stock over the last 20 trading days during the period ending
on the 90th day after the issue date.
The number of shares of our common stock in respect of the options and
other securities described in the previous two bullet points is adjusted to
reflect the application by us of the aggregate exercise, conversion or
purchase price of all such options and securities to repurchase shares of
our common stock at a price equal to the average trading price of our
common stock over the last 20 trading days during the period ending on the
90th day after the issue date.
The conversion price is subject to customary anti-dilution adjustments.
VOTING RIGHTS. The holders of our shares of Series B convertible
participating preferred stock:
- will be entitled to vote with the holders of our common stock on all
matters submitted for a vote of the holders of common stock, voting
together with the holders of our common stock as one class; and
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- will be entitled to a number of votes equal to the number of votes to
which shares of common stock issuable upon conversion of shares of
Series B convertible participating preferred stock would have been
entitled if such shares of common stock had been outstanding at the time
of the applicable vote and related record date.
Generally the holders of our shares of Series B convertible participating
preferred stock will be entitled to vote as a single class with respect to:
- the amendment, alteration or repeal of any provision of our certificate
of incorporation which adversely affects their preferences, rights or
powers; and
- the authorization of any securities which would rank senior to the
Series B convertible participating preferred stock or parity securities
in excess of $400 million.
WARRANTS
As part of their investment, the investors will acquire warrants to
purchase our common stock. The warrants have an exercise price equal to 130% of
the initial conversion price for the Series B convertible participating
preferred stock. The warrants are exercisable for 3.6% of an agreed total number
of shares of our common stock. The agreed total number of shares of our common
stock will be determined as of the 90th day after the issuance of the warrants
and is the sum, adjusted to reflect the expected dilution resulting from the
issuance of shares of our common stock upon exercise of the warrants, of:
- our outstanding common stock on the day the warrants are issued; and
- the lesser of:
- 17.65% of our outstanding common stock on the day the warrants are
issued; and
- the sum of:
- all shares of common stock issuable upon exercise or conversion of
all options and convertible securities issued or granted to our
directors, officers or employees as of the day the warrants are
issued which at such date had exercise or conversion prices at or
below the exercise price of the warrants; and
- all shares of restricted common stock and shares of common stock
issuable upon exercise or conversion of all options and convertible
securities issued, granted or sold to our directors, officers or
employees during the 90 days following the issuance of the warrants
with exercise or purchase prices at or below the exercise price of
the warrants.
Of these warrants, warrants exercisable for 2.0% of such total number of
shares of common stock will have a four-year term and warrants exercisable for
1.6% of such total number of shares of common stock will have a five-year term.
During a period commencing no later than June 30, 2001, until the second
anniversary of their issuance, if the market price of our common stock exceeds
agreed upon trading price levels, we can force conversion of up to 50% of the
warrants. The warrants are exercisable immediately upon issuance and will have
customary antidilution rights.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND
BY-LAWS
BOARD OF DIRECTORS
Our certificate of incorporation provides that, except as otherwise fixed
by or pursuant to the provisions of a certificate of designations setting forth
the rights of the holders of any class or series of our preferred stock, the
number of our directors will be fixed from time to time exclusively pursuant to
a resolution adopted by a majority of the total number of directors which we
would have if there were no vacancies, but shall not be less than three. Our
directors, other than those who may be elected by the holders of our preferred
stock, will be classified, with respect to the time for which they severally
hold office, into three classes, as nearly equal in number as possible, one
class to be originally elected for a term expiring at the annual meeting of
shareowners to be held in 2001, another class to be originally elected for a
term expiring at the annual meeting of shareowners to be held in 2002 and
another class to be originally elected for a term expiring at the annual meeting
of shareowners to be held in 2003, with each director to
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hold office until his or her successor is duly elected and qualified. Commencing
with the 2001 annual meeting of shareowners, directors elected to succeed
directors whose terms then expire will be elected for a term of office to expire
at the third succeeding annual meeting of shareowners after their election, with
each director to hold office until such person's successor is duly elected and
qualified.
Our certificate of incorporation provides that, except as otherwise
provided for or fixed by or pursuant to a certificate of designations setting
forth the rights of the holders of any class or series of our preferred stock,
newly created directorships resulting from any increase in the number of
directors and any vacancies on our board resulting from death, resignation,
disqualification, removal or other cause will be filled by the affirmative vote
of a majority of the remaining directors then in office, even though less than a
quorum of our board, and not by the shareowners. Any director elected in
accordance with the preceding sentence will hold office until the next annual
meeting of shareowners at which time the director will stand for election for
the remainder of the term and until such director's successor shall have been
duly elected and qualified. No decrease in the number of directors constituting
our board will shorten the term of any incumbent director. Subject to the rights
of holders of our preferred stock, any director may be removed from office only
for cause by the affirmative vote of the holders of at least a majority of the
voting power of all voting stock then outstanding, voting together as a single
class; provided, however, that any director or directors may be removed from
office by the affirmative vote of the holders of at least 80% of the voting
power of all our voting stock then outstanding, voting together as a single
class.
These provisions would preclude a third party from removing incumbent
directors and simultaneously gaining control of our board by filling the
vacancies created by removal with its own nominees. Under the classified board
provisions described above, it would take at least two elections of directors
for any individual or group to gain control of our board. Accordingly, these
provisions could discourage a third party from initiating a proxy contest,
making a tender offer or otherwise attempting to gain control of us.
NO SHAREOWNER ACTION BY WRITTEN CONSENT; SPECIAL MEETINGS
Our certificate of incorporation and by-laws provide that any action
required or permitted to be taken by our shareowners must be effected at a duly
called annual or special meeting of such holders and may not be effected by any
consent in writing by such holders. Except as otherwise required by law and
subject to the rights of the holders of any of our preferred stock, special
meetings of our shareowners for any purpose or purposes may be called only by
our board pursuant to a resolution stating the purpose or purposes thereof
approved by a majority of the whole board or by our chairman of the board and,
any power of shareowners to call a special meeting is specifically denied. No
business other than that stated in the notice shall be transacted at any special
meeting. These provisions may have the effect of delaying consideration of a
shareowner proposal until the next annual meeting unless a special meeting is
called by our board or the chairman of the board.
ADVANCE NOTICE PROCEDURES
Our by-laws establish an advance notice procedure for shareowners to make
nominations of candidates for election as directors or to bring other business
before an annual meeting of our shareowners. Our shareowner notice procedure
provides that only persons who are nominated by, or at the direction of, our
chairman of the board, or by a shareowner who has given timely written notice to
our secretary prior to the meeting at which directors are to be elected, will be
eligible for election as our directors. Our shareowner notice procedure also
provides that at an annual meeting only such business may be conducted as has
been brought before the meeting by, or at the direction of, our chairman of the
board or our board, or by a shareowner who has given timely written notice to
our secretary of such shareowner's intention to bring such business before such
meeting. Under our shareowner notice procedure, for notice of shareowner
nominations to be made at an annual meeting to be timely, such notice must be
received by our secretary not later than the close of business on the 45th
calendar day nor earlier than the close of business on the 75th calendar day
prior to the first anniversary of the preceding year's annual meeting, except
that, in the event that the date of the annual meeting is more than 30 calendar
days before or more than 60 calendar days after such anniversary date, notice by
the shareowner to be timely must be so delivered not earlier
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than the close of business on the 75th calendar day prior to such annual meeting
and not later than the close of business on the later of the 45th calendar day
prior to such annual meeting or the 10th calendar day following the day on which
public announcement of a meeting date is first made by us.
Notwithstanding the foregoing, in the event that the number of directors to
be elected to our board is increased and there is no public announcement by us
naming all of the nominees for director or specifying the size of our increased
board at least 55 calendar days prior to the first anniversary of the preceding
year's annual meeting, a shareowner's notice also will be considered timely, but
only with respect to nominees for any new positions created by such increase, if
it shall be delivered not later than the close of business on the 10th calendar
day following the day on which such public announcement is first made by us.
Under our shareowner notice procedure, for notice of a shareowner nomination to
be made at a special meeting at which directors are to be elected to be timely,
such notice must be received by us not earlier than the close of business on the
75th calendar day prior to such special meeting and not later than the close of
business on the later of the 45th calendar day prior to such special meeting or
the 10th calendar day following the day on which public announcement is first
made of the date of the special meeting and of the nominees proposed by our
board to be elected at such meeting.
In addition, under our shareowner notice procedure, a shareowner's notice
to us proposing to nominate a person for election as a director or relating to
the conduct of business other than the nomination of directors must contain the
information required by our certificate of incorporation. If the chairman of a
meeting determines that an individual was not nominated, or other business was
not brought before the meeting, in accordance with our shareowner notice
procedure, such individual will not be eligible for election as a director, or
such business will not be conducted at such meeting, as the case may be.
AMENDMENT
Our certificate of incorporation provides that the affirmative vote of the
holders of at least 80% of our voting stock then outstanding, voting together as
a single class, is required to amend provisions of the certificate relating to
the number, election and term of our directors; the nomination of director
candidates and the proposal of business by shareowners; the filling of
vacancies; and the removal of directors. Our certificate further provides that
the related by-laws described above, including the shareowner notice procedure,
may be amended only by our board or by the affirmative vote of the holders of at
least 80% of the voting power of the outstanding shares of voting stock, voting
together as a single class.
RIGHTS AGREEMENT
Our board of directors currently expects to adopt a rights agreement, with
The Bank of New York as rights agent, on or prior to the distribution date. The
Rights Agreement will be filed as an exhibit to the registration statement. For
information on how to receive the Rights Agreement, please see "Available
Information."
ANTI-TAKEOVER EFFECTS
The rights are intended to have anti-takeover effects. If the rights become
exercisable, the rights will cause substantial dilution to a person or group
that attempts to acquire or merge with us in most cases. Accordingly, the
existence of the rights may deter a potential acquiror from making a takeover
proposal or tender offer. The rights should not interfere with any merger or
other business combination approved by our board of directors since we may
redeem the rights as described below and since a transaction approved by our
board of directors would not cause the rights to become exercisable.
EXERCISABILITY OF RIGHTS
Under the rights agreement, one right attaches to each share of our common
stock outstanding and, when exercisable, entitles the registered holder to
purchase from us one one-thousandth of a share of Series A Junior Participating
Preferred Stock, par value $1.00 per share, at an initial purchase price of
$ , subject to the customary antidilution adjustments. For a
description of the terms of our Series A Preferred Stock, see "-- Series A
Junior Participating Preferred Stock".
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The rights will not become exercisable until the earliest of:
- 10 business days following a public announcement that a person or group
has become the beneficial owner of securities representing 10% or more of
our common shares then outstanding
- 10 business days after we first determine that a person or group has
become the beneficial owner of securities representing 10% or more of our
common shares then outstanding or
- such date, if any, as may be designated by the Board of Directors
following the commencement of, or the announcement of an intention to
commence, a tender offer or exchange offer that would result in a person
or group becoming the beneficial owner of securities representing 10% or
more of our common shares then outstanding (or such later date as our
board of directors may determine, but in no event later than the date
that any person or group actually becomes such an owner).
Additionally, at any time a person or a group has become the beneficial
owner of securities representing 10% or more of our common shares then
outstanding and we have registered the securities subject to the rights under
the Securities Act, the flip-in or flip-over features of the rights or, at the
discretion of our board of directors, the exchange features of the rights, may
be exercised by any holder, except for such person or group.
Our sale to Warburg, Pincus Equity Partners, L.P. and related investment
funds of 4,000,000 shares of Series B convertible participating preferred stock
and warrants to purchase our common stock will not trigger the exercisability of
the rights under our rights agreement. These investors shall not be deemed to be
the beneficial owners of any shares of common stock:
- that these investors acquire or can acquire by converting their shares of
Series B convertible participating preferred stock into shares of our
common stock;
- that these investors acquire or can acquire by converting their warrants
into shares of our common stock;
- that these investors acquire, directly or indirectly, by exercising their
pre-emptive rights granted in connection with their investment; or
- as a result of their ownership of the Series B convertible participating
preferred stock or warrants acquired pursuant to their initial
investment.
For a detailed description of this transaction, please see "Related
Transactions and Equity Investment."
The various features of our rights agreement are described below.
"FLIP IN" FEATURE
In the event a person or group becomes the beneficial owner of securities
representing 10% or more of our common shares then outstanding, each holder of a
right, except for such person or group, will have the right to acquire, upon
exercise of the right, instead of one one-thousandth of a share of our Series A
Preferred Stock, shares of our common stock having a value equal to twice the
exercise price of the right. For example, if we assume that the initial purchase
price of $ is in effect on the date that the flip-in feature of the
right is exercised, any holder of a right, except for the person or group that
has become the beneficial owner of securities representing 10% or more of our
common shares then outstanding, can exercise his or her right by paying us
$ in order to receive from us shares of common stock having a value
equal to $ .
"EXCHANGE" FEATURE
At any time after a person or group becomes the beneficial owner of
securities representing 10% or more, but less than 50%, of our common shares
then outstanding, our board of directors may, at its option, exchange all or
some of the rights, except for those held by such person or group, for our
common stock at an exchange ratio of one share of common stock per right,
subject to adjustment, and cash instead of fractional shares, if any. Use of
this exchange feature means that eligible rights holders would not have to pay a
purchase price before receiving shares of our common stock.
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"FLIP OVER" FEATURE
In the event we are acquired in a merger or other business combination
transaction or 50% or more of our assets or our earning power and our
subsidiaries, taken as a whole, are sold, each holder of a right, except for a
person or group that is the beneficial owner of securities representing 10% or
more of, will have the right to receive, upon exercise of the right, the number
of shares of the acquiring company's capital stock with the greatest voting
power having a value equal to twice the exercise price of the right.
REDEMPTION OF RIGHTS
At any time before the earlier to occur of:
- public disclosure that a person or group has become the beneficial owner
of securities representing 10% or more of our common shares then
outstanding or
- our determination that a person or group has become the beneficial owner
of securities representing 10% or more of our common shares then
outstanding
our board of directors may redeem all of the rights at a redemption price of
$0.01 per right, subject to adjustment. The right to exercise the rights, as
described under "-- Exercisability of Rights", will terminate upon redemption,
and at such time, the holders of the rights will have the right to receive only
the redemption price for each right held.
AMENDMENT OF RIGHTS
At any time before a person or group becomes the beneficial owner of
securities representing 10% or more of our common shares then outstanding, the
terms of the existing rights agreement may be amended by our board of directors
without the consent of the holders of the rights.
However, if at any time after a person or group beneficially owns
securities representing 10% or more, or such lower percentage as may be amended
in the existing rights agreement, of our common shares then outstanding, our
board of directors may not adopt amendments to the existing rights agreement
that adversely affect the interests of holders of the rights. Furthermore, once
the rights are no longer redeemable, our board of directors may not adopt any
amendment that would lengthen the time period during which the rights are
redeemable.
TERMINATION OF RIGHTS
If not previously exercised, the rights will expire 10 years from the date
that the rights agreement commences, unless we earlier redeem or exchange the
rights or extend the final expiration date.
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
In connection with the creation of the rights, as described above, our
board of directors has authorized the issuance of shares of Preferred
Stock as Series A Junior Participating.
We have designed the dividend, liquidation, voting and redemption features
of our Series A Preferred Stock so that the value of one one-thousandth of a
share of our Series A Preferred Stock approximates the value of one share of our
common stock. Shares of our Series A Preferred Stock may only be purchased after
the rights have become exercisable, and each share of the Series A Preferred
Stock:
- is nonredeemable and junior to all other series of preferred stock,
unless otherwise provided in the terms of those series of preferred stock
- will have a preferential dividend in an amount equal to the greater of
$1.00 or 1,000 times any dividend declared on each share of common stock
- in the event of liquidation, will entitle its holder to receive a
preferred liquidation payment equal to 1,000 times the payment made per
share of common stock
- will have 1,000 votes, voting together with the common stock and any
other capital stock with general voting rights and
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- in the event of any merger, consolidation or other transaction in which
shares of common stock are converted or exchanged, will be entitled to
receive 1,000 times the amount and type of consideration received per
share of common stock.
The rights of our Series A Preferred Stock as to dividends, liquidation and
voting, and in the event of mergers and consolidations, are protected by
customary antidilution provisions.
DELAWARE BUSINESS COMBINATION STATUTE
Section 203 of the Delaware General Corporate Law provides that, subject to
exceptions set forth therein, an interested stockholder of a Delaware
corporation shall not engage in any business combination, including mergers or
consolidations or acquisitions of additional shares of the corporation, with the
corporation for a three-year period following the date that such stockholder
becomes an interested stockholder unless:
- prior to such date, the board of directors of the corporation approved
either the business combination or the transaction which resulted in the
shareowner becoming an interested stockholder;
- upon consummation of the transaction which resulted in the shareowner
becoming an "interested stockholder," the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced, other than statutorily excluded shares; or
- on or subsequent to such date, the business combination is approved by
the board of directors of the corporation and authorized at an annual or
special meeting of stockholders by the affirmative vote of at least
66 2/3% of the outstanding voting stock which is not owned by the
interested stockholder. Except as otherwise set forth in Section 203, an
interested stockholder is defined to stockholder include:
- any person that is the owner of 15% or more of the outstanding voting
stock of the corporation, or is an affiliate or associate of the
corporation and was the owner of 15% or more of the outstanding voting
stock of the corporation at any time within three years immediately
prior to the date of determination and
- the affiliates and associates of any such person.
Section 203 may make it more difficult for a person who would be an
interested stockholder to effect various business combinations with a
corporation for a three-year period. We have not elected to be exempt from the
restrictions imposed under Section 203. However, for a period of three years
following the distribution date, Lucent and its affiliates are excluded from the
definition of interested stockholder pursuant to the terms of Section 203. The
provisions of Section 203 may encourage persons interested in acquiring us to
negotiate in advance with our board, since the stockholder approval requirement
would be avoided if a majority of the directors then in office approves either
the business combination or the transaction which results in any such person
becoming an interested stockholder. Such provisions also may have the effect of
preventing changes in our management. It is possible that such provisions could
make it more difficult to accomplish transactions which our shareowners may
otherwise deem to be in their best interests.
TRANSFER AGENT AND REGISTRAR
The Bank of New York will be the transfer agent and registrar for our
common stock.
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RELATED TRANSACTIONS AND EQUITY INVESTMENT
EQUITY INVESTMENT
Warburg, Pincus Equity Partners, L.P. and related investment funds, which
we refer to collectively as the investors, have agreed to purchase 4,000,000
shares of our Series B convertible participating preferred stock and warrants to
purchase our common stock for an aggregate purchase price of $400 million. Based
on an agreed formula, the convertible participating preferred stock is expected
to be initially convertible into approximately 5.0% of our fully diluted common
stock, calculated using a modified treasury stock method as of the 90th day
after issuance. The warrants have an exercise price equal to 130% of the
conversion price for the Series B convertible participating preferred stock. The
warrants are exercisable for 3.6% of a total number of shares of common stock to
be calculated pursuant to an agreed upon formula as of the 90th day after
issuance. Of these warrants, warrants exercisable for 2.0% of such total number
of shares of common stock will have a four-year term and warrants exercisable
for 1.6% of such total number of shares of common stock will have a five-year
term. During a period commencing no later than June 30, 2001, until the second
anniversary of their issuance, if the market price of our common stock exceeds
agreed upon trading price levels, we can force conversion of up to 50% of the
warrants. The warrants are exercisable immediately upon issuance. The
convertible participating preferred stock and the warrants will have customary
antidilution rights.
The shares of convertible participating preferred stock will have an
aggregate initial liquidation value of $400 million and will accrete for the
first ten years at an annual rate of 6.5%, compounded quarterly. After the third
anniversary of the issue date, 50% of the accretion amount may be paid in cash
as a dividend, at our option. From the fifth anniversary of the issue date
through the tenth anniversary, we may elect to pay 100% of the accretion amount
as a cash dividend. Following the tenth anniversary of the issue date, we will
pay quarterly cash dividends at an annual rate of 12% of the then applicable
liquidation value of the Series B convertible participating preferred stock,
compounded quarterly. The convertible participating preferred shares also
participate, on an as-converted basis, in dividends paid on our common stock.
REDEMPTION. At any time after the fifth anniversary of their issuance, we
may force conversion of the shares of Series B convertible participating
preferred stock. If we give notice of a forced conversion, the investors will be
able to require us to redeem the convertible participating preferred shares at
100% of the then current liquidation value, plus accrued and unpaid dividends.
Following a change-in-control of us during the first five years after the
investment, other than a change of control transaction that is solely a business
combination involving the issuance of common stock, some or all of the
liquidation value of the Series B convertible participating preferred stock that
would otherwise accrete through the fifth anniversary of the issue date, will be
accelerated, subject to our ability to pay a portion of the accelerated
accretion in cash in some instances. In addition, for 60 days following the
occurrence of any change-in-control of us during the first five years after the
investment, the investors will be able to require us to redeem the convertible
participating preferred stock at 101% of the liquidation value, including any
accelerated accretion of the liquidation value.
VOTING RIGHTS AND BOARD SEAT. The shares of convertible participating
preferred stock will be entitled to vote, on an as-converted basis, with our
common stock on any matters submitted to holders of our common stock. The shares
of convertible participating preferred stock also have limited rights to vote as
a separate class. So long as the investors and their permitted transferees
maintain ownership of a combination of shares of convertible participating
preferred stock and common stock that, in the aggregate, on an as-converted
basis, represents at least 50% of the shares of our common stock initially
issuable on conversion of all the shares of convertible participating preferred
stock purchased, they will be permitted to designate for election one individual
to our board of directors, and our board of directors will use reasonable
efforts to cause such person to be elected. Permitted transferees are defined as
agreed upon affiliates of Warburg, Pincus Equity Partners, L.P. While this
ownership level is maintained, the investors and their permitted transferees
also will be permitted to designate one observer to attend meetings of our board
of directors.
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119
PREEMPTIVE RIGHTS. As long as the investors maintain the minimum ownership
interest necessary to designate a director for election to our board of
directors, they will be entitled to preemptive rights to purchase a percentage
of any new shares of common stock and agreed upon types of common stock
equivalents sold by us for cash in capital-raising transactions.
OTHER MATTERS. The investors also have agreed to limited transfer
restrictions for the securities acquired and a set of restrictions for a period
of five years that prohibits them from acquiring additional shares of our common
stock above an agreed upon level and prohibits them from taking agreed actions
that could result in a change-in-control of our company. We have agreed to file
a shelf registration statement for the registered sale of the convertible
participating preferred shares, the warrants and the shares of our common stock
issuable in respect of the convertible participating preferred shares and the
warrants.
CONDITIONS TO THE INVESTMENT. This investment is subject to the
satisfaction of several conditions, including the following:
- the consummation of the distribution;
- the reasonable satisfaction of Warburg, Pincus Equity Partners, L.P.
that our consolidated indebtedness at the time of the distribution
will not exceed the sum of (1) $700 million, (2) an amount equal to
the aggregate restructuring and separation costs and expenses for us
incurred by Lucent, to the extent such costs and expenses exceed
$50 million, all calculated on a pre-tax basis, and (3) increases in
working capital received by us from Lucent in excess of our current
business plan;
- no termination of, or material reduction in the responsibilities of,
the executive officers named in this information statement; and
- receipt of all necessary governmental approvals.
TERMINATION RIGHTS. The agreement between us and the investors generally
may be terminated as follows:
- if the equity investment has not been consummated by November 15,
2000;
- if a governmental authority prohibits the contribution by Lucent of
assets to us, the distribution or the equity investment;
- if the material agreements between Lucent and us are materially
modified in an adverse manner;
- if there is any amendment to the employee benefits agreement that
would result in a material decrease in the amount of net pension
assets being transferred to us;
- if the agreed upon initial conditions to the equity investment,
including representations and warranties being true and correct, are
not satisfied on or prior to the third business day after the
effective date of the registration statement; or
- if the distribution is not consummated on or prior to the second
business day after the investors fund into escrow the amount of their
investment.
OTHER RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Henry Schacht, who will be the chairman of our board of directors following
the distribution, is a managing director and senior advisor of E.M. Warburg,
Pincus and Company, LLC. E.M. Warburg Pincus and Company, LLC is an affiliate of
Warburg, Pincus Equity Partners, L.P., the party making the equity investment in
us, as described above.
During fiscal year 2000, a privately held business, of which Mr. Schacht
holds 80% of the equity interest and of which his son is the controlling
shareholder, purchased and paid for call center equipment and consulting
services from us for a total of approximately $800,000. This business continues
to purchase routine services from us on a time and materials basis.
Some of our directors and executive officers own substantial amounts of
Lucent common stock and vested Lucent options. Ownership of Lucent common stock
and Lucent options by our directors and officers after our separation from
Lucent could create, or appear to create, potential conflicts of interest when
faced with decisions that could have disparate implications for Lucent and us.
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120
SHARES ELIGIBLE FOR FUTURE SALE
Sales, or the availability for sale, of substantial amounts of our common
stock in the public market could adversely affect our common stock's prevailing
market price. Upon completion of the distribution, we will have outstanding an
aggregate of shares of our common stock, assuming no exercise of
outstanding options. All of the shares will be freely tradeable without
restriction or further registration under the Securities Act, unless the shares
are owned by our "affiliates" as that term is defined in Rule 405 under the
Securities Act. Restricted securities may be sold in the public market only if
registered or if they qualify for an exemption from registration under Rule 144
which is summarized below. Further, as described below, we plan to file a
registration statement to cover the shares issued under our option plans.
RULE 144
In general, under Rule 144 as currently in effect, beginning 90 days after
the distribution, a person who has beneficially owned common stock for at least
one year would be entitled to sell within any three-month period a number of
shares that does not exceed the greater of:
- 1% of the number of shares of our common stock then outstanding, which
will equal approximately shares of common stock immediately after
the distribution; or
- the average weekly trading volume of our common stock on the New York
Stock Exchange during the four calendar weeks preceding the filing of a
notice of Form 144 with respect to such sale.
Sales under Rule 144 are also subject to manner of sale provisions and
notice requirements and to the availability of current public information about
us.
RULE 144(k)
Under Rule 144(k), a person who is not deemed to have been one of our
affiliates at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years,
including the holding period of any prior owner other than an affiliate, is
entitled to sell these shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144. Unless
otherwise restricted, these shares may be sold immediately upon the
distribution.
EMPLOYEE STOCK OPTIONS
As of , 2000 unvested options to purchase shares of Lucent
common stock were outstanding and held by Lucent employees as of the
distribution. It is estimated that as a result of the distribution these options
would represent options to purchase of our shares of common stock, or
approximately of our outstanding common stock. As soon as practicable
after the distribution, we intend to file registration statements on Form S-8
under the Securities Act covering the shares of common stock reserved for
issuance under our stock option plans. The registration statements are expected
to automatically become effective upon filing. Accordingly, shares registered
under these registration statements will, subject to vesting provisions and Rule
144 volume limitations applicable to our affiliates, be available for sale in
the open market shortly after the distribution.
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121
INDEMNIFICATION
OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law provides that a
corporation may indemnify directors and officers as well as other employees and
individuals against expenses including attorneys' fees, judgments, fines and
amounts paid in settlement in connection with various actions, suits or
proceedings, whether civil, criminal, administrative or investigative other than
an action by or in the right of the corporation, a derivative action if they
acted in good faith and in a manner they reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, if they had no reasonable cause to believe their
conduct was unlawful. A similar standard is applicable in the case of derivative
actions, except that indemnification only extends to expenses including
attorneys' fees incurred in connection with the defense or settlement of such
actions, and the statute requires court approval before there can be any
indemnification where the person seeking indemnification has been found liable
to the corporation. The statute provides that it is not exclusive of other
indemnification that may be granted by a corporation's by-laws, disinterested
director vote, shareowner vote, agreement or otherwise.
Our certificate of incorporation provides that each person who was or is
made a party or is threatened to be made a party to or is involved in any
action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that such person, or a person of whom such
person is the legal representative, is or was a director or officer of us or is
or was serving at our request as a director, officer, employee or agent of
another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans, whether
the basis of such proceeding is the alleged action of such person in an official
capacity as a director, officer, employee or agent or in any other capacity
while serving as a director, officer, employee or agent, will be indemnified and
held harmless by us to the fullest extent authorized by the Delaware General
Corporate Law, as the same exists or may hereafter be amended but, in the case
of any such amendment, only to the extent that such amendment permits us to
provide broader indemnification rights than said law permitted us to provide
prior to such amendment, against all expense, liability and loss reasonably
incurred or suffered by such person in connection therewith. Such right to
indemnification includes the right to have us pay the expenses incurred in
defending any such proceeding in advance of its final disposition, subject to
the provisions of the Delaware General Corporate Law. Such rights are not
exclusive of any other right which any person may have or thereafter acquire
under any statute, provision of the certificate, by-law, agreement, vote of
shareowners or disinterested directors or otherwise. No repeal or modification
of such provision will in any way diminish or adversely affect the rights of any
director, officer, employee or agent of us thereunder in respect of any
occurrence or matter arising prior to any such repeal or modification. Our
certificate of incorporation also specifically authorizes us to maintain
insurance and to grant similar indemnification rights to our employees or
agents.
The Delaware General Corporate Law permits a corporation to provide in its
certificate of incorporation that a director of the corporation shall not be
personally liable to the corporation or its shareowners for monetary damages for
breach of fiduciary duty as a director, except for liability for:
- any breach of the director's duty of loyalty to the corporation or its
shareowners,
- acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law,
- payments of unlawful dividends or unlawful stock repurchases or
redemptions, or
- any transaction from which the director derived an improper personal
benefit.
Our certificate of incorporation provides that none of our directors will
be personally liable to us or our shareowners for monetary damages for breach of
fiduciary duty as a director, except, if required by the Delaware General
Corporate Law as amended from time to time, for liability
- for any breach of the director's duty of loyalty to us or our
shareowners,
118
122
- for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law,
- under Section 174 of the Delaware General Corporate Law, which concerns
unlawful payments of dividends, stock purchases or redemptions, or
- for any transaction from which the director derived an improper personal
benefit. Neither the amendment nor repeal of such provision will
eliminate or reduce the effect of such provision in respect of any matter
occurring, or any cause of action, suit or claim that, but for such
provision, would accrue or arise prior to such amendment or repeal.
The Contribution and Distribution Agreement by and among us and Lucent
dated as of , 2000, provides for indemnification by us of Lucent and
its directors, officers and employees for some liabilities, including
liabilities under the Securities Act.
119
123
AVAILABLE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement under the Exchange Act of 1934, as amended, with respect to the shares
of our common stock and the associated rights being issued in the distribution.
This information statement does not contain all of the information set forth in
the registration statement and the exhibits thereto, to which reference is
hereby made. With respect to each contract, agreement or other document filed as
an exhibit to the registration statement, reference is made to such exhibit for
a more complete description of the matter involved. The registration statement
and the exhibits thereto filed by us with the Securities and Exchange Commission
may be inspected at the public reference facilities of the Securities and
Exchange Commission listed below.
After the distribution, we will be subject to the informational
requirements of the Exchange Act, and in accordance therewith will file reports,
proxy statements and other information with the Securities and Exchange
Commission. Such reports, proxy statements and other information can be
inspected and copied at the public reference facilities maintained by the
Securities and Exchange Commission at its principal offices at Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549. Copies of such information may be
obtained from the Public Reference Section of the Securities and Exchange
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. The Commission also maintains a World Wide Web site (http://www.sec.gov)
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Securities and Exchange
Commission.
We intend to furnish holders of our common stock with annual reports
containing combined financial statements audited by independent accountants,
beginning with the fiscal year ending September 30, 2001.
No person is authorized to give any information or to make any
representations other than those contained in this information statement, and,
if given or made, such information or representations must not be relied upon as
having been authorized. Neither the delivery of this information statement nor
any distribution of securities made hereunder shall imply that there has been no
change in the information set forth herein or in our affairs since the date
hereof.
120
124
INDEX TO COMBINED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Combined Financial Statements:
Report of Independent Accountants......................... F-2
Combined Statements of Income for the three fiscal years
ended September 30, 1999 and the nine months ended June
30, 2000 and 1999 (unaudited).......................... F-3
Combined Balance Sheets as of September 30, 1998 and 1999
and June 30, 2000 (unaudited).......................... F-4
Combined Statements of Changes in Invested Equity for the
three fiscal years ended September 30, 1999 and the
nine months ended June 30, 2000 and 1999 (unaudited)... F-5
Combined Statements of Cash Flows for the three fiscal
years ended September 30, 1999 and the nine months
ended June 30, 2000 and 1999 (unaudited)............... F-6
Notes to Combined Financial Statements.................... F-7
Financial Statement Schedule:
Schedule II -- Valuation and Qualifying Accounts for
the three fiscal years ended September 30, 1999....... S-1
</TABLE>
F-1
125
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareowner of Avaya Inc.:
In our opinion, the combined financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Avaya Inc. and its subsidiaries (formerly Lucent EN Corp.), (the
"Company") at September 30, 1999 and 1998, and the combined results of their
operations and their combined cash flows for each of the three years in the
period ended September 30, 1999, in conformity with accounting principles
generally accepted in the United States of America. In addition, in our opinion,
the financial statement schedule listed in the accompanying index presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related combined financial statements. These financial
statements and the financial statement schedule are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements and the financial statement schedule based on our audits.
We conducted our audits of these statements in accordance with auditing
standards generally accepted in the United States of America, which 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
The Company is a fully integrated business of Lucent Technologies Inc.
("Lucent"); consequently, as indicated in Note 1, these combined financial
statements have been derived from the consolidated financial statements and
accounting records of Lucent, and reflect significant assumptions and
allocations. Moreover, as indicated in Note 1, the Company relies on Lucent and
its other businesses for administrative, management and other services.
Accordingly, these combined financial statements do not necessarily reflect the
financial position, results of operations, changes in invested equity and cash
flows of the Company had it been a separate stand-alone entity, independent of
Lucent.
As discussed in Note 8 to the combined financial statements, the Company
changed its method for calculating annual pension and postretirement benefit
costs in 1999.
/s/ PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP
New York, New York
June 15, 2000
F-2
126
AVAYA INC. AND SUBSIDIARIES
COMBINED STATEMENTS OF INCOME
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
JUNE 30, SEPTEMBER 30,
------------------ --------------------------
2000 1999 1999 1998 1997
------- ------- ------ ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUE
Products.................................... $4,212 $4,474 $6,368 $6,004 $4,890
Services.................................... 1,452 1,396 1,900 1,750 1,523
------ ------ ------ ------ ------
5,664 5,870 8,268 7,754 6,413
------ ------ ------ ------ ------
COSTS
Products.................................... 2,418 2,516 3,579 3,253 2,567
Services.................................... 734 734 985 854 718
------ ------ ------ ------ ------
3,152 3,250 4,564 4,107 3,285
------ ------ ------ ------ ------
GROSS MARGIN.................................. 2,512 2,620 3,704 3,647 3,128
------ ------ ------ ------ ------
OPERATING EXPENSES
Selling, general and administrative......... 1,880 2,088 2,795 2,609 2,186
Research and development.................... 350 397 540 423 346
Purchased in-process research and
development.............................. -- -- -- 306 472
------ ------ ------ ------ ------
TOTAL OPERATING EXPENSES...................... 2,230 2,485 3,335 3,338 3,004
------ ------ ------ ------ ------
OPERATING INCOME (LOSS)....................... 282 135 369 309 124
Other income -- net........................... 54 26 28 25 17
Interest expense.............................. 59 66 90 94 59
------ ------ ------ ------ ------
INCOME (LOSS) BEFORE INCOME TAXES............. 277 95 307 240 82
Provision (benefit) for income taxes.......... 109 38 121 197 230
------ ------ ------ ------ ------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE........................... 168 57 186 43 (148)
Cumulative effect of accounting change (net of
income taxes of $62 for the nine months
ended June 30, 1999 and for the year ended
September 30, 1999)......................... -- 96 96 -- --
------ ------ ------ ------ ------
NET INCOME (LOSS)............................. $ 168 $ 153 $ 282 $ 43 $ (148)
====== ====== ====== ====== ======
</TABLE>
See Notes to Combined Financial Statements.
F-3
127
AVAYA INC. AND SUBSIDIARIES
COMBINED BALANCE SHEETS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
SEPTEMBER 30,
JUNE 30, ----------------
2000 1999 1998
-------- ------ ------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................... $ 217 $ 194 $ 107
Receivables less allowances of $72 in 2000, $58 in 1999 and
$82 in 1998............................................... 1,588 1,765 1,783
Inventories................................................. 736 824 907
Deferred income taxes -- net................................ 96 137 197
Other current assets........................................ 126 123 71
------ ------ ------
TOTAL CURRENT ASSETS........................................ 2,763 3,043 3,065
Property, plant and equipment -- net........................ 727 676 613
Deferred income taxes -- net................................ 213 171 99
Capitalized software development costs -- net............... 41 34 17
Goodwill -- net............................................. 226 261 344
Other assets................................................ 106 54 39
------ ------ ------
TOTAL ASSETS................................................ $4,076 $4,239 $4,177
====== ====== ======
LIABILITIES AND INVESTED EQUITY
Current Liabilities:
Accounts payable............................................ $ 383 $ 364 $ 411
Payroll and benefit liabilities............................. 498 663 652
Advance billings and deposits............................... 197 198 140
Other current liabilities................................... 455 372 337
------ ------ ------
TOTAL CURRENT LIABILITIES................................... 1,533 1,597 1,540
Benefit obligations......................................... 270 354 367
Deferred revenue............................................ 95 88 76
Other liabilities........................................... 382 383 399
------ ------ ------
TOTAL LIABILITIES........................................... 2,280 2,422 2,382
------ ------ ------
Commitments and contingencies
INVESTED EQUITY
Owner's net investment...................................... 1,844 1,871 1,854
Accumulated other comprehensive income (loss)............... (48) (54) (59)
------ ------ ------
TOTAL INVESTED EQUITY....................................... 1,796 1,817 1,795
------ ------ ------
TOTAL LIABILITIES AND INVESTED EQUITY....................... $4,076 $4,239 $4,177
====== ====== ======
</TABLE>
See Notes to Combined Financial Statements.
F-4
128
AVAYA INC. AND SUBSIDIARIES
COMBINED STATEMENTS OF
CHANGES IN INVESTED EQUITY
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
JUNE 30, SEPTEMBER 30,
------------------ --------------------------
2000 1999 1999 1998 1997
------- ------- ------ ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OWNER'S NET INVESTMENT
Beginning balance............................. $1,871 $1,854 $1,854 $1,290 $ 620
Net income (loss)............................. 168 153 282 43 (148)
Transfer to Lucent............................ (5,914) (5,852) (8,488) (7,313) (6,147)
Transfer from Lucent.......................... 5,719 6,040 8,223 7,834 6,965
------ ------ ------ ------ ------
Ending balance................................ $1,844 $2,195 $1,871 $1,854 $1,290
====== ====== ====== ====== ======
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS):
Beginning balance............................. $ (54) $ (59) $ (59) $ (30) $ (4)
Foreign currency translations................. 6 (7) 5 (29) (26)
------ ------ ------ ------ ------
Ending balance................................ (48) (66) (54) (59) (30)
------ ------ ------ ------ ------
TOTAL INVESTED EQUITY......................... $1,796 $2,129 $1,817 $1,795 $1,260
====== ====== ====== ====== ======
TOTAL COMPREHENSIVE INCOME (LOSS):
Net income (loss)............................. $ 168 $ 153 $ 282 $ 43 $ (148)
Other comprehensive income (loss)............. 6 (7) 5 (29) (26)
------ ------ ------ ------ ------
Total comprehensive income (loss)............. $ 174 $ 146 $ 287 $ 14 $ (174)
====== ====== ====== ====== ======
</TABLE>
See Notes to Combined Financial Statements.
F-5
129
AVAYA INC. AND SUBSIDIARIES
COMBINED STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
JUNE 30, SEPTEMBER 30,
-------------- -------------------------
2000 1999 1999 1998 1997
----- ----- ----- ----- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss).............................. $ 168 $ 153 $ 282 $ 43 $ (148)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities, net of effects from acquisitions
of businesses:
Cumulative effect of accounting change.... -- (96) (96) -- --
Business restructuring reversal........... -- (10) (33) (23) --
Asset impairment and other charges........ -- 26 26 -- --
Depreciation and amortization............. 160 159 212 193 158
Provision for uncollectibles.............. 43 16 25 33 25
Deferred income taxes..................... (5) (2) (7) (84) 15
Purchased in-process research and
development............................. -- -- -- 306 472
(Increase) decrease in
receivables -- net...................... 144 (174) 5 (424) (270)
(Increase) decrease in inventories........ 83 (42) 81 (204) (35)
Increase(decrease) in accounts payable.... 19 (58) (47) 142 (2)
Changes in other operating assets and
liabilities............................. (225) (92) 7 155 144
Other adjustments for non-cash
items -- net............................ (40) (16) (24) (8) --
----- ----- ----- ----- -------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES................................... 347 (136) 431 129 359
----- ----- ----- ----- -------
INVESTING ACTIVITIES:
Capital expenditures........................... (204) (139) (202) (197) (187)
Proceeds from the sale or disposal of property,
plant and equipment.......................... 9 9 17 13 --
Dispositions of businesses..................... 64 29 29 -- --
Acquisitions of businesses -- net of cash
acquired..................................... -- -- -- (248) (834)
Cash from mergers.............................. -- -- 60 -- --
Other investing activities -- net.............. (3) (13) 10 (27) (35)
----- ----- ----- ----- -------
NET CASH USED IN INVESTING ACTIVITIES.......... (134) (114) (86) (459) (1,056)
----- ----- ----- ----- -------
FINANCING ACTIVITIES:
Transfers (to) from Lucent..................... (184) 290 (253) 311 818
Increase (decrease) in short-term borrowings... (1) (5) (4) (37) 6
Other.......................................... (5) 3 -- (9) 9
----- ----- ----- ----- -------
NET CASH (USED IN) PROVIDED BY FINANCING
ACTIVITIES................................... (190) 288 (257) 265 833
----- ----- ----- ----- -------
Effect of exchange rate changes on cash and
cash equivalents............................. -- (2) (1) 6 3
Net increase (decrease) in cash and cash
equivalents.................................. 23 36 87 (59) 139
Cash and cash equivalents at beginning of
year......................................... 194 107 107 166 27
----- ----- ----- ----- -------
Cash and cash equivalents at end of year....... $ 217 $ 143 $ 194 $ 107 $ 166
===== ===== ===== ===== =======
</TABLE>
See Notes to Combined Financial Statements.
F-6
130
NOTES TO COMBINED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS)
1. BACKGROUND AND BASIS OF PRESENTATION
Background
Lucent Technologies Inc. ("Lucent") announced its intention to spin-off its
enterprise communications businesses to its shareowners. Avaya Inc. (formerly
Lucent EN Corp.), (the "Company"), which will own these businesses, will provide
communication systems and software for enterprises, including businesses,
government agencies and other organizations. The Company offers a broad range of
voice, converged voice and data, customer relationship management, messaging,
Internet-based network and structured cabling products and services.
The combined financial statements include the Company and its subsidiaries
as well as certain assets, liabilities, and related operations not currently
owned by the Company which will be transferred to the Company (the
"Contribution") from Lucent. The combined financial statements include the
historical operations to be transferred to the Company by Lucent (the "Company's
Businesses"). Because no direct ownership relationship existed among all the
various units comprising the Company, Lucent's and its subsidiaries' net
investment in the Company is shown in lieu of stockholders equity in the
combined financial statements.
On February 16, 2000, the Company was incorporated in Delaware as a wholly
owned subsidiary of Lucent. On this date, 1,000 shares of the Company's common
stock, par value $0.01 per share, were issued authorized and outstanding. The
Contribution is expected to be substantially complete by September 30, 2000 and
will result in a recapitalization of the Company.
Lucent has announced its intention to distribute to its shareowners by
September 30, 2000, subject to certain conditions, all of its interest in the
Company (the "Distribution"). On the date of Distribution, Lucent will
distribute the stock of the Company to shareowners of Lucent based on a
distribution ratio which will be determined prior to the Distribution. At the
Distribution, the Company's authorized capital stock will consist of 200 million
shares of preferred stock, par value $1.00 per share, and 1.5 billion shares of
common stock, par value $0.01 per share.
Rights Agreement
The Company expects to adopt a rights agreement on or prior to the
Distribution date. A delivery of a share of the Company's common stock in
connection with the Distribution also will constitute the delivery of the
preferred stock purchase right associated with such share. These rights are
intended to have anti-takeover effects in that the existence of the rights may
deter a potential acquiror from making a takeover proposal or a tender offer.
Basis of Presentation
The combined financial statements have been derived from the financial
statements and accounting records of Lucent using the historical results of
operations and historical basis of the assets and liabilities of the Company's
Businesses. Management believes the assumptions underlying the combined
financial statements are reasonable. However, the combined financial statements
included herein may not necessarily reflect the Company's results of operations,
financial position and cash flows in the future or what its results of
operations, financial position and cash flows would have been had the Company
been a stand-alone company during the periods presented.
The combined financial statements include allocations of certain Lucent
corporate headquarters' assets, liabilities, and expenses relating to the
Company's Businesses that will be transferred to the Company from Lucent.
General corporate overhead has been allocated either based on the ratio of the
Company's costs and expenses to Lucent's costs and expenses or based on the
Company's revenue as a percentage of Lucent's total revenue. General corporate
overhead primarily includes cash management,
F-7
131
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN MILLIONS)
legal, accounting, tax, insurance, public relations, advertising and data
services and amounted to $449, $425 and $335 in 1999, 1998 and 1997,
respectively. Management believes the costs of these services charged to the
Company are a reasonable representation of the costs that would have been
incurred if the Company had performed these functions as a stand-alone company.
Following the Contribution, the Company will perform these functions using its
own resources or purchased services.
The combined financial statements also include an allocation from Lucent to
fund a portion of the costs of basic research conducted by Lucent's Bell
Laboratories. This allocation was based on the Company's revenue as a percentage
of Lucent's total revenue. This allocation amounted to $78, $66, and $59 for
fiscal 1999, 1998 and 1997, respectively. Management believes the costs of this
research charge to the Company are a reasonable representation of the costs that
would have been incurred if the Company had performed these functions as a
stand-alone company. Following the Distribution, the Company will satisfy its
basic research requirements using its own resources or through purchased
services.
Lucent uses a centralized approach to cash management and the financing of
its operations. Cash deposits from the Company's Businesses are transferred to
Lucent on a regular basis and are netted against the owner's net investment
account. As a result, none of Lucent's cash, cash equivalents or debt at the
corporate level have been allocated to the Company in the combined financial
statements. Cash and cash equivalents in the combined financial statements
represents amounts held by the Company's foreign operations. Changes in invested
equity represent any funding required from Lucent for working capital,
acquisition or capital expenditure requirements after giving effect to the
Company's transfers to or from Lucent of its cash flows from operations.
INTEREST EXPENSE
The Company's combined financial statements include interest expense
totaling $90, $94 and $59 in 1999, 1998 and 1997, respectively. The interest
rates used equate to an estimate of what the Company believes it would obtain
with a "BBB" rating, the assumed credit rating of the Company subsequent to the
Distribution. The associated weighted average interest rate for each of the
respective years was 6.8%, 6.5% and 7.1%. Average debt balances utilized for the
interest expense calculation were $1,320, $1,439 and $825 in 1999, 1998 and
1997, respectively, and were determined based upon the cash flows for each of
the periods. In determining the debt balances it was assumed that the September
1997 purchase of Octel was entirely funded by debt. The debt balances utilized
to calculate interest expense do not necessarily reflect the level of debt the
Company will assume at the Distribution or incur as a stand-alone company. It is
anticipated that, upon the Distribution, the Company will assume public debt in
an amount appropriate for an investment grade company.
The Company believes these are reasonable estimates of the cost of
financing the Company's assets and operations in the past. However, the Company
may not be able to obtain financing at interest rates similar to those used for
the interest expense calculation. Accordingly, the Company's interest expense as
a stand-alone company may be higher than that reflected in the combined
financial statements.
PENSION AND POSTRETIREMENT COSTS
At the Distribution, the Company will assume responsibility for pension and
postretirement benefits for the active employees of the Company. Obligations
related to retired and terminated vested employees as of September 30, 2000 will
remain the responsibility of Lucent. Until the Distribution, the Company's
employees are participants in the Lucent employee benefit plans and, upon
retirement, will be participants in Lucent's postretirement benefit plans.
Lucent has managed its employee benefit plans on a consolidated basis and
separate Company information is not readily available. Therefore, the Company's
share of the Lucent plans' assets and liabilities is not included in the
Company's combined financial statements. For purposes of the financial
statements the pension and
F-8
132
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN MILLIONS)
postretirement costs were based on estimated plan assets being equal to a
proportional share of plan obligations incurred by Lucent for employees who
performed services for the Company.
INCOME TAXES
The Company's income taxes are calculated on a separate tax return basis.
However, Lucent was managing its tax position for the benefit of its entire
portfolio of businesses, and its tax strategies are not necessarily reflective
of the tax strategies that the Company would have followed or will follow as a
stand-alone entity.
INTERIM FINANCIAL INFORMATION (UNAUDITED)
The financial information as of June 30, 2000 and for the nine month
periods ending June 30, 2000 and 1999 is unaudited, but includes all
adjustments, consisting only of normal and recurring accruals, that management
considers necessary for a fair presentation of its combined results of
operations, financial position and cash flows. Results for the nine month period
ended June 30, 2000 are not necessarily indicative of results to be expected for
the full fiscal year 2000 or any other future period.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Combination
The combined financial statements include certain majority-owned
subsidiaries to be transferred in which the Company exercises control and in
some cases, assets, liabilities and operations not currently owned by the
Company that will be transferred from Lucent, including entities for which no
direct ownership relationship existed. Investments in which the Company
exercises significant influence, but which it does not control (generally a
20% - 50% ownership interest), are accounted for under the equity method of
accounting. All material intercompany transactions and balances between and
among the Company Businesses have been eliminated. Transactions between any of
the Company Businesses and Lucent are included in these financial statements.
Use of Estimates
The preparation of financial statements and related disclosures in
conformity with accounting principles generally accepted in the United States
("U.S.") requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, the disclosure of contingent assets
and liabilities at the date of the financial statements and revenue and expenses
during the period reported. These estimates include an allocation of costs by
Lucent, assessing the collectability of accounts receivable, the use and
recoverability of inventory, the realization of deferred tax assets and useful
lives for amortization periods of tangible and intangible assets, among others.
The markets for the Company's products are characterized by intense competition,
rapid technological development and frequent new product introduction, all of
which could impact the future realizability of the Company's assets. Actual
results could differ from those estimates.
Foreign Currency Translation
Balance sheet accounts of the Company's foreign operations are translated
from foreign currencies into U.S. dollars at period-end exchange rates while
income and expenses are translated at average exchange rates during the period.
Translation gains or losses related to net assets located outside the U.S. are
shown as a component of accumulated other comprehensive income (loss) in
invested equity. Gains and losses resulting from foreign currency transactions
(transactions denominated in a currency other than the entity's functional
currency) are included in the combined statements of income.
F-9
133
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN MILLIONS)
Revenue Recognition
Revenue from sales of communications systems and software is recognized
when contractual obligations have been satisfied, title and risk of loss has
been transferred to the customer and collection of the resulting receivable is
reasonably assured. Revenue from the direct sales of products with installation
services is recognized at the time the products are installed, after
satisfaction of all the terms and conditions of the underlying customer
contract. The Company's indirect sales to distribution partners are recognized
at the time of shipment if all contractual obligations have been satisfied. For
the Company's value-added services, professional services and services performed
under maintenance contracts, the Company recognizes revenue ratably over the
term of the underlying customer contract or at the end of the contract, when
obligations have been satisfied. For services performed on a time and materials
basis, revenue is recognized upon performance. The Company accrues a provision
for estimated sales returns and other allowances as a reduction of revenue at
the time of revenue recognition, as required.
Research and Development Costs and Software Development Costs
Research and development costs are charged to expense as incurred. This
line item includes an allocation from Lucent for the costs of basic research
conducted by Bell Laboratories (see note 1). The costs incurred for the
development of computer software that will be sold, leased or otherwise
marketed, however, are capitalized when technological feasibility has been
established. These capitalized costs are subject to an ongoing assessment of
recoverability based on anticipated future revenues and changes in hardware and
software technologies. Costs that are capitalized include direct labor and
related overhead.
Amortization of capitalized software development costs begins when the
product is available for general release. Amortization is recognized on a
product-by-product basis on the greater of either the sales ratio method or the
straight-line method over the products' estimated useful lives. Unamortized
capitalized software development costs determined to be in excess of net
realizable value of the product are expensed immediately.
Cash and Cash Equivalents
Cash and cash equivalents represent amounts held by the Company's foreign
operations (see Note 1). All highly liquid investments with original maturities
of three months or less are considered to be cash equivalents.
Inventories
Inventories are stated at the lower of cost, determined on a first-in,
first-out basis, or market.
Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated
depreciation. Depreciation is determined using a straight-line method on either
the unit or group method over the estimated useful lives of the various asset
classes. The unit method is used for manufacturing and laboratory equipment and
large computer systems. The group method is used for other depreciable assets.
Estimated lives range from three to ten years for machinery, electronic and
other equipment, and thirty years for buildings.
Major renewals and improvements are capitalized and minor replacements,
maintenance and repairs are charged to current operations as incurred. Upon
retirement or disposal of assets, the cost and related accumulated depreciation
are removed from the combined balance sheets and any gain or loss is reflected
in the combined statements of income.
F-10
134
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN MILLIONS)
Internal Use Software
The Company adopted Statement of Position 98-1, "Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use" on October 1, 1999.
Certain costs of computer software developed or obtained for internal use, that
were previously expensed as incurred, are capitalized and amortized on a
straight-line basis over three years. Costs for general and administrative,
overhead, maintenance and training, as well as the cost of software that does
not add functionality to the existing system, are expensed as incurred. As of
June 30, 2000, the Company has unamortized internal use software costs of $42.
Goodwill and Long-Lived Assets
Goodwill is the excess of the purchase price over the fair value of
identifiable net assets acquired in business combinations accounted for as
purchases. Goodwill is amortized on a straight-line basis over the periods
benefited. Long-lived assets and goodwill are reviewed for impairment whenever
events such as asset impairments, product discontinuance, plant closures,
product dispositions or other changes in circumstances indicate that the
carrying amount may not be recoverable. In reviewing for impairment, the Company
compares the carrying value of such assets to the estimated undiscounted future
cash flows expected from the use of the asset and its eventual disposition. An
impairment loss, equal to the difference between the assets fair value and its
carrying value, is recognized when the estimated future cash flows are less than
its carrying amount.
Financial Instruments
The Company uses various financial instruments, including foreign currency
exchange contracts, to manage and reduce risk to the Company by generating cash
flows which offset the cash flows of certain transactions in foreign currencies
or underlying financial instruments in relation to their amount and timing. The
Company's derivative financial instruments are used as risk management tools and
are not for trading purposes. The Company's non-derivative financial instruments
include letters of credit and commitments to extend credit.
Income Taxes
Historically, the Company's operations have been included in Lucent's
consolidated income tax returns. Income tax expense in the Company's combined
financial statements has been calculated on a separate tax return basis. The
asset and liability approach is used to recognize deferred tax assets and
liabilities for the expected future tax consequences of temporary differences
between the carrying amounts and the tax bases of assets and liabilities.
Other Comprehensive Income
Comprehensive income includes, in addition to net income, unrealized gains
and losses excluded from the combined statements of income and are recorded
directly into a separate section of invested equity on the combined balance
sheet. These unrealized gains and losses are referred to as other comprehensive
income items. The Company's accumulated other comprehensive income (loss) shown
on the combined balance sheet consists solely of foreign currency translation
adjustments which are not adjusted for income taxes since they relate to
indefinite investments in non-U.S. subsidiaries.
F-11
135
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN MILLIONS)
3. ACQUISITIONS, DIVESTITURES AND OTHER TRANSACTIONS
Acquisitions
PURCHASE METHOD
The following table presents information about certain acquisitions by the
Company in the fiscal years ended September 30, 1998, and 1997. There were no
material acquisitions accounted for under the purchase method in the fiscal year
1999. These acquisitions were accounted for under the purchase method of
accounting, and the acquired technology valuation included both existing
technology and purchased in-process research and development. The combined
financial statements include the results of operations and the estimated fair
values of the assets and liabilities assumed from the respective dates of
acquisition. All charges related to the write-off of purchased in-process
research and development were recorded in the quarter in which the transaction
was completed.
<TABLE>
<CAPTION>
AMORTIZATION AMORTIZATION
PURCHASED PERIOD PERIOD
ACQUISITION PURCHASE EXISTING IPR&D GOODWILL EXISTING TECH.
DATE PRICE GOODWILL TECHNOLOGY (NONDEDUCTIBLE) (IN YEARS) (IN YEARS)
----------- -------- -------- ---------- --------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C>
1998
Lannet(1)............ 8/98 $115 $ 2 $15 $ 67 7 5
SDX(2)............... 7/98 $207 $96 $16 $ 82 10 5
Prominet(3).......... 1/98 $199 $35 $23 $157 5 6
1997
Octel(4)............. 9/97 $724 $74 $57 $393 7 5
Agile(5)............. 10/96 $135 $52 $ 2 $ 79 5 2
</TABLE>
---------------
(1) Acquisition of Lannet Ltd., an Israeli-based producer of multi-service
networking products. The purchase price of $115 was in cash.
(2) Acquisition of SDX Business Systems PLC, a United Kingdom-based provider of
multi-service networking products. The purchase price of $207 was in cash.
(3) Acquisition of Prominet Corporation, a producer of multi-service networking
products. The purchase price was $199 of Lucent common stock. In addition,
under the terms of the acquisition agreement, Lucent had a contingent
obligation to pay former Prominet shareowners $35 in Lucent stock. The $35
of Lucent stock was paid in July 1998 and was recorded primarily as
goodwill.
(4) Acquisition of Octel Communications Corporation, a provider of voice, fax
and electronic messaging technologies to service providers and enterprises.
The total purchase price was $1,819, in cash, and the enterprise portion of
that business, along with $724 of the purchase price was allocated to the
Company.
(5) Acquisition of Agile Networks, Inc., a provider of multi-service networking
products. The purchase price of $135 was in cash. In 1999, the net goodwill
of $26 was deemed impaired and written off.
Included in the purchase price for each of the above acquisitions was
purchased in-process research and development. As some of the technology had not
reached technological feasibility and had no future alternative use, it was
written off as a non-tax-deductible charge to earnings immediately upon
consummation of the respective acquisition. The remaining purchase price was
allocated to tangible assets and intangible assets, including goodwill and
existing technology, less liabilities assumed.
The value allocated to purchased in-process research and development was
determined utilizing an income approach that included an excess earnings
analysis reflecting the appropriate cost of capital for the investment.
Estimates of future cash flows related to the purchased in-process research and
development were made for each project based on the Company's estimates of
revenue, operating expenses and income
F-12
136
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN MILLIONS)
taxes from the project. These estimates were consistent with historical pricing,
margins and expense levels for similar products.
Revenue was estimated based on relevant market size and growth factors,
expected industry trends, individual product sales cycles and the estimated life
of each product's underlying technology. Estimated operating expenses, income
taxes, and charges for the use of contributory assets were deducted from
estimated revenue to determine estimated after-tax cash flows for each project.
Estimated operating expenses include cost of goods sold; selling, general and
administrative expenses; and research and development expenses. The research and
development expenses include estimated costs to maintain the products once they
have been introduced into the market and generate revenue and costs to complete
the purchased in-process research and development.
The rates utilized to discount the projected cash flows were based on
consideration of Lucent's weighted average cost of capital, as well as other
factors including the useful life of each project, the anticipated profitability
of each project, the uncertainty of technology advances that were known at the
time and the stage of completion of each project.
Lucent's management was primarily responsible for estimating the fair value
of the assets and liabilities acquired, and conducted due diligence in
determining the fair value. Lucent made estimates and assumptions that affect
the reported amounts of assets, liabilities and expenses resulting from such
acquisitions. The Company believes these estimates and allocations are
reasonable.
POOLING OF INTERESTS MERGER
On July 15, 1999, the Company completed its merger with Mosaix, a provider
of software that manages an enterprise's various office functions and helps them
deliver more responsive and efficient customer service. Under the terms of the
agreement, the outstanding common stock of Mosaix was converted into
approximately 2.6 million shares of Lucent common stock with a value of $145.
The financial position and results of operations of Mosaix were immaterial to
the Company and as such the combined financial statements include the results of
operations and the historical basis of the assets acquired and liabilities
assumed from the date of acquisition.
Divestitures
On March 31, 2000, the Company completed the sale of its U.S. sales
division that served small and mid-sized businesses to Expanets, Inc.
("Expanets"). Under the agreement, approximately 1,800 of the Company's sales
and sales support employees were transferred to Expanets. Expanets became a
distributor of the Company's product to this market and a significant customer
of the Company. A gain of $45 was recognized to the extent of cash proceeds
received related to the sale of this business.
Other Transactions
In 1999, the Company sold equipment, which was previously rented to
customers, for $97. The equipment had a net book value of approximately $2 and
consisted predominantly of discontinued product lines. The rental income
generated by this equipment for the fiscal year 1999, 1998 and 1997 was $79, $91
and $116, respectively.
4. RECENT PRONOUNCEMENTS
SFAS 133
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging
F-13
137
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN MILLIONS)
Activities" ("SFAS 133"). SFAS 133 establishes new accounting and reporting
standards for derivative financial instruments and for hedging activities. SFAS
133 requires the Company to measure all derivatives at fair value and to
recognize them in the balance sheet as an asset or liability, depending on the
Company's rights or obligations under the applicable derivative contract.
Subsequent to the issuance of SFAS 133, the FASB has received many requests to
clarify certain issues causing difficulties in implementation. In June 2000, the
FASB issued SFAS 138 which responds to those requests by amending certain
provisions of SFAS 133. These amendments include allowing foreign-currency
denominated assets and liabilities to qualify for hedge accounting, permitting
the offsetting of selected inter-entity foreign currency exposures that reduce
the need for third party derivatives and redefining the nature of interest rate
risk to avoid sources of ineffectiveness. The Company expects to adopt SFAS 133
and the corresponding amendments of SFAS 138 in the first quarter of fiscal year
2001. SFAS 133, as amended by SFAS 138, is not expected to have a material
impact on the Company's combined results of operations, financial position and
cash flows.
SAB 101
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin 101, "Revenue Recognition in Financial Statements" ("SAB
101"). SAB 101 provides guidance on the recognition, presentation and disclosure
of revenue in financial statements and requires adoption no later than the
fourth quarter of the Company's fiscal 2001. The Company is currently evaluating
the impact of SAB 101 to determine what effect, if any, it may have on the
Company's combined financial position and results of operations.
5. SUPPLEMENTARY FINANCIAL INFORMATION
SUPPLEMENTARY INCOME STATEMENT INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
----------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
INCLUDED IN COSTS
Amortization of software development costs.......... $ 14 $ 24 $51
INCLUDED IN SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES
Amortization of goodwill and existing technology.... $ 59 $ 45 $13
INCLUDED IN COSTS AND OPERATING EXPENSES
Depreciation and amortization of property, plant and
equipment......................................... $139 $124 $94
OTHER INCOME -- NET
Gain on foreign currency transactions............... $ -- $ 7 $--
Gain on sale or disposal of property, plant and
equipment......................................... -- 4 5
Gain on businesses sold............................. 24 -- --
Miscellaneous -- net................................ 4 14 12
---- ---- ---
Total other income -- net........................... $ 28 $ 25 $17
==== ==== ===
</TABLE>
F-14
138
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN MILLIONS)
SUPPLEMENTARY BALANCE SHEET INFORMATION
<TABLE>
<CAPTION>
SEPTEMBER 30,
JUNE 30, ----------------
2000 1999 1998
----------- ------ ------
(UNAUDITED)
<S> <C> <C> <C>
INVENTORIES
Completed goods....................................... $ 504 $ 577 $ 625
Work in process and raw materials..................... 232 247 282
------ ------ ------
Inventories........................................... $ 736 $ 824 $ 907
====== ====== ======
PROPERTY, PLANT AND EQUIPMENT -- NET
Land and improvements................................. $ 47 $ 35 $ 37
Buildings and improvements............................ 419 366 302
Machinery, electronic and other equipment............. 1,015 979 904
------ ------ ------
Total property, plant and equipment................... 1,481 1,380 1,243
Less: Accumulated depreciation and amortization....... (754) (704) (630)
------ ------ ------
Property, plant and equipment -- net.................. $ 727 $ 676 $ 613
====== ====== ======
</TABLE>
SUPPLEMENTARY CASH FLOW INFORMATION
Payments for interest and income taxes historically have been paid by
Lucent on behalf of the Company and do not necessarily reflect what the Company
would have paid had it been a stand-alone company. The interest and income tax
expense amounts shown in the combined statements of income have been calculated
based on management's estimate of what the Company may have incurred had it been
a separate company.
Net transfers (to) from Lucent include the following noncash transactions:
(1) a $96 decrease in owner's net investment for a change in accounting related
to pension and postretirement benefit costs reflected in the nine months ended
June 30, 1999 and fiscal year ended September 30, 1999, (2) an $82 increase in
owner's net investment attributed to the Mosaix pooling of interests merger in
the fiscal year ended September 30, 1999, and (3) a $199 increase in owner's net
investment to reflect the Prominet acquisition that was purchased with Lucent
common stock in the fiscal year ended September 30, 1998.
ACQUISITIONS OF BUSINESSES
Shown below is the impact on cash flows related to the acquisition of
businesses (excluding Prominet which was a non-cash transaction in 1998):
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
-------------
1998 1997
----- -----
<S> <C> <C>
Fair value of assets acquired, net of cash acquired..... $ 353 $ 966
Less: Fair value of liabilities assumed................. (105) (132)
----- -----
Acquisitions of businesses, net of cash acquired........ $ 248 $ 834
===== =====
</TABLE>
6. BUSINESS RESTRUCTURING
In December 1995, a pre-tax charge of $146 was recorded to cover
restructuring costs. The restructuring plans included the exit of certain
businesses as well as consolidating business unit operations.
F-15
139
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN MILLIONS)
Total deductions to the Company's business restructuring reserves were $49
and $37 for the years ended September 30, 1999 and 1998, respectively, and
related to employee separation costs. Included in these deductions were cash
payments of $16 and $14 for the years ended September 30, 1999 and 1998,
respectively. In addition, the Company reversed $33 and $23 of business
restructuring reserves primarily related to favorable experience in employee
separations for the years ended September 30, 1999 and 1998, respectively. As of
September 30, 1999, all restructuring plans were complete and no reserves
remain.
7. INCOME TAXES
Income tax expense in the Company's combined financial statements has been
calculated on a separate tax return basis. The following table presents the
principal reasons for the difference between the effective tax rate and the U.S.
federal statutory income tax rate:
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
---------------------
1999 1998 1997
---- ---- -----
<S> <C> <C> <C>
U.S. federal statutory income tax rate...................... 35.0% 35.0% 35.0%
State and local income taxes, net of federal income tax
effect.................................................... 4.2 3.5 4.2
Foreign earnings and dividends taxed at different rates..... 5.0 (1.1) 2.0
Research credits............................................ (3.7) (2.1) (1.0)
Purchased in-process research and development............... -- 45.9 239.2
Other differences -- net.................................... (1.1) 0.9 1.1
---- ---- -----
Effective income tax rate................................... 39.4% 82.1% 280.5%
==== ==== =====
Effective income tax rate excluding purchased in-process
research and development.................................. 39.4% 36.2% 41.3%
</TABLE>
The following table presents the U.S. and foreign components of income
before income taxes and the provision for income taxes:
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
--------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
INCOME BEFORE INCOME TAXES
U.S......................................................... $173 $102 $ 39
Foreign..................................................... 134 138 43
---- ---- ----
Income before income taxes.................................. $307 $240 $ 82
==== ==== ====
PROVISION FOR INCOME TAXES
CURRENT
Federal..................................................... $ 45 $117 $127
State and local............................................. 19 31 39
Foreign..................................................... 59 30 25
---- ---- ----
Sub-total................................................... 123 178 191
---- ---- ----
DEFERRED
Federal..................................................... (3) 20 42
State and local............................................. 1 (1) (3)
---- ---- ----
Sub-total................................................... (2) 19 39
---- ---- ----
Provision for income taxes.................................. $121 $197 $230
==== ==== ====
</TABLE>
F-16
140
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN MILLIONS)
The asset and liability approach is used to recognize deferred tax assets
and liabilities for the expected future tax consequences of temporary
differences between the carrying amounts and the tax bases of assets and
liabilities. The components of deferred tax assets and liabilities at September
30, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------
1999 1998
----- -----
<S> <C> <C>
DEFERRED INCOME TAX ASSETS
Benefit obligations......................................... $214 $122
Accrued liabilities......................................... 176 229
Net operating loss/credit carryforwards..................... 77 61
Valuation allowance......................................... (73) (48)
Other....................................................... 4 --
---- ----
Total deferred tax assets................................... $398 $364
==== ====
DEFERRED INCOME TAX LIABILITIES
Property, plant and equipment............................... $ 41 $ 23
Other....................................................... 49 45
---- ----
Total deferred tax liabilities.............................. $ 90 $ 68
==== ====
</TABLE>
As of September 30, 1999, the Company had tax credit carryforwards of $18
and federal, state and local foreign net operating loss carryforwards (tax
effected) of $59. Tax credit carryforwards begin to expire in the year 2003.
Federal and state net operating losses begin to expire in the year 2005 while
the majority of foreign net operating losses can be carried forward
indefinitely.
The valuation allowance has been established for deferred tax assets
primarily related to state tax credit carryforwards and foreign net operating
loss carryforwards for which management believes it is more likely than not such
deferred tax assets will not be realized.
The Company has not provided for U.S. deferred income taxes or foreign
withholding taxes on $221 of undistributed earnings of its operations outside
the U.S. as of September 30, 1999, since these earnings are intended to be
reinvested indefinitely.
8. BENEFIT OBLIGATIONS
Pension and Postretirement Benefits
At the Distribution, the Company will assume responsibility for pension and
postretirement benefit obligations for the active employees of the Company.
Obligations related to retired and terminated vested employees as of September
30, 2000 will remain the responsibility of Lucent. Until the Distribution, the
Company's employees will be participants in the Lucent pension plans and, upon
retirement, will be participants in Lucent's postretirement benefit plans.
Lucent has managed its employee benefit plans on a consolidated basis,
therefore, the Lucent plans' assets and liabilities are not included in the
Company's combined financial statements.
The pension and postretirement costs incurred by Lucent for employees who
performed services for the Company were based on estimated plan assets being
equal to a proportional share of plan obligations incurred by Lucent for
employees who performed services for the Company. In relation to the Lucent
plans, the Company recorded pension expense of $97, $70 and $84, and
postretirement benefit expense of $62, $49 and $49 in 1999, 1998 and 1997,
respectively. In connection with the Distribution, the Company will receive the
assets and liabilities of various existing Lucent pension and other employee
benefit plans related to the employees for whom the Company is assuming
responsibility.
F-17
141
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN MILLIONS)
Effective October 1, 1998, Lucent changed its method for calculating the
market-related value of plan assets used in determining the expected
return-on-asset component of annual net pension and postretirement benefit
costs. Under the previous accounting method, the calculation of the
market-related value of plan assets included only interest and dividends
immediately, while all other realized and unrealized gains and losses were
amortized on a straight-line basis over a five-year period. The new method used
to calculate market-related value includes recognizing immediately an amount
based on Lucent's historical asset returns and amortizes the difference between
that amount and the actual return on a straight-line basis over a five-year
period. The new method is preferable under SFAS No. 87 because it results in
calculated plan asset values that are closer to current fair value, thereby
lessening the accumulation of unrecognized gains and losses while still
mitigating the effects of annual market value fluctuations.
The cumulative effect of this accounting change for the Company related to
periods prior to fiscal year 1999 of $158 ($96 after-tax) is a one-time,
non-cash credit to fiscal 1999 earnings. This accounting change also resulted in
a reduction in benefit costs in the fiscal year ended September 30, 1999 that
increased income by $30 ($18 after-tax) as compared with the previous accounting
method. The pro forma estimated effect if the accounting change were applied
retroactively would be an increase to pre-tax income of $28 and $25 for 1998 and
1997, respectively.
The information that follows relates to Lucent's employee benefit plans.
The following table shows the funded status of Lucent's defined benefit and
postretirement plans:
<TABLE>
<CAPTION>
PENSION POSTRETIREMENT
BENEFITS BENEFITS
SEPTEMBER 30, SEPTEMBER 30,
------------------ ------------------
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at October 1............. $27,846 $23,187 $ 9,193 $ 7,939
Service cost................................ 509 331 80 63
Interest cost............................... 1,671 1,631 537 540
Actuarial (losses) gains.................... (2,182) 3,811 (240) 919
Amendments.................................. 1,534 626 (359) 324
Benefits paid............................... (1,977) (1,740) (607) (592)
------- ------- ------- -------
Benefit obligation at September 30.......... $27,401 $27,846 $ 8,604 $ 9,193
------- ------- ------- -------
CHANGE IN PLAN ASSETS
Fair value of plan assets at October 1...... $36,191 $36,204 $ 3,959 $ 4,152
Actual return on plan assets................ 7,114 1,914 776 349
Lucent contributions........................ 14 12 29 53
Benefits paid............................... (1,977) (1,740) (607) (592)
Other (including transfer of assets from
pension to postretirement plans).......... (275) (199) 310 (3)
------- ------- ------- -------
Fair value of plan assets at September 30... $41,067 $36,191 $ 4,467 $ 3,959
------- ------- ------- -------
FUNDED (UNFUNDED) STATUS OF THE PLAN........ $13,666 $ 8,345 $(4,137) $(5,234)
Unrecognized prior service cost............. 2,583 1,509 121 533
Unrecognized transition asset............... (645) (944) -- --
Unrecognized net gain....................... (9,466) (5,175) (1,014) (408)
------- ------- ------- -------
NET AMOUNT RECOGNIZED....................... $ 6,138 $ 3,735 $(5,030) $(5,109)
</TABLE>
F-18
142
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
PENSION POSTRETIREMENT
BENEFITS BENEFITS
SEPTEMBER 30, SEPTEMBER 30,
------------------ ------------------
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
======= ======= ======= =======
Amounts recognized in the Lucent
consolidated balance sheets consist of:
Prepaid pension costs....................... $ 6,175 $ 3,754 $ -- $ --
Accrued benefit liability................... (63) (44) (5,030) (5,109)
Intangible asset............................ 9 4 -- --
Accumulated other comprehensive income...... 17 21 -- --
------- ------- ------- -------
Net amount recognized....................... $ 6,138 $ 3,735 $(5,030) $(5,109)
======= ======= ======= =======
</TABLE>
Pension plan assets include $287 and $159 of Lucent common stock at
September 30, 1999 and 1998, respectively. Postretirement plan assets include
$20 and $11 of Lucent common stock at September 30, 1999 and 1998, respectively.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
PENSION AND POSTRETIREMENT BENEFITS WEIGHTED-AVERAGE
ASSUMPTIONS
Discount rate.............................................. 7.25% 6.0% 7.25%
Expected return on plan assets............................. 9.0% 9.0% 9.0%
Rate of compensation increase.............................. 4.5% 4.5% 4.5%
</TABLE>
Lucent has several non-pension postretirement benefit plans. For
postretirement health care benefit plans, Lucent assumed a 9.2% annual health
care cost trend rate for 2000, gradually declining to 3.9% by the year 2005,
after which the trend rate would remain at that level. The assumed health care
cost trend rate has a significant effect on the amounts reported. A
one-percentage-point change in the assumed Lucent health care cost trend rate
would have the following effects:
<TABLE>
<CAPTION>
1 PERCENTAGE POINT
--------------------
INCREASE DECREASE
-------- --------
<S> <C> <C>
Effect on total of service and interest cost components... $ 23 $ 20
Effect on postretirement benefit obligation............... $371 $344
</TABLE>
Savings Plans
The majority of the Company's employees are eligible to participate in
savings plans sponsored by Lucent. The plans allow employees to contribute a
portion of their compensation on a pre-tax and/or after-tax basis in accordance
with specified guidelines. Lucent matches a percentage of employee contributions
up to certain limits. The Company's expense related to the Lucent savings plans
was $68, $64, and $35 in 1999, 1998 and 1997, respectively. The Company expects
to establish similar plans following the Distribution.
9. STOCK COMPENSATION PLANS
During 1999, 1998 and in prior years, certain employees of the Company were
granted stock options and other equity-based awards under Lucent's stock-based
compensation plans. During 1999, 1998 and 1997, the Company's employees were
also eligible to participate in the Lucent Employee Stock Purchase Plan
("ESPP"). At the time of the Distribution, unvested awards outstanding under
Lucent's stock plans that are held by Lucent employees who transfer to the
Company will be converted to awards to acquire stock of the Company. Vested
Lucent stock options will remain options to acquire Lucent common stock,
F-19
143
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN MILLIONS)
subject to adjustments as described below. The Company will initiate its own
employee stock purchase plan at the time of the Distribution.
The stock options and other awards as converted or adjusted will have the
same vesting provisions, option periods, and other terms and conditions as the
Lucent options and awards they replaced. The number of shares and exercise price
of each stock option will be adjusted so that each option, whether a Lucent
option or a Company option, will have the same ratio of the exercise price per
share to the market value per share, and the same aggregate difference between
market value and exercise price (intrinsic value), as the Lucent stock options
prior to the Distribution. No new measurement date is expected to occur upon
conversion of the stock options.
Stock options generally are granted with an exercise price equal to 100% of
the market value of a share of common stock on the date of grant, have a
ten-year term and vest within four years from the date of grant.
In connection with certain of the Company's acquisitions, outstanding stock
options held by employees of acquired companies became exercisable, according to
their terms, for Lucent's common stock effective at the acquisition date. For
acquisitions accounted for as purchases, the fair value of these options was
included as part of the purchase price.
Under the terms of Lucent's ESPP, eligible employees may have up to 10% of
eligible compensation deducted from their pay to purchase common stock through
June 30, 2001. The per share purchase price is 85% of the average high and low
per share trading price of Lucent common stock on the New York Stock Exchange on
the last trading day of each month. In 1999, 1998 and 1997, 1.2 million, 1.6
million and 2.1 million Lucent shares, respectively, were purchased under the
ESPP, at a weighted average price of $47.02, $24.49 and $12.65, respectively.
Lucent has adopted the disclosure requirements of SFAS No. 123, "Accounting
for Stock-Based Compensation" and, as permitted under SFAS No. 123, applies
Accounting Principles Board Opinion ("APB") No. 25 and related interpretations
in accounting for its plans. Compensation expense recorded under APB No. 25,
which uses the intrinsic value method, was $14, $4 and $2 for the years ended
September 30, 1999, 1998 and 1997, respectively. If Lucent had elected to adopt
the optional recognition provisions of SFAS No. 123, which uses the fair
value-based method, for its stock option plans and employee stock purchase plan,
net income for the Company would have been changed to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------
1999 1998 1997
----- ----- ------
<S> <C> <C> <C>
NET INCOME
As reported................................................. $282 $43 $(148)
Pro forma................................................... $231 $16 $(162)
</TABLE>
The fair value of stock options used to compute pro forma net income
disclosures is the estimated fair value at grant date using the Black-Scholes
option-pricing model with the following assumptions:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
WEIGHTED AVERAGE ASSUMPTIONS
Dividend yield.............................................. 0.13% 0.23% 0.65%
Expected volatility......................................... 34.1% 29.3% 22.4%
Risk free interest rate..................................... 5.3% 5.2% 6.4%
Expected holding period (in years).......................... 3.8 5.0 5.0
</TABLE>
F-20
144
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN MILLIONS)
Presented below is a summary of the status of the Lucent stock options held
by employees for whom the Company estimates it will assume responsibility, and
the related transactions for the years ended September 30, 1999, 1998 and 1997.
The stock option activity is not necessarily indicative of what the activity
would have been had the Company been a separate stand-alone entity during the
periods presented or what the activity may be in the future.
<TABLE>
<CAPTION>
SHARES WEIGHTED AVERAGE
(000'S) EXERCISE PRICE
------- ----------------
<S> <C> <C>
OPTIONS OUTSTANDING AT OCTOBER 1, 1996...................... 2,197 $10.92
Granted/Assumed*(1)......................................... 13,709 11.30
Exercised................................................... (124) 7.60
Forfeited/Expired........................................... (8) 11.17
------
OPTIONS OUTSTANDING AT SEPTEMBER 30, 1997................... 15,774 11.27
Granted/Assumed*(2)......................................... 12,665 31.65
Exercised................................................... (1,278) 7.73
Forfeited/Expired........................................... (95) 6.10
------
OPTIONS OUTSTANDING AT SEPTEMBER 30, 1998................... 27,066 20.99
Granted/Assumed............................................. 6,814 49.81
Exercised................................................... (2,246) 11.44
Forfeited/Expired........................................... (33) 36.86
------
OPTIONS OUTSTANDING AT SEPTEMBER 30, 1999................... 31,601 27.87
======
</TABLE>
---------------
* Includes options converted in acquisitions.
(1) Includes options covering 7,713 shares of common stock granted under a
broad-based employee plan at a weighted average exercise price of $11.15.
(2) Includes options covering 5,843 shares of common stock granted under a
broad-based employee plan at a weighted average exercise price of $37.34.
The weighted average fair value of the Company's stock options, calculated
using the Black-Scholes option-pricing model, granted during the years ended
September 30, 1999, 1998 and 1997 is $19.21, $12.35 and $3.56 per share,
respectively.
F-21
145
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN MILLIONS)
The following table summarizes the status of stock options outstanding and
exercisable at September 30, 1999:
<TABLE>
<CAPTION>
STOCK OPTIONS STOCK OPTIONS
OUTSTANDING EXERCISABLE
---------------------------------- -------------------
WEIGHTED
AVERAGE
REMAINING WEIGHTED WEIGHTED
CONTRACTUAL AVERAGE AVERAGE
SHARES LIFE EXERCISE SHARES EXERCISE
RANGE OF EXERCISE PRICES (000'S) (YEARS) PRICE (000'S) PRICE
------------------------ ------- ----------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
$ 0.01 to $ 11.14................. 10,352 6.6 $10.53 2,146 $ 9.28
$11.15 to $ 23.07................. 5,528 7.2 17.14 934 14.60
$23.08 to $ 29.09................. 269 8.4 27.26 22 27.22
$29.10 to $ 40.87................. 9,068 9.0 35.88 211 35.34
$40.88 to $ 61.78................. 4,357 9.1 48.83 141 46.69
$61.79 to $102.48................. 2,027 9.8 64.92 19 72.47
------ -----
Total............................. 31,601 27.87 3,473 14.27
====== =====
</TABLE>
Other stock unit awards are granted under certain award plans. The
following table presents the total number of shares of common stock represented
by awards granted to Company employees:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Other stock unit awards granted (000's).................. 10 164 711
Weighted average market value of shares granted during
the period............................................. $47.73 $24.98 $11.19
</TABLE>
10. OPERATING SEGMENTS
The Company reports its operations in three segments: Communications
Solutions, Services and Connectivity Solutions. The Communications Solutions
segment represents the Company's core business, comprised of enterprise voice
communications systems and software, communications applications, professional
services for customer and enterprise relationship management, multi-service
networking products and product installation services. The purchase prices of
the Company's products typically include installation costs. The Connectivity
Solutions segment represents structured cabling systems and electronic cabinets.
The Services segment represents maintenance and value-added services.
Each segment is managed separately as each operation requires different
technologies and marketing strategies. Intersegment transactions that occur are
based on current market prices and all intersegment profit is eliminated in
consolidation. Disclosure of segment information is on the same basis used
internally for evaluating segment performance and for deciding how to allocate
resources.
The Company has centralized corporate functions and uses shared service
arrangements to realize economies of scale and efficient use of resources. The
costs of shared services, and other corporate center operations managed on a
common basis, are allocated to the segments based on usage, where possible, or
other factors based on the nature of the activity. The accounting policies of
the reportable operating segments are the same as those described in the Summary
of Significant Accounting Policies (see Note 2).
Performance measurement and resource allocation for the reportable
operating segments are based on many factors. The primary financial measure used
is operating income, exclusive of corporate operations including goodwill and
existing technology amortization, and of purchased in-process research and
development and other costs from business acquisitions (acquisition or
integration-related costs).
F-22
146
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN MILLIONS)
Reportable Segments
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
JUNE 30, SEPTEMBER 30,
------------------ --------------------------
2000 1999 1999 1998 1997
------- ------- ------ ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Communications Solutions:
External revenue............................ $3,255 $3,529 $5,088 $4,583 $3,721
Intersegment revenue........................ 9 24 24 -- 2
Total Revenue....................... 3,264 3,553 5,112 4,583 3,723
Operating income (loss)..................... 54 (72) 81 115 166
Assets...................................... 1,829 2,181 2,204 2,274 1,964
Capital expenditures........................ 70 49 64 86 77
Depreciation and amortization............... 59 64 85 88 91
Services:
External revenue............................ $1,452 $1,396 $1,900 $1,750 $1,523
Intersegment revenue........................ -- -- -- -- --
Total Revenue....................... 1,452 1,396 1,900 1,750 1,523
Operating income............................ 178 137 199 300 330
Assets...................................... 585 664 599 695 491
Capital expenditures........................ 30 16 20 21 32
Depreciation and amortization............... 18 17 23 19 17
Connectivity Solutions:
External revenue............................ $ 955 $ 940 $1,274 $1,408 $1,158
Intersegment revenue........................ 1 8 8 -- --
Total Revenue....................... 956 948 1,282 1,408 1,158
Operating income............................ 93 103 111 224 113
Assets...................................... 782 793 707 677 509
Capital expenditures........................ 16 37 51 70 66
Depreciation and amortization............... 30 31 37 30 26
</TABLE>
F-23
147
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN MILLIONS)
Reconciling Items
A reconciliation of the totals reported for the operating segments to the
significant line items in the combined financial statements is as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
JUNE 30, SEPTEMBER 30,
------------------ --------------------------
2000 1999 1999 1998 1997
------- ------- ------ ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
EXTERNAL REVENUE
Total reportable segments........... $5,662 $5,865 $8,262 $7,741 $6,402
Corporate and other................. 2 5 6 13 11
------ ------ ------ ------ ------
Total External Revenue.............. $5,664 $5,870 $8,268 $7,754 $6,413
====== ====== ====== ====== ======
OPERATING INCOME
Total reportable segments........... $ 325 $ 168 $ 391 $ 639 $ 609
Goodwill and existing technology
amortization..................... (43) (46) (59) (45) (13)
Purchased in-process research and
development...................... -- -- -- (306) (472)
Corporate and other................. -- 13 37 21 --
------ ------ ------ ------ ------
Total operating income (loss)....... $ 282 $ 135 $ 369 $ 309 $ 124
====== ====== ====== ====== ======
</TABLE>
The results of other smaller units and corporate operations are reported in
corporate and other. Assets included in corporate and other consist primarily of
items not specifically identifiable to the operating segments and principally
includes cash, deferred taxes and property, plant and equipment.
Geographic Information
<TABLE>
<CAPTION>
EXTERNAL REVENUE(1) LONG-LIVED ASSETS(2)
YEAR ENDED SEPTEMBER 30, SEPTEMBER 30,
-------------------------- --------------------
1999 1998 1997 1999 1998 1997
------ ------ ------ ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
U.S.............................. $6,683 $6,376 $5,343 $583 $532 $461
Foreign countries................ 1,585 1,378 1,070 93 81 74
------ ------ ------ ---- ---- ----
Totals......................... $8,268 $7,754 $6,413 $676 $613 $535
====== ====== ====== ==== ==== ====
</TABLE>
---------------
(1) Revenue is attributed to geographic areas based on the location of
customers.
(2) Represents property, plant and equipment (net).
Concentrations
For any period presented, no single customer accounts for more than 10% of
the Company's combined revenue. The Company is not aware of any significant
concentration of business transacted with a particular supplier that could, if
suddenly eliminated have a material adverse affect on the Company's operations.
While the Company believes that alternative sources would be available,
disruption of its primary source could create a temporary, adverse effect on
product shipments.
F-24
148
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN MILLIONS)
11. FINANCIAL INSTRUMENTS
Fair Value
The net carrying amounts and estimated fair values of the Company's foreign
currency forward exchange contracts and options were immaterial in 1999 and were
liabilities in 1998 of $8 and $6, respectively. Market quotes were used to
estimate the fair value of foreign currency forward exchange contracts/options.
The carrying amounts of cash and cash equivalents, investments and receivables
contained in the combined balance sheets approximate fair value.
Derivative Financial Instruments
The Company conducts its business on a multinational basis in a wide
variety of foreign currencies. Consequently, the Company enters into various
foreign exchange forward and option contracts to manage its exposure against
adverse changes in those foreign exchange rates. The notional amounts for
foreign exchange forward and option contracts represent the U.S. dollar
equivalent of an amount exchanged. Generally, foreign currency exchange
contracts are designated for firmly committed or forecasted sales and purchases
that are expected to occur in less than one year. Gains and losses on all hedged
contracts for firmly committed transactions and option contracts for anticipated
transactions are deferred in Other current assets and liabilities, are
recognized in income when the transactions occur, and are not material to the
combined financial statements at September 30, 1999, and 1998. All other gains
and losses on foreign currency exchange contracts are recognized in other
income-net as the exchange rates change.
The Company engages in foreign currency hedging activities to reduce the
risk that changes in exchange rates will adversely affect the eventual net cash
flows resulting from the sale of products to foreign customers and purchases
from foreign suppliers. The Company believes that it has achieved risk reduction
and hedge effectiveness, because the gains and losses on its derivative
instruments substantially offset the gains on the assets, liabilities and
transactions being hedged. Hedge effectiveness is periodically measured by
comparing the change in fair value of each hedged foreign currency exposure at
the applicable market rate with the change in market value of the corresponding
derivative instrument.
The notional amounts at September 30, 1999 and 1998 of the Company's
foreign exchange forward contracts were $93 and $211, respectively, and foreign
exchange option contracts were $52 and $21, respectively. In 1999, these
notional amounts principally represent contracts in Canadian dollars, British
pounds and Dutch guilders. Notional amounts represent the face amount of the
contractual arrangements and the basis on which U.S. dollars are to be exchanged
and are not a measure of market or credit exposure.
Non-Derivative and Off-Balance-Sheet Instruments
Requests for providing commitments to extend credit and financial
guarantees are reviewed and approved by senior management. Management regularly
reviews all outstanding commitments, letters of credit and financial guarantees,
and the results of these reviews are considered in assessing the adequacy of the
Company's reserve for possible credit and guarantee losses.
At September 30, 1999 and 1998, in management's opinion, there was no
significant risk of loss in the event of non-performance of the counterparties
to these financial instruments.
Letters of Credit
Letters of credit are purchased guarantees that ensure the Company's
performance or payment to third parties in accordance with specified terms and
conditions which amounted to approximately $20 as of September 30, 1999 and
1998.
F-25
149
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN MILLIONS)
12. TRANSACTIONS WITH LUCENT
For the years 1999, 1998 and 1997, the Company had $108, $90 and $97,
respectively, of revenue for products sold to Lucent. For the years 1999, 1998
and 1997, the Company had $189, $244 and $205, respectively, of products
purchased from Lucent.
In connection with the Contribution and Distribution, the Company and
Lucent are expected to execute and deliver the Contribution and Distribution
Agreement (the "Contribution and Distribution Agreement"), and certain related
agreements which are summarized below. This summary is qualified in all respects
by the terms of the Contribution and Distribution Agreement and such related
agreements.
Contribution and Distribution Agreement
Pursuant to the Contribution and Distribution Agreement, Lucent expects to
transfer to the Company substantially all of the assets, liabilities and
operations associated with the Company's Businesses. The Contribution and
Distribution Agreement, among other things, provides that the Company will
indemnify Lucent for all liabilities relating to the Company's Businesses and
for all contingent liabilities primarily relating to the Company's Businesses or
otherwise assigned to the Company. In addition, the Contribution and
Distribution Agreement provides that certain contingent liabilities not
allocated to one of the parties will be shared by Lucent and the Company in
proportion to the respective book value of their assets. The Contribution and
Distribution Agreement also provides that each party will share specified
portions of contingent liabilities based upon agreed percentages related to the
business of the other party that exceed $50 million.
Employee Benefits Agreement and Plans
The Company and Lucent are expected to enter into an Employee Benefits
Agreement, pursuant to which the Company will create independent pension and
other employee benefit plans that are substantially similar to Lucent's existing
pension and other employee benefit plans. This agreement will provide for the
transfer of assets and liabilities of various existing Lucent pension and other
employee benefit plans related to Lucent employees who are transferring to the
Company. Generally, following the Distribution, Lucent will cease to have any
liability or obligation to the Company's current employees and their
beneficiaries under any of Lucent's benefit plans, programs or practices. Under
the agreement, the Company will receive assets and liabilities of various
existing Lucent pension and other employee benefit plans related to the
employees for which the Company is assuming responsibility.
Federal, State and Local Tax Allocation Agreements
The Company and Lucent are expected to continue the existing State and
Local Income Tax Allocation Agreement and the existing Federal Tax Allocation
Agreement by and among Lucent and its subsidiaries. These tax agreements govern
the allocation of state, local and federal income taxes for periods prior to and
including the date of the Distribution.
Tax Sharing Agreement
The Company and Lucent are expected to enter into a Tax Sharing Agreement,
which will govern the Company's and Lucent's respective rights, responsibilities
and obligations after the Distribution with respect to taxes for the periods
ending on or before the Distribution. Generally, pre-Distribution taxes that are
clearly attributable to the business of one party will be borne solely by that
party, and other pre-Distribution taxes will be shared by the parties based on a
formula set forth in the Tax Sharing Agreement. In addition, the Tax Sharing
Agreement will address the allocation of liability for taxes that are incurred
as a result of restructuring activities undertaken to implement the
distribution. If the distribution fails to qualify as a tax-free distribution
under Section 355 of the Internal Revenue Code
F-26
150
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN MILLIONS)
because of an acquisition of our stock or assets, or some other actions of ours,
then we will be solely liable for any resulting corporate taxes.
Global Purchase and Service Agreement
The Company and Lucent are expected to enter into a Global Purchase and
Service Agreement under which the Company will provide to Lucent products for
internal use. These products include the Company's enterprise voice
communications products as well as multi-service networking products. The
agreement neither grants to the Company an exclusive right to provide Lucent any
or all of these products or services, nor does it require the procurement of
products or services from the Company by Lucent. The pricing terms of goods and
services covered by the Global Purchase and Service Agreement will reflect
negotiated prices.
General Sales Agreement and Microelectronics Product Purchase Agreement
The Company and Lucent are expected to enter into a General Sales Agreement
and a Microelectronic Product Purchase Agreement, which will govern transactions
pursuant to which Lucent will provide its products and services that are not
part of the business not being transferred to the Company. These agreements
neither grant to Lucent an exclusive right to provide the Company with any or
all products or services, nor require the procurement of products or services
from Lucent by the Company. The pricing terms of goods and services covered by
the General Sales Agreement and Microelectronics Product Purchase Agreement will
reflect negotiated prices.
Other Commercial Agreements
In addition to the above listed agreements, the Company and Lucent are
expected to enter into a number of other commercial agreements to govern resale,
subcontracting and original equipment manufacturing arrangements between Lucent
and the Company. The pricing terms of the products, and services covered by the
other commercial agreements will reflect negotiated prices.
Interim Services and Systems Replication Agreement
The Company and Lucent are expected to enter into an Interim Services and
Systems Replication Agreement to provide each other, on an interim, transitional
basis, with various data processing services, telecommunications services and
corporate support services, including: accounting, financial management,
information systems management, tax, payroll, legal, human resources
administration, procurement and other general support. Furthermore, under the
terms of this agreement, Lucent will provide the Company with technical support
for the Company's converged voice and data products for a specified period of
time. Specific charges for such services are generally intended to allow the
company providing services to recover direct costs plus expenses, without
profit.
The Interim Services and Systems Replication Agreement will also provide
for the replication and transfer of specified computer systems used for
administrative support or used in the Company's Businesses or Lucent's retained
businesses. The systems include specified hardware, software, data storage or
maintenance and support components. Costs and expenses of purchasing hardware or
obtaining software will be borne by the party purchasing the hardware or
licensing the software.
Real Estate Agreements
Lucent and the Company are expected to also enter into various leases and
sublease arrangements for the sharing of certain facilities for a transitional
period on commercial terms. In the case of owned real estate to be leased, the
lease terms will be either two or three years, except that a limited number of
leases may be terminated on 90 days' notice by the tenant. In the case of
subleases or sub-subleases of
F-27
151
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN MILLIONS)
property, the lease term will generally coincide with the remaining term of the
primary lease or sublease, respectively.
Trademark License Agreement
The Company and Lucent are expected to enter into a Trademark License
Agreement, pursuant to which the Company will have rights, on a royalty-free
basis, to continue to use the Lucent brand for specified transition periods
following the Distribution.
Patent Assignment
Pursuant to the Patent Assignment, Lucent and its subsidiary, Lucent
Technologies Guardian Corp., are expected to transfer to a subsidiary of the
Company certain patents and patent applications held by Lucent and Lucent
Technologies Guardian Corp. that relate principally to the Company's Businesses.
Lucent will retain ownership of all other patents and patent applications
currently owned by Lucent.
Technology Assignment and Joint Ownership Agreement
The Company and Lucent are expected to execute and deliver assignments and
other agreements, including the technology assignment, related to technology
currently owned or controlled by Lucent and its subsidiaries. Technology will
include copyrights, mask works and other intellectual property other than
trademarks, trade names, service marks and patent rights. The technology
assignment will divide ownership of technology between the Company and Lucent,
with each owning technology that was developed by or for, or purchased by, each
company for their respective businesses. Certain specified technology will be
owned jointly by the Company and Lucent.
Patent and Technology License Agreement
The Company and Lucent are expected to enter into a Patent and Technology
License Agreement under which Lucent and the Company will grant to each other
under certain patents and technology, a nonexclusive, personal, nontransferable
license to make, have made, use, lease, import, offer to sell, and sell any and
all products and services of the businesses in which the licensed company,
including specified related companies, is now or hereafter engaged. The
cross-licenses also permit each company, subject to specified limitations, to
have third parties make items under the other company's patents, as well as to
pass through to customers certain rights under the other company's patents with
respect to products and services furnished to customers by the licensed company.
Development Project Agreement
Lucent and the Company are expected to enter into a Development Project
Agreement governing their future commercial relationship under which Lucent's
Bell Labs will perform certain development activities for the Company, and the
Company will perform certain development activities for Lucent. Under this
agreement, Bell Labs will perform specific research and development projects on
a contract basis for the Company.
13. COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Company is subject to proceedings,
lawsuits and other claims, including proceedings under laws and government
regulations related to environmental and other matters. The telecommunications
industry is characterized by substantial litigation regarding patents and other
intellectual property rights. From time to time, the Company may be party to
various inquiries or claims in connection with these rights. Such matters are
subject to many uncertainties, and outcomes are not predictable with assurance.
Consequently, the ultimate aggregate amount of monetary liability or financial
F-28
152
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN MILLIONS)
impact with respect to these matters at March 31, 2000 cannot be ascertained.
While these matters could affect the operating results of any one quarter when
resolved in future periods and while there can be no assurance with respect
thereto, management believes that after final disposition, any monetary
liability or financial impact to the Company beyond that provided for at March
31, 2000, would not be material to the annual combined financial statements.
Risks and Uncertainties
The Company has no history operating as an independent company, and it may
be unable to make the changes necessary to operate as a stand-alone business, or
it may incur greater costs as a stand-alone company that may cause its
profitability to decline. Prior to the Distribution, the Company's business was
operated by Lucent as a segment of its broader corporate organization rather
than as a separate stand-alone company. Lucent assisted the Company by providing
financing, particularly of acquisitions, as well as providing corporate
functions such as identifying and negotiating acquisitions, and legal and tax
functions. Following the Distribution, Lucent will have no obligation to provide
assistance to the Company other than the interim and transitional services,
which will be provided by Lucent. Because the Company's businesses have never
been operated as an independent company, it cannot provide assurance that it
will be able to successfully implement the changes necessary to operate
independently or that the Company will not incur additional costs operating
independently that will cause its profitability to decline.
Legal Proceedings
From time to time the Company is involved in legal proceedings arising in
the ordinary course of business. The Company believes there is no litigation
pending that should have, individually or in the aggregate, a material adverse
effect on its financial position or results of operations. The Company is
involved in three purported class action lawsuits related to Y2K issues.
Although the Company believes that the outcome of these actions will not
adversely affect our business prospects, if these cases progress, they will
require expenditure of significant legal costs related to their defense.
Legal Proceedings Update (Unaudited)
The Company expects to become a party to ongoing patent infringement
litigation between Lucent and Micron Technology Inc. There are currently two
actions between Lucent and Micron alleging, among other things, patent
infringement claims against each other and seeking unspecified awards of damages
and permanent injunctions against further infringement of the patents.
In the course of pre-trial discovery, Micron has identified some of the
Lucent products that it claims are infringing the Micron patents. These products
include various enterprise voice communications systems that will be the
Company's products following the Distribution, including some of the Company's
servers, voice and unified messaging systems and integrated voice response
systems that will be manufactured and sold by the Company following the
Distribution. Micron has indicated that it intends to add the Company as a party
to the litigation. The Company intends to defend the actions vigorously. The
litigation is in the early stages and its outcome cannot be predicted.
Environmental Matters
The Company is subject to a wide range of governmental requirements
relating to employee safety and health and to the handling and emission into the
environment of various substances used in its operations. The Company is subject
to certain provisions of environmental laws, particularly in the U.S., governing
the cleanup of soil and groundwater contamination. Such provisions impose
liability for the costs of investigating and remediating releases of hazardous
materials at currently or formerly owned or operated sites of the Company. In
certain circumstances, this liability may also include the cost of cleaning up
F-29
153
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN MILLIONS)
historical contamination, whether or not caused by the Company. The Company is
currently conducting investigation and/or cleanup of known contamination at
approximately five of the Company's facilities either voluntarily or pursuant to
government directives.
It is often difficult to estimate the future impact of environmental
matters, including potential liabilities. The Company has established financial
reserves to cover environmental liabilities where they are probable and
reasonably estimable. Reserves for estimated losses from environmental matters
are, depending on the site, based primarily upon internal or third-party
environmental studies and the extent of contamination and the type of required
cleanup. Although the Company believes that its reserves are adequate to cover
known environmental liabilities, there can be no assurance that the actual
amount of environmental liabilities will not exceed the amount of reserves for
such matters or will not have a material adverse effect on the Company's
combined financial position, results of operations or cash flows.
Leases
The Company leases land, buildings and equipment under agreements that
expire in various years through 2019. Rental expense under operating leases was
$146, $94 and $67 for the years ended September 30, 1999, 1998 and 1997,
respectively. The table below shows the future minimum lease payments due under
non-cancelable operating leases at September 30, 1999. Such payments total $284.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------------
LATER
2000 2001 2002 2003 2004 YEARS
---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C>
$85 $66 $41 $30 $22 $40
</TABLE>
The Company also has sales-type and direct financing leases for certain
products. Lease payment receivables under such agreements were $43 and $50 as of
September 30, 1999 and 1998, respectively. The table below shows the future
minimum lease payments to be received under sales-type and direct financing
leases at September 30, 1999. Such payments to be received total $43.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------------
LATER
2000 2001 2002 2003 2004 YEARS
---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C>
$13 $10 $8 $6 $4 $2
</TABLE>
F-30
154
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN MILLIONS)
14. QUARTERLY INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
FISCAL YEAR QUARTERS
-----------------------------------------------
FIRST SECOND THIRD FOURTH TOTAL
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
YEAR ENDED SEPTEMBER 30, 1999
Revenue................................ $1,894 $1,938 $2,038 $2,398(2) $8,268
Gross margin........................... 840 841 939 1,084 3,704
Net income (loss) before cumulative
effect of accounting change.......... 4 (34) 87 129 186
Cumulative effect of accounting
change(1)............................ 96 -- -- -- 96
Net income (loss)...................... 100 (34) 87 129 282
YEAR ENDED SEPTEMBER 30, 1998
Revenue................................ $1,865 $1,690 $1,918 $2,281 $7,754
Gross margin........................... 919 776 850 1,102 3,647
Net income (loss)...................... 105 (97) 59 (24) 43
</TABLE>
---------------
(1) Effective October 1, 1998, the Company changed its method for calculating
the market-related value of plan assets used in determining the expected
return-on-asset component of annual net pension and postretirement benefit
costs (see Note 8 to the combined financial statements).
(2) In 1999, the Company sold equipment, which was previously rented to
customers for $97. The equipment had a net book value of approximately $2
and consisted predominantly of discontinued product lines.
15. SUBSEQUENT EVENT AND OTHER RELATED PARTY TRANSACTIONS (UNAUDITED)
Subsequent Event
On August 8, 2000, the Company entered into an agreement with Warburg,
Pincus Equity Partners, L.P. and related investment funds, collectively referred
to as the investors, to sell to them 4,000,000 shares of the Company's Series B
convertible participating preferred stock and warrants to purchase the Company's
common stock for an aggregate purchase price of $400. The consummation of this
equity investment is subject to a number of conditions, including consummation
of the Distribution. Based on an agreed formula, the Series B convertible
participating preferred stock is expected to be initially convertible into
approximately 5.0% of the Company's fully diluted common stock, calculated using
a modified treasury stock method as of the 90th day after issuance. The warrants
have an exercise price equal to 130% of the conversion price for the Series B
convertible participating preferred stock. The warrants are exercisable for 3.6%
of a total number of shares of common stock to be calculated pursuant to an
agreed upon formula as of the 90th day after issuance. Of these warrants,
warrants exercisable for 2.0% of such total number of shares of common stock
will have a four-year term and warrants exercisable for 1.6% of such total
number of shares of common stock will have a five-year term. During a period
commencing no later than June 30, 2001, until the second anniversary of their
issuance, if the market price of the Company's common stock exceeds agreed upon
trading price levels, the Company can force conversion of up to 50% of the
warrants.
The shares of Series B convertible participating preferred stock will have
an aggregate initial liquidation value of $400 and will accrete for the first
ten years at an annual rate of 6.5%, compounded quarterly. After the third
anniversary of the issue date, 50% of the accretion amount may be paid in cash
as a dividend, at the Company's option. From the fifth anniversary of the issue
date through the tenth anniversary, the Company may elect to pay 100% of the
accretion amount as a cash dividend. Following the tenth anniversary of the
issue date, the Company will pay quarterly cash dividends at an annual rate of
12% of the then accreted liquidation value of the Series B convertible
participating preferred stock,
F-31
155
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN MILLIONS)
compounded quarterly. The Series B convertible participating preferred shares
also participate, on an as-converted basis, in dividends paid on the Company's
common stock.
Once the conversion rate is known at Distribution, it may be determined
that a beneficial conversion feature exists which would serve as a further
dilution to earnings per share.
Other Related Party Transactions
Henry Schacht, who will be chairman of the Company's board of directors
following the Distribution, is a managing director and senior advisor of an
affiliate of an investor.
During fiscal 2000, a privately held business, of which Mr. Schacht holds
an 80% equity interest and of which his son is the controlling shareholder,
purchased and paid for call center equipment and consulting services from the
Company for a total of approximately $800 thousand. This business continues to
purchase routine services from the Company on a time and materials basis.
F-32
156
AVAYA INC. AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
------------------------------------------ ------------ --------------------- ---------- -------------
ADDITIONS
---------------------
BALANCE AT CHARGED CHARGED
BEGINNING OF TO COSTS & TO OTHER BALANCE AT
PERIOD EXPENSES ACCOUNTS DEDUCTIONS END OF PERIOD
------------ ---------- -------- ---------- -------------
<S> <C> <C> <C> <C> <C>
YEAR 1999
Allowance for doubtful accounts........... $82 $25 $1 $50 $58
YEAR 1998
Allowance for doubtful accounts........... 57 33 17 25 82
YEAR 1997
Allowance for doubtful accounts........... 42 25 8 18 57
</TABLE>
S-1